A Warning About “Plastic” From January 2023

[Midday Momentum] Monday, May 16, 2022 [A Warning About "Plastic" From January 2023]( By Garrett {NAME} Improving Sectors: Energy, Low-Volume Squeeze in Cyclicals, Technology, and Real Estate Weakening Sectors: None, but Beware Selling Across the Board Watch List: ARKK, SARK, SKLZ, ALGN, BRZE, IREN, SEV Dear Reader, I thought I understood Americans. After the 2009 financial crisis, I expected that we'd learn our lessons. No more McMansions. Fewer trucks that offer just 15 miles per gallon. Smarter spending. Calculated risk-taking. Fiscal responsibility. Maybe we'd stop buying stocks at 25 times sales, too. Or listening to Wall Street firms just pumping unprofitable crap. Nope. We don't learn a damn thing. Life is hard. And everything else is about to get much harder. After two years of "YOLO'ing" their 401ks, speculating on crypto-kitties, tricking themselves into believing that GameStop Corp. (GME) shouldn't be bankrupt, and quitting their jobs to "experience life," many Americans don't realize that life's about to come at them faster. We Have a Trend Over the weekend, I called a few friends who work in venture capital with entrepreneurs in the Toronto and Ottawa startup communities. Their on-the-ground report? Investors are cutting back. Big time. Startups are also cutting back... quickly. Hiring freezes. Tighter budgets. Slashed subscriptions to software applications. Discussions about laying off half their marketing teams. Eliminating conference travel. Why do I talk to these people? Because venture capital and startups are small and nimble. They cut back faster than larger competitors when the economic winds shift. Where they once used to speculate on their best-case scenarios and high-growth forecasts, today they focus on tough decisions in a worst-case environment. That trend isn't just exclusive to Toronto and Ottawa, either. It's happening in Chicago, New York, Silicon Valley, Austin, and many other "hubs" for startups and early-stage companies. Many were late to make such moves as the storm clouds gathered, but they started moving quickly to protect the capital in April. It's the first time I've seen this type of aggressive "survival mode" behavior since... 2007. It will shift to mid-tier or middle-market businesses next. Then, large, more bureaucratic companies start hiring "efficiency" consultants as they quickly analyze ways to protect their bottom lines. That means they cut costs across the board. Layoffs have already started across the nation -- Carvana Co. (CVNA), Meta Platforms Inc. (FB), Peloton Interactive Inc. (PTON), Netflix Inc. (NFLX), and more. But what are American consumers doing? Eye-Watering Debt They're spending like their money is on fire (it technically is, due to inflation.) In March, Americans added $54.2 billion -- with a B -- in new consumer debt. Credit card debt alone ballooned by $31.4 billion. According to the Federal Reserve, Americans opened 229 million new credit accounts in the first quarter of 2022. And total credit card balances hit $841 billion -- again... with a B. Total household debt increased by $266 billion - to $15.84 trillion. Something's got to give... A Credit Bubble Will Form The key lesson of 2020-2021 is that free money is a horrible, society-corrupting idea. Stimulus from the Federal Reserve and Congress aided a "Great Resignation" of American workers and partially increased their buying power and quality of life. But it was a short-term illusion. Thanks to the inflationary impact of dropping trillions of dollars from the sky, buying power has eroded. That quality of life is now receding to where it once was at best -- or much lower at worst. But Americans are still spending at a breakneck pace at a time when the cost of everything is rising, AND interest rates (the cost of capital) are surging. They're expanding their debt when they need to be cutting back fast. This trend never ends well. My Top Concerns for Q3 and Q4 If wage growth fails to keep up with spending, and Americans keep spending money at this pace on credit -- a credit bubble will form on the backside of 2022. I told my team last week that diesel costs were my No. 1 concern for Q3 2022. A credit bubble is now my No. 1 concern for Q4 2022. If a credit bubble breaks, we have to start worrying about housing in 2023 - and the prospect that the Fed goes back on its word and starts cutting interest rates to keep the sugar and good times rolling. That won't end well either. I'm consistently weeks ahead of major stories that don't hit major media outlets. For example, I was all over the transitory inflation lie in May 2021. I predicted the global food crisis in October 2021. I predicted $100 oil and $6 gasoline in November 2021. And I said Russia would