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☕ Two reasons for today’s selloff

Sep 11, 2024

Howdy! 👋

Don’t let the selling get to you.

This is a very technical game being exacerbated by computerization, indexing, leverage, and rising gamma risk posed by 0DTE options.

At the risk of sounding like a broken record, short-term market conditions do not obviate the business case for owning great companies, particularly if they’re making “must have” products and services rather than the “nice to haves” that catch the public’s fancy.

Think Apple versus Peloton, if that helps.

Let’s get to it.

Here’s my playbook.

1 – Annual inflation hits lowest rate since 2021 but...

The markets are in a foul mood anyway.

Why?

Two reasons.

Traders want bigger cuts so they’re calling Powell’s bluff and trying to get ahead of a recession that hasn’t happened but more importantly...
They know much of the investing public can’t handle the volatility they create so, to the point I made Sunday evening, they’re not done scaring the pants off ‘em yet.

Here’s something to think about.

Core inflation is coming down but still higher than expectations.

I continue to think there’s an outside chance Powell does nothing except jaw-bone rates while stressing the Fed remains “vigilant” - a phrase I am really coming to dislike considering it’s from a guy who missed the crisis in formation, got transitory wrong and now has held rates too high for too long.

The time for tiddlywinks is over, Mr. Chairman.

½ point.

Keith’s Investing Tip: There’s not a lot you and I can do about the Fed’s foolishness so it’s not worth the mental floss. The better – and quite literally more profitable play – is to concentrate on finding great companies that can profit despite it all (a probability) versus trying to place bets on the unguessable (possibilities).

2 – Why Buffett’s still dumping shares

Unka Warren has apparently dumped more BoA. (Read)

Many are convinced it’s because he sees some nastiness ahead but I there’s a very logical explanation.

Buffett is 94 years old and I think he’s trying to raise cash so that Berkshire will have a huge position available to redeploy when he goes to the great exchange rather than worrying about how to raise cash after the fact.

As to why BoA stock, I think that comes down to “de-risking.”

My guess is that Buffett is well aware of the tail-risk big banks face right now. I think he also knows that BoA CEO Brian Moynihan is good but doesn’t hold a candle to JPM CEO Jamie Dimon.

JPM has returned 40.91% over the past 3 years while BAC has turned in just 2.25%. The SPX, just for comparison, has turned in 21.63%.

Three guesses which stock I think you should own.

First two don’t count.

3 – Always do what Wall Street does, not what it says

CNBC reports that Wall Street thinks Vice President Kamala Harris beat former President Donald Trump in what may well be their only debate. (Read) And, solar stocks are on the run because of it.

Not so fast.

Always do what Wall Street does, not what it says.

If solar stocks are running, it’s because Wall Street wants you to believe that the election is a turning point for solar. Harris will boost it, Trump will crush it goes the narrative.

Like bugs to a light.

Every buyer has a seller and if the public is being enticed to buy, you know damn well who is doing the selling. That’s right, Wall Street.

Flip that around.

What you want to think about instead is which companies can operate profitably no matter who wins the election.

Like it or not, US solar companies cannot compete effectively with Chinese manufacturers absent a complete reset. More of the same – n+1 – won’t cut it.

Think zero to 1.

Find the companies doing that and, chances are, you’ve got a winner on your hands. My fave is doing quite nicely, especially when it comes to energy storage. (Learn more if that’s of interest).

4 – Amazon fights back but is it too little too late?

Walmart is kicking Amazon’s keyboard.

And Amazon’s latest plans to offer cheaper groceries using a private brand as a way to counter Walmart strike me as more evidence that I’m correct. (Read)

Amazon has already begun rolling out the new label and reports indicate that it plans to add 100+ items to the Amazon Saver Selection.

Yet, Walmart clearly leads the charge here because private brands aren’t really about the consumer. They're all about the bottom line (which they boost materially).

How big a deal is this really?

CFO John Rainey said that more than 50% of customer grocery baskets over the past year had a private brand in ‘em.

I think it’s more like 75% these days based on personal observation.

Putskies, continue to short or avoid Amazon which, not for nothing has returned just 2.12% over the past 3 years versus the S&P 500 which has returned 21.85% by comparison as I type.

Amazon.... 2.12% over the past 3 years. 😱

That catches a lot of folks by surprise but hopefully you’re not among ‘em, especially since I’ve said so emphatically to avoid it.