Postcards: Printing "Growth," The Week Ahead and "Norm MacDonald Speak"

What did the Federal Reserve's $6.5 trillion balance sheet expansion deliver us? David Stockman showed not much. Plus, let's talk about the week ahead. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: Printing "Growth," The Week Ahead and "Norm MacDonald Speak"]( What did the Federal Reserve's $6.5 trillion balance sheet expansion deliver us? David Stockman showed not much. Plus, let's talk about the week ahead. [Garrett {NAME}](floridarepublic) Aug 11 floridarepublic   [READ IN APP](   Dear Fellow Expat: Greetings from the couch. My daughter’s watching some cartoon about narwals, and I must say that depressing financial charts are somewhat more enjoyable. The songs are repetitive, insane, and nonsensical. But as they say, “You’re gonna miss these days…” I kick off our Sunday conversation with more quantitative research on the damage the Federal Reserve’s actions have done to the middle class while delivering little in growth. I’ve harped about the state of the economy for a year—the reason: Two figures. We’re borrowing 7% of GDP… money on which we’ll need to pay 5% interest. And we’re delivering… at best 3% in GDP growth. So you’re borrowing every $2.33 to deliver $1.00 in growth. That’s insane. But David Stockman, reprinted at Brownstone Research, showcased the real tragedy of the Fed’s debt monetization since the Great Financial Crisis. Over 16 years, the U.S. Federal Reserve pumped $6.5 trillion into its balance sheet, massively benefiting hedge funds and financial institutions. What did the economy gain? Stockman writes, emphasis mine: Well, when it comes to measuring the bread and butter output of the US economy—manufactured goods, energy, mining and gas, electric, and other utilities—the answer is pretty much nothing. The industrial production index today stands hardly a tad above its August 2008 level. To be exact, the index has gained just 0.15% per annum during the last 16 years. This is America's financialization. Real GDP increased by 1.91% a year from 2008 to 2024—well below the historical average of 3.41% from 1950 to 2008. And while we’ve seen very little permitting and red tape reduction fueled by regulations ranging from Dodd-Frank, Obamacare, and legacy rulings to save Gaia, the cost of real assets has appreciated immensely. Lots of money is chasing fewer goods. Housing has surged. Food has surged. Electricity continues to surge. Healthcare is out of control. Education is unaffordable, too. Remember that the government subsidizes all of these things and pumps demand. All of this - is lost on people. They’ll blame corporate greed because it’s convenient. Consider the debt expansion in the last 12 months. From the House Budget Committee, America is borrowing… - $196 billion in new debt per month, - $6.4 billion in new debt per day, - $268 million in new debt per hour, - $4.5 million in new debt per minute, - $74,401 in new debt per second Inflation is a monetary phenomenon that starts at the front of the supply chain of money creation and from where it flows. The people who benefit from inflation are the same who benefit from money printing: Banks, hedge funds, and the credit class. The people who are the most screwed: Anyone on fixed income. Anyone with a pension. Anyone with a fixed payment. This year, people on the campaign trail, from the President down to the local mayor candidate, will scream: “It’s not right that a grandmother has to choose between paying her electric bill or her medicine.” Agreed. Let’s try an idea we haven’t tried since 1913. Stop printing money. But… remember - the only way out will be another round of this. Please wait until we face pressures next fall at the height of our expansion cycle and rates start to climb again due to the massive amount of money that must be REFINANCED. We’ll likely see the Fed start to build its balance sheet again, likely at the front of the rate curve through Japanese-style fiscal repression. In the next two years, things could come to a point where it looks like everything’s ready to break. That’s when your buying needs to start in quality companies—because that’s where the Fed reinflates the bubble to prevent what it fears the most: Deflation. Stay vigilant. [Upgrade to paid]( The Week Ahead Well, we now know that Japan is a ticking time bomb. On Monday, volatility exploded in ways we haven’t seen since 1987 and the 2008 crisis. What happened? Retail investors panicked and sold. And institutions bought up. That always happens. It’s worth noting that the Nikkei is doing quite well after a huge one-day decline in Japan. Creative Planning said its 1987 crash preceded a 26.5% gain the following year. Japan’s reportedly not going to hike… likely without some advanced go-ahead from other G-7 planning. All this, though, feels like a warmup for something else. The Treasury Department can’t keep this alchemy up forever; Japan