Postcards: Mind the Morning Gap (RED)

Headlines say one thing... data says the other. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: Mind the Morning Gap (RED)]( Headlines say one thing... data says the other. [Garrett {NAME}]( Apr 15   [READ IN APP](   Market Update: We’re negative across the board with serious weakness in real estate, utilities, and any rate-sensitive sectors. Even energy is selling off. As I warned in the Republic Risk Letter - the headlines for massive upticks in oil prices had started last week, and these extreme headlines tend to drag retail investors into the fold - while funds use the pops to take risk off the table. Hedge funds are also aggressively shorting energy now - trying to make up for losses on other bad bets. Stay vigilant. Consumer cyclicals are getting crushed, but we have a little strength today in technology around the semi-sector. That latter pop likely won’t last if we start to see aggressive fund selling in the coming days. --------------------------------------------------------------- Dear Fellow Expat: Yesterday, Amelia and I traveled down to Naples, Florida. She wanted a hot dog for lunch, and I don’t want to confess what I paid for it. We could blame dining out inflation, but there seems to be something else happening with the rent down there. From there, we traveled to the Naples Zoo. Virtually every animal - except for a swimming tiger and a monkey catching apples from a zookeeper’s boat - was sleeping in the shade. However, one exhibit did blow my mind. At 3 p.m., they fed the alligators. There were 12 alligators at the event—even the 12-foot gator who sent the other four males packing at the height of the mating season. Each alligator is individually trained, knows and responds to their names, and responds to a specific color when it’s time to feed. The zookeeper calls the alligator, which runs to its color on the end of a stick and bangs its nose into the image. Then, the zookeeper throws a piece of meat before the alligator retreats backward into the water. These gators take what the day gives to them. We do the same. And our color is “Red.” With the Equity Strength Signals negative across the board… it’s time to feast. [Upgrade to paid]( Retail Nonsense Oh… the morning headlines were terrific. The morning news showed that Iran engaged in a scripted attack. Israel appears to be pulling back its punches. And retail sales… Oh… RETAIL sales were up last month. It all seemed like great news. The Dow Futures popped more than 400 points at one point in the morning. Of course, few read the damn report. As I noted this morning - while fully expecting this market to roll over after a morning pop - the retail report was driven by spending at gas stations. There was a 2.1% pop. But spending at retail locations that sell clothing, electronics, and other consumer goods. Those figures were retreating. This is now an economy in which Americans pay through the nose for the things that matter: food, gasoline, electricity, and housing. Of course - the critics will blame capitalism - which is so ignorant it hurts. When you hear a politician say this election season that A grandmother had to choose between buying her prescription drugs and paying her electric bill, remember that policy-fueled inflation and government intervention in both sectors are responsible for both price increases. Markets ignored that little fact. And that brought us to the 10 am hour. Head Fakes in the Morning By 10 am… all that optimism evaporated. In today’s environment… you MUST watch out for these headfakes in the morning. Funds use headlines to drive markets higher in the morning and then sell into the strength. As you’ll see in the chart below, the market is never a straight line down. It is always a series of lower highs and lower lows, a stair-step pattern. You can see the channel forming… Funds sell at the highs… algos buy the dips and turn pennies into nickels in the process. Retail investors - however - uncertain of the real trend - tend to take the beating. As I’ve noted, Bank of America has warned of heavy CTA and fund selling if the situation worsens into the end of the day. We’re about 40 points away (from the 11:15 am reading of 5,127) from a dangerous area for the S&P 500. If so, it’s time to start building a list of names you want to buy - especially if they start to go on sale. You can start with [our Model Portfolio]( if you’d like. But you may also want to focus on the AI stocks we love forever - like [John Deere (DE)]( and Domino’s Pizza (DPZ). Look to boring companies that have been around for hundreds of years. Or take advantage of weaknesses in materials and crypto. In the coming days, I’ll update the [Six Rules for Negative Momentum]( (adding TWO MORE). The two additions: - Pay close attention to margin numbers, which will likely drop this month. - Watch the 10-year bond. Remember—every uptick in yields impacts collateral somewhere, which affects margin and the wonderful world of liquidity. Lastly, be sure to check out this chart, which speaks directly to the challenges investors face in today’s environment. Global Macro Investors (GMI) writer Raoul Paul put this chart out last week.  It shows an annual increase in global liquidity… at 8%.  He wrote: "While everyone is worried about 3.5% inflation, the real issue is the ongoing 8% per annum currency debasement, on top of inflation. Your hurdle rate to break even is around 12%, which is the 10-year average returns of the S&P 500...just to keep your purchasing power.”  Ding. Ding. Ding. That’s a hell of a hurdle - which puts an emphasis on a total return portfolio that kicks off dividends and offers appreciation upside. We remain convinced that the best path is that 1970s playbook of housing, energy, materials, and other real assets. Looking Ahead Once again, the real risk is the resurgence of inflation, which could raise interest rates. The 10-year is again pushing higher and higher, negatively impacting real estate and long-term U.S. Treasury bonds (Disclosure: I’m short both for now). This is a channel representation of the 10-year yield, which will test 4.7%, likely pull back, and then start the process again. The trend is clearly in place for a return to the 4.8% to 5% range, especially as inflation rears. 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]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()