Postcards: You Are Here

No matter how much we want to try to pretend that "This time is different" we can't escape the inevitability that comes by looking at past performance. Plus... "Is this time actually different?"                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: You Are Here]( No matter how much we want to try to pretend that "This time is different" we can't escape the inevitability that comes by looking at past performance. Plus... "Is this time actually different?" [Garrett {NAME}]( Dec 5   [READ IN APP](   Dear Fellow Expat: Every few years, I make an awful purchase. I’m not talking about a stock that underperforms or an options trade that tanks. No… I’m talking about a consumer product good. I go online, or I walk into a store. There, I find a shirt or pair of pants in my specific size (Good luck finding quality 36/37 shirts). And I pay American currency for these items. What makes them a bad purchase? They are the color “white.” My wife has a constant bet on the over-under time it will take me to stain the white shirt. It’s usually within the first wear. It doesn’t matter how many times we joke about it. It doesn’t matter if I wrap myself in napkins and bubble wrap. Those clothes are screwed. Last week, I made a renegade decision to purchase a pair of Hanes sweatpants. I passed on the blue and the black versions that would hide my inevitable about with spaghetti sauce. I chose “Bone White.” And today - after this one wear - I have soy sauce on the left pocket. It was a good run. RIP Hanes Pants. [Upgrade to paid]( You Can’t Escape It When it comes to my interactions with white clothing, past performance does indicate future outcomes. While we say that’s not the case in the financial markets, I can’t help but look at the current state of affairs and compare where we sit today to every other bear market in the history of the United States. The chart below is somewhat jarring. It shows the performance of the S&P 500 back to the Reconstruction Era with a bear market in focus. As you can see, three red circles indicate the typical pattern of markets as recessions approach. That second circle: You are here. The first Fed cut is typically never the bottom of the market - and it’s hard to suggest that a bear market reaches its bottom when the S&P 500 trades at 25 times earnings. As you can see, economic weakness leads to a bottoming in earnings per share - and we see a broader reflection of reality as these events come to fruition. After a bottoming, the market rebounds strongly over the next year. So - is this the pathway coming for investors? History suggests that it’s inevitable. It's like red jelly finding my white shirt before a speech. But there is a possibility here. Remember how the U.S. government changed the definition of a recession in 2022 to provide political cover for its terrible inflation management? Look for that to continue on top of robust government spending into 2024. I’m on record projecting just one technical quarter of negative economic growth - followed by strong fiscal support in the year ahead. In addition, keep in mind that the Federal Reserve may not allow this market to follow that pattern dating back to 1871. What’s different this time? The aggressive use of monetary policy is similar to what we witnessed in 2018 and 2020. The market is pricing in interest rate cuts, but the question is when those cuts will be applied. If those cuts come aggressively, that could take us lower, like the chart above. But the wild card here is Quantitative Easing in the form of balance sheet expansion. As other central banks around the globe continue to boost liquidity, the markets can and will behave like they have this year - with large market spikes in January, June, and November on policy changes. As Michael Howell pointed out in the book Capital Wars, the global financial system has moved away from “financing” growth to “refinancing” existing debt. We’ve added more than $150 trillion in debt globally this century, with less than $50 trillion in actual growth. The need for more debt, liquidity, and economic support will only fuel more significant market swings. We will continue to deploy the [Equity Strength Signals]( which helped investors avoid the 2020 crash and many selloffs over the last 18 months. [Upgrade to paid]( Two More Things There are two more things I want to add this evening. First, I have given my daughter a share of Berkshire Hathaway B Shares for every birthday since she was born. But she has asked this year for a Nintendo Switch. I wonder which one she will get (look at the former). Tomorrow, I will discuss why stock is a GREAT Christmas present and why it will help pay greater dividends than any piece of technology ever could in the future. Second… let me stress something. As you know, I’m in the financial publishing business. And there is an important marketing component to this business. I speak regularly with different publishers who always ask me to email my readers to invite them to look at other ideas and possibilities. When I launched [Republic Research]( I was exhausted by publishers sending emails with my name on the subject line but signed by a different author. In some cases, I didn’t even know who these people were. And you asked me over and over again to stop those marketing practices. So, I did. However, there are great opportunities with incredible research teams that I’ve grown to know over the last few years. I will only share them with you if I think it is a good idea and worth your time and consideration. Furthermore, any marketing materials from me will include something of value. So, if there is something that I do want to share with you, I promise you that the email will also include original insight from me that makes opening our communications worth your time. In the next few days, you’ll see an example of this. There is an event approaching that I’d like you to attend with a good friend who has an essential message about 2024. You’ll learn more later this week; it will be part of your typical Postcards letter. Until then, let’s focus on momentum and ensure we are well-prepared for opportunities. Tomorrow, I’ll discuss Berkshire Hathaway and kick off a deeper conversation about closed-end funds in the energy midstream sector. Stay positive, Garrett {NAME} 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]()