Buy the Dips or Get Defensive for 2022 (Episode 6)

All right, well, you know, stock markets, they overshoot in both directions. One of the things that have really changed the market environment is what the fed is now going to be doing because inflation shot up so fast. I believe the CPI made the fastest spike since the 1983, you know, inflation hits 7% in the us and that's that's alarming. The fed is in charge of basically monetary policy and running a control on of inflation. Now the Fed's target inflation rates 2%, we shot up to 7% and the fed has basically been playing a game of chicken for the longest time. They've been saying that inflation is transitory. This is all temporary because of the effects of COVID 19 and the lockdowns, you know, factories were taken offline. They caused a, uh, supply chain disruption throughout the world. And so as factories get back online, as production gets back online prices zoom higher because the demand is much greater than the supply.

So the fed has been saying that this is only temporary, and we're going to eventually revert back to the 2% inflation target, which Janet yelling, she still expects by the end of the year. Um, unfortunately the reality is that the Fed's gonna have to move, um, and going from buying 120 billion worth of assets every month, qu vising, uh, what they've been doing by buying treasuries mortgage back securities, they've been cutting that down. All right. So that's what they mean when they say tapering, they're tapering their asset purchases. It's a way of the government basically printing money. That's what everyone's talking about when, when they're printing money and that money's gotta go somewhere. So it's been going into the, into assets causing asset inflation as well. So the fed has BA basically come out and said, all right, markets strong enough. Um, the financial markets, the economy's strong enough that we will go forward and start to taper on the asset on the bond buying.

We also have to, uh, shore up our balance sheet, which means basically we have a $9 trillion balance sheet. All right, they've gotta trim that down and raise interest rates. And as you raise interest rates, that's, that's the key tool to fight inflation. All right. Now the thing about the fed is, you know, everybody waits and observes and analyzes every word that the fed says, all right, what started the, the big sell-off in January was the notes from the December meeting. And in those notes pretty much showed the intent that the fed was starting to get a little concerned and that, you know, rate hikes would be coming sooner rather than later. And the tapering would be happening sooner rather than later. And that's what completely turned the markets upside down because when interest rates rise, stock markets fall, it's a risk off period. So we can expect interest rates this year.

Now there's conjecture as to whether it's gonna be, you know, three rate hikes, Jamie diamond thinks it can go up to seven rate hikes this year. Even the fed doesn't know, it's, it's all gonna depend on the data that that comes out, but we can pretty much assume that the fed is no longer going to be well, they're no longer bluffing. They're gonna have to raise rates. And by all accounts likely in the March meeting, all right, and in a rate hike environment, monetary tightening policy bonds get stronger. Markets get weaker. It's a risk off environment. As far as investors, they need to look at companies that are actually producing something. They actually have profits during the expansion period. I mean, you had, you know, I mean, you could look at these electronic vehicle companies and anything. That's a hot trend charging companies, um, specs, alright, the, uh, valuation doesn't matter. But when they start to raise rates, that's when it's back to reality and you gotta have fundamentals that justify some of the pricing on these stocks.

A lot of these companies are making money from the infer inflation. I mean, bottom line. I mean, you go to the grocery store food, inflation's up five point something percent. I mean, even though the grocer says, well, that's gonna cost me more. So I charge you guys more. They're still, their margins are expanding. Okay. So grocers are making more money. When they start raising interest rates, you're gonna have people taking money out of the market and putting 'em into money markets or, or fixed, you know, fixed income instruments, bonds, cetera, businesses that have benefited from better margins from inflation. Their earnings are gonna get hit banks. Now banks are one of the few sectors financials where, uh, rising interest rates are good. All right, insurers, uh, you know, they got piles and piles of money. So, you know, any interest rate hikes gonna help them, you know, any interest rate hikes are gonna help banks.

So the financials should be continue to be strong. All right, now the number of deals are gonna go down. Investment banking deals will go down. So we don't know if they're gonna offset profit from loans and stuff like that. But the reality is when you're entering a monetary tightening environment, there's certain basically need to rebalance your portfolio trim down on the more risky or speculative investments, big growth companies, hyper growth companies going at, you know, 25% a quarter with no earnings in sight. All right. Uh, you gotta, you gotta put, kind of put the brakes on those and basically get back into, you know, consumer cyclical companies that actually produce something. They have a profit, or they're actually showing growth. Like I said, banks, even dividend stocks, at least you get a dividend. You know, it's basically about, it's all about playing defense this year. The easy money is pretty much gone since now. It's a matter of defense and how much you're going to give back. You know, the markets during a monetary expansion, everyone is used to buying the dip, you know, buy the dip, buy every pullback, buy the dip. That whole climate changes when the fed is now raising interest rates and then pulling back, uh, pumping money into the markets

Absolutely. Absolutely. Um, came up with a, uh, report on, uh, discovery and discovery, simple DS D I S C a um, they, they owned the discovery network. They, they made a deal last year to basically merge with, uh, time Warner. So at and T stock symbol T is basically giving up time Warner and, uh, they're gonna create a new entity code time. Warner discover. Now discover is known for well discovery channel is known for their platform, which is continuing to grow. I mean, they brewed 20 million subs, uh, in the last quarter up 3 million. And they're gonna be merging that with, you know, HBO, max and Warner media, which owns arguably the, the strongest well known, uh, superhero IPS. You know, everybody now, everyone knows who Ironman is. Kathryn America, the hu the Avengers. Okay. But more people I believe know who Superman or Batman or wonder woman is.

