Postcards: What Would You Do In This Scenario? (Covid Edition)

Either I have COVID or the flu, so let's be very fast today... like a real postcard.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: What Would You Do In This Scenario? (Covid Edition)]( Either I have COVID or the flu, so let's be very fast today... like a real postcard. [Garrett {NAME}]( Nov 27   [READ IN APP](   Market Update: As I noted in the [Republic Risk Letter]( this morning, the S&P 500 SPDR ETF (SPY) hit overbought territory last week. It wasn’t surprising to see selling at these levels. The markets have been on a four-week tear from oversold to overbought. Now, we await updates on inflation later this week. As I’ve said, it’s an excellent time to sell calls on existing positions. Dear Fellow Expat: The scenario went like this… Imagine you’re a prisoner in the Tower of London. The King of England has personally sentenced you. And only four people know that you’re a prisoner in the structure. The King. You. And two guards – ordered by the King – to stand watch for 12 hours per day, guarding you. You need to escape, but the walls are fortified, and you have a chain on your leg. Your only hope is to find a way to convince the guard to let you go. Now, a few additional ground rules. You cannot attack the guard because you are in a cell. Screaming isn’t going to do you much good; in fact, it may harm your voice. You don’t have more money than the king, so you can’t bribe him. You cannot threaten the guard or his family because he may attack you. You may not ask any more questions about this scenario. How do you convince the guard to let you go? [Upgrade to paid]( The Oddest Job Interview of My Life Two weeks before I graduated from Purdue’s Ag Economics program, I flew to Los Angeles for a job interview. It was a brutal flight, and I arrived late at the hotel. The company is a private multinational agribusiness company. You’ve probably seen their advertisements during the Super Bowl. The intense interview was about six hours of case studies, balance sheet analysis, and theoretical debates on marketing and operations. They ran me through a grinder, and rightfully so. After long days, the math must still be right at 3 am. So, the last thing before I left was a balance sheet revision test that I can only describe as a hellish combination of Sudoku, Mad Libs, and Ph.D. Finance. My last conversation was with a senior-level executive. We talked for an hour. Toward the end of the conversation, he laid out the hypothetical example above. “Imagine you’re a prisoner in the Tower of London,” he began. It was a test to see how I think… or approach problems. He was emphatic that I could not ask any more questions about the situation. He wanted me to talk through it – and reach a conclusion. Before I tell you how I failed this question, let’s get to the “right answer.” The executive would tell me later that he had invented this question – and that no one had reached the same conclusion as him. He argued that the prisoner must embrace two things. First, he must sell his way out of the situation – and empathy and human compassion were central to this mission. The prisoner would need to test messages at the guard until one finally worked - and he would hammer that theme repeatedly in conversation with the guard until he could walk out of the tower. Second, he said, the prisoner must find commonality with the guard – and that the ultimate connection was that the guard was also a prisoner in that room. I did get that second part right – the conclusion that the guard was a prisoner. But – on the rest, I was way off. How would I get out of the room? Two-fold. First, I would write a 30-minute standup routine consisting of some of the worst puns and comedy punchlines of all time. I would tell long, meandering stories in the set and end with a terrible pun to the story. I’m taking the inspiration of Norm MacDonald, who once told a four-minute story about a failed Canadian politician confronted in Sea World about his inability to unite the country. The politician is feeding a baby dolphin, and when he’s confronted, he replies, “I don’t know, I think I’m serving a youthful porpoise.” That sort of thing… And I’d do that standup routine every hour on the hour… for three weeks. But that’s not all. For the last 15 minutes of each hour, I’d describe in detail the machinations of the Federal Reserve and how central banking works in painstaking detail. Since I studied monetary policy in graduate school, I’d drone on about Reverse Repo and Interest Rate cuts. I would make it intentionally, almost painfully boring… as monetary policy is. My goal wasn’t to convince the guard that he was a prisoner of the King. My goal was to make the guard desire silence so badly that he would let me walk free – just to have a moment of sanity in that tower. I was also trying to show this man I had a sense of humor. Sadly, he didn’t. While he awarded me points for creativity, he implied that I was missing the point of the importance of “commonality among people” and that one must continue to test selling messages to get the result they want. They were… after all… a marketing company. Finally, he said I’d be in trouble if the guard liked the comedy or central banking. That made me laugh. I didn’t get the job. [Upgrade to paid]( Why We Discuss Monetary Policy Every Day Over the weekend, I received an email from someone thanking me for creating Postcards. They said that they appreciated the insights and that this letter was entertaining. I can’t stress how thankful I was for that comment. I’ll be honest. The markets can be VERY boring. But it’s essential that investors learn them and that people feel comfortable diving into many of these issues. As I noted in the anecdote above, I’d talk about monetary policy as boringly as possible. Here, I do my best to make it entertaining. There’s a reason for this. Monetary policy has more impact on your life, your money, and your investments than any politician. The Federal Reserve has far more influence on your lifestyle, what you buy… what you can buy… and how money moves around the world. It is - undoubtedly - the driver of equity risk-taking in the financial markets. This is why you’ve seen the markets rally over the last few weeks: investors anticipate that there will be many changes to the Fed’s policy decisions in the future. These policy decisions are events that lead to extreme levels of insider buying. The chart below shows the five-day moving average of insider buying to selling in dollar amounts over the last 16 years. The strongest monthly five-day Insider Buying readings include the following: - October 2008 (Lehman’s collapse and government stimulus), - March 2009 (After the Fed’s first massive QE program), - August 2011 (After the first debt ceiling crisis), - January 2016 (After China’s Yuan crisis and pivot from China’s central bank). - December 2018 (After the bond-equity crash and the Fed’s pivot to rate cuts), - April 2020 (After the Fed pumped $5 trillion); and, - October 2022 (After the British Gilt/global liquidity crisis and the Fed stopped selling Mortgage Securities). Now, over the last month, we’ve seen some of the strongest insider buying in 2023 for one reason: Markets expect rate cuts sooner than they did last month. This would be a big shift in monetary policy as the Fed moves away from “How High” to “How Long” on elevated rates. The sooner the Fed cuts, the better it will be for risk assets like stocks. In addition, bond prices will increase - providing some stability for the banking system. That said, it all comes down to the Fed’s ability to squash inflation. We’ll learn more about the state of price increases later this week with the release of the Fed’s preferred inflation measure - the PCE Index. I’ll continue to talk candidly about the central banks and their impact on liquidity and insider buying in the future. If you understand these mechanisms and how they work, you can improve your long-term performance as an investor - and know the proper times to sell or hedge positions. These are critical to understanding capital flows over at [Republic Risk Letter.]( For now, I’m going back to bed. “Hello, I’m Jerome. I’ll be your nightmare.” I’m sure there’s a flu-fueled fever dream awaits me about Jerome Powell and the lizard people. Stay positive, Garrett {NAME} Secretary of Defense Invite your friends and earn rewards If you enjoy Postcards from the Florida Republic, share it with your friends and earn rewards when they subscribe. [Invite Friends](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()