Two opportunities and two fears

Good morning! 👋

Traders are worried about recession, so the major averages are down, or so goes the narrative.

Not really.

They’re deleveraging again.

So??!!

(See what I did there? 🤦‍♂️ I need more coffee—too many “so’s”...)

Here’s my playbook.

Forget the recession, focus on the recovery—here’s why

Source: Fama/French Total US Market Research Index in the 24 months following
the start of a recession - DIMENSIONAL FUND ADVISORS (Click to enlarge)

Fears of a recession are rising, but as we’ve talked about many times over, I believe we’ve been in a recession since early last year. What’s more, I continue to believe that the Fed remains as wrong about rates and labour as it was about transitory.

No matter, though.

What you want to focus on is the recovery.

• There have been 11 recessions since 1953—the average length being 10.3 months and the longest being 20+ months during the Global Financial Crisis of 2008.
• The cumulative return for the S&P 500 is lowest on average in the year leading up to the recession (-3%), but the average loss during the recession itself is just -1%. More than half the time, the returns are actually positive, which catches a lot of folks by surprise.
• But—and here’s the takeaway—investing money when a recession begins leads far more often to profitable outcomes than it does to additional losses.

The world’s best companies never go out of style, which means buying shares, reinvesting, and more can boost your profit potential, even if you fear the worst!

REMEMBER: There is always a path to profits!

And I’m here if you’d like a little help. Upgrade to Paid

Two opportunities and two fears

Here’s a quick look at both opportunities and fears with the fantastic Ashley Webster this morning during a pre-bell appearance on FOX Business. Plus, my take on the Fed and why the chairman probably won’t be calling me anytime soon. (Watch)

I’m with Gordon (on China)
Chinese military drills around Taiwan are as dangerous as it gets. My colleague Gordon Chang and I have seen eye to eye on China for years. President Biden is being terribly advised when it comes to China. More to the point, he’s playing tiddly-winks while the Chinese are playing a far more sophisticated game. (Read)

I’m thinking putskies on Chinese markets or at least Chinese ETFs—as “steep and deep” as I can find.

And, honestly, hopin’ to heck I’m wrong!

Bud’s about to find out what “woke or broke” really means

Anheuser-Busch has seen huge backlash (aka boycott) from conservatives since it made transgender celebrity Dylan Mulvaney its spokesperson for Bud Light.

Several popular country singers have already pulled their support of the company (read). Kid Rock even filmed a quick video that’s since gone viral in which he’s literally shooting Bud Light cans with an automatic rifle.

Meanwhile, a Budweiser distributor says in a video that he’s never seen such low sales, and that he struggles to make enough money. I’ve heard anecdotally that retail store owners are refusing or contemplating refusing deliveries.

The question is what this means for BUD.

Shares have been down sharply in the last few days, but over the past month were still up 6.75% as I write. Maybe not time to short BUD, but it wouldn’t hurt to take a look at competitor Coors (TAP), whose brand Coors Light has been picking up some of Bud Light’s business over the Easter holidays.

It’ll be a quarter or two, but that’s usually the case for making a move, pun absolutely intended!

I could also see a pairs trade: Long TAP/short BUD

Global PC shipments slide, but...

Research firm IDC is out with a report saying global shipments of PCs fell 29% in Q1 23, with Apple getting the worst of it and seeing a 40.5% drop year over year. (Read)

Makes sense.

With everyone working from home, COVID pulled demand for PCs forward... since laptops have a lifespan between 3–5 years, it’s no wonder why we’re seeing a drop in the numbers now. When 2024 and 2025 rolls around, demand will rise again as the COVID laptops have worn out.

Gaming, data centers, AI... are all reasons to own chips.

No PCs required.

Bottom Line

Contrarians are great at picking tops and bottoms.

The rest of the time, they’re just wrong.

As always, let’s MAKE it a great week!

Keith 😊