Okay, we have a nice breeze here in the Florida Republic for the first time in a while. Morgan Stanley is putting the wind in our sails around the energy sector as the spring begins.
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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: Feel The Energy...]( Okay, we have a nice breeze here in the Florida Republic for the first time in a while. Morgan Stanley is putting the wind in our sails around the energy sector as the spring begins. [Garrett {NAME}]( Mar 25
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Market Update: I keep falling in love with Opera Inc. (OPRA). Today, there was a nice little technical move. I really wish there was something profound to say, except that I’m ready to attack the energy sector. We’re still waiting for a few key earnings reports this week and an update from Fed Governor Christopher Waller. For now, liquidity is strong, momentum is strong, and geopolitical risk is elevated. Dear Fellow Expat: Morgan Stanley must be reading the Republic Risk Letter. [Upgrade to paid]( Today, the investment bank upgraded the entire oil sector, stating that the Fed’s fight against inflation will improve en valuations’ valuations. "Taking the Fed's recent messaging into account and assuming it is less concerned about inflation or looser financial conditions, commodity-oriented cyclicals and energy in particular could be due for a catch-up. It may also surprise some readers that energy has contributed more to the change in S&P earnings since the pandemic than any other sector, yet it remains one of the cheapest and most under-owned areas of the market," Morgan Stanley analysts said today. Yes… we know. We’re 10 miles down the road on this. For the last few months, we’ve complained about how damn cheap the energy sector is compared to other sectors. Consider this: NVIDIA (NVDA) has reached a valuation that surpassed the entire S&P 500 Energy Index. I’m a realist about the state of the U.S. economy. Data has become a far more important commodity in the eyes of investors. The never-ending data exchange continues to showcase exponential growth patterns while oil and gas putter along at their mild growth expectations. But let’s recall that the entire global economy revolves around oil and gas… not the other way around. We don’t need chips to move industrial trucks down highways. We need a cartoonish amount of diesel fuel. We need tankers. We need pipelines. This transition that so many are betting on remains highly flawed. And yet, REAL ASSETS are the lowest percentage compared to financial assets in the market since 1925. This is the direct result of the financialization of the U.S. economy over the last few decades. While I’m content to speculate on all of these different tech names if they are profitable and capital-efficient, I’m buying up a lot of beaten-down names in the energy sector for what I expect to be another leg up. The Fed is losing against inflation. Despite inflation, they are still planning to cut- because they know something is on the horizon. Morgan Stanley says oil will be at $90 by the third quarter. I’m suggesting it could be at $90 by April 15 if things heat up in Russia and technical support carries speculators back into the sector. Right now, there’s a huge disconnect between the things that matter… and the things that don’t. The things that matter: Food, energy, housing, education, insurance - all go up nominally during bouts of inflation. The stuff that doesn’t - like Vizio televisions - goes DOWN because technology is deflationary. An Energy Rotation Coming Right now, Russia remains a serious threat over the next eight months. Ukraine continues to attack Russia’s refineries with drones, sparking significant concerns about a possible retaliation that trumps previous war efforts. Russia is also cutting production today to comply with OPEC+ output quotas. Meanwhile, Fed Chair Jerome Powell has signaled several cuts to interest rates this year. But if oil prices rise - inflation will, too. (Inflation will likely increase based on recent signals from rising copper prices). That could put even more pressure on the top of the S&P 500 and help fuel a rotation from technology to energy - a sector already doing very well in 2024. Energy has been one of the top performers over the last week. But it’s lagged dramatically since this massive market rebound started in October. With WTI crude experiencing solid technical support, we should easily see crude prices rise into the summer months. We discussed Apache (APA), a stock that jumped 3.1% since the opening, for a credit spread trade. Occidental Petroleum (OXY) continues to move higher. Refinery names like PBF Energy (PBF) and Valero (VLO)—with their very low valuations—continue to catch a bid. And, as always, remember - [there is always money in the midstream](. [Upgrade to paid]( No Kidding? This chart comes from a Harvard study… a HARVARD study. Knock me over with a feather. Are you telling me that the people who are in charge of misinformation have deep political biases that might lead them to believe that any interpretation of reality outside their own can be considered “dangerous to the state?” Also, who are these “slightly right” misinformation experts? Where do these people hang out? I feel like they’re just looking for the word “Libertarian,” and it’s a bunch of guys like my friend in Baltimore who will randomly start talking about Ron Paul and fact-check any statements related to Edward Snowden. After a few drinks, you’ll hear things from “lean right” misinformation experts like: - "I don't use regular money; it's all a government tracking device. I trade exclusively in bottle caps and handshakes. This is the economy of the future, my friend!" - "I only read books printed before 1913 - when the Fed started. That's the last year I'm sure the government hadn't infiltrated the publishing industry with its propaganda ink." - "I don't just encrypt my emails; I write them in a forgotten language I invented. It's called 'Freedomeese.' It's like Sanskrit but with more bald eagles and liberty bells." - "Cloud storage? Ha! I keep all my data safe the old-fashioned way: etched onto stone tablets and buried in undisclosed locations. Let's see them hack into solid granite!" - "Smartphones are just pocket-sized spies. That's why I communicate exclusively through carrier pigeons wearing tiny berets of liberty. Takes longer, but freedom isn't instant—unless it's instant coffee, which I also don't trust." Stay positive, Garrett {NAME} 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](
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