Postcards: The State of Our Union is “Banana Shaped”

This is an insane asylum. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: The State of Our Union is “Banana Shaped”]( This is an insane asylum. [Garrett {NAME}]( Mar 8   [READ IN APP](   Market Update: The VIX is back at 14.85 - which is really nothing. Today's big news is that the wage figures were up marginally, and we came in on jobs at 275,000. With capital continuing to swirl and foreign investors piling into U.S. equity markets, this bonanza could continue for a while. This ongoing rally has defied the broader narrative about higher for longer interest rates - and we see ample support from the U.S. central bank to ensure support for asset prices, whether this was their intention or not. --------------------------------------------------------------- Dear Fellow Expat:  The State of the Union address was another waste of time.  I tried to look for opportunities in this speech that could produce investment ideas.  I didn’t find much. Both parties behaved like toddlers last night, which opened up a lot of questions. I reflected on this for a few hours. America’s elections are never-ending. [It’s not like this in Europe]( and it’s not like this anywhere. Maybe the populace doesn’t have control. Or maybe they don’t treat politics like a blood sport. Why do we make such a big deal about elections of people who are unqualified to run lemonade stands? Events like SOTU are just a reminder that Congressional members don’t do much.  Yet, when I turned the channels after the event, I watched as “journalists” (if that’s what they call themselves) showcased 45 different interpretations of the same speech.  People spend hours talking about these speeches as if they provide any [insight into the future of the nation]( and the relative nature of power moving forward.  I hate to break it to everyone. But in the wake of the 2008 election and the Great Financial Crisis, these speeches just don’t matter. As we know, the real power today lies in three places.  - The Administrative State - [which facilitates “sue and settle” lawsuits]( that circumvent Congressional authority. These help multiply the red tape that creates a market full of monopolies, duopolies, and oligopolies. For all the screaming about corporations needing to “pay their fair share,” those companies really wouldn’t mind. They’ve spent years lobbying the right agencies to twist the rules in their favor. They’ve wined and dined their regulators for years. Now, these corporations don’t have much competition, and everyone knows they’ll still find a way around any tax hikes - as evidenced by the last 50 years. - The rise of hedge funds, alternative asset funds, shadow banks, and proxy firms that drive global liquidity [and shape corporate policies]( impacts your product and service choices. Want to know why corporations aren’t paying attention to the consumer anymore but instead turning to random social cues and board-driven climate initiatives? Look to BlackRock, Vanguard, and State Street on the financial side, and then the proxy duopoly International Shareholder Services (ISS) and Glass Lewis. These companies are responsible for the corporate shifts to ESG, DEI, and any other acronym that takes too long to explain. They shape the policy, and as we know, it’s rigged against retail shareholders. - The Federal Reserve controls the price of money, affects the value of the dollar, and influences exchange rates against other global currencies. The Fed continues to be the center of the financial universe. Companies no longer worry about profits, stretched valuations, or shareholder interest. Like every other firm on Wall Street, they are [focused on what the Federal Reserve is doing]( with interest rates, its balance sheet, and shoring up any liquidity crises on the horizon. The Fed, alongside the Treasury, has been engaging in regular cycles of cheap money and Quantitative Easing for years. Their so-called “Quantiative Tightening” has not happened. Instead, they’ve been supporting the financial system to prevent another “Oh Shit” moment like we saw last March in the banking sector. Now, they may go on the offense to drive down short-term interest rates at the expense of the housing market. There is no “free market” with the Fed. The markets are broken, and these are the primary players in a post-2008 Financial Crisis world.  Everything else is largely pageantry.  Food fight!!!! Last night was a shit show. We deserve the Congress we choose. Money in Political Madness Last night’s State of the Union might have offered at least a few clues about where we could make money. No luck on that front.  We did get a lot of screaming… and interruptions… and wild interpretations… That said, I did want to take a step back to remind you that there are five core trends that we must be watching.  At the top is this idea of dirigisme, [where the government directs the economy]( without ever taking over production or manufacturing.  For all the talk about the laws that the President wants to pass, he doesn’t need Congress.  Now when there’s a new “shadow government” influencing the world at your expense. Instead, it rules by fiat.  We now have companies like BlackRock (BLK) and ISS doing all of the legal bidding without new laws passed by Congress. In essence, people like Larry Fink at BlackRock do the bidding of politicians. And they use capital allocation to starve certain industries while rewarding others.  For example, consider the cost of capital in the United States for various types of projects in the energy space alