The Fed may finally put its cards on the table
Aug 16, 2021Good morning!
Rough going so far with the major averages all red. Officially, the story is that’s because of slowing Chinese retail online growth and a contained reaction to Kabul but that’s not the real story.
What happens next is critical.
Here’s my playbook.
1 – Kabul: a contained reaction so far – what to buy
Like many, I am deeply saddened by the situation in Kabul. I remember Saigon and the parallels are striking. No surprise, Russia and China are both reportedly staying in Kabul. There’s no doubt in my mind that they’ll use the opening to move in.
Defence stocks are key and, surprisingly, generally flat this morning.
2 – Fed may finally put its cards on the table.
I’ve been warning for some time that the Fed is prepping markets for rate hikes that would happen sooner rather than later and, specifically, by the end of the year. Not 2022. Now rumours are flying that there is growing support within the Fed to announce rate hikes in September … which is, not surprisingly, more prepping.
My guess is that the Fed likely believes the markets have risen far enough that they can withstand a fall when rate hikes are announced. If that doesn’t factor into their analysis, it sure as heck better because it could be exceptionally nasty if they don’t.
The window to get ahead of this is narrow and could close quickly.
I suggest raising trailing stops to capture profits and protect capital. Buying a few S&P 500 puts or an inverse fund to offset the risks could work nicely, too. Get ready to pounce on dividend paying stocks if you haven’t already. History shows they fall less, are more stable and recover faster.
3 - Chinese online shopping figures don’t add up but not for reasons you’d think
The official explanation is an unequal recovery, Covid and flooding but that doesn’t pass the sniff test. I’ve spent a lot of time in mainland China and my take based on that experience is that consumers don’t want to get caught up in apps that the CCP deems not in the interest of “social good.” Nobody fancies a long walk in the Gobi Desert or a trip into the Chinese prison system.
The other thing to think about is that Covid-related online shopping numbers were set super-high so the one silver lining is that the numbers are still positive even though they’re lower.
Bottom fishing will be tempting but I’d counsel against that. DIDI, BABA, Tencent … are all extremely risky even though they’ve sold off hard.
4 – Tesla: use volatility to your advantage
Walmart and Home Depot report this week, and Tesla has their highly anticipated AI Day coming up on Friday. I think we’ll get a good look at just how inflation is really impacting things. I don’t own the first two but do own Tesla and am keen to buy more. I am not bothered by the autopilot investigation one bit.
Planning to use volatility to buy more or at least sell a few more cash-secured puts if I can.
5 – The virus doesn’t care if you’re “right” but I care that you’re profitable
Corona 2.0 – the delta variant – is starting to unsettle world markets. Chances are good you’ve got your opinion about Covid just as I’ve got mine. Same for masks, vaccinations and social distancing. Whether we agree or not is moot.
I don’t have the luxury of taking sides; my job as chief investment strategist is to help you navigate today’s financial markets.
Which is why I’d be remiss to remind you that not one of those things will change the fact that Pfizer will book billions of dollars in sales as a result.
Bottom Line
It’s pointless to do what everybody else does and expect different results, especially lately.
History shows clearly that it’s people taking the opposite side of the trade who frequently change the rules.
Profits and success often follow, with appropriate risk management of course.
You got this – I promise!
Let’s make it a GREAT week.
Keith
