The Taper Tantrum Has Begun

Hey There Income Hunters,

 

Today has the potential to resemble a food fight on Christmas Eve …

 

 

Yesterday’s historically high producer price index (PPI) number of +9.6% was disastrous … with future producer demand reported at the highest levels since the mid-1970s.

 

Tapering QE is monetary tightening and what what many investors don’t understand is this: 

 

Based on the recent inflation report, stock prices can go much lower than many realize.

 

Plus, these Fed pivots always seem to come when liquidity is not ideal. I mean, how many funds are willing to step up in mid-December and put cash to work?

 

I hope you guys have been following my lead on SPDR S&P 500 ETF Trust (Ticker: SPY) and Invesco QQQ Trust Series 1 (Ticker: QQQ) bearish strategies!

 

It’s been a great couple of days … I closed half my position and will be taking the other half into the Fed meeting today.

 

Today, I’ll review the internals and share a few stocks to consider holding into the new year.  

 

Risk/Reward for Owning Stocks Is Terrible

 

The market has yet to digest the amount of risk a Fed with an itchy tightening trigger finger presents.

 

This will be the backdrop now until Powell walks back the new ultra-hawkish pivot.

 

The graph below shows 30-years of data and only in seven of these years has the VIX remained this elevated around the holiday period. 

 

 

If Powell delivers the Turbo Taper and rate hike speech today, then Vol will trade higher and remain in the 20-30 VIX bucket for a while.

 

Set up Q1 2022 Trades While Quality Stocks Are on Sale

 

Tax-loss selling has been seriously strong this year, with the broad indices up 20%+. However, it has been insane how many stocks are now down big time.

 

Here is a list of beaten down names with YTD drawdowns that I think offer low risk/high reward opportunities into Q1 2022

 

      • Plug Power Inc. (Ticker: PLUG) down 50%
      • Nikola Corp. (Ticker: NKLA) down 66%
      • Teladoc Health, Inc. (Ticker: TDOC) down 67%

 

These companies are all trading below fair value and are in sectors that will see new investment in 2022. 

 

You can also hedge this group with SPY …  Cash has been parked in the FAANG, plus other large cap growth, and so you could profit on both the hedge and the longs as investors reallocate cash into value in Q1. 

 

Tech Has More Downside

 

There are two measures that will come into play next year as the Fed drains liquidity from the system and fiscal  policy is on hold. 

 

      1. US total market cap-to-GDP will start to normalize from the 280% level versus 190% prior to the tech bubble bursting in 2000. 
      2. Household equity allocations, which are at an all-time high of 50% versus 18% pre-Covid, will come down.

 

 

Don’t let the daily moves talk you into thinking the market is cheap. 

 

Remember, the Fed may be purposely bursting the bubble they created so they can reset the printing press and continue their devaluation of their debt. 

 

Bring It Home

 

Should be an interesting day today. I will be listening to every word J-Pow utters in his speech and the press conference. 

 

Now that he has pivoted to taking away the punchbowl from the party and possibly turning out the lights as well … I want to get a feel for how serious he is. 

 

I’ll report back tomorrow with more ways for you to profit. Good luck and as always …

 

Live and Trade With passion My Friends,

 

Griff

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