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☕ Betting against Alex Karp today is like betting against Steve Jobs back in the day

Sep 18, 2024

Good morning! 👋

And just like that, it’s game time.

Again!

The Fed will make what is being billed as one of the most widely expected and important announcements in history. The fate of the free world, modern economics and nacho cheese Doritos all evidently hang in the balance... or at least that’s what the media wants you to believe.

We know better.

Yes, the Fed is important, but it’s NOT all that and never will be.

Let the furus, prognosticators and pundits who have correctly called 10 of the last 2 recessions worry about being “right.”

Our job as investors is to be profitable.

Here’s my playbook

1 - If the Fed were a band

Years ago I created a tour T-shirt featuring songs that I imagined the Fed would perform if it were a band.

People loved it!

Depending on what Team Powell does later today, I may need to add a new song... “too little, too late” or “I’ve seen the light.” 🤦‍♂️

All joshing aside, let’s break it down.

Fed watchers are convinced or are busy trying to convince everybody else that a rate cut is imminent. The only question in their minds is whether it’ll be 25bps or 50bps.

Traders are increasingly leaning into 50bps, as evident by the Fed fund futures which now reflect a 60% probability the Fed cuts by 50bps, up from 15% a few weeks ago.

At the same time, the last so-called “dot plot” shows a less aggressive path to cuts so there’s an inherent contradiction building. We will get a look at a new one later today.

As you know, I still think there’s a chance the Fed will do bupkis, but that’s just moi.

Volatility rises either way.

If there’s an upside takeoff and you’re already on board with worldclass names like those we talk about constantly, chances are good you’re going to be grinning ear to ear like I will. If you’re on the sidelines, there’s not a lot I can do about that.

If there’s a downside breakdown, that too is reason to smile. Particularly if you’ve picked up shares in any number of the dividend stocks we’ve talked about in recent weeks. Many have low-betas, growth and high true shareholder yields which – in plain English – means they’ll tend to fall less, stabilize fastest, and recover first.

Hooyah!

MyPOV: People live in fear of announcements like the one we’re expecting from Unka Powell but what they fail to realize is something we talk about all the time. Chaos creates opportunity and the more of the former, the more of the latter!

2 - Palantir closes over $36 again

Haters called it an imposter, vaporware, and a myth.

Yet here we stand.

Palantir has now closed above $36 again.

That's +112.29% YTD, 137.77% over the past 12 months and an impressive ~460% give or take off the mid $6s where it traded on in late December 2020/early January 2021.

Could it drop?

Absolutely – that's how the game is played.

Stocks go up AND down at moments in time, but companies like Palantir tend to attract gobs of capital over time which is why institutional ownership is rising, customer lists are building, profits are growing and it’s been added to the S&P 500.

Seems to me that betting against CEO Alex Karp today is increasingly like betting against Steve Jobs back in the day.

3 - Tupperware’s lesson for investors

If you’re of a certain vintage like I am, chances are good you remember “Tupperware parties.”

No more.

Tupperware Brands filed for Chapter 11 yesterday. (Read)

I can’t say I’m surprised.

Rivals making cheaper, more environmentally friendly alternatives have changed the game. Management missed the boat.

It’s an important lesson for any investor.

N+1 choices – like Tupperware - will eventually succumb to market pressure and, in many cases, die a slow painful death while taking scores of investors to the financial graveyard.

I can think of a dozen names off the top of my head... Intel, Kodak, People Express, Southwest Airlines, Boeing. Chances are you can too.

Zero to 1 choices, on the other hand, change the world which is why smart investors who latch on early tend to do very well.

Just ask anybody who invested in Tesla early (+1,214.92% over the past decade even after all the selling recently) or Nvidia when it made the pivot to AI chips from gaming (+47,730.60% over the last 15 years, also after all the recent selling).

People swear up and down that they won’t miss the “next” Tesla or Nvidia but that’s usually exactly what they do because they can’t process the path to profits let alone the distinction between n+1 and zero to 1.

History suggests that there are 10-15 “Teslas and Nvidias” out there right now in various stages of development. OBAers, of course, know all about that and I’ll be here if you’d like to join the Family.

4 - Get ready for MORE volatility (and opportunity) courtesy of the SEC

Commissioners have approved half-penny pricing, meaning that markets will be allowed to price shares in increments of half a penny. (Read)

Naturally, it’s being billed as more “innovation.”

If you believe that, I’ve got a bridge to sell you.

The SEC thinks that decreasing the current minimum from a penny to half a cent will result in more competitive pricing and reduced investor costs.

MyPOV is that smaller minimums will increase volatility and allow bigger traders (like Citadel for example) to use even more aggressive algorithms against the majority of unsuspecting individual investors at a time when the markets are already stacked against ‘em.

Seems to me that transaction volumes could go up tremendously.

Buying shares of Intercontinental Exchange Inc (ICE) could be an interesting way to tap into what’s happening if my read is correct.

Hmmm.

5 - +42.8% overnight - well done!

Yesterday I suggested two possible ideas for playing any rise in Fed related volatility. (Read)

So far, the markets are in a holding pattern ahead of the Fed.

One of ‘em took off anyway.

Here’s what I wrote... The September 25, 2024 $18s (VIXW240925C00018000) last traded at $0.77 but an exit at $0.96 or higher within the next 24-48 hours would mean a quick 25% in the bank if there’s a VIX spike.

They’re trading at $1.10 as I type, a quick 42.8% overnight.

Hooyah!

Keith’s Investing Tip: Learning how to trade around core positions is a key skill every investor should develop even if they don’t consider themselves a trader because doing so will allow you to capitalize on special situations like this one. 😊