Today I posted my two-hundred-and-thirty-third YouTube video: Trend of the Week China Accelerates This week’s Trend of the Week: China Accelerates. There is a horrific death toll in China as the country’s COVID policy changed dramatically, allowing COVID cases to surge wildly, spreading throughout the country and killing possibly a million people, but ultimately resulting (everyone hopes) in immunity. Now, Bloomberg is seeing a pick-up in China’s manufacturing activity and predicts 5.8% GDP growth in 2023, a huge bump from 3% in 2022. You can see this upswing by looking at the iShares China Large-Cap ETF (Nasdaq: FXI) as the market anticipates this GDP growth and a likely stimulus from the People’s Bank of China to make up for problems relating to the COVID crash. The iShares MSCI Emerging Markets ETF (EEM), which is an ETF that tracks at emerging markets as a whole and is heavily influenced by China, is also back on the upswing. I had been shorting EEM as China’s economy was dragging markets down, but I’ll be ending that short now. The bad thing about China being back is that it will start exporting inflation to the global economy, likely to the tune of about 100 basis points. Whether or not this will change the Fed’s timeline for pausing interest rates is unclear at this point. We can expect higher commodity prices, energy prices, and eventually, consumer prices as China continues its upswing. To follow more ETFs, go to my paysite, JubakAM.com.
Today I posted my two-hundred-and-thirty-second YouTube video: Quick Pick Intel Today’s Quick Pick: Intel (NASDAQ: INTC). Intel’s revenue and earnings report last week was terrible. It was a classic kitchen sink quarter, where the company laid out all the bad news at once, so investors only have positive things to look forward to. The stock was trading at $28 on January 31, and the 52-week range is $52.5 – $24, so we’re currently pretty close to the bottom of the range. The 2022 loss is a little over 38% but year to date, even with all of this bad news, the stock is actually up 5.75. If you have a longer time range, this is the time to buy Intel. We’re close to a bottom here and their plans going forward include new chips and, in 2024, new technology that can really compete with AMD. Additionally, Intel’s fab business, where they manufacture chips designed by other companies, went up about 30%. They are one of the few companies left that are actually manufacturing the chips, (their biggest competitor being Taiwan Semiconductors.) As Intel improves its own technology, its fab business will grow and become more appealing to chip designers. As long as Intel hits its projected milestones throughout 2023, this is a good buy for 2024.
Today I posted my two-hundred-and-thirty-first YouTube video: Now It’s May for the Fed’s Pause Today’s topic is: Now It’s May for the Fed’s Pause. There wasn’t a lot of suspense about today’s Fed meeting. The CME FedWatch chart, which measures what investors think the Fed is going to do, had a 25 basis point raise at 98% odds– meaning 98% of investors believed that is what the Fed will do–before the Fed meeting. The other 1.8% believed the Fed won’t raise rates at all. So no one was expecting a 50 basis point rise. And the Fed didn’t disappoint the financial markets. The central bank delivered the expected 25 basis point increase. So now we’re asking, when will the Fed pause the rate increases? We’ll be getting the next update and Dot Plot set of projections from the Fed on March 22, when many expect another small raise, but also a signal that the central bank will stop raising rates by the following meeting on May 3. The March 22 meeting will give us an update on the Fed’s projections for a peak interest rate. I:n December the Fed looked like it was projecting a peak of slightly over 5%. The market is now expecting a peak of below 5%. Look to the March meeting to see if those projections get closer together or further apart.
Today I posted my two-hundred-and-thirtieth YouTube video: Trend of the Week Watch the Yuan. This week’s Trend of the Week: Watch the Yuan. China controls one of the two largest treasury portfolios in the world, and the strength of the yuan affects treasuries worldwide. Right now, the yuan is under pressure from many different sources that I’m not sure the market is taking into account. China’s battle with high rates of COVID has left the Chinese government with two choices: either let the yuan fall and import inflation, or spend money to support the yuan causing inflation problems on the other end. It’s clear to me that China will provide stimulus to counteract the slowing economy from the COVID outbreak, which will put added pressure on the yuan. Additionally, as Russia tries to make up for losses in its oil exports, it really only has one option: sell from its huge currency reserve. Due to global sanctions, the only currency it can trade is the yuan. Expect to see Russia selling off its yuan to buy rubles in order to support its own currency. All these factors are putting pressure on the yuan. There’s a lot to watch in global currencies right now, including strange things happening with the yen in Japan and the dollar under pressure as the U.S. faces the debt ceiling crisis. Keep an eye on the Treasury market.
