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Fed Schmed – stick with winners

Dec 14, 2021

Good morning!

Futures are down ahead of the Fed. There isn’t anything wrong with markets per se, but traders are worried that there’s plenty wrong with the Fed after more hot inflation data. (Watch)

Here’s my playbook.

1 – Stick with winners till the end of the year

Investors and traders like to believe that what they do is mutually exclusive but that’s not true. One always feeds opportunity for the other.

Today’s selling is almost entirely short-term in nature and very technically inclined which means that longer term investors have the edge as long as they own the right companies … the best companies.

Big money managers cluster around big names this time of year because they want even bigger bonuses. So naturally, they’ll stick with winners.

It’s a pretty select group of names and you know exactly which companies I’m talking about if you’ve been reading along in One Bar Ahead™ (Learn More).

Today’s a great day to sell cash secured puts on stocks you want to own or simply start buying into names you like but perhaps missed the last time around.

I am.

2 – Even analysts get FOMO

It’s a sad tale but not all that uncommon. Millions of investors wait for traditional Wall Street analysts to rate specific stocks a “buy” before making their move and, in doing so, miss huge profits.

Morgan Stanley, for example, just slapped a $210 target on Apple saying that the iPhone will unleash an upgrade cycle after it ran over $180. Today Bank of America graced the world with an upgrade saying that the stock has 20% upside because of augmented reality plans. Apple started the year at $121.

More “me, too” ratings will follow because the last place any Wall Street analyst wants to be is in the room when clients ask “how on earth did you miss that??!!” – and, mark my words, they will.

At this point, it’s a "wind in your sail" moment if you’re on board.

I think Apple will take out $200 a share quickly, perhaps even by the end of the year. A massive policy change from the Fed could alter that trajectory but not by much and certainly not for long.

I’ll be buying more myself!

3 – Another company with a conglomerate problem

Harley’s electric motorcycle brand is going public via a SPAC with AEA-Bridges Impact Corp. Some motorcyclists are super excited about the brand while others are yelling from the rooftops about EVs.

There’s a bigger, more important message for savvy investors … the age of the conglomerate is dead because the wrong businesses are detrimental to shareholder value.

Pfizer ditched Viatris …
Intel is spinning off Mobileye …
GE dumped healthcare …

Chances are you see my point.

Companies like Microsoft are very successful because they are focused on businesses with similar underlying structures and needs. Companies like Harley are not.

I still own Harley puts, incidentally.

4 – Beware if you own Japanese stocks

Edo-era Japan was pretty brutal if not well ordered. Japanese lived by strict social order in accordance with Confucian ideals. People were confined to their villages and only allowed to leave under special circumstances. Only the Samurai carried weapons. You could be put to death on the spot as a foreigner if you left Dejima, a special 130-acre island built in Nagasaki.

Japan’s gone “Edo” again.

The nation has introduced some of the world’s toughest covid travel restrictions including a total ban of all foreigners visiting the country as of November 30th. There are no exceptions for students, for visiting relatives … the lot. Even my wife and I cannot get home to Kyoto to see my 90-year-old mother-in-law. (Read)

Investors would be wise to pay attention. The Western Press has not yet understood the impact and I don’t think they will.

Japanese companies made a major pivot to supporting tourism pre-covid and the travel ban may well be the nail in the proverbial coffin when it comes to what little remains of domestic Japanese industry.

Toyota may well be the only game in town because ironically, it’s one of only a handful of Japanese companies with enough business outside Japan to survive. (Read)

5 – Dogecoin spikes 20% after Musk says Tesla’ll take it

The cryptoratti are jumping for joy this morning after Tesla CEO Elon Musk said the company will accept Dogecoin as payment for some merchandise. Initially started as a joke by Billy Markus and Jackson Palmer in 2013, Dogecoin seems to be taking on a life of its own having gone from fractions of a penny at the start of the year to a peak of $0.74 cents this past spring. (Read)

Stick with Ethereum and Bitcoin for now.