Dear Reader,
The Fed raised another 0.25% at the FOMC meeting last week.
And that was before the surprising employment report that beat market expectations.
So, where is the Fed now with interest rates?
Markets continue to believe the Fed will pivot sooner than later.
Our view from the very beginning has been that the Fed funds rate is going to be
between 5.00% and 5.25%. Right now, they’re at 4.75%
There is a 95% chance that they’re going to raise another 0.25% and that gets you to 5.00%
Yes, it’s going to make our debt more expensive. Yes, it’s going to create a bigger problem.
But Jay Powell has consistently said his focus is on getting inflation under control.
He doesn’t want to make the mistake that Paul Volcker made in 1982 of pausing or cutting rates too early. It caused another massive spike in inflation and Powell remembers that.
Markets are hoping for a “soft landing”. But with an economic slowdown and recession coming this year, things could get rocky for the stock market.
But we continue to believe strongly in our positions even during volatile conditions in the economy and marketplace.
An update on the re-opening of Freeport LNG that I wrote about in the January portfolio review…
Now they don’t anticipate bringing Freeport online again until later this month. It continues to be a case of needing time for the regulatory agencies to review the company’s responses and to seek any necessary clarification.
When that finally happens, it will be a really good thing for LNG capacity and our volumes heading into the market in terms of maintaining volume.
For now, here are our latest thoughts on the open portfolio positions:
***On January 14, we recommended Freeport-McMoRan Inc. (NYSE: FCX), a miner that owns and operates some of the largest gold and copper mines in the world. FCX spans the globe with activity in Peru, Chile, Indonesia, and the U.S.
With green initiatives and other infrastructure projects consuming a significant number of base metals, including copper, FCX is very closely tied to the value of copper from an EBITDA and cash flow perspective.
Even in a recession, there is a lot of staying power in copper’s price.
Freeport is in an ideal position to benefit from the electrification push around the world, and the focus on building new infrastructure.
They are in the right place, at the right time, with the right assets to benefit from a steady rise in copper prices. Low inventories, steady and rising demand, and limited global production puts them in a fantastic position.
Right now there has been a lull period where storage is building at a very muted pace versus where it should be.
But with green projects forging full steam ahead and ESG investors continuing their momentum, we continue seeing Freeport’s stock price in an upward trend in the coming weeks.
Freeport-McMoRan Inc. (NYSE: FCX) is a buy up to $45.50 per share.
***On December 20, we recommended Direxion Daily MSCI Emerging Markets Bear ETF (NYSE: EDZ), the emerging market bear index.
We continue to believe that EDZ is the best place to bet on a broad slowdown over the next few months.
Real estate, manufacturing, and exports are the core drivers of the Chinese economy and each one is failing.
The endless cycle of stimulus and infrastructure spending is collapsing. I don’t see this reversing anytime soon.
Emerging markets have benefited from a relief rally on the belief that a Chinese reopening is going to save the day.
As yields rise, trade slows, and leverage bites, the economic issues are going to get more pronounced.
The emerging market world is going to see the largest impact over the next few quarters.
You will be able to capture the slowdown in China as well as the broad Emerging Market index.
The stock had been bouncing around for the last few weeks but is now on a sharp upswing.
EDZ will continue to benefit as we are seeing the reverberating slowdown in trade.
This will cause more pressure on the emerging market front, especially as Japan continues to flounder with inflation and future central bank policy.
Direxion Daily MSCI Emerging Markets Bear ETF (NYSE: EDZ) is a buy up to $16.50 per share.
***On November 19, we recommended Mosaic Co. (NYSE: MOS), the largest U.S. producer of potash and phosphate fertilizer.
Mosaic’s strategic position in the Americas means they are the viable and well-placed option for farmers looking to replace Russian volumes and grow yield.
The company’s sensitivity to price will provide upside potential for its revenue and strength of earnings in 2023.
With the War in Ukraine looking like more and more of a stalemate, Mosaic will continue to be a major player in fertilizer production.
This puts a lot of upside potential to earnings as the price of fertilizer rises over the planting season.
MOS has had a nice bounce in the last few weeks.
The company is coming into a strong purchasing point because of where phosphate and potash are sitting right now.
Corn and beans look to be the type of crops that are going to be planted. So, this will give a lift to phosphate and potash purchases.
Also, there are a lot of issues in terms of European fertilizer production which is going to continue to be a problem. This is good news for U.S. flows.
Mosaic will pick up a significant amount of that flow.
So, we think that the price will break even higher as we come into planting season and new orders arrive.
Hold your position in Mosaic Co. (NYSE: MOS)
On October 21, we recommended Southwestern Energy (NYSE: SWN)), which is positioned in two of the largest natural gas basins in the world with more running room.
Although it’s had a rough few weeks, we still believe this company is well-positioned to move forward and send its stock price back over $20 in the first half of this year.
The company sold its Fayetteville assets for about $1.865 billion, which helped to clean up its balance sheet and set SWN on a better foundation.
The sale was completed in 2018 and allowed the company to begin an aggressive balance sheet repair.
Southwestern has come down in price as natural gas prices have essentially imploded.
Two reasons for this implosion are warmer weather has cut demand and Freeport has yet to come online as quickly as hoped.
The spot market is actually still strong even though the nat gas futures market has weakened.
We continue to believe in this stock long term as there is a lot of opportunity to the upside.
Southwestern Energy Co. (NYSE: SWN) is a buy up to $7 per share.
That’s it for this update.
We will continue to publish investment ideas and analyses you can’t find anywhere else.
We’ll send you a flash alert if any of our open positions require immediate action.
Our next update will be in March.
Good Hunting,
Freedom Financial News