Today I posted my two-hundred-and-twenty-ninth YouTube video: Quick Pick Microsoft . This week’s Quick Pick: Microsoft (NASDAQ: MSFT). Microsoft came out with earnings on Tuesday (shortly after filming this video). The earnings were expected to be disappointing as their revenue from their cloud service, Azure has slowed and the growth rate has been declining since September 2021. Microsoft’s earnings report initially surprised investors and the stock rose more than 4% in after-hours trading. But the next day, investors focused on the declining growth in Azure revenue and negative guidance for the future. The stock fell 0.59% at the end of the day. I’m suggesting buying Microsoft on the dip. Microsoft has invested $10B in OpenAI, the company that created ChatGPT. OpenAI’s software can, among other things, create entire, fully-sourced essays, and research answers to questions using a simple search. This AI software is a new technology that has been looking for a way to be monetized, and Microsoft has an easy answer. Bringing ChatGPT to their already established suite of word processing tools, spreadsheets, and (let’s not forget) Microsfot’s search engine Bing. Microsoft opens up an immediate use for AI that will enhance the company’s legacy revenue stream. I’m buying on this dip with an eye to a future that features OpenAI.
Today I posted my two-hundred-and-twenty-eighth YouTube video: Don’t Pay for the Illusion of Control. Today’s topic is: Don’t Pay for the Illusion of Control. The market is rallying on the expectation that the Fed will reduce its interest rate increases to just 25 basis points on February 1, after the previous hike of 50 basis points. The belief is that the Fed will continue to wind down rate increases until they eventually stop after having vanquished inflation without tanking the economy. I have a few concerns about this rally. The market has priced this as 100% likely, so if the Fed disappoints with another 50 basis point increase, the market will not react well. Another huge problem with the idea that the Fed is controlling the market is this: there is no controlling this economy. Fed rates are just one of the factors in a very complicated economic picture right now. Here is a sample of some of the other things that can and will affect the market: as the Fed has reduced its balance sheet (and therefore reduced its supply of treasuries), the debt ceiling crisis has resulted in a lower supply of treasuries from the Treasury, and banks are moving their money to reserves, while money market funds are looking to buy bonds and there are none to be found. On a global scale, China’s battle with COVID could cause as many as one million deaths and slow that economy, while Beijing pours money into its financial system. Japan has seen an unusual surge in inflation and the fighting in Ukraine will likely get worse this spring as Russia looks to regain control of the war. All this to say, the Fed does not control the economy and I wouldn’t put all my eggs in the Fed basket.
Today I posted my two-hundred-and-twenty-seventh YouTube video: Trend of the Week Speculation and Investing This week’s Trend of the Week: Speculation and Investing. Prior to the bank earnings and guidance numbers being released a week ago, the market was on the upswing on speculation that the Federal Reserve would indicate it would be winding down the interest rate hikes. Then, as the disappointing bank guidance numbers were released, there was a brief period of selling, not huge selling that morning, but enough to make a dent in the indexes. However, by that same afternoon, the market had returned to its prior upward trend on speculation on the Fed’s shift in rate increases was a better bet than the bank’s suggestion that there may be a recession. In other words, investors and traders decided to buy the speculative trend rather than worry about earnings numbers and guidance. This is a trend I’ll be following as stocks like Microsoft (NASDAQ: MSFT) start to set the tone for 2023. Will investors be concerned with decreased year-over-year earnings, or will they lean into the speculation that the Fed will slow interest rates and therefore move the market upward?
Today I posted my two-hundred-and-twenty-sixth YouTube video: Quick Pick Sell UUP. This week’s Quick Pick: Sell UUP–the dollar ETF. I had the Invesco DB US Dollar Index Bullish Fund (NYSEARCA: UUP) in my portfolio through 2022 while the dollar was doing well but the dollar has recently taken a turn South and I’m now saying: Sell. UUP was going up while expectations were that the Fed was going to continue to raise interest rates, but now that the market believes (rightly or wrongly) that the Fed will be slowing their rate hikes, we’ve seen it move down by about 1.22% for 2023. This will likely continue to be the case as other countries maintain steady interest rates or even raise them to fight inflation (Watch the European Union) and as we edge closer to the debt ceiling cliff. U.S. Secretary of the Treasury, Janet Yellen thinks the government can shift things to cover us through June, but after that, if the debt ceiling isn’t raised by Congress, the United States will not be able to borrow enough money to meet all of its obligations. I think we’ll walk right up to that cliff, but I sincerely hope we don’t go over it. For now, I’m selling UUP and I’ll be looking for a gold ETF to replace it. More on that to come!
