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Microsoft’s Xboxes are like Apple’s iPhones

Oct 13, 2023

Good morning! 👋

All three indices are on track for a positive finish this week, even as the Nasdaq has gone negative in the early going.

Which just goes to show you that planning for the positive (and buying when everybody and their uncle is universally negative) can really turn the tables quickly.

Chaos creates opportunity, so let’s get some!

Here’s my playbook.

How to hedge when Israel rolls into Gaza

I will have a more detailed writeup, explanation, and instructions in today’s One Bar Ahead® update, so please keep an eye on your email if you’re an OBAer. Upgrade to Paid

If not, the situation is super simple.

Everything I read and hear suggests that it’s a forgone conclusion that Israel will roll into Gaza.

It’s not “if” but “when”…

Wall Street’s high-speed computers are going to kick into gear when the tanks roll. Presumably, the direction will be down, but it could just as easily be up, depending on something called gamma risk.

If you’re not familiar with the term, gamma risk refers to the risk associated with the rate of change in an option’s delta based on movements in the prices of stocks to which it’s tied. Technically speaking, it’s the second derivative of price with respect to an optionable stock’s price.

In plain English, gamma is a lot like the gas pedal in your car. The harder you press, the faster you go and the higher your gamma. And the faster you go, the more dramatically small changes can influence your behavior.

Most investors and, in fact, traders, fail to realize that volatility cuts both ways.

I submit the decision you want to make now as an investor is to: a) ride it out or b) try to guess the unguessable.

One simple approach would be to “buy volatility”—meaning those investments that benefit from an increase in volatility.

Most investors will make a beeline to the VIX, but that’s not all it’s cracked up to be these days, even though it was once the “go-to” trade if you expected an increase in volatility. All the risk has been arbitraged out, which we’ll discuss another time.

I suggest you consider the 1x SPIKES Futures ETF (SPKX) instead.

It’s newer, smaller, and—full caveat—going to be VERY volatile. SPKX is NOT an investment, but a short-term speculative ETF that offers exposure to a daily long rolling position in the SPIKES Futures contracts. Please note that it is NOT benchmarked to the VIX or the SPIKES Index.

As always, check with a financial advisor to be sure that a choice like this matches your individual risk tolerance, objectives, and circumstances (none of which I know).

JPM: a double beat

JPM kicked off earnings season with a bang, announcing Q3 revenues and profits that beat Wall Street’s expectations. JPM reported EPS of $4.33, for a total of $13.15B, up 35%, and revenue of $40.69B, up 21%, according to FOX Business News. Shares rose 1% in the pre-market.

Not that we’re surprised, but the win is primarily due to higher interest income and lower credit costs. (Read)

CEO Jamie Dimon said that the interest income and credit costs “will both normalize over time.”

Yep.

MyPOV is that the Fed will raise rates at least once more this year and once in Q1 2024, at which point the markets will begin to settle down. Sadly, the Fed will have already caused the next three crises, but that’s a story for another time.

Meanwhile, let’s remember what just happened here… a world-class bank just put up world-class numbers that could put a lift into earnings season.

I’ll take it!

This is rich: Putin warns against a Gaza ground invasion!?!?

Sometimes the world doesn’t make sense, and this sure qualifies. According to Tass and other news sources, Putin has warned against a ground invasion in Gaza. (Read)

Obviously, there’s a lot we don’t know about context, so it is important—tempting though it may be—NOT to jump to conclusions. I am NOT defending Putin in any way, shape, or form—so let’s be clear about that, in case your brain just short-circuited.

The point I want to make is that he’s said something that could provide an investment edge.

Let me explain.

Russian negotiating strategy is grounded in history, which is why the perception of strength and assertiveness matters. This, in turn, creates a mentality that values deterrence, including a perceived emphasis on force when it comes to negotiations and posturing.

In this case, Putin has acknowledged an “attack unprecedented in its cruelty” and that Israel has a right to protection. Yet, at the same time, he’s stating the need for peaceful settlement and a Palestinian state.

Either way, defense stocks are a no-brainer.

Keith’s Take: The key to investing successfully over long periods of time is assimilating news, then using what you learn to create a strategy capable of guiding you and your money through whatever the world throws at you. Whether you and I like it or not, or even agree with what’s being reported, is moot. Information—however it’s presented—helps with better decision making, more effective risk management, and clearer thinking.

Microsoft’s Xboxes are like Apple’s iPhones

It’s been 19 months of regulatory rigamarole, but Microsoft finally gained the approval needed to buy Activision Blizzard. (Read)

Excellent!

The stock is up a skosh this morning, but there is no doubt in my mind that this will put a few points on the upside. The real move is still to come.

People say, “yeah but...” all the time, given that Activision generated $7.5B during its latest fiscal year while Team Nadella put up $212B. That’s fair but doesn’t take into account the real magic of what happens next… the ability to add every gamer to the MSFT universe.

Makes me super happy as an investor to see the deal happen. 😊

Oil +4% after US puts the brakes on Russian sales

Yesterday, the US sanctioned two shipping companies transporting Russian oil because they “violated the G7 oil price cap of $60 a barrel.” (Read)

The price cap is supposed to keep a lid on Putin’s “war chest” and make sure that Russian oil keeps flowing. But you and I know that Putin could care less.

Brent traded 4% higher at $89.40 per barrel this morning, and WTI was up 4.1% at $86.30 per barrel.

I still think it hits $100 before this is done. Perhaps higher.

The big oil companies are clearly undervalued against the backdrop as sanctions accelerate. (Read) My fav has a 5-year CAGR of 11.25% and has returned 70.49% over the past 5 years.

U-rah!