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This could pay as the Fed wrecks the rally

Apr 06, 2022

Good morning!

We’re halfway through the week – urah!

There’s plenty of money on the move and know what’s weird about that?

It’s not going anywhere.

People think the markets move up and down but the reality of the situation is that 85% of the time they go absolutely nowhere … which is why you want to constantly focus on getting ahead of the next move.

Here’s my playbook

1 – Brainard wrecks the rally

A few months back, I wrote a super controversial note saying that, “rallies don’t die of old age; the Fed kills ‘em.”

The Fed’s Lael Brainard certainly lived up to that billing yesterday noting that the Fed sees balance sheet reduction and “at a rapid pace” whatever that means. And naturally, the markets didn’t like that.

Losses continue to extend as I type.

You can’t make this stuff up.The Fed caused this crisis and we’re suddenly supposed to believe the boffins inside – Powell, Brainard et all – have a plan to fix it??!! That’s rich … I think they should be thrown out of office for financial policy malpractice.

Plan for a 3-5% pullback if they hike even half as aggressively as I think they could. Continue to emphasize companies making stuff, best in class names only. Short-term hedges in place like those I recommend in One Bar Ahead™ if you want to play the situation aggressively. A few well place putskies could work well, too.

2 – Will higher rates kill the housing market?

That’s the question many are asking but I don’t think so. Mortgage rates will rise, and property values will come under pressure as the speculative buyers are deterred but that’s about it. Deurbanization is here to stay and that means property values may decline a bit but will probably not fall back to pre-covid/pre-crisis levels. The 30-year mortgage topped 5%, BTW.

Here’s a look at which markets are most overvalued and at risk. (Read)

3 – China’s services cratered and why you should care

China’s PMI (the measure of services spending) contracted in March, clouding the recovery and consumption. (Read)

Here’s why you should care about what’s happening there: a) Shortages will get worse here … about 3 months from now; b) prices on clothing, cheap electronics and manufactured goods will go up more here; and c) intellectual property theft will increase here.‍

4 – That was quick … $TWTR

Twitter is apparently going to start testing an “edit” button this week. Insiders are claiming the idea’s been under development for a while. I’m not buying it. The company’s been under enough pressure lately that it would have introduced the feature if the C-Suite thought it was a good idea. (Read)

As I noted to both Stuart Varney (Watch) and Maria Bartiromo (Watch), Musk’s involvement could turn around an otherwise garbage stock. Not ready to buy but my attention is definitely there!

5 – Netflix may turn to advertising

Like many people, my family and I left cable TV because we couldn’t stand the advertising … and went to Netflix. Now reports are circulating that Netflix may start advertising to grow revenues farther and faster. This is a good primer. (Read)

Makes me want to short the stock because ads will increase churn. Then again, not sure I want to fight the tide on this one. Ads may add $9 billion to the top line and Wall Street will love that.