Postcards: What Tim and I Would Discuss Next Thursday

A reversal of Holiday plans hit the {NAME} household this year, leaving one of the storied family traditions having to wait until December 25. But that didn't stop us from discussing Buffett today.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: What Tim and I Would Discuss Next Thursday]( A reversal of Holiday plans hit the {NAME} household this year, leaving one of the storied family traditions having to wait until December 25. But that didn't stop us from discussing Buffett today. [Garrett {NAME}]( Nov 15   [READ IN APP](   Dear Fellow Expat: For two years, while at [Money Morning LIVE!]( I spent Fridays on my show Midday Momentum talking with Tim Melvin, my father-in-law and arguably the top community banking analyst in the country. The 30-minute conversations allowed the audience to watch the types of conversations [Tim and I have had on Thanksgiving Day]( for years. Sure, most people watch Dallas Cowboys football and overeat charcuterie. But when everyone’s worn out, Tim and I find ourselves discussing the financial markets since we both share that fascination. One of the more famous conversations centered on Joseph Piotroski and Ben Graham ([recounted here](. And now that I’ve departed Money Map Press after 12 years, my show doesn’t exist (for now). That said, I’ve still received questions from readers asking me to ask Tim for insights… and share what we’d be discussing this year on Thanksgiving. Well… there’s been a change of plans. This year, [my family and I are heading to Baltimore]( for Thanksgiving. We'll attend the annual Turkey Bowl football gameTurkey Bowl football game between my high school and our rival. In addition, I’ll get the chance to stop by my new office… and go back for [blue crabs at Ocean Pride](. The Thanksgiving conversation is delayed until Christmas, as my wife has requested that our daughter wake up at home that morning for the next few years. But what would we be talking about next Thursday? We’d be discussing one of the most important [SEC filings]( of the last three years that was released last night. Tim and I chatted about it today… and we’ll probably talk about it in the car on the way to the airport this weekend… Wait… does he know that he’s driving us yet? I’ll give you the highlights of our conversations later this weekend… Value and Momentum Tim’s a value investor, influenced by Ben Graham and the [countless hedge fund managers]( who have made fortunes over long periods. I focus on [value when it aligns with momentum]( - tapping into those important factors that drive strong microeconomic performance in any macroeconomic environment. But the last 18 months - anchored by the fastest rate hike cycle in modern financial history - have produced a feverish chaos built around wild swings in the market from oversold to overbought and back again. It’s a [narrative-driven market]( - allowing hedge funds with great PR consultants to sell their books and sell to buyers late to short-term rallies. Up and down, market reversions, and continuous bounces between negative and positive Equity Strength Signals. This has not been the story of the last decade, as we’d usually see big selloffs once or twice a year. Now, we’re seeing them happen every quarter. [The Federal Reserve’s]( fight against inflation and the wobbling of Economic Conditions in the U.S. and abroad has been central to this challenge. Yesterday’s rally [was the sharpest equity inflow strength]( I’ve seen since the Jerome Powell Fed meeting speech in March 2022. The rally came after the October Consumer Price Index (CPI) was lower than expected. The bets became aggressive that the Fed would start cutting interest rates in March. But here’s the problem with that move. ZeroHedge noted that we saw one of the largest one-day declines (easing) in U.S. financial conditions since late 2020. And… that move was comparable to the Federal Reserve reducing its benchmark rate… by 150 basis points. Goldman Sachs (as ZeroHedge notes) has suggested that the “Financial Index Conditions Doom Loop” could make a return quickly. A surge in bond and stock prices is, by default - inflationary. That can spur economic growth and spending while forcing the Fed to turn around and talk more about financial tightening… And then… the S&P 500 finds itself moving lower. If this sounds familiar, it’s because it’s happened multiple times in the last year. The financial website showed this Bloomberg chart to highlight the changes in financial conditions over the previous two years. Source: Bloomberg, Via ZeroHedge As you can see, the spikes in the chart align with liquidity crunches and short-term market bottoms. So… what can we expect? Well, more of the same. It feels like we’ve declared inflation over a few times, and the markets don’t seem to believe that the Fed will keep rates higher for longer. No matter how often Jerome Powell says it, markets repeatedly make bets on the long side, take profits in overbought conditions, and then a short cycle begins. Then, once the shorts have to cover (typically out of oversold conditions), the narrative shifts again. Investors can and should focus on the long-term as it appears that liquidity will expand in the years ahead globally, and the Bank of Japan and the Chinese government are already providing [monetary and financial stimulus]( respectively. But don’t discount the possibility that the same challenge that has fueled massive kneejerk reactions over the last 18 months will continue over the next few quarters, especially when the narrative restarts around a recession, consumer spending weakness, or manufacturing woes. Remember, [if you’re a trader, follow momentum](. Use indicators to determine overbought and oversold, and be ready to zag when others zig. But if you’re a long-term investor, [buy good companies that make real things](. Target companies with solid fundamentals, responsible management, and industries with demand that can withstand temporary softness in the economic cycle. This morning, we discussed [a few in the Republic Risk Letter](. And we’ll continue to probe for these names here in the Florida Republic. Stay positive, Garrett {NAME} Secretary of Defense You're currently a free subscriber to [Postcards from the Florida Republic](. For the full experience, [upgrade your subscription.]( [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()