Gross Domestic Problem

Why I'm not buying after the latest GDP report

Author

Brandon Walker
January 28, 2023

Estimated read time: 3 minutes and 23 seconds

In this week’s newsletter:

  1. Market recap

  2. Skills & data used this week

  3. Top holdings: what I am buying & selling

Market Recap

YTD returns:

  • S&P 500: +6.02%

  • Nasdaq: +11.04%

  • Russell 2000: +8.59%

  • US Dollar ($UUP): -1.22%

  • Gold ($GLD): +5.64%

It's no secret that the tech industry has been slashing jobs left and right. It doesn't take the smartest CEO in the world to realize that slowing growth and sticky inflation is causing complications to the bottom line.

Sadly, your salary is the easiest way to reduce cost to a business. 

First off, let's take a step back and realize that these are some of the largest market cap companies in the entire WORLD - what are they hinting at with these layoffs?

While profits and cash look solid, that's simply a result of what has already happened...not what's GOING TO HAPPEN. 

"Thanks a lot employees, you helped us sustain modest growth in 2022. We don't need you anymore because we see growth slowing in 2023 and need to save some cost in order to keep our investors happy" - CEO of Capital Contrarian 

Usually you hire people when you want to capitalize on growth potential...not lay them off.

Just sayin'.

Happy conference championship weekend - go birds. 

Skills & Data Used This Week

US 4Q GDP: 2.9%, expected 2.6%, prior 3.2%

...hooray?

Yes, GDP rose QoQ - so recession avoided, right?

While many rejoiced (including the market) over a "beat" in GDP, many fail to understand that 4Q2022 wasn't the quarter where we expected shit to hit the fan. It's 1Q2023 - 2Q2023 where things are supposed to get ugly.

We can already see it in the data - new ISM orders are down, manufacturing is contracting, credit is rising, inflation remains high.

So why haven't markets priced this in yet? April 27th, that's why.

On April 27th we will receive the GDP report for 1Q2023 - almost a whole month AFTER the first quarter has ended. Plenty of time for things to be priced in...

All eyes will be on the Fed when they meet next week to determine their rate hike decision. It's already been priced in that they will hike by 25 bps in February. So what's the probability they surprise us with a pause in rate hikes?

I'm willing to put whatever reputation I have on the line by saying there's a ZERO percent chance they pause. 

In fact, I'd say there's a greater probability they surprise to the upside and actually increase their rate hikes to 50 bps in February. Slim chance, but it's greater than zero...

What would cause them to surprise to the upside? Is it the fact that inflation is still lingering?

Whether it be oil, home prices, or eggs, the cost of living is still significantly elevated compared to pre-Covid levels. 

I mean seriously, has anyone noticed what is going on with eggs?!

Rumor has it Powell is going to do everything in his power to lower the price of eggs...for the people.

Buckle up for 2:00 on February 1st when this bozo takes the mic.

In The Account | my top holdings 

  1. METALS

    1. Why own the S&P 500 when you can just own Gold ($GLD)?

    2. Platinum ($PPLT) and Silver ($SLV) have been great assets this year as well

  2. $XLU (Utilities), $XLV (Health Care), $XLP (Staples)

    1. It's no surprise that these bear market rallies (yes, we are still in a bear market) are negatively impacting this basket of "defensive" holdings.

    2. Regardless of how I "think" they should act, I have no problem putting these positions on the bench if they break support. All 3 are very close...patience.

  3. CHINA

    1. Back in the saddle!

    2. And boy what a week it was - reiterating $KWEB, $PDD, $CHIQ, $FXI buys on red

On The Radar | positions I want to build / sizing up

  1. BONDS

    1. MOVE index (Bond volatility) is breaking down. Real rates are also breaking down (as they should in slowing growth economies). Waiting. Watching.

Off The Grid | removed positions / short selling opportunities

  1. TECH - $XLK, $QQQ, $GOOGL, $TSLA

  2. RETAIL - $XRT

  3. HIGH BETA - $SPHB

  4. CRYPTO - $BITO, $MSTR

  5. HIGH YIELD - $HYG

Removed energy shorts with a slight head fake trend reversal - don't swim upstream!

Until next week....

-BW

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.