Dear Reader, This morning, I joined Ask the Pros to discuss the state of the markets — and my expectations after the midterm elections on Tuesday… And that outcome is still up in the air… The most likely scenario is a split Congress, with Democrats holding the Senate and Republicans taking the House in a slim majority.
I’m not really into politics. I used to be. I learned how the sausage was made on policy, messaging and electioneering while attending graduate school in Washington, D.C. The whole thing wasn’t for me. Luckily, I learned how public policy works — and more importantly, the impact of the Federal Reserve on the financial markets. In 2022, the Fed has been 100% of the story. So while there are trades to be had on yesterday’s outcomes, I’m more focused on how to trade the prevailing inflation threat in the months ahead. Let me recap my two key points from today’s appearance.
No. 1: Expect a Fed Pivot Similar to the U.K. — Just Not Yet
The old adage goes that the Fed will raise interest rates until it breaks something. But it’s already broken three things in 2022... It broke the junk and corporate bond market... It fueled a nearly catastrophic collapse of the British pension system. And Tuesday, the policy impact on cryptocurrency fueled the near insolvency of crypto giant FTX. There are many unknowns in this market. And I anticipate that when another serious crisis emerges that threatens pensions or entire states, the Fed will likely pivot. That said, high interest rates could produce annual interest payments of more than $1 trillion on our national debt, which is north of $30 trillion. So I expect the Fed will engage in a pivot similar to the actions of the Bank of England in September. The Fed will likely raise interest rates while buying assets at the same time to provide liquidity to the system. This acts as a soft default on U.S. debt as the nation effectively inflates away its debt while structurally lowering its total burden. This would likely accompany an acceptance on inflation at roughly 4% to 5% for the next few years, allowing the government to get away with its money-printing schemes. It’s also incredibly bullish for global commodity prices, as a weaker dollar would reflect higher relative prices in oil, gold, copper, food and other commodities... It won’t be pretty. But smart investors will stay ahead of inflation by focusing on strong companies that produce these commodities, and have large amounts of reserves on their balance sheets.
No. 2: There Is Still ‘Value’ in Commodities
Institutional investors take large stakes in stocks like Exxon Mobil Corp. (NYSE: XOM),Devon Energy Corp. (NYSE: DVN), BHP Group Ltd. (NYSE: BHP) and Freeport McMoran Inc. (NYSE: FCX). These are all great long-term ideas for retail investors.* But retail investors should also look deep into the value area of the market... And there’s no better place to start than in the nano-cap or micro-cap space where tiny steel, energy and other commodity producers trade at stunning discounts. It doesn’t make much sense on the surface when you see some of the value in these stocks. The only explanation is they’re simply too small to generate interest from hedge funds and other money managers with too much money to deploy. Friedman Industries Inc. (NYSEAmerican: FRD) produces steel products in Texas. It makes tubing for the oil and gas industry, and panels for shipping containers. And it trades for 68%of its tangible book value. While that might not necessarily equate to 68 cents on the dollar, it does reflect that the company is likely trading for less than the sum of its parts. And it’s not the only one... There are about 52 companies in the materials, consumer cyclical, energy, manufacturing, transportation, agriculture and other industries that fit this bill. Keep a close eye on Intrepid Potash Inc. (NYSE: IPI), NACCO Industries Inc. (NYSE: NC) and Ring Energy Inc. (NYSEAmerican: REI). To your wealth, Garrett Baldwin P.S. Tonight, I’m appearing for a special event at Money Morning LIVE! around an alarming trend that threatens the entire American supply chain within the next 90 days. I’ll discuss the threat, how to prepare for it, and — most importantly — how to profit. You can reserve your front-row seat for the 8 p.m. ET event right here. Clicking automatically registers you for the event as well as periodic updates from Money Map Press (privacy policy). *This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
____________________
Momentum IsGREEN
However, investors should be very cautious ahead of Thursday’s Consumer Price Index report. Tomorrow’s CPI report will likely run hot due to ongoing increases in food and energy. ______________________________
The Hub
The Dow Jones Has Us Fooled. Here’s How… Roger Scott, November 9, 2022 The major indexes are down as control of Congress remains unclear — and more in Wednesday’s stock market recap. Get your daily update now.
Bulls Stampede for SQ Calls After Dorsey Tweet Lance Ippolito, November 8, 2022 Did you catch this week’s episode of Crush the Open? Lance and Jeff covered a lot of ground, from sports gambling to midterm election trading ideas to options flow. Get up to speed here.
How to Prepare for Midterms, Inflation Data and the Fed Roger Scott, November 8, 2022 Earnings are winding down, but we still have some heavy hitters reporting. Not to mention, there are plenty of catalysts driving the market. Here’s what I mean
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
A WealthPress Publication
ABOUT US: We believe that the opportunity for financial literacy and freedom belongs to all people, not just those who already have years of investing experience. WealthPress provides an array of educational services and products that will help you navigate the markets and become a better investor. Trading is made simple through our online forum full of trading techniques to give you the best tools to kick-start your investing journey. We offer collaborative webinars and training; we love to teach. No matter the opportunity, we bring together a strong community of like-minded traders to focus on analyzing market news as it’s presented each day. DISCLAIMER: FOR INFORMATION PURPOSES ONLY. The materials presented from Wealthpress LLC are for your informational purposes only. Neither Wealthpress nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational purposes intended is at the user’s own risk. DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. Wealthpress is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions. Please visit wealthpress.com/terms for our full Terms and Conditions.