This week’s Trend of the Week: Beyond 5%. On Monday, January 9, it looked like the market was going up until Raphael Bostic (head of the Atlanta Fed) and Mary Daly, (head of the San Francisco Fed) came out saying that Fed rates may have to be raised to above 5%. Unsurprisingly, this stopped the rally in its tracks. On Tuesday, January 10, the theme of “beyond 5%” continued with Jamie Dimon, CEO of JP Morgan Chase, reiterating the idea of a 50% chance of rate increases that took the peak up to 6%. The market consensus has comfortably settled on a 5% peak, but the idea of a possible rise to 6% is starting to percolate through the market. I’m still looking for a bottom in this market in mid to late 2023. Turmoil in Congress over the debt ceiling could push that out a bit further.
Today I posted my two-hundred-and-twenty-second YouTube video: Caution! Technology Margin Shake-Up Ahead!
This starts off as an Apple (NASDAQ: AAPL) story. Apple recently announced that it would be moving away from using Broadcom (AVGO) chips for Wifi and Bluetooth in its iPhones, and begin using its own chips in 2023. This will of course make for better margins for Apple and speed up the company’s ability to implement new technology. This is a big blow for Broadcom which relies on Apple for 20% of its revenue. Apple also announced it’ll be moving away from QUALCOMM as they project it will have Apple chips to replace the QUALCOMM modem chips by late 2024-2025. (We’ve heard this before. And Apple had to call off the switch because of technology glitches.) You can expect more technology (and other) companies to shake up their own product designs and supply chains as they look at inflation and costs. Corporate profits have been at historic highs protecting profit margins at current levels won’t be easy.
This week’s Trend of the Week: Watch Credit Card Debt After Christmas. Christmas is a huge anomaly when it comes to the stock market and consumer spending. Jobs numbers and data predictions that come out in December are massively adjusted for the season–and the published numbers are almost always wrong. This December, you can look at consumers, already stretched by inflation, taking on more credit card debt because “It’s Christmas” and they want to make sure there are presents under the tree. The thinking may be, “I’ll blow up my credit cards at Christmas, and then start to cut back in January.” The time to look at the default and bad debt rating numbers from banks is in January and February. This will give us a better picture of where the economy and consumers are for 2023 than the skewed December numbers might. Another good indicator of the consumer market is Wal-Mart (NYSE- WMT). As we come out of the holiday spending season, keep an eye on Wal-Mart to get a better idea of how the economy is doing. If Wal-Mart can stay steady, I think other consumer stocks will follow. (Alth9ugh today’s (January 9) rocky numbers from Macy’s, Chico’s, and Lululemon aren’t good signs.)
Today I posted my two-hundred-and-twenty-first YouTube video: Quick Pick Watch Tesla This week’s Quick Pick isn’t a “buy,” it’s a “watch.” Tesla (NASDAQ: TSLA) saw its stock down 37% in December–not for the year, but in ONE MONTH. The stock is down 65% for the year. If you want to look for some support for the current low of 107, you’d have to look years back. Throughout the year there has been steady support and resistance at 206-217 but around November, the stock took a major dive and doesn’t look to be recovering any time soon. Monday, Tesla announced its delivery news for the fourth quarter of 2022. While it delivered a record 405,278 cars that was below the consensus. One of Elon Musk’s problems is he continues to over-promise and under-deliver. So while Musk promised a delivery growth of 50%, the actual 40% growth-although extremely impressive-is diminished since it missed company-generated expectations. On top of this, Tesla has announced it’s coming out with a $7500 discount in China, where sales are slumping, and the company also said it would reduce production in China. Tesla also has to figure out how to handle the lower-priced end bottom of the market where companies like GM have moved in. The Inflation Reduction Act offered subsidies, credits, and incentives to buy electric cars, but only one Tesla model made the list due to their high prices and battery packs that didn’t meet made-in-American standards. I’m not shorting Tesla after this tumble. It’s a good car company with impressive technology. But the valuation problem remains. I’ll be keeping my eye on Tesla’s share price, and you should too.