Update - December 14, 2021

The Biggest Week of the Year for Investors

I’ll start with what every other financial rag is putting up top this week… the Federal Reserve.

As I’m sure you’ve heard, Jay Powell is in the hot seat. He’s meeting with his board this week to determine the fate of the American economy.

It’ll likely be the Fed’s most contentious meeting of the year.

It’s got big decisions to make. This morning’s producer-price index came in with its hottest reading on record. Wholesale prices have surged 9.6% from this time last year.

That adds to a host of other figures that prove things aren’t right. It’s quite clear the Fed has a real mess on its hands. It must act.

But will it?

No matter what it does, your money is on the line. It’s a serious thought that deserves serious attention.

That’s the role of our Modern Asset Portfolio and the interest-rate-driven theory behind it. The instant rates begin to climb, we’ll be able to adapt our strategy accordingly.

The real rate on the 10-year Treasury has climbed back above -1.0%. It now stands at -0.98%.

That explains the bearish action from the markets in recent weeks. Stocks and real rates have moved in tandem all year.

I expect the meandering of rates – and therefore stocks – to pick a direction soon… perhaps as soon as 2 p.m. ET tomorrow, when the Fed announces its takeaways from this week’s meeting.

Stay tuned.

For now, our portfolio continues to shine.

Two for the Money

KBR (KBR) goes ex-dividend today. Shareholders can expect to receive $0.11 per share on January 14. That’s good for a modest yearly yield of 1%.

Of course, the dividend is just a bonus. We’re going after share price appreciation with this one (and all of our plays in this low-rate environment). And we’re getting it. Shares are now up 110% since we got in.

Very nice.

If you haven’t gotten into my latest recommendation… do so now. The December issue should have just hit your mailbox.

In it, I recommend Liquidity Services (LQDT), the company behind some of the largest and most popular online auction and surplus offerings. It released its latest earnings figures last week… and they were strong.

Sales jumped 26%, easily eclipsing estimates. Better yet, the bottom line showed a profit of $0.26 per share… far higher than the $0.11 analysts expected.

Adding to the bullishness, the company padded its repurchase program with another $20 million authorization.

It was a win all around.

Shares of the small $670 million company jumped on the news. They surged more than 10% after last Thursday’s opening bell.

But in a nervous market, those shares couldn’t hold their gains. They’ve given them all back – and a bit more.

That’s created a strong buying opportunity.

I urge you to take advantage of it. This will be a very strong position over the next 12 months.

A Clear Picture of Lucid

The same is true of Lucid Group (LCID). It’s been quite volatile in recent days… which was not unexpected given its recent wild run higher.

Shares first dipped last week on word of an SEC investigation. There are scant details available about the issue. All that’s been reliably reported at this point is that the agency is looking for more information about the company’s recent SPAC offering.

While this could turn into a bigger deal, the chances of anything scandalous are quite low. There are similar investigations like this all across the SPAC world… and especially in the electric vehicle industry. Investigating these deals seems to be the SEC’s newest way of keeping its entry-level ranks busy.

I don’t expect the news to stop Lucid’s ascent to becoming the next Tesla (TSLA). Musk and his car company, after all, have seen plenty worse headlines from Wall Street’s keepers.

I’m much more interested in Lucid’s balance sheet. So when the company announced it was offering $1.75 billion worth of convertible notes in a private offering, I paid a bit more attention.

Convertible notes can be quite dilutive to ordinary shareholders. But given the company’s current $65 billion valuation and its growth potential, I don’t see anything alarming about the deal. It allows the company to acquire some useful cash at a good price. If rates climb appreciably between now and the notes’ 2026 maturity, this will look like a very strong deal.

I am confident that the management team will be able to put the money to use and provide strong returns back to shareholders.

Just as with any company of this nature, we cannot expect a straight run higher. Again, Tesla certainly did not go straight up. We will see volatility along the way. Consider the dips buying opportunities.

Take advantage of them.

I’ll keep an eye on the Fed’s announcement tomorrow afternoon. If anything material is announced, I’ll immediately send you an update with everything you need to know.

Until then, we’re in great shape.