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Weekly Plan 12.15.24

Hey traders-

Next week when the FED meets, the common sense & logical outcome should be straight forward- don’t cut rates.

Consumer inflation seems to have stopped going down and has remained elevated for over a year with its most recent reading inching back towards 3% year over year.

The wholesale inflation as measured from PPI, made its strongest jump in over a year. This calls for a stricter monetary policy, not looser. Yet, the market is fully priced for a rate cut. Not a rate hike, not even a hold but a rate cut!

In fact, the Global central banks, atleast in the OECD appear stedfast on their mission to see who gets to Zero interest rates first.

If you think of this as hyperbole, consider that you already see some of the leading markets like the commodities, the oil market and precious metals’ signaling a higher for longer inflation regime.

This can quickly become a positive feedback loop.

The unemployment remains strong as fewer and fewer companies are willing to let people go due to lingering aftershocks in the jobs market after 2020, lower interest rates fuel more lending, more lending makes its way to the risk-on assets like stocks and real estate. As more and more asset owners feel more and more rich, it further increases the prices of goods and services, and as more and more lending is created, it erodes value of paper money even further. And the end result is an ever constant, ever elevated level of price increases.

The elites create inflation in cohort with the Government and the Banks, suck up all available land and production resources and then blame it on non-asset holders for demanding welfare.

President Trump in a frank and pragmatic admission a couple of days ago admitted that getting “grocery prices down is extremely hard”. This is a basic truth about price increases. Once service provides and goods producers increase prices, devoid of an outright deflationary spiral, they will not be rolling those prices back. So, these higher prices for services and products are here to stay.

Now you can slow down the future rate of increase. Let us say you slow down the rate of increase from 9% to 3%. However, unless you see a sustained, multi year negative inflation rate, you now have a permanent bump in prices of eggs, gasoline, car insurance, vacations. At the very least, you can try and ensure these do not increase by a quarter every 4 years!

The reason I bring this up is to underscore that though the recent uptick in CPI and PPI, as well as that 25 BPS rate cut next week may be priced in, the reaction from the FED Chair Powell during the FOMC may be the ultimate wildcard. Is he going to be more hands-on & verbally aggressive in tackling the threat of higher inflation or is he going to be his usual chill guy, dependent on “incoming data”. Well, the data are incoming and the message should alarm anyone willing to listen.

The US policies are inherently inflationary.

If China exported deflation last 2 decades, it can be said that the US right now is exporting inflation globally. As more and more global monies flow into the US in anticipation of “Trump Bump”, this could make the Dollar go even higher, despite the 37 trillion dollars of debt.

To the extent the US is the Global reserve currency, almost all other countries need to hoard a certain percentage of their treasury in the US dollars. This is to buy basic necessities like Oil from international markets and import food items as they are all quoted in the US dollars. While a higher US dollar makes your next Ski vacation in Europe much cheaper, it wreaks havoc on underdeveloped countries as it depresses their own currency values, and leads to higher prices there as well. Inflation rates tend to run much hotter in these countries. We are talking 6-7% or higher for last several decades.

This calls for moderate appreciation in the US dollar and in fact cheaper US dollar can be slightly stimulating for Global commerce. Now, we have not been in an era where the US Dollar was above 110-120 and remained there. These are absolutely uncharted waters. We are like 2% below 110 ceiling in the US dollar. I think we are about to breach this and if we breach and stay above this, this would lead to some very interesting outcomes for all sort of asset classes, including the Magnificent 7 stocks.

Welcome to another installment of the weekly plan where I share my ideas and support levels in stocks like PYPL, UBER, Micron, SMCI, TSLA, and many more!

PLTR

We shared PLTR at $6 for our subs calling for $70 target a few weeks ago.

We just hit this target this week and then some.

Palantir is now the biggest defense stock, highlighting its capabilities.

We cannot be bearish on Palanatir, unless it were to give up $60 now. I am now raising my price target to 100 dollars with my key LIS (stop) at $60.

TSLA

When you try and price something like TSLA, from a fundamental analysis POV, you are essentially pitting your intelligence against the emotion of other traders. Look at TSLA from every single metric of value- PE, PS, PEG, FCF- nothing makes sense. This stock is so over-bloated! And this is why we have these wild targets from some analysis who call for the stock to trade $20.

Yet, it does not stop it from making new highs every day. Most recently, in my last weekly newsletter, I shared bullish view on TSLA at 400 with a target of $450. We came within 15 points of this target being met. Within 5 sessions! In fact a little over a month ago this stock was trading 200 handles. I shared this first near $200 as the “ultimate bromance” trade when this stock was 200. Today it sits at $435. The stock has doubled in price in a little under 8 weeks. Some call it the “NVDA moment” comparing TSLA to the meteoritic rise in NVDA in 2023. It is not quite the same- remember NVDA was also growing its earnings explosively.