Summary

• The stock market is starting to rotate a lot. Winners and zombies are separating. This will last for years.
• The SPACs priced between $10 and $11.50 are asymmetric profit opportunities, i.e. low risk, big potential upside.
• The pent up demand for travel, gambling and entertainment is probably massive, and that is a big focus of mine right now.
• Oil is still doomed and tech is still King.
• The Barbell, the barbell, the barbell.

I haven’t done a quick thoughts in a while. I’ll be getting out one or two per week from here out. Please follow along to keep up or catch up quick. This Friday’s webinar will cover these ideas. 

BTW, at your request, I have brought the webinars down to 20-40 minutes after editing. Live, they take longer. I’m not sure you need to be on live in most cases, except Monday’s if you are a swing trader. I get all webinars edited down and published by the next morning.

With that, let’s dive in.

Rotation And Separation

I have talked about there being well over a 100 Zombie companies in the S&P 500 (SPY) (VOO). I think really there are closer to 200 zombies when the world normalizes back to the “old new normal” we had before not only the Covid-19 pandemic, but before Trump. Think 2015-16.

2015-16 was when the world started to digest the monetary and financial bailouts of the financial crisis. The markets churned and rotated, killing some zombies and spurring some new winners, but the indexes never really advanced. The next few years could be like that since we have another mountain of counter-cyclical monetary and fiscal policy to absorb.

Then again, maybe the market rallies first. Or crashes first. It doesn’t really matter at this point. We don’t want to be in the indexes.

We want to pick out the companies that will replace the 100-200 companies that will shrink, fail or otherwise be kicked out of the S&P 500 this decade. We want to find the heroes that will kill the zombies. 

We should keep coming back to this over and over…

Bond Markets Are Pricing In Some Normalish

As we go through the process of getting back to the “old new normal” over the next few years, capital will become slightly less sloshy in the markets. That is, liquidity will remain high, but not “how did I just magically get to the top of Mount Kilimanjaro” high.

Already, the bond markets are starting to price in some sort of future reality. What is it? The easy answer is that the bond market sees a world with higher inflation due to a jolt of growth brought on by deficit spending. 

The 10 year Treasury is beelining towards 2%.

https://www.tradingview.com/x/4yA691iX/

Click on your email advertisements for sage investment advice. The  forever wrong Austrian economist crowd continues to chant “fiat currency,” “abolish the Fed” and “too much debt.”  The traders just rip whatever they perceive as working against their trade du jour. Many in both camps offer Bitcoin as a solution. Whatever. I still say Bitcoin is a Ponzi scheme until proven wrong.

Sure there’s too much debt. There has been since the G.W. Bush Administration and we saw it coming all the way back to Ronald Reagan. We refused for 40 years to plan for the Baby Boomer retirement. Now, we’re going to have to deal with it a different way. 

We are coming to the head of the demographic crisis I predicted would hit around 2030 and that a few working papers are now saying a bit earlier. The markets are ignoring that in today’s narrative because it’s not part of the trade today. 

This Presidential Administration knows that crisis is coming and are trying to avoid it. But, they also know that a little pain is what it takes to do what is necessary. Why? Because we’re too emotional and ignorant of how the economy works to require change unless it is scaring us. We’re hardwired to react to pain, not to plan to avoid it. 

So, the Bidan Administration is focusing on what I said would be necessary to fix the world: we need to rebuild the world. Joe Biden’s horrible slogan is “build back better.” It’s not hard to see he’s right, but it’s not easy to accept a little pain to do it. 

President Biden, who will only be a one-term President, is willing to take some early pain to get things done that will avoid the next financial crisis. That means a slightly higher interest rate that might rattle markets.

A little higher interest rate means less liquidity. We have talked about how important that has been to the stock market’s rise. 

So add it all up, what’s happening.

