Weekend Investor: The Week That Was

I hope you had a wonderful week!

The floodgates have opened on earnings season and we’re starting to get a good feel for how companies are doing. Overall, the news has been positive. The Asymmetric Portfolio took a hit because GM and Spotify dropped on negative reactions to earnings, but the long-term picture got better for both companies as the market focused on short-term metrics. Premium subscribers got more detail in the earnings updates.

At Asymmetric Investing, I will publish a free article next week, an earnings update for premium members, a new spotlight stock for premium subscribers, plus a free weekend article next week.

If you are in the Washington D.C. area, I am hosting an event with some brilliant investing minds on August 18. As a bonus, everyone who signs up gets 3 months of Asymmetric Investing premium, so check it out.

In case you missed it

Here’s some of the content I put out this week. Enjoy!

• Asymmetric Earnings Preview: I previewed earnings for every stock in the Asymmetric Universe.

• Earnings Update — Spotify: Spotify’s stock dropped this week, but was it justified? I made the argument that long-term investors should absolutely love what they saw from Spotify and the stock’s plunge will ultimately be a great buying opportunity.

• Mark Zuckerberg Changed AI Forever: Open source is the future of AI models and Meta got there first. The impact on the value creation of artificial intelligence is profound.

• Has Verizon Turned a Corner: You can lump AT&T into this conversation, but I think the general trend is that wireless companies are turning a corner. Massive investments into 5G are largely behind us, higher interest rates are forcing a focus on cash flows, and across the board, we are seeing pricing increases. Add it up and this is a compelling place to invest with dividend yields over 7% and price-to-earnings multiples in the single digits.

Inflation, The Fed, and the Economy

The Federal Reserve raised the fed funds rates again this week and now targets 5.25% to 5.5% for this key interest rate. You can see below that rates have shot up over the past 18 months and it doesn’t seem the Fed is hitting the brakes.

Why not? Inflation hasn’t been tamed quite yet. There are positive signs that inflation is coming down, but if you’re the Fed, you want it squashed before thinking about pausing or, heaven forbid, lowering rates.

What investors should be worried about is the Fed raising rates too far and breaking something about the economy.

The question is, what breaks? Here are the top four things I’m watching.

• Repayments on $1.6 trillion in student loans start in October and could pull over $80 billion per year from economic spending to repaying loans that have been idle for 3 years. Does this hurt consumer spending? Or not?

• After years of undersupply due to chip shortages, the auto market is increasing supply just in time to face higher interest rates on loans, which could lead to lower demand and higher default rates. This could lead to a drop in both new and used auto prices, which has a cascading impact on the economy.

• Thousands of commercial buildings are likely underwater and owners are starting to walk away, handing the keys to lenders, who don’t want to be landlords. The economic impact of these defaults is going to be…complicated.

• Around the world, debt to GDP has been rising over the past decade and now interest rates are rising, which means government budgets may need to be slashed just to pay the bills. Or maybe debt doesn’t matter and governments will keep printing money to pay the bills, leading to inflation. You can see why this might be a problem.

It’s easy to make an incredibly bearish argument for the market based on these factors and lots of smart people have. But they’ve all been wrong.

The reality is, we don’t know when a recession is coming, how bad it will be, what assets will drop, or how long it will last.

While the short-term outlook is uncertain, history tells us that the long-term outlook for the market is strong. That’s why I’ll be making my usual monthly investment into the asymmetric portfolio on Tuesday. Premium subscribers will get their monthly update before any trades are made.

Have a great week, everyone!

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.