All right. And so Disney pretty much laid out the groundwork with the, uh, Marvel cinematic universe, taking the comic books and then, you know, making, uh, live action, major motion pictures. So DC is pretty much gonna do the same thing with the DC EU, the DC extended universe. Uh, and they're, they're kind of copying the same formula, you know, putting out individual movies, like what, uh, you know, uh, Marvel did by putting out iron and these are B and C and D-list characters, right? Because they had actually sold their rights to their A-list characters, like Spiderman and Hulk. So, you know, they put out a movie with Thor, an iron man movie put out a captain American movie, and then they bring 'em all together and they come out with an Avengers movie. So it's kind like the same thing with the, with the DC EU, where they put out a Superman movie, you know, Aquaman, Batman wonder woman.

And they came out with the justice league. So they're pretty much following in the same footsteps. So discovery is basically gaining those assets, that IP, and along with the HBO max platform, I think that they're gonna be one of the strongest content players when it comes to streaming. Now, HBO max already has over 30 million subscribers, you know, couple that with discovery, like I said, 20 million subscribers. It, of course it still pales in comparison to, uh, Disney plus, which is mm-hmm I believe a broken over 120 million, but you also have to keep in mind. HBO. Max is one of the more expensive services I believe Disney plus is around $8 a month. HBO max is $15 a month or 1499. All right. So yeah, you just do the math, they have bigger margins. And I think at this point, the market is not even factoring in the power of those, that intellectual property.

Well, okay. So what happened last year was there was a, basically there was a, um, a private equity firm, so to, well, private fund called archos capital. And if you recall, these guys had a major margin call because they bought a ton of Viacom.

Mm-hmm . And so once Viacom started to sell off, they got margin call. They couldn't meet it. So the next thing you know, you've got Goldman, you got Morgan Stanley. Uh, these guys have like, you know, billions of dollars of Viacom that they're trying to sell in big blocks. And so that caused discovery to tumble along with Viacom, even though discovery, there really is no correlation. Well, actually the only correlation was there was a rumor that perhaps Viacom and discovery were gonna get together, but they moved up together and they sold off together. So discovery hit a high of 78, 14 last year on that run up on the short squeeze and then on the margin call, it collapsed all the way down to the low twenties. So yeah, it's bouncing a little bit right now, but I think, uh, you know, as far as the markets are concerned, I feel that we're not out of the woods yet.

We're getting a little bounce now, but we're still gonna continue to sell off. So I think there's gonna be opportunities to be able to get into discovery in what I call opportunistic pullback levels. And they've ranged any of 'em from the 2365 down to the 1629 level, which I put in, in my articles. I, I put those levels up there. And so you can see the charts with the article on MarketBeat, but yeah, that's a great level. Those are great levels, 23, 65 to 16, 29, you know, and the other thing, one, one thing I wanna say about falling markets is that, you know, aside from shorting the markets, the best way you can play defense is just to get a good price, you know, to be able to dollar cost average down to a, a very good price. If you got a good price, that's the best defense, uh, you can have when it comes to investments,

Yeah, absolutely.

That. As I said, is the platform all discovery. I mean, with the HBO max know, max and discovery network and owning the IPS and putting out major blockbuster movies and superhero movies, hands down have been the big story for the last decade, even right now, you know, Spider-Man no way home. They may surpass avatar. You know, they, they've already done about 1.5 billion worldwide. So like I said, discovery has the IP, the DC comics IP. So there's a company that actually supplies the, the talent and that's endeavor. EDR is the stock symbol. These guys basically represent and supply everything, almost everybody in sports and, and entertainment, you know, Hollywood, they, these guys literally own Hollywood. I mean, they own the Morris agency, they own IMG. So they're actors, it's a who's who of ALIST celebrities from, from the rock to, uh, you know, Jake Gillon hall to Hugh a. Now these are all actors that have been in blockbuster, superhero movies, Denzel Washington, Christian bale, and so forth. So these guys, not only that, but they also own, um, the ultimate fighting championship UFC and in its 28 year history, they've had the best nine months last year during or coming out of the pandemic. Um, mixed martial arts is a sport that is continuing to grow. And it's continuing to expand.

To a point? Yes. As far as the sports division, absolutely live events, mean more revenues coming in for endeavor. Now they also own major league soccer, they license and represent the NHL, the PGA, the NFL live events absolutely helps that division UFC they're just getting stronger and stronger. Their sponsorships revenues are up 59% over 2019 levels. All right. And this is when you know that a company is really doing good is when they compare, do comps with 2019, as opposed to, oh yeah. You know, our revenues are up a hun, you know, 200% over year, over year, over 2020, that's too easy, you know? So over 2019. Excellent. On top of that, these guys are actually getting into the sports book segment as well because they bought, acquired a platform called open bed. And they're gonna integrate that with its, um, sports division arena. They, they acquired another, well, they have another segment, I forgot what it's called. Something arena something, arena IMG or whatever, but they can integrate those two, basically. It's another, uh, revenue funnel for these guys. So literally anything that has to do with entertainment and any major, Blockbuster's gonna have talent that comes to from endeavor. Those two go together, you know, the, the platform and then the content.

Yeah, absolutely. Absolutely. Uh, content is strong. These streaming services, they're spending handover fist for content. It's a content war. So when I control the talent, , that's what never does.

Absolutely.

Well, you can go to marketbeat.com and uh, look me up. My name is Ja Y U and um, I put out pretty much seven articles or so a week, basically people can just follow me on MarketBeat and also on Twitter, J 21 at Twitter. Good. Keep my finger on the pulse of the markets every single day. So,

Thank you, Kate. It's great to be here.