🗞 Re: Your Account Balance

WHILE YOU POUR THE JOE… ☕️
Conspiracy Chronicles

They blame it on rising costs, but the reality might be a little darker than that. The same thing happened in Melbourne, Australia, insurers chose not to renew their policies, and then fires came.

Now LA…

Did some digging the other day, and it turns out that the governments have a plan for smart cities to be built EXACTLY where the fires wiped out entire communities.

Sounds like social credit scores, CBDCs, and electric vehicles with kill switches to me.

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

THE ORACLE’S EDGE
Big Old Cash Pile

“And then we told them to put their money in high-yield savings accounts.”

That’s a group of billionaires, including the Oracle himself, probably laughing at how much money they’ll make after buying the motherload of all dips. 📈 

You see, we’re not just another finance account telling you the S&P 500 is going down to instill fear and engagement.

We don’t really care about views, we’d rather have 100 loyal fans than 1 million passive followers, which is why we’re giving it to you straight.

But first, let me take you back to 1999 when Buffett started to build his cash position ahead of the 2000 dot com bubble. 📉 

After an interview with CNN Money in 1999, Buffett left a pretty simple message, and it rhymed with the S&P 500 coming up to what he called a “Lost Decade.”

Well, we did some digging, and it turns out that the same factors he stated to back his view are still present (if not more outstanding) today than back then.

Which is why we stand by our view from this previous post pointing to you how a rotation out of equities might soon be here, based on currency / commodity / and bond spreads.

More than that, commercial dealers (banks and prime brokers) in the commitment of traders report have proved to be as short the S&P 500 futures as they were back in 2007, and we all know what happened shortly after. 👀 

And on that note, let’s get into these factors shall we?

What you see here is the United States GDP graphed in the gray line, and corporate profits (EPS) in the blue area. And this has to do with Buffett’s initial point in his call.

The normal share of GDP for corporate profits is set at 4%, and Buffett decided to take action once that number reached 6.5% in the 1999-2004 period, Buffett’s cash pile, measured as a percentage of Berkshire Hathaway's assets, reached its highest ever at 24%. 💰️ 

Now fast forward to today, corporate profits now make up to 12.5% of US GDP, driving Buffett into a 25% cash pile.

Here’s why a larger share of corporate profits is dangerous for the market:

• When we have declining inflation (such as today and back then), along with high bond yields (again, same case), it takes a lot more growth for businesses to keep up with their valuations as GDP probably won’t be growing at more than 2.8-3.0%.

• Since the market is pricing in closer to 5% GDP growth, the financial markets need to undergo massive deleveraging.

Buffett knows this.

Here’s the second part of his thesis on a lost decade in the S&P 500: the stock market-to-GDP ratio.

Named the Buffett indicator for a reason, it measures the share of GDP represented by the stock market alone, and as you can tell we’re at the most expensive in history.

So, it makes no sense for him to buy anything now.

Now that doesn’t mean you shouldn’t buy anything either, but it does mean start getting more selective about which stocks you pick.

Lucky for you, we made a list of industries which you can safely start looking into, such as energy where our calls in $PTEN and $RIG are already returning some massive gains.

There are about 3-4 other industries you can look at. ✅ 

TRADE OF THE WEEK
Need a Ride?

Mercedes Benz.

Has become the epitome of car repossessions in 2024, along with BMW and Dodge of course.

Car payments are through the roof, and we don't see this changing any time soon, so more people will be holding on to their used cars. This gives us a near-perfect setup in Advance Auto Parts stock, one that is part of the rising trend in sales data.

We see that car payments and repossessions are up more than 25% in the year, so there's a pain point for most Americans, along with credit cards. This will prompt used car dealers and owners to look for parts dealers in bulk to help them restore and maintain used cars.

As you will see in just a minute, there is a reason why institutions are accumulating this stock right now, and the thesis seems to be sticking up so far.

Looking at the Advance Auto Parts volume profile, it is clear that 85% of the 2024 volume took place around and below the $40 a share mark in the stock. 🎯 

This is a textbook sign of accumulation, a type of setup we've covered and pitched plenty of times in the past with great success. When we checked the institutional buying activity for the company, it turns out that over $770 million worth of stock was bought during the past year.

And as you now know, most of that buying volume took place around $38-$40 a share, so we’re not too far off the root.

Now, let's see where Advance Auto Parts stands against other peers.

Such as AutoZone, O’Reilly. As you can see, Advance Auto Parts is the one with the most EPS growth potential of the bunch, yet it trades at significant discounts in all measures. 🔥 

Namely at 51% of its 52-week high while AutoZone and O'Reilly trade at 93% together. We think this is a mispricing opportunity to be closed down, and given Advance Auto Parts is only $2.7 billion in market cap, the potential rally is more significant.

Based on the market profile and this valuation gap, we think that Advance Auto Parts could go as high as $63 a share, which means 40% upside 🔥 from today's discount.

We're a bit early compared to Wall Street targets, but we also think that this EPS growth discrepancy hasn't fully kicked in. Another month of good retail sales data in the space, and Advance Auto Parts' quarter could bring on a significant beat and price surge. 🫰 

NOW GO AND MAKE IT HAPPEN
Blue Pill, Red Pill

You have two choices here, either you can take today’s book recommendation 📖 and understand what each of the dozens of economic indicators mean (and how to read them).

Or

Subscribe to our YouTube Channel and participate in our upcoming video. In it, we’ll break down the manufacturing PMI and discuss how to generate trade ideas from it. This will be the first in a similar series on how to do this for every indicator, so don’t miss it.

To your success,

G. 🥃