likely invade Ukraine in January. I'm now putting the odds of a nasty U.S. credit bubble at 35%. That figure will rise as I monitor spending behaviors in the second quarter. Should credit usage continue to rise -- alongside housing prices -- and wage growth lags as the economy slows, I expect 2023 will be quite a doozy. It's time to start playing even more aggressive defense with your portfolio right now. "Skip the dip" on worthless tech, and focus on real businesses with real cash flow. MOMENTUM INDICATOR RED ALERT Recap: We've seen improvement in the S&P 500 over the last few days, and insider buying is picking up a little. But remember... we've seen this game a few times before - where institutions use low-volume swings higher to sell sharply into a rally. Most retail investors have thrown in the towel, which means we have to rely on the institutions. Exercise caution, as dead-cat bounces and bull traps are the norm recently. THREE THINGS I'M WATCHING - Sweden has followed Finland in applying to join NATO after decades of independence. I'm a seed investor in an alternative energy project in Finland, and the only major business risk -- outside of rising commodity costs - is Russia. As we worry about economic woes and inflation, there's one thing that I know will continue to do well in any economy: U.S. and European military contractors. If you're not allocating money to companies like Lockheed Martin Corp. (LMT), you're giving away money. The United States largely funds NATO - and that $813 billion defense bill is about to get a lot bigger. You need to take advantage. I'll show you how this week. - Warren Buffett continues to load up on Occidental Petroleum Corp. (OXY). That's good news for any company that is operating in the Permian Basin. People asked me the other day if it was too late to buy shares of Devon Energy Corp. (DVN). It's never too late to trade it. In fact, I just did that for my World's Biggest Trade members, offering a chance to either buy the stock at a 8.5% dividend by June 17... or generate an 18.5% on their money by June 17. [Get the details here](. - Get ready for more bearish news in the hedge fund world. We're going to see reports from funds around their Q1 holdings. What are people holding? Are they still in overvalued tech and communications stocks, or has the selling of those names reached its peak? Get ready for a wave of 13F filings and potentially big price swings on the back of buying and selling by Bill Ackman, Carl Icahn, and more. HOT LONG SHOT A surprising insider buy finally came last week in Skillz Inc. (SKLZ) - a beaten-down gaming company that basically made it legal to gamble on virtual gin rummy. The company went public on the back of the deal that took DraftKings Inc. (DKNG) public. The same team that brought DraftKings public brought Skillz into the fold during the height of the 2020 bull market. The stock then started to fall off a cliff in 2021, and cratered all the way down to less than $2 this month. The company's tangible book value is under $1.00, and it's comically unprofitable. But in a squeeze environment, there's a chance this stupid company gets back to $2.00. The Friday, May 20, 2022 $2.00 call is currently trading for $0.07. Seven cents. It's a lottery play. Don't be greedy, and don't be upset if it doesn't get there. But the insider called the bottom. If you bought the $2 call and sold the $2.50 call as a vertical spread, the total cost of the trade would be five cents. WHAT YOU MISSED Credit Suisse analyst Robert Moskow has joined me in skewering Beyond Meat Inc. (BYND), the stupidest company on the planet. Beyond Meat is burning cash, trying to cut prices to match the prices of delicious meats, and struggling to convert customers to a new product category. Moscow has a price target of $20 (from $40), calling the company's problems "existential threats" to the business. Its existence is a threat to my sanity! I'm going to be out of pocket today (I have a personal issue that I need to address) and am then flying to Chicago for the Money Morning LIVE Summit. If you're a member of the World's Biggest Trade, I'll still have trades available all week, and I'll ensure that I meet with my traders every day, except Tuesday. I'm going to be talking about all the major financial challenges we face and the opportunities ahead. If you can't join us in person in Chicago, you can attend the conference virtually through our live stream. [You can sign up here for a special price]( and get our trades and insights live. Stay liquid and get ready to be active, Garrett {NAME} You are receiving this e-mail at {EMAIL}, as part of your subscription to Midday Momentum. To remove your email from this list: [unsubscribe here](. 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