• Higher interest rates which means less liquidity.
• Less liquidity means choppier stock market and less fake trickle down.
• Focus on rebuilding the economy from the middle out and protecting the non-investor class, with hope that spurs growth that will bring budget closer to balanced in a few years (not balanced, just smaller deficits).

Oh, by the way, the Repo market is a bit shaky again. When that happened in September 2019, the Powell Federal Reserve did a trillion of QE over six months to stabilize it.

But now, like Steven MnUchin before her, Treasury Secretary Janet Yellen is making it tougher on Powell to do more than he already is. Why would she do that?

Short-term pain for long-term gain.

Consider the normal Presidential Cycle. Think about the midterms and next Presidential election. President Biden has a lot to get done fast. 

Short-term pain for long-term gain.

FA Magazine

With lower, but still high liquidity, investors will require some discretion again. It won’t just be pick the meme of the day option trading anymore. Luckily for us, being a good investor beats about 98% of traders hands down over time.

The Asymmetric Upside Of Cheap SPACs

The boom in Special Purpose Acquisition Vehicles is likely where quite a few of the S&P 500 replacements will come from eventually. Not all, but dozens at least. If we can find just a few by cautiously investing across the SPAC universe, we can achieve what Peter Lynch is talking about here: 

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.

That’s exactly the strategy with buying SPACs near their IPO price.

Make sure to read this to get the full picture: 

How To Make Money With SPACs

As it stands, I own 12 SPACs. Most are the first category of SPAC I talked about in the linked article with the following characteristics.

1. Great management team.
2. Bought close to the IPO price to minimize risk.
3. A big enough financial commitment to buy a company past the speculative stage and a potential market leader.
4. Focus on industries on our investment barbell. 

Those pre-deal companies are: 

With the correction yesterday and today and maybe tomorrow, you have a chance to buy all of those for the same or cheaper than I did. I will add tactically tomorrow. You should “buy the basket.” 

You don’t need to put a ton of time into researching these. Doing a quick look at SpacTrack.net and on Seeking Alpha is enough.

The basics I’ve covered. There’s not much else to know pre-deal. These are speculative, but with little downside and big upside. If they do a deal you don’t like, you can bail near whole. If they do a good deal, you can double or triple your money relatively quickly and pare the position to a comfortable size when the initial hype momentum stops. 

These are the post-deal companies: 

These are companies it comes down to deciding whether you like the deal. In these cases, I do. 

Fast Acquisition I highlighted here along with 5 of the pre-deal companies. Since then, Golden Nugget Online (GNUG) which Fast has controlling interest, cut a deal for gaming in New York. I really like this on the reopen for the surge of business coming and the new opportunities to expand into areas where others went under. 

MP Materials is volatile, but again, I think does very well with its massive early start in rare earth metals processing. Oh yeah, and they have a big mine. I covered it in the How To Make Money With SPACs article. 

New Providence cut a deal with Vodafone and AT&T for Low Earth Orbit satellite coverage for their cell networks. What does that mean? It means no more dead spots when you’re out of the city and service for emerging markets. It’ll take time, but this company could be in worth a lot in a few years, especially as it adds customers. I covered it here: SOTW: Most Popular SPACs, Quick Thoughts On Starlink And A New Idea and in a recent webinar. 

You can buy New Providence quite a bit cheaper than me suddenly. 

Oil Is Still Doomed And Tech Is Still King

Tech has won forever. It will win forever. Buy the corrections always. That’s all I got to say about that. 

Saudi Arabia and the rest of OPEC have bills to pay before EVs hit. They will not let the frackers off the mat. They will pump more. Oil prices will stabilize, lest they stimulate a rush to EVs and kill economic growth which they need.

If you own oil stocks, now is a great time to sell them, especially Exxon (XOM) which just wrote off Canada. Yeah, Canada.  

I’ve been asked by two pretty big media sites to write about the transition away from fossil fuels, expect a series over the rest of the year on that. 

See you Friday.

Disclosure: I am/we are long all the SPACs listed.