Home Run Investors,
Some of my recent moves in the other portfolios that I manage have been good ones. I dropped out of NVDA in Tech Innovators on Friday and just before the company warned on sales. Stocks Under $10 got out of an old position just before it saw a major move lower… and added one name that has launched some 75% in the last three weeks.
But this portfolio is different.
This portfolio is besieged by stocks work for a while then falter. The recent exception being PLL which has done rather well since we added it. The Nancy Pelosi tracker on twitter noted that her son is on the board of a lithium miner in Asia, so this one tracks that idea as well.
The Big Move Higher
The CPI number was the market mover of the day, and the it showed zero growth. Some people mistakenly interpreted that to mean that there was no inflation – but that isn’t true at all. Inflation was 8.5% in most recent month and we should expect that number to maintain near or above that level.
As I explained last night in SU10, inflation is caused by the printing of money. As more new money comes in, the old money is worth less and less. Think of it as more shares being created. Say the share count expands from 100 to 150… but that is all that happens. The value of the company stays the same, but now there are 50% more shares. Those shares will drop in value by a meaningful number.
The same idea is true for the USD. The treasury printed a ton of new dollars via stimulus packages and those packages saved the market for a while… but now the chickens have come home to roost. Inflation could come in if Congress dialed back those packages which are spread out over 10 years… but I doubt there is willpower in Washington DC to do that.
Rates Will Rise
We should see interest rates rise again next month when the Fed meets again. The primary driver of that idea was the solid jobs number that was posted on Friday. Sure there are layoffs, but the number of new jobs being created means that people are coming back to work.
One reason for this is the recent meltdown in the cryptocurrency space. Lots of HODLer’s (Hold On for Dear Life) have been giving up… and there is some word from the broker dealers that the day traders are giving up as well.
Rates moving higher is going to cause further damage to the home builders and all the feeders into that industry. We talked about how LOW and HD will feel it as will the furniture names.
The icing on the cake is the calls of “peak inflation” and people telling you to look at a chart for almost any commodity back in June. Those were the peaks, at least they were the recent peaks. If we see inflation numbers pick up again, then look out.
Copper is one of those base commodities that is often used as a barometer for the broader market. Yes the price declined throughout June and into July, but it has steadily increased from early July through today.
All I am saying is that we are still rather deep in the woods. There will be gaps of space where we won’t see trees, but that doesn't mean we are out of the woods. We are just in a clearing.
Tomorrow
We will have a new addition tomorrow for this portfolio. It has been super hard finding good names with decent growth that are somewhat recession proof.
Just as an aside, GOOS reports tomorrow morning and if they get crushed we should start to think about buying some winter jackets as they should be on sale.
Portfolio
COCO reported this morning and I see it as a miss of 6 cents when 8 cents was expected. The company beat on top and posted growth of 13%. They guided in line for sales for next year and I saw the stock up more than 5% today. This stock really came in prior to the print, so we could see it get a lot of that back.
OEC reported on the 4th and missed on the bottom line by 5 cents but beat on top and posted growth of 35%. We had a solid gain going into the print that was there upon wiped out. Guidance was inline and this stock is still a ZR3 (Hold) so I want to stick with it here.
VNOW beat by a nickel as revenues rose 109% from the year ago level and also beat expectations by almost 10%. That is a big time topline beat thanks to soaring oil prices in the quarter. Oil prices have come in of late, but I am seeing stories that somehow demand has been overstated. I am not sure how that is even possible, but the implication is that prices might be moving back to the $100 level.
See you soon,
Brian
