Back to What?

TSLA, AMZN, SPRB, AAPL, BBBY, GOOGL, PFE, XLF, XLE [Image](   [ARCHIVES]( LIVE]( [Twitter]( [Youtube]( [Instagram]( [Tiktok]( [Discord]( [LinkedIn]( I took this money-making code from Wall Street. Is that a crime? I don’t care. They’re the real bad guys! Ray downloaded the code and turned $50k into $476,000 within 9 months. Can you copy and paste a line of text? If yes – you have a chance to do the same.[Click here to get the code for yourself.](   January 06, 2023 Dear Reader Good afternoon. Broad Market Momentum is Positive. Capital has flushed back in - again - on a pivot bet and the narrative that inflation is easing. I’ve got a bunch of people telling me that the S&P 500 will go back to 4,100 by the end of 2023. The average S&P 500 target on Wall Street is 4,009. That’s a 4.4% gain from last Friday. Unless the Federal Reserve engages in a soft default like what happened with the Bank of England earlier this year, these numbers are just not going to happen. There are still way too many people making downright insane macro calls right now who have never traded or invested in periods of higher interest rates, quantitative tightening (QT), or recession. This week saw the Federal Reserve reduce its balance sheet by another $43 billion. Proof they mean what they say. My year-end target is 3,248.50. That’s 15.4% lower than last Friday’s close at 3,839.50. And I’m not talking about 3,248.50 as the low of the year. I fully anticipate a move under 3,100 and possibly in the range of 2,950. I’m expecting those last three months to be a so-called recovery – even though there will be selling into that move higher. It’s a trader’s market until the Federal Reserve pivots and moves to more accommodation once again. The argument centers on three factors: 1) The Fed’s move to 5% on its Funds rate will hurt equities, but not as much as the central bank’s moves to reduce its balance sheet by $1 trillion during this tightening cycle. There’s a direct causal relationship between the expansion and contraction of the Fed’s balance sheet and the performance of the S&P 500. The last tightening cycle in 2018 fueled a dramatic downturn in the final months of that year as the Fed finally pivoted. There are still too many unknowns about the Fed’s impact... but we do know that the central bank tends to break something significant during hike cycles. In fact, one could argue it’s already done so with certain emerging markets in need of IMF support, the Bank of England’s soft default, and even the FTX debacle. 2) There’s been a dramatic cooldown in corporate buybacks since Q2 2022. Yardeni Research suggests that buybacks were responsible for about 19% of the gains in the S&P 500 from 2010 to 2019. I must go back and find it, but I think there’s been something like $5 trillion in buybacks over the last 12 years. Now, that would suggest that the money just went away – but there’s a more conservative number that suggests maybe 10% of gains came from buybacks from a few years ago. Now that interest rates are rising, companies aren’t going to borrow money to buy back stock. Just do the math. You’ve got a Fed funds rate of 5%, and you’ll also have another 1% tax on buybacks added by a provision in the Inflation Reduction Act. It will be fascinating to see what Apple does in March after its historically large buyback programs. We should see a steep cooldown in buyback activity next year. 3) I’ve been reading this Grit Capital newsletter by Genevieve Roch-Decter. It’s pretty good. She was saying that unprofitable tech stocks had dropped 60% to 90% for 2022. She notes: “Taking a basket of high-growth software companies, they started the year off trading at an average of 35x EV/Revenue and now trade at 7x. That is a massive collapse of confidence in growth.” That’s all true. But that is just the first phase of this sort of market. The valuation compression was the story of 2022. Now, earnings compression is about to rattle this market hard. We’re still trading about 40% above the historical mean for the S&P 500 PE ratio. A move down to 15 times earnings or less is in the cards, like what happened back in 2018 during the Fed’s balance sheet reduction. That puts us down around 3,100, just at 15x. What happens if we test recessionary numbers like 12x? The Fed is still driving this market – and its policy is driving everything lower. It just won’t go straight down. This will be a year for value stocks – and I’m already taking shots in [Flashpoint Trader]( in the shipping sector because of the value and income that has been presented. It’s a bit odd to me that certain shipping stocks have secure dividends above 7% (not variable dividends) and are trading under their liquidation value. But that’s what happens in these macro-environments. While I'm Out...Chart Party? What do you say... wheel in the T.V. and show some charts? Chart No. 1: Let’s Put Sam Bankman-Fried into Perspective Yes, FTX lost $32 billion. But when we look at the market cap losses for Big Tech stocks, the numbers dwarf (in nominal terms) the losses in crypto. And this drawdown was even larger than all of the 2007 Subprime losses. As I’ll show in a moment, it’s rare when there is a second big drawdown annually. But the conditions are still quite ripe for a second-year slump that takes us back to levels we haven’t seen since before COVID. Chart No. 2: Mega-Tech to the Teeth Once again, there’s a direct causal relationship between stocks and the balance sheets of central banks. What goes up will come down. This is a very important lesson for the markets – and the one that all of Wall Street is betting on for when the “pivot” comes. There’s about $1 trillion in balance sheet reduction coming from the Fed. But they are not alone. The Swiss National Bank and the European Central Banks are pushing rates higher – and their balance sheets dwarf the relative percentage of GDP for their economies than what the Fed currently holds. Chart No. 3: Good Riddance, 2022 This is a fascinating reminder that we are in a Financial Crisis. And we still don’t have anyone openly admitting this. There are still economists out there saying bubbles don’t exist. There are political hacks saying that our economy is strong – yet they have an incredibly low understanding of how fiscal and monetary policy work. The retail investors are the ones that are going to get hurt from all this Buy the Dip rhetoric – especially from names like Jim Cramer, Cathie Wood, and more. The retail audience still lacks education – that is why the average holding time is just six months for stock, and people don’t have the long-term, private equity mindset. This is a four- to five-year market that people need to be playing. Most people lack the patience and capital for that horizon. Chart No. 4: Yes, Things Are Slowing Down What does it say that we dropped $5 trillion from the sky from the Fed and Congress pumped out trillions more in stimulus and spending... and we’re right back where we started two years ago. Some people have asked me why there has been such a controlled narrative around Twitter and efforts to control citizen journalism. I’m on the record saying this: The amount of money that has been stolen and misallocated in the last three years makes the Sochi Olympics look like a bake sale. If we ever really get our arms around how much waste, grift, and corruption has poured out of Washington, it could logically lead to a tax revolt. Chart No. 5: Your House Is Crap Meanwhile, after all the rampant speculation – the key source of Americans’ wealth is now moving in reverse. This is the fastest slowdown in housing prices ever. And we’re about to enter the selling season over the next two- to three months. How bad will this get? It's anyone's guess, but I anticipate America's housing problems rearing their ugly head in [Flashpoint Trader]( this year as we turn certain crises into winning trades to shield our hard-earned money from loss and decay. So the time has come to actively Defend your Portfolio. Our popular [No Contract Monthly Offer]( is back on a limited-time basis. If you want to give yourself a leg up in 2023, join [Flashpoint Trader]( for a month and start the year off with an advantage. But act fast because this deal with be gone soon. Cheers! Garrett {NAME}   IMPROVING SECTORS: All Sectors   WEAKENING SECTORS: None   WATCHLIST: TSLA, AMZN, SPRB, AAPL, BBBY, GOOGL, PFE, XLF, XLE   [YouTube]( Did you miss the show? No worries, we’ve got you covered.   [Shhh... 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