The polls have been inaccurate for the past three US Presidential elections. Knowing that, DKI was watching Bitcoin, the prediction markets, and a few other select stocks and economic markers to see that a Trump landslide was coming long before the network announcers could do so. Could we get a sound money advocate as Federal Reserve Chair in a couple of years? Inflation is still a problem, yet the Fed cut again. The bond market didn’t like the last cut. Talen Energy $TLN gets bad news. Then, Enrique Abeyta @EnriqueAbeyta explains why it’s not bad news at all in a guest post on the DKI site and a webinar. DKI subscribers have made about 90% this year on the initial recommendation and another 35% this past week alone. Americans have run through their pandemic savings and are making larger use of credit cards as well as expanding use of buy-now, pay-later. We think defaults and bankruptcies come next. Finally, in our educational “Thing”, we help new investors start to better understand hedging, or how to reduce risk in your portfolio.

This week, we’ll address the following topics:

• Bitcoin predicts the Trump win. Is the US going to be more friendly to sound money?
• Inflation not subsiding. Fed cuts again. Powell glued to his seat.
• Talen Energy receives an unfavorable regulatory ruling. Enrique Abeyta explains the situation in a guest post and a webinar with DKI. Massive profits ensue.
• Americans run out of savings leading to a massive spike in buy-now, pay-later usage. Want to guess what comes next?
• Want to own stocks, but are worried about risk? Want to change your exposure in a position to eliminate other risk? In our educational segment, we explain hedging.

I think I wrote 17 blog posts (including a 20+ page macro update) plus did a webinar and two podcasts this week. Andrew and Alex came through while I was focused on other things. Our conversations this week involved them calling me for guidance, and me telling them I trusted them to figure it out. When you read what follows, it’s clear to me that these two college students are now capable of producing high quality DKI content without much direction from me at all. Well done!

Ready for a week of celebrating Bitcoin and sound money? Let’s dive in:

1) Bitcoin’s Crystal Ball: Trump Wins and Crypto Surges:

Donald Trump is heading back to the White House, clinching both the electoral and popular votes, gaining control of the Senate, and keeping control of the House (probably). This outcome was predicted by recent trading in Bitcoin. Savvy investors saw Bitcoin-friendly Trump’s win reflected in the crypto market even before official announcements. As Kevin O’Leary commented on CNN, “The first market I saw move was Bitcoin because it trades 24/7. Bitcoin was a huge winner.” By Tuesday morning, Bitcoin was already on the rise—a subtle but clear signal of an impending Trump victory. Because President Trump actively courted the votes of Bitcoiners and discussed establishing a national Bitcoin reserve, the apex digital currency served as a live gauge of investor sentiment, correctly predicting official election results. With Trump’s return, many are now focused on potential changes at the Federal Reserve. Rumors are circulating that he may revive Judy Shelton’s @judyshel nomination—a strong advocate for “sound money.” Meanwhile, global moves are reinforcing the Bitcoin narrative: El Salvador continues buying one Bitcoin daily, and Argentina recently installed Bitcoin miners at their central bank.

Bitcoin Miners in Central Bank of Argentina (H/T BowTiedMara). Quite a change from printing worthless pesos.

DKI Takeaway: Although a Fed shakeup is not a guarantee, DKI fully supports any move toward sound money principles. If the administration signals a move in this direction, Bitcoin and gold markets will likely surge, setting up an exciting four years for both politics and portfolios. Should the Trump administration nominate @judyshel for Chair of the Federal Reserve (or any position at the Fed), DKI would approve, as will anyone who objects to the constant debasement of our fiat dollar.

2) The Fed’s Tug-of-War: Rate Cuts, Inflation Jitters, and Powell’s Unshakable Tenure:

Concluding its November meeting, the Federal Open Market Committee (FOMC) acknowledged that “inflation remains somewhat elevated,” yet decided to lower the federal funds rate by a quarter point to 4.50% – 4.75%. Maybe they’re just hoping inflation will subside on its own. Jerome Powell, wasn’t just dealing with inflation talk. When asked the hypothetical question, “If he asks you to leave, would you go?”—a reference to President Trump’s suggestion he might replace him—Powell calmly replied, “No.” The Fed’s latest move didn’t just involve a rate cut; it came with a pointed reminder about the U.S.’s “unsustainable fiscal path,” with debt levels outpacing economic growth. Powell was direct: “Raising rates is not our plan…” but the debt and excess spending issue that’s the primary cause of inflation isn’t going away.

The Fed is claiming this is “restrictive”, but inflation continues. The press claims the Fed must normalize rates, but does 4.5% seem less normal than the hoped-for return to zero?

DKI Takeaway: This rate cut has left economists and investors questioning the strategy. Is this a genuine attempt to support growth, a concession to market pressures, or a limited response to persistent inflation? The Fed’s stance seems cautious, weighing inflation concerns against economic risks. DKI suspects that a big part of the decision to cut rates is a desire to try to help the Treasury lower borrowing costs, an effort that has failed miserably. Powell’s position remains steady, the rate cuts proceed, and the broader challenges—fiscal and economic—are clear.

