Postcards: One Must-See Chart Tells All

Plus, we broke down mis-priced assets in March. Not stocks... but the things that really matter over the next three weeks. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: One Must-See Chart Tells All]( Plus, we broke down mis-priced assets in March. Not stocks... but the things that really matter over the next three weeks. [Garrett {NAME}]( Mar 18   [READ IN APP](   Market Update: Bitcoin and Ethereum are experiencing selloffs, which isn’t surprising ahead of tomorrow's Fed Open Market Committee meeting. But the NASDAQ-100 is holding above its 20-day moving average thanks to… “ARTIFICIAL INTELLIGENCE!”  NVIDIA hosts a conference today, and Apple and Alphabet are rallying because of a friendly agreement to use Gemini in new iPhones. Who’d have thought that AI could make markets go up… again?  Standby—the Fed isn’t likely to raise interest rates this month… or in May… or in June, for that matter. The question is whether we’ll get a serious drop under that key 20-day momentum line. I’m still very cautious in this Fed-driven environment… and I feel this way for the first time since last August. Dear Fellow Expat: My favorite chart in finance is found on a website called [SECForm4.com. ]( It’s a simple chart that measures insider buying activity against selling activity Below is the chart I shared this morning in our Risk Letter. [Click here to get your copy]( Take a look...  Do you see those blue spikes at the top of the chart?  Those were all market bottoms.  In late 2008, Lehman Brothers crashed. We had the March 2009 "Great Recession" market bottom, the 2011 European financial crisis and U.S. debt ceiling crisis, the 2015 yuan devaluation crisis, and the 2020 "COVID Crash."  Now, we can add the 2022 gilt crisis in the United Kingdom and the collapse of the 10-year bond last October when its interest rate climbed to 5%.  Those spikes are the sum total of all insider buying at S&P 500 companies as compared to insider selling. Insiders, as we discussed, are the people who have major, influential roles at these companies. The C-suite types.  Think CEOs, CFOs, board members, 10%-plus stake owners, and other executives.  So when we define insider buying, we are talking about executives using their own money to buy their own stock.  And as I intimated before, the ratio is strongest during liquidity events. Typically there is a shift in monetary or fiscal policy that benefits the market. And when that happens, the insiders tend to buy at the same time.  Now, what should investors be watching right now? No Man’s Land Executive buying is low right now. The Bank of Japan may soon move rates to the upside. And the Federal Reserve will make an announcement on Wednesday about its rate expectations. This is a very dangerous time - as relative volume is only at 70% on the S&P 500 ETF (SPY) and 65% on the Russell 2000 ETF (IWM). Markets are still… somehow… pricing in the Fed’s first interest rate cut for June 2024 at 51%. This still feels too aggressive to me right now, and I think that “higher for longer” will be the message (again) on interest rates come Wednesday afternoon.  The bigger story is the prospect of fiscal repression, which is already starting to affect long-duration bonds. The iShares 20 Plus Year Treasury Bond ETF (TLT) - which provides a strong representation of long-term bonds in the U.S. has just fallen under its death cross according to Barchart. The last time that happened, TLT fell by 20%.  If the Fed is serious about trying to repress short-term interest rates at the expense of long-term rates (to drive down the cost of short-term government debt), it will be a very challenging time for income investors seeing short-duration assets.  My expectation is that such worries will impact the tech sector and give us justification for another rotation back into energy assets - which are extremely mispriced right now.  As we always note, [there is always money in the midstream]( - and investors who are buying six-month to two-year bonds may start to see attractive opportunities in names like Energy Transfer (ET) and Enterprise Product Partners (EPD). Yes, they have K-1s, I understand, that’s where a lot of money has flowed this year… and should continue into the year ahead. Quant Matters and Mispriced Assets Finally, we’re approaching my favorite sports day of the year - which is the first day of the NCAA Men’s Tournament on Thursday.  This is always interesting because the NCAA tournament selection committee is so incredibly bad at quantitative analysis.  - St. John’s didn’t get in… but Virginia did? What? - Auburn is a 4 seed? (They should be a 2 seed) - North Carolina as a 1 seed over Iowa State… a team that just beat No. 1 Houston by 28 points? - BYU as a 6 seed is way too low. Kentucky at 3 is way too high. This isn’t a gambling story… It’s more about exploiting inefficiencies in anything you can. Whether it’s the stock market, bar trivia, [election markets]( or the NCAA tournament, it’s important to consider a different approach to this world. When we talk about our quantitative approach here at the Florida Republic - we end up [with companies like PBF Energy (PBF)]( is now up 26% Year to Date. We can thank Carlos Slim for getting people excited about it with multiple rounds of insider buying.  But there were plenty of other names, like Ardmore Shipping (ASC), which is up 14% this year. (We remain very bullish on shipping through 2026).  These are the hidden gems…  [Our]( Cindarellas]( you will.]( As always, I never take chalk in NCAA brackets - as I’m trying to find better teams that are mispriced by the selection committee. There are four that stand out this year.  - Auburn, Iowa State, Michigan State, and Duke. I don’t know any of the players on any of these teams.  I don’t look at how tall people are. I don’t care how many points one guy has.  I’m looking at adjusted schedule strength, adjusted defense, and tempo.  It’s all quantitative. Oh… and in what may be the most unusual statistic in all of college basketball…  Michigan State was ranked 355th out of 362 teams in “luck” this year. If their luck just reverts to the mean just a little bit in this tournament, they could be a big surprise.  Duke and Auburn also had “bad luck” this season. I’m picking Iowa State to beat Creighton in the finals.  I prefer to either crash and burn on the first weekend of the tournament or make a run with a bunch of sub-10 % probability teams making it deep into the tourney. It’s more fun.  Investing requires more risk management… but it’s amazing what you can learn about markets from non-equity opportunities. Be sure to join us at Republic Risk Letter, and I’ll be making an announcement around our insider-momentum letter this month. Stay positive, Garrett {NAME} Secretary of Finance Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()