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"Dear Jay Powell: It's the supply chain, stupid" - was my simple note to the Fed last month as it struggled to grapple with the structural inflation we're all feeling these days.
Seems like the message got through, because now everyone is expecting the Fed to hike rates in 2022; it's come out and said as much.
In fact, I think higher interest rates will largely define the markets of 2022 - along with regulatory changes, China's impending "Lehman moment," the retail trader, and some other forces we're talking about in Total Wealth.
It's interest rates that are looming largest on my radar screen right now. They're going to be painful for a lot of U.S. companies, there's no doubt. But higher rates are going to be a huge boost for some well-capitalized bank's stocks, and I've got the very best one picked out for us.
I recommended my readers put $100 to work here. In fact, I think everyone should...
Rising Rates Aren't Necessarily a Bad Thing
So, higher rates are coming. They're not even here yet, but the specter of increasingly expensive dollars is already starting to drive an increase in profit-taking. That causes sell-offs, of course, but over time, it creates discrepancies in valuations - particularly for the "classic" growth stocks and Big Tech names.
But rising rates are usually good for the financials, particularly in an otherwise strong economy, and particularly for my favorite flavor of financial stock right now: the banks. Profit margins there fatten up nicely during times of rising rates.
Of course, this is hardly a secret - a quick survey of some of the biggest bank stocks shows...
Wells Fargo & Co. (NYSE: WFC) is hitting new highs. Bank of America Corp. (NYSE: BAC) is hitting new highs. JPMorgan Chase & Co. (NYSE: JPM) is closing in on highs.
In other words, buy any of those stocks, and you're paying peak price for them. As everyone is looking to financials - as they're looking to banks to play rising interest rates - the others are going higher and higher and higher. That said, it's not necessarily a mistake to buy any of these names; they're probably going to go much higher.
The maximum upside potential is in Citigroup Inc. (NYSE: C). It's been a laggard - and that's precisely why I like it.
But Citi shares can be had for less than $70 right now - less than $68, in fact. I love that price. At the end of May and beginning of June, Citigroup stock was trading above $80, and rising interest rates are going to give it the juice to return to and probably even break those 52-week highs. So you're looking at a minimum of 15% upside from here, and probably a lot more as the Fed boosts rates.
I think you can get at a really good price right now. Citi's trading around $65.60. Its high back in June was about $80 and I think $0.29 - thereabouts. So, it's down about 18% from its highs - just in June.
I think it's gonna make that up and we'll see new highs. At least a 22% gain.
The other thing I love about Citi is: It pays you a 3.10% dividend yield... Meaning, if you buy in, you'll be getting paid to hold Citi. Any time I get paid to hold a stock that I expect to appreciate by at least 20%, that's an all-day kind of trade for me.
And I'm not saying that 20% is the upside limit on Citi. I think Citi could go a lot higher.
Now I want to show you something with upside potential as much as sixty times greater...
It's something I call "pre-IPO rights" - the right to claim shares in a company yet to go public. Often these rights can be had for a buck or less - the ones I'm thinking of, belonging to a crypto business, cost just $0.70 or so. But I've seen projections that hint these could rise to $7 over the next year. In other words, an investor who put $100 in now, could reap as much as $1,000 by the time it's all said and done. Here's how it could work...
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
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