🗞 Back in the Rig

WHILE YOU POUR THE JOE… ☕️
Asian Leverage

As Trump’s tariffs for China come breathing down the market’s neck, Asia’s capital flows have begun to shift, namely in surrounding countries around China.

One of them is Indonesia, which realized that American giants like Apple would have trouble keeping their presence in China and would likely have to look for alternatives in surrounding countries.

Knowing this, Indonesia banned the iPhone 16 📱 and imposed a $1 billion price tag on Apple if it wanted to remove the ban. Well, Apple paid it.

Look, not only could jobs go to Indonesia from China as tariffs kick in, but all the digital nomads who move to Bali each year use an iPhone for content and work. This move from Apple is also a reiteration of our pitch in $TLK, Indonesia’s leading telecom stock.

Speaking of pitches, let’s get on with today’s email 📧…

ROLLING MONEY
Fire at the Pump

If you read our last post on the EUR/USD long trade and understand that the current economic setup in the United States is going to make manufacturing stocks a top pick for 2025. 📈 

Then you know that oil prices and stocks will likely come out winners as well in this setup, and that’s what today’s newsletter is all about: getting you all the views and data beyond the price action so you can focus on the next 6-12 months.

And on that note, let’s get started with one of the most important inputs: Supply.

This is the EIA oil stocks for the United States, and as you can see, supply has contracted over the past four weeks, which is unusual considering that the winter months typically require more energy inputs.

That could be a classic mistake from the economists that run these supply numbers, as they see no demand today as we’re in a near recession scenario, then they figure why keep all this oil in hand if we’re likely not going to need it?

They’re not wrong, though. The manufacturing PMI index and its commentary section have shown several industries quoting lower demand and backlog for the coming quarter. 📉 

This also means that, as the manufacturing sector has been in a 25-month contraction, the bottom could soon be here. Of course, the catalyst is going to come from the lower dollar trade that we’ve been talking about.

this is why the price of oil has now bottomed, as you can see below it has trended between our given $68.25 and $70.50 tight range for the past few weeks.

A lack of directional bias in oil is one thing, and the convergence seen with bond prices is another.

As we explained in our macro post last week, this convergence is not representative of the broader economy (higher yields should bring higher oil prices). What this means for the future is a likely bull run in bond prices. Then—and only then—as rates come down, business activity will pick up right along with oil demand and prices. 👀 

Knowing that the view is set for the next 6-12 months, some commercial trades and institutions have begun to stack up their oil futures inventories in expectation for higher prices ahead.

If you aren’t familiar with the commitment of traders report, we recommend you head over to this post, where we break down the importance of where commercial dealers shift their money into.

The red line shows that commercial dealers were pretty neutral on oil trends throughout 2023 and the first half of 2024.

However, all of that changed for the second half of 2024, as balances started to swing into the positive realm very quickly.

What this means is the producers and merchants today are looking to get their hands on oil futures today, so that in the time it takes them to refine and manufacture oil, they are covered against losses if prices do end up going up. 🛢️ 

That’s exactly why you can also see the futures curve driving contracts for February 2025 at $69.58 a barrel, while longer-term contracts like April 2025 go lower to $68.74.

Contrary to your economics and finance textbook, these same merchants are willing to pay today to have oil in their hands as soon as possible.

This short-term premium reiterates the fact that the view is oil could suddenly shoot higher, and that is why these commercials are starting to accumulate oil futures as a hedge to their production. 💵 

TRADE OF THE WEEK
The Whale Has Beached

This isn’t just a beautiful technical setup here, Adobe stock is one of the best plays in the technology sector today, and it goes hand in hand with what we started this newsletter with.

What do all of these digital nomads, content creators, social media marketers and more have in common?

They all use some sort of Adobe product, whether it is for video or photo editing, or sharing a suit of portfolios for their clients and their work. 💻️ 

Listen, we’re part of that crowd now that the YouTube and Instagram is getting ready to launch for InvestiBrew, and as good as other products are, there’s nothing like Adobe for us out there.

This is exactly why Adobe has shifted to a subscription-driven model, as they know their current offer to customers is a bit of a monopoly now, so they are confident that whoever comes in for their software is going to stay for a year or more.

90% of revenue comes through subscription, which lets you, the shareholder, tap into a massive trend for 2025: safety and stability in the underlying financials.

If our thesis for bonds and oil is right, then the economy will be in trouble, and so will markets. That also means that investment banks and hedge funds will likely start to recommend and buy the safer names in the market.

Adobe stock fits that profile due to its predictability and growth in the business model, since it isn’t just related to content making.

Now that the qualitative setup is here, it’s time to check the charts and price targets for Adobe stock where it sits today and where it could go tomorrow.

Adobe stock now trades at 68% of its 52-week high, making it a hell of a deal to be in today. Not only is the low price attractive, but the value that you get behind this price, which we broke down above briefly.

Notice one other thing: the past few weeks represent the most volume for the year in this stock. This came after the latest earnings, which were nothing but filled with double-digit growth across the board.

The issue is, in today’s hype-driven market, that growth rate wasn’t impressive enough for the crackheads, so the stock is down.

And we’re here to take advantage of that situation now, get paid to ride the correction that will inevitably come.

Looking at the market / volume profile reiterates this fact, notice that today’s low has seen very little volume and has also spent very little time in this price.

This means that the potential reaction from buyers could be building up, as you see the bull wick formed for Friday’s close in the bar chart above.

It’s a good setup, and a company that we’re actually very bullish on, not only because of the 90% recurring revenue but because:

• 89% Gross margins

• 26% Net income margins

• 32% ROIC rates to compound the stock

That said, our immediate price targets are set on $485 a share, with an ideal exit for $535 a share. This translates into a net upside of 8.5% to 20%. 🎯 

It looks like Wall Street analysts agree here. They even see a much higher price target that goes past the volume cutoff at $535 we’re considering. We agree with $585 only if the $535 cutoff is taken out. 🔥 

NOW GO AND MAKE IT HAPPEN
Bringing Back a Classic

We notice that many people on Twitter still adhere to the old view that economics and finance are the only ways to make sense of the world.

The problem is that these models break down very quickly when the real aspect of the market (people) is considered. That’s why today’s book recommendation 📖 has made it to the list as one to teach you how to read the market’s psyche.

To your success,

G. 🥃