Republic Risk: On Panic and Profit

Last night's retaliation by Israel fueled a shocking selloff that abated by the sunrise. Once again, panic selling turned into a confession of folly for many around the globe. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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](. --------------------------------------------------------------- [Republic Risk: On Panic and Profit]( Last night's retaliation by Israel fueled a shocking selloff that abated by the sunrise. Once again, panic selling turned into a confession of folly for many around the globe. [Garrett {NAME}]( Apr 19   [READ IN APP](   Equity Storm Watch Is RED on the S&P 500 and RED on the Russell 2000 A slingshot selloff happened last night at roughly 10 pm, with futures dropping sharply, Bitcoin crashing under $60,000, and oil prices spiking. Markets instantly reacted negatively to the news that Israel had conducted operations in Iran. By morning, things had abated, with prices moving back to where they started. Some traders and investors lost A LOT of money by panicking. The Russell 2000 is still very weak. The Russell 2000 ETF (IWM) has its next support level at $190. From there… it’s a steep move down to about $177. We’re almost to oversold territory, suggesting we’re heading toward a bottom. This is a vital lesson on taming emotions and ensuring you have all the proper information before deciding on your money. The Equity Signals are still negative as we head into the Third Friday in April (when monthly options expire). I have a hard time imagining that too many funds will want to be short oil over the weekend, which could force buying during today’s trading session. But stay vigilant, as any lack of action by Iran over the weekend could fuel a resumption of selling next week. This is why you must be “long” and willing to ride the wave of geopolitical tensions and Fed follies until we see action on banking reserves in May. --------------------------------------------------------------- Dear Fellow Expat:  Last night’s news of the Israeli retaliation on Iran accompanied a knee-jerk panic response from investors. When the artillery hammered Iranian sites, traders’ jittery fingers hammered the sell button on assets viewed as risky: Bitcoin, Japanese stocks, and U.S. futures. All three cratered in a matter of minutes - with the S&P 500 looking like it was set for a 2% drop on Friday. Meanwhile, the old safe-haven reliables -- gold and oil -- rallied. But by sunrise, the financial landscape had miraculously returned to its prior state. Oil pulled back to $82 per barrel - after gaining as much as 3.5% by midnight. This had to upset those who quickly exited the stage. I’ll admit – that even with my books and letters on the Wall – that the faint temptation to sell Bitcoin hit me. But – we must recall that such reactions are not meant to build long-term wealth and proper hedges against the negative actors. A stock sold in panic is a confession of folly. Rushing to the exit during a market fire drill guarantees you'll be trampled, not saved. But most people don’t think this way. The average investor acts like a moviegoer to a horror film—screaming at the first sight of trouble and spilling their popcorn long before the credits roll. Such reactions to instant crises lead to bad financial decisions. When prices rebound, paper losses transform into real ones. If we know anything, markets have short memories. And if we can do anything in this risk letter, I hope it will instill the attitude that embodies the best in this business. We often hear three adages - two anonymous and one attributed to Buffett. The first goes: Buy on the sound of cannons, sell on the sound of trumpets. The Buffett one goes: Be greedy when others are fearful, and fearful when others are Greedy. Or my preferred:  Buy when there's blood in the streets, even if some of it's your own. Perhaps we should have a new version of these quotes to claim our own… When panic hits the Street, fill your pockets. When triumph fills the Street, empty them. Or go even shorter… Buy amid chaos. Sell during applause. How to Address These Events A patient investor should act more like the stoic spectator who waits out the initial panic. Markets, like history, tend to repeat themselves, often rebounding as swiftly as they fall. Five takeaways: - Patience is the best way to preserve your portfolio and your wealth. - Short-term fluctuations are normal; focus on long-term goals and strategies. - A well-balanced, diverse portfolio can weather storms better than high-conviction ones. - Learn more about market cycles and historical trends to eliminate panic-driven decisions. - Have clear investment criteria to know when to buy and sell. This eliminates emotional decision-making. Our Model Portfolio rules or commitment to the 20-day moving average Turning to the 20-Day Average On Fridays, we like exploring unique opportunities, making it the perfect time to utilize our custom momentum screeners to identify emerging trends. Currently, we are using two screeners. The first identifies stocks that meet all our momentum criteria: a positive MACD crossover, an RSI rising above 50, an MFI above 50, and a positive ADX. Only three stocks showed strong, upward momentum this week: Torrid Holdings (CURV), Elevance Health (ELV), and Old Second Bancorp (OSBC). All three are in underperforming sectors. Our second scanner targets companies that have recently crossed their 20-day moving average. This list has been sparse all week due to market pressures. At the session close yesterday, only Cheniere Energy Partners (CQP) appeared on this list, trading 4% higher. That said, shares are pulling back this morning, and the company’s business situation is weakening. We’ll pass for now - and full disclosure - this position I own for the medium term that I’m currently unwinding…  Although the energy sector is one of the two currently performing well, overall market momentum remains weak. While CQP did cross its 20-day moving average, the downward slope of the moving average makes this signal less significant.  As we say, often, no trade is sometimes the best one. Tamiami Troubles  - Market Risk: Vanguard warns that the Treasury market is heading back to critical levels, with 10-year bond yields once again reaching 5% amid a possible large selloff due to stronger-than-expected U.S. economic data and persistent high inflation. This challenges earlier bets that the Federal Reserve would cut rates multiple times in 2024. - Sector Risk: We have another account at the Federal Reserve to keep an eye on, as there has been an uptick in activity at its discount window, with loans increasing to $8.56 billion, up $3.5 billion from the week prior. Following the closure of the Bank Term Funding Program (BTFP) in March—a program some financial institutions were exploiting for arbitrage—the Fed aimed to redirect banks to utilize the discount window. The fact that banks still need to access this facility is a side-effect of maintaining high rates, which leads to liquidity challenges in the financial system.  - Liquidity Risk: According to the Wall Street Journal, major pension funds, including the nation's largest, the California Public Employees' Retirement System (CALPERS), are reallocating nearly $25 billion from equities to bonds and private equity. This shift towards lower-risk, high-yield investments is trending across corporate and state pension plans. Portfolios are being rebalanced to focus on stability and meet future obligations with less exposure to volatile markets. This makes you wonder if they know something the rest of us don’t.  - Healthcare Risk: I expect United Healthcare (UNH) to continue its rebound from last week's horrible selloff that took it down to $430. It’s impossible not to like a sector funded by the government nonstop. It’s a long-term buy with a lot of jitters in the way. Just buy this anytime it hits oversold. It likes to rebound by 5% to 10% rather quickly. Something to add to the Watch List. [Upgrade to paid]( 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]()