Postcards: Republic-ly Speaking on Earnings Week, Student Debt, and the UTZ Kettle Classic Crab Chip

We warned everyone at the end of December that it was time to hedge - and we're now explicitly seeing a double top in the S&P 500. Plus... no more debt means far more Utz Crab Chips for ol' Garrett                                                                                                                                                                                                                                                                                                                                                                                                                 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: Republic-ly Speaking on Earnings Week, Student Debt, and the UTZ Kettle Classic Crab Chip]( We warned everyone at the end of December that it was time to hedge - and we're now explicitly seeing a double top in the S&P 500. Plus... no more debt means far more Utz Crab Chips for ol' Garrett [Garrett {NAME}]( Jan 6   [READ IN APP](   Dear Fellow Expat: I couldn’t find my shoes this morning. My daughter ran around this Stevenson, Maryland, guest house, trying to locate them. When she couldn’t… I did what any normal father should do. I blamed someone else. I narrated a tale about the so-called “Stevenson Shoe Thief” – a mythical creature that sneaks into homes and takes shoes from unsuspecting, out-of-town visitors. Sure. I soon found the shoes directly under my chair, but who’s counting? You want to keep children on their toes. An hour later, my daughter tripped over my shoes (now moved a few feet from the table) and collapsed to the floor. “How’d those get there?” she asked. I blamed the “Stevenson Shoe Thief” for placing them in her path. She soon moved the shoes to the wall while having lunch. She’s been checking back every few minutes to see if the “SST” struck again. We’ll be tracking the Stevenson Shoe Thief’s whereabouts all week and critical events in the stock market. But first… a note about “accountability.” So Long Student Loans This morning, my household paid off its student debt. My wife – a teacher – had carried her student loans from college. After that payment was processed, she sighed. Alligators can’t spell. The end of that stress was over. I can’t say the same for millions of Americans. As we look at the current state of $1.77 trillion student debt… a reminder. There is now only one place where students can get a loan. The U.S. government. (Students can refinance debt with private institutions). In 2010 – under the Affordable Healthcare Act – the government nationalized the student loan industry. From 2011 to 2020, the tuition cost of private universities increased by nearly 40%, while public university tuition surged by 21%. Here are the numbers from [Educationdata.org](.  What a coincidence! Yes, [inflation targeting is partially responsible]( and the size of the money supply keeps increasing. But let’s cut to the core of the real problem. Universities bear zero responsibility for anything to do with the loans. They get 100% of the gains… and ZERO risk. This is worse than the banking sector. The government doles out the money… the universities get paid excessive amounts of money…. and the schools have a massive budget to engage in the social restructuring of society. Imagine a world where universities like Harvard offered student loans via their massive endowment—all $49.44 billion. What would Harvard do? Instead of hiring tons of DEI administrators, they’d employ hundreds of risk management professionals to sit down with every student and ask them what they were studying… Because the school would want to know if the student could repay the loan. Harvard would also likely scrap the cultural studies programs with virtually no return on investment for the students. They would suddenly commit more resources to science, technology, engineering, mathematics (STEM), and other programs that produce skilled graduates for positions with much higher salaries. The fact that the government is offering to forgive excessive student loan payments is the government’s solution to cleaning up the government’s mess – and providing a bailout and no accountability to the failing system at the university level. The student loan industry is a fine example of how government engineering creates unintended (or likely intended) consequences. If the government were out of the student loan business – there would be far more focus on pushing young minds into productive fields of practice – and not allowing them to engage in their own financial suicide. The student loan industry is a federal racket. The problem at the universities today… [like what happened at Harvard last week]( is the fault of the U.S. government. My wife and I did what we promised to do. We borrowed money. We paid it back. My ongoing goal is not to require my daughter to do school student loan business with the U.S. government. I think that’s a fair and responsible effort. Now, let’s get to the week ahead. … And The Market Taketh Away Don’t say I didn’t want readers before the New Year about a pending selloff. The nine-week rally (very rare) took us into highly overbought territory. We’ve discussed the importance of hedging with covered calls, cheap insurance, or outright profit-taking. What happened this week was entirely predictable. From a technical standpoint, the markets are sitting at a double top starting in November 2021. If that sort of topping pattern into a selloff looks familiar, we’ve seen it five times in the last two years at various levels – all preceding massive reactions and shifts in sentiment around Fed rate policy. Traders have recklessly gotten out in front of the Federal Reserve; the narrative and pricing have predicted that the Fed will take action to keep or move rates lower. And now, the market is returning to reflect the words it continues to ignore from the Fed. The baseline for rate cuts should be between 4.5% and 4.75% by the end of the year (if we’re lucky). It’s still entirely uncertain if the Fed will cut rates in March – and I still think that a