will eventually have to raise rates and deal with the fact that its balance sheet is 500% of its GDP. And China’s a debt-deflation bomb that should eventually let its currency depreciate further to keep its export focus. After all - look at this chart from the Bank of Japan. A move of this size is what led to last Monday’s implosion. This is an incredibly insane time to be alive. Thanks, central bankers. Monday was the second-largest move in Volatility in six years (behind February 2018). Big moves came in 2018 and 2021. And monetary policy is all at the center of those moves. (In fact, the Top 20 biggest one-day moves on the VIX didn’t happen during the heights of the GFC). Events over the last ten years - with all this central bank dominance - lead the list. On the short-term… This market should continue to be volatile due to NVIDIA (NVDA) earnings and the Jackson Hole symposium. Markets are all-in now on a 50-basis point cut in September - which still seems unlikely. Okay, let’s do some Republic Speak, but also be joined by my favorite comedian of all time… the ghost of Norm MacDonald… Monday, August 12 Event: OPEC Monthly Oil Report Republic Speak: This should be an interesting report, as OPEC will move at the end of the year to increase output by letting some of its cuts lapse. The U.S. has been running very well from a production standpoint, reaching record highs this year. This is one reason why the Midstream part of the oil sector is doing great. There’s just so much volume. Look for opportunities across the supply chain at all times. Norm MacDonald Voice: “HEY… I don't know if you know… well, I didn’t either. You know… how you sometimes follow oil prices? Well, I heard that oil prices are going up again. My friend said it’s because of ‘tensions in the Middle East.’ And I said, ‘Well, at least something's got tension, ‘cause my wallet sure doesn’t anymore!" Tuesday, August 13 Event: EA Sports Madden Release Republic Speak: Ah yes, Madden. It's a game that hasn’t changed since I stopped playing it in my early 30s. It’s the signature game of EA Sports (EA) and a sign that football season is back. Historically, EA has done well after the release of this game. Although it’s already up since the return of its College Football franchise in July. It’s worth watching, as consumers spend money on this franchise. EA has good finances, profitability, growth, and momentum. Norm MacDonald Voice: Eh… the new Madden 25 football game comes out on Tuesday, and it’s gonna cost an incredible $99.99 for the premium version. Also going up in price… Mother’s… Basement… Electricity! [Long pause, no audience laugh] Wednesday, August 14 Event: 13F Filings and the Consumer Price Index Republic Speak: Well, now we’re back to bad news being bad news. Analysts are calling for 3% CPI in July, which is where we were a year ago. Nowcast has it at We'd get to hover around the old dirt pile and see what hedge funds bought with their money at the start of the quarter. So, they’ve had 45 days head start. We’ll await updates from Bill Ackman, Seth Klarman, and… Scrooge McDuck. Norm MacDonald Voice: Hey… hedge funds. You ever hear about hedge funds? Hedge funds. I dunno, man. Well, they're like that friend who borrows your car and returns it with an empty tank, saying they filled it with potential." Thursday, August 15 Event: Walmart earnings (WMT). Republic Speak: I really like Walmart (WMT) and own it (Full Disclosure). It’s the largest Big Box retailer, the largest grocery store, and the largest pain in the butt to get out of because you started there to get slippers, and you walk out with $200 in stuff you didn’t need, like garden hedges. It’s a great company to buy the stock and sell LEAP calls on because there is a lot of IV in the options chain and lots of earnings reports and worries about recession. If it tanks, it’ll be a great reversion buy. Norm MacDonald Voice: You guys like Walmart? I love Walmart, man. Wal-Mart. It’s the only place to buy a 12-pack of socks, a frozen pizza, and a pregnancy test at 2 am. It’s like the store’s saying: 'We know how your night's going, and we're here to help you sort it all out.'" Friday, August 16 Event: Nasdaq Short Report Republic Speak: This will be a really interesting shift in a week since last week's big market move. At the moment, the most highly shorted Nasdaq stocks are B Riley (RILY), Beyond Meat (BYND), Purecycle (PCT), and Acra Bipharma (ABIO). Norm MacDonald Voice: "I don't like shorting stocks. It just feels wrong to bet on something to fail. It’s like… You don’t bet against your friend's marriage to collapse, so you can buy their couch on Craigslist. That’d be, you know, a real jerk thing to do." No, these aren’t real Norm jokes. I was just watching one of his specials while doing this today… and I always liked his formula. 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. 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