Postcards: What I Told The Founders...

Today I did a recording for members of the Republic Founders Circle... and went on for 80 minutes covering events in the markets and our approach to the markets. Let's recap a few key highlights                                                                                                                                                                                                                                                                                                                                                                                                                 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: What I Told The Founders...]( Today I did a recording for members of the Republic Founders Circle... and went on for 80 minutes covering events in the markets and our approach to the markets. Let's recap a few key highlights [Garrett {NAME}]( Jan 3   [READ IN APP](   Market Update: This wasn’t a bad day; we saw relatively weak selling. The buying pressure tapered off. It’s tomorrow that we need to worry ourselves about. It was a good day for shipping stocks. Don’t be shocked if the sector continues a solid run in January. Dear Fellow Expat: My wife has a way about her. She can say words that make me “shudder.” Take this morning, for example. She told me the weather report in Baltimore for the weekend ahead. “It’ll be under 40 degrees all three days we’re there,” she said. We’re heading to Baltimore this weekend for work and to visit family since we did Christmas in Florida. The weather in the Florida Republic is temperate, and the traffic - although packed - is easier to navigate than the “Beltway” around the city. In January, we’re still outside. My daughter is roller skating now. And she has now started to master riding a bicycle. I’d take the credit, but that’s all on her mother. January’s a time for goals. She’s already knocked out two of them. I did finally beat her in cards tonight… She’s gotten way better at losing. That’s my goal for everyone - to be better at losing in the market - because I believe it’ll be rare for us if we play our strategies correctly. What I Told the Founders After releasing our shipping-based portfolio… our specialty “repetitive” trades built for 2024 around refineries, Chinese tech, and the U.S. automakers, I sent a message to the Republic Founders. It was only supposed to be a 15-minute message. Being me… I went on for 80 minutes. We covered a lot of ground. Today, I want to share our worldview. If you’re unfamiliar - we love to focus on the anomalies of the market - just like we embrace the weird animals that are typically reserved for our climate. There are three core parts to our worldview. And each complements the other in ways only some market participants take the time to understand. But I assure you, once you see how this all plays out - you will always see it. Liquidity, sentiment, and momentum are vital. Let’s reexamine all three. Let me place this very simply. Momentum (Equity Strength): A measurement of capital flowing into the Russell 2000 and S&P 500 — by comparing weekly and monthly buying versus selling metrics.  We also use a variety of technical indicators to help us measure Equity Strength Signals and Sector Signals — including the Relative Strength Index (RSI), Money Flow Index (MFI), MAC-Divergence (MACD), and the Average Directional Index (ADX.) This is based on several terrific academics whom I’ve studied over the last two decades and in working with our proprietary measurements. We have a complete reading guide if you’re a true glutton for punishment. We’ve identified ways to be far more predictive than our previous estimates. It’s essential to be right in those [early days of a broader market selloff]( as the bigger moves have already happened before the rest of the market figures out what’s happening. That’s why we put so much time and focus into this approach. For example, we’re starting to see weakness in the MACD on the S&P 500 after today’s trading session. Buying strength weakened today for the second time in two trading sessions - while selling has still been muted. If we start to see buying weaken as selling picks up, things can get ugly fast. This is one of the reasons why we have recommended investors and traders start hedging with covered calls and using hedges within the next two weeks of questions arising. International Liquidity:  A global measurement of central bank activity, private sector credit, and international capital flows across borders (Howell, 2020). Based on old-school Solomon Brothers’ analysis, global liquidity drives the performance of equity markets and remains a core influence on market momentum. Without capital flowing through the system, equity markets can dry up quickly. Central banks have driven the boom-bust cycles of the last 30 years, and their capital injections can lead to short-term momentum bursts that fuel large short squeezes, reversals, and breakouts that few see coming. It’s no coincidence that we’ve seen snapback and rebound rallies after large injections in the markets by central banks over the last two years, dating back to October 2022, January 3 of last year, March 14 of 2023, June 1 of last year, and even recent policy changes. Thirty years of inflation targeting takes a toll. The market rose roughly 750% while the U.S. dollar lost half its buying power. That has much to do with the printer and all that growing debt. Executive Insider Buying Activity:  Major liquidity and negative momentum events typically end due to central bank intervention. For clues on any liquidity trend we have missed, we look to the collective buying efforts of S&P 500 executives. Insider buying activity (an uptick in buying reports and/or buying capital) is VERY bullish for the market. In the last month, we’ve seen the strongest amount of insider buying to selling in a year. In late October 2023, we witnessed the most robust insider buying levels in dollar amounts (compared to selling) that we’d seen since late 2022. It was a critical contrarian signal we caught, and few others did. As a result, we can use insider buying to our advantage and utilize our signals to optimize trades. As I told the Founders, we need only three names to “trade” this year. Valero (VLO) is in the energy sector, Baidu (BIDU) is in China, and General Motors (GM) is in the U.S. The first target moves in the energy sector. The second targets short-term moves by China’s central bank. And GM is a stock that finds its feet when money flows back into the market… and sells off quickly in red conditions. I know that sounds crazy, but you can't unsee it when you see how the three things above all rotate around each other. As we manage risk and closely monitor these critical anomalies, we aim to lose less and win more. It’s okay to be defensive. Especially in a market that’s no longer designed for the retail investor. 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]()