Straight to your inbox from Keith himself!

*Trusted by tens of thousands of savvy investors and traders around the world every day

☕ WWJPOWDO, beating inflation and should you buy Alibaba?

Aug 30, 2024

Good morning! 👋

Stocks are higher as I type with all three indices – the Dow, S&P 500, and Nazzy - in the green. If that holds, it’ll be the S&P 500’s 4th consecutive winning month.

Hooyah!

I hope you’ve been buying and that you’re still on track, particularly with many of the great names we talk about frequently.

I told you in no uncertain terms that the selloff in early August was very likely a speedbump, not cause for alarm. Certainly not cause to bury your head in the sand with a sign on your rumpus saying, “kick me when it’s over” as many in the doom and gloom crowd insisted.

Remember...

Chaos creates opportunity. And the more of the former there is, the more of the latter you have.

My annual target remains 5,751.51.

Here’s my playbook.

1 – Fed's “favorite” inflation gauge matches expectations

Two things stand out.

First, core consumption came in at 0.2% while all-item inflation came in at 2.5%. Both in line with expectations.

Second, other key takeaways in the report show that inflation changed little with goods prices dropping slightly by 0.1% while services increased 0.2%. On an annual basis that’s 0.1% for goods but 3.7% respectively for services.

WWJPOWD (What will JPow Do)?

My $0.02 is that he and his bunch will use the data to make the case for waiting and being even more “data dependent” with regard to rate cuts. I still think there’s a good case to be made that he will do zippo prior to elections even though the markets continue to think cuts are all but baked into the proverbial cake.

But a rally is a rally which is why I don’t really care.

You shouldn’t either, at least not as an investor anyway.

Personally, I think inflation stinks and the number of people who’ve had their financial lives eviscerated stinks because Powell’s policies are about as effective as trying to teach a goldfish to climb a tree. But that’s a story for another time.

The key to beating the inflation you feel in your wallet (as opposed to what you hear about from the Ministry of Whitewash) is to invest in companies making/selling goods and services with growth rates, pricing power and profits that beat both.

OBAers ask me all the time why my “buy list” is so tightly focused and now you know.

Yours should be too.

2 – Lululemon cuts/misses for first time in 2 years

Just as I encourage you to watch HD and LOW as a proxy for housing, I encourage you to watch companies like Lululemon for consumer health.

The company biffed a new product launch and missed sales expectations for the first time in 2 years. But beat earnings and boosted margins. (Read)

Investing Implication: Not a coincidence Walmart’s sales are up. Just sayin. 🤷‍♂️

3 – Cumberland Maryland goes Italian

Italy has made quite a few headlines in recent years with very attractive offers to one and all if you’ll move to remote villages, renovate specific homes, and set down roots. (Read)

My bride and I thought very seriously about it.

Still mighty tempting, honestly.

Now Cumberland, Maryland is taking a page from that playbook. (Read)

Aspiring residents may apply for a package that includes $10,000 in relocation cash plus a dollar for dollar match up to $10,000 for renovation on an existing home or construction of a new home within city limits.

I’ve been through on my motorcycles and it’s a stunning area about 2 hours from Baltimore.

Programs like this are a super interesting twist on economic marginalization. The thinking is that new residents will reinvigorate the areas they move to that would otherwise remain in decline. However, it’s too early to tell if newly arrived residents remain or if the financial support needed to keep ‘em there is enough, too much or just right.

Money for nothing is not historically a good idea.

Investing implication: Apparatchiks will debate the merits of pay to move programs forever but companies offering digital products and services that will allow remote workers to pull it off are the investment play here. Digitalization, btw, includes access, cybersecurity, remote medical etc....

Hopefully you’re thinking about this stuff. If not or you’d like some help, I’ll be here if you need me.

4 – Whoop, there it is

I suggested several years ago that Walmart’s real goal was to sock it to Amazon and that building up a super savvy online strategy wasn’t just about the margins.

Seems I may have been on to something.

CFO John David Rainey just laid it out, highlighting a series of incentives intended to expand the company’s online portfolio. (Watch)

I’ll elaborate in today’s OBA AMAs which’ll be out later this morning.

Meanwhile, the pairs trade I suggested this past spring – long WMT / short AMZN continues to track as planned.

WMT has returned 29.74% since early March while Amazon has tacked on just 1.07% over the same time frame.

I love it when a plan comes together.

You?

Keith’s Investing Tip: Buy the best, ignore the rest isn’t just a mantra I came up with for the heckuvit. You’ve got to stay on top of which companies are poised to win and which winners are falling from grace. If you don’t know how to do that or would like some help, I’d like to toss my hat in the ring.

5 – Buy BABA?

Alibaba has now completed a three year “rectification” process following antitrust fines laid into it in 2021. (Read)

Should you buy it?

BABA was once viewed as a Chinese “Amazon” but then got sideways with Beijing for a variety of reasons not the least of which included founder Jack Ma’s growing “hero” status and a willingness to take on Beijing’s party elite. He got sidelined, narrowly avoided a long walk in the Gobi desert, and has rarely been seen since.

“Rectification” is China’s way of saying the company’s been brought in line but the real version more akin to being taken to the proverbial woodshed.

Shares are about 1/3rd of what they were in 2020 at their peak and scraping along in the $80s.

It’s tempting to buy, but I think selling cash secured puts is a far higher probability play tactically speaking.

The challenge, however, is that volatility is so low that there’s almost no premium and, adding insult to injury as the old expression goes, the spreads (meaning the difference between bid and ask) as so wide you can drive a truck through ‘em.

Keith's Investing Tip: Every investment has risk but not all risks are worth the investment.