Have you saved your seat?; Three final lessons; The three more dangerous words in investing; Why I went from bullish to moderately bullish to neutral; Vast corporate profits are delaying an American recession; Wonderful story about Queen Elizabeth
1) More than 206,000 people have signed up to watch my upcoming 2022 Exodus event tomorrow, where I'll share the name and ticker symbol of one of my favorite investments today.
Joining me will be one of the most controversial Wall Street personalities in my rolodex. We'll discuss a massive opportunity we – and countless other high-profile investors, like Warren Buffett, Carl Icahn, David Tepper, and more – are seeing in the markets right now.
It's free to attend, but you do need to reserve a spot in advance. Click here to save yours.
2) Picking up on where I left off in six prior e-mails about my recent presentation to two groups of high-net-worth investors... After outlining my investment philosophy and five big lessons, I shared six additional ones. Here are the final three:
There are exceptions to every rule. My colleague Enrique Abeyta has developed a low-risk options strategy that he shares with his subscribers to Empire Elite Options. You can check it out here.
The main exception I'd cite to this rule is buying a SPAC when it goes public, because you get a free warrant and, more important, the right to get your cash back if you don't like the deal the sponsors find.
But be careful sticking around after the deal closes, as many deSPACs have subsequently crashed. For the best guidance in this sector, see Enrique's Empire Breakthrough Investor, which you can check out here.
I published an essay yesterday in our other free e-letter, Empire Financial Daily, on The Three Most Dangerous Words in Investing, citing case studies of Alphabet (GOOGL) and Berkshire Hathaway (BRK-B). Excerpt:
In my decades as a value investor, I've seen it time and time again.
Value investors like me tend to look in the bargain bin for beaten-up stocks that are trading at 52-week (if not multiyear) lows. They get a sense of satisfaction from getting a better deal than the guy who bought it a month or a year ago.
It's a great strategy if – and this is a big if – you can correctly identify companies whose fundamentals turn around. The key here is to avoid value traps: the companies that never turn around, and thus their profits (and stocks) keep falling and falling...
But what about stocks that never really fall out of favor and end up in the bargain bin? We value investors often miss them...
So learn this lesson well: Whether a stock is trading at a 10-year low or a 10-year high tells you absolutely nothing about whether it's cheap or expensive. Some stocks trading at multiyear lows are horrible value traps that are headed to zero. And some stocks trading at multiyear highs are going to be spectacular winners going forward.
The lesson here is, don't fall into the "I missed it" trap. Ignore where the stock price has been, do the work, and make a rational decision based on your assessment of where the stock is likely to go in the future.
3) Yesterday's unexpectedly high inflation report, which led to the sharpest pullback in the markets in more than two years, underscores why I've gone from super bullish (see my e-mails on May 12, June 6, and June 14) to somewhat less bullish (August 2) to neutral (August 17).
I think the markets are going to be choppy for a while, given the highly uncertain economic picture, which is captured well in this graphic from this New York Times article: How Is the Economy Doing? Excerpt:
The U.S. economy is in a strange place right now. Job growth is slowing, but demand for workers is strong. Inflation is high (but not as high as last spring). Consumers are spending more in some areas, but cutting back in others. Job openings are high but falling, while layoffs are low and... well, it depends what indicator you watch.
This is one snapshot of where the economy stands, based on an analysis of how various indicators compare with their historical levels and whether they've been getting better or worse in recent months.
4) The single most important factor in whether we have a recession is corporate profits. On this front, the news is good: Margins are at an all-time high, as this Economist article shows: Vast corporate profits are delaying an American recession. Excerpt:
Nearly three-quarters of companies in the S&P 500, America's main stock index, beat earnings estimates in the second quarter... It also adds to the evidence that, despite all the gloomy talk, America's economy is in reasonably good shape – and is not in recession...
Even allowing for the outperformance of the energy sector, profitability has been impressive. Part of the explanation may be that American companies have more market power than a few decades ago, bringing greater stability to their earnings. Laxer application of anti-monopoly laws over the years as well as the return-to-scale of big-tech platforms help account for that.
Yet the robustness of profits over the past year is down to something far more basic: the rude health of both consumers' and companies' balance-sheets. In nominal terms, final demand has been well above its pre-pandemic trend, fueled by several rounds of stimulus...
Aneta Markowska, an economist at Jefferies, says the Fed may ultimately be forced to induce a recession to curb inflation, but adds that it will have a fight on its hands, in part because of the resilience of profit margins. "It's like a Mike Tyson economy," she explains. "It's a lot stronger than you think, and it's going to take a lot of work to take it down."
5) I was sorry to hear about the death of Queen Elizabeth. She was a remarkable woman – and had a sense of humor, as this wonderful story illustrates (90-second video).
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.