rate cut should not come until the third quarter, as I expect we’ll finally see a negative quarter of growth between April and June. The market expects a March cut. For all the reasons I’ve explained since the inception of this publication – the best thing we can do is react to this silliness… and be forward-thinking in seeing how this pattern plays out. Our scenario – where markets ignore the Fed’s policy forecasts – has fueled selloffs in November 2021, April 2022, August 2022, February 2023, and August 2023. And now… Lucky Number 7 appears to be on the horizon. It's the same thing… over and over. I feel like I’m taking crazy pills. Monday, January 7, 2024 Event: Atlanta Fed President Raphael Bostic Speaks Republic Speak: It would make too much sense if the Federal Reserve took a day to teach their bank presidents how to prevent market overreactions. But they won’t – because they like this sort of chaos. It makes them feel alive… Bostic historically speaks and fuels a steep move – mainly because he suggests things against yesterday’s narrative. These guys should not be allowed to talk ahead of earnings season – as they only further cement my very real argument that monetary policy (and the ensuing impact on liquidity) is the real driver of the equity markets. The CFA Society and MBA programs are failing graduates by suggesting anything else these days. Tuesday, January 8, 2024 Event: Honda presents at the CES Conference Republic Speak: This CES Conference always gets attention for being “the most powerful tech conference in the world.” Great marketing… but it’s rare that we get some development that overshadows earnings or central banking. I will note – however, that Honda’s presentation has my attention for one reason. The stock falls into the profile we seek in a longer-term investment – high F score, low price-to-Graham figure, cheap price-to-sales. Its debt and ROIC are not outstanding, but it’s the auto industry. Honda is one of our top “Stocks to Trade” in 2024 in the Republic Risk Letter, and a catalyst would be lovely. We’ll likely wait for the Equity Strength Signals to go, Green, before we take our first shot. Meanwhile, it is a tech conference, so we should be checking in on the stocks in the market with no profitability and massive debt. There are just as many Zombie stocks now as at the peak of the Dot-Com Bubble. Seems sane. Wednesday, January 9, 2024 Event: KB Home (KBH) earnings Republic Speak: I’d argue that KB Home’s earnings report will be not only one of the most important earnings reports and top 3 “market event” for the week. The stock is now up 77% in a year and well over 144% if we return to the market (liquidity) bottom of October 2022 when the Fed shifted its focus to mortgage-backed securities. KBH is still somewhat cheap on paper at a PE ratio of 8, a P/G of 0.68x, a Z score over 4, an F score of 7, and a VERY inexpensive cash flow. But this earnings report could be the end of the line for the housing boom… or another leg up. It will impact a lot of other housing names that still look inexpensive. I argue that investors should take opportunities to buy the dips in the housing names as they come this year. We’re halfway through the cycle for these names from their October 2022 lows.   Thursday, January 10, 2024 Event: The December Consumer Price Index Republic Speak: We’re at this place now where the focus is on “slowing inflation.” But inflation is expected to increase again… with a 0.2% increase for December. Core inflation is set for a jump of 0.3% and a 3.9% annual increase. So, we’re still nowhere near the core target, but we have altered expectations – which fueled an asset price rally. And now, we’re told we might have to go in the opposite direction again. Friday, January 11, 2024 Event: The Producer Price Index and Bank Earnings from Bank of America ([BAC]( JPMorgan Chase ([JPM]( Wells Fargo ([WFC]( Blackrock ([BLK]( and Bank of New York Mellon ([BK](. Republic Speak: Banks get plenty of support from the Federal Reserve because the central bank works for them – not the American people. Remember this. The central bank is there to bail out the banks because its role as lender of last resort originated after the Panic of 1907 and the need for someone other than JP Morgan (the man, not the bank). The big question this month centers on lending demand. I’m sure everyone is happy to ignore that Bank of America is practically insolvent. The Fed will just give Bank of America money to turn back around and buy short-term government paper. It’s definitely not a Ponzi Scheme, right? We’ll closely monitor the Direxion Daily Financial Bull 3x Shares (FAS), a triple-leveraged fund around the financial sector. I want to point out that heading into earnings week, the sector is nearly overbought. When this happens, good news can become a reason to take profits for investors running these names into the report. Here’s the FAS - with the most recent 14-day MFI and RSI readings. FAS - FinViz JPMorgan is overbought now on the MFI… And RSI… Just FYI. And Finally Highlights From the Maryland Republic We have spent two lovely days in Maryland and are heading home tomorrow with just a few key takeaways. - Yes, [I took my parents to Ocean Pride]( so they know they can buy great Blue Crabs two miles from their house… rather than driving 40 minutes to Dundalk. - It snowed in Maryland, giving my daughter only the second taste of a snow trip. I’d say that it’s one of those things I wish she had more of, but that’s an issue we can remedy.   - The Wine Merchant is a Lutherville, MD, store with one of the best delis on the East Coast. I ate there two times, and my wife purchased wine for this evening. I bought UTZ Kettle Classic Crab Chips – perhaps the finest two combinations in all of chip making, in one package. If I were a young sprouting potato, I’d dream of becoming a Kettle Classic Crab Chip, the snacking choice of champions. As always, I hope you’re having a wonderful weekend. We’ll circle back tomorrow with some insights into the markets and a stock that I love. Stay positive, Garrett {NAME} Secretary of Defense 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]()