3) Enrique Abeyta Unpacks the Misleading Talen Energy Headlines:

In May, DKI hosted Enrique Abeyta of HX Research to discuss his position in Talen Energy Corp $TLN. Since then, the stock has risen over 90%, with more room for growth. This week, DKI invited Enrique back to clarify recent misleading media headlines following the Federal Energy Regulatory Commission’s (FERC) decision to reject a deal allowing Amazon $AMZN to expand its data center power capacity by 180 megawatts. Earlier this year, Amazon acquired Talen Energy’s in-house data center, which benefits from a ‘behind-the-meter’ discount for its power supply by avoiding transmission costs. For more explanation on Talen Energy check out our webinar on YouTube.

Up more than 200% year-to-date making big profits for subscribers of both HX and DKI.

DKI Takeaway: A key takeaway from our conversation with Enrique was that the Amazon $AMZN deal had already closed and therefore, couldn’t be rejected by regulators. Despite headlines suggesting otherwise, Amazon’s purchase of Talen’s 960-megawatt data center at the Susquehanna Nuclear Plant was finalized months ago. The main issue is now FERC’s regulation regarding the amount of power Talen $TLN can supply to Amazon. Amazon’s pursuit of additional nuclear power reinforces DKI’s thesis on the rising demand for uranium to fuel nuclear energy. Big thanks to @EnriqueAbeyta for letting us add the Talen Energy recommendation to our positions page and for taking the time to break it all down for DKI subscribers. Even better, because Enrique kindly allowed DKI to use his weekend research piece on $TLN as a guest post on the DKI site, we were able to buy stock on Monday at $152. As of this writing, that call resulted in returns of 35%…this week!

4) Affirm Earnings Reflect the Stressed Consumer:

After the close last Friday, Affirm Holdings Inc. $AFRM exceeded both top- and bottom-line earnings expectations. Revenue for the quarter was $698 million, surpassing the projected $664 million and marking a 41% increase. Affirm is known for its Buy-Now-Pay-Later (BNPL) plans, which essentially function like credit cards but with even better marketing. With BNPL, consumers can purchase a product with no upfront cash outlay and make periodic monthly payments. However, if payments are missed, Affirm applies high interest rates to the outstanding debt.

Source: https://www.statista.com/chart/33435/estimated-pandemic-era-excess-savings-in-the-us/

That kind of growth looks like they’re giving away money. Instead, they’re renting it.

DKI Takeaway: We have covered this topic in the past and it provides a warning regarding the looming credit crisis on the horizon. Credit card debt has surpassed 1 trillion dollars and does not include plans like BNPL. If we look at Affirm’s $AFRM revenue growth, it’s inversely correlated with the savings situation in the U.S. presented in the first graph. Affirm’s business is also driven by credit cards and other credit instruments. Our concern is that declining cash balances lead to higher use of credit, which in turn, leads to future defaults and bankruptcies. Here at DKI we strongly suggest everyone stay far away from BNPL and credit card debt as digging yourself out can feel impossible. Do your best to save money (just not in fiat dollars)!

5) Some Ways to Hedge Risk:

Hedging portfolio risk is a powerful tool that investors can use, though many retail investors and most investment advisors overlook it. There are multiple strategies investors use to hedge risk, and we’ll cover a few today. One tool is a put option, which allows you to protect against large losses. No insurance is free so please remember that you pay a premium for this protection. Another way to hedge risk is by controlling your asset exposure; diversifying across various industries or asset classes allows you to both spread out and reduce risk. Short positions in individual stocks, industry groups, or market indexes are another option, letting you potentially profit from market-wide declines or industry-specific downturns.

There are lots of tools to reduce risk. These are a few.

DKI Takeaway: At DKI, we use a range of hedging strategies and positions in uncorrelated assets. Two of our favorite positions for reducing risk are gold and Bitcoin. Because we mark our profits in dollars, we see value in owning assets that increase in price as the dollar declines in purchasing power. Diversifying your equity exposure across different sectors can have similar benefits. For example, our energy positions tend to be more conservative compared to some of our higher-growth investments which ultimately works as a hedge. With the dollar declining, staying outside of dollar-based assets also serves as an effective hedge. Additionally, DKI hedges risk by shorting overvalued indexes with high valuations, such as $SPY and $QQQ isolating our stock-picking performance from broad market performance. Our goal is to help you achieve higher risk-adjusted returns in the stock market. If you would like to learn more, feel free to ask us a question, and we’d be happy to answer in a future ‘Fifth Thing’ segment. Please send all questions to ir@deepknowledgeinvesting.com.

Here’s the video version: https://youtu.be/XnEZLcEiszI

Information contained in this report, and in each of its reports, is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied.  DKI makes no representation as to the completeness, timeliness, accuracy or soundness of the information and opinions contained therein or regarding any results that may be obtained from their use. The information and opinions contained in this report and in each of our reports and all other DKI Services shall not obligate DKI to provide updated or similar information in the future, except to the extent it is required by law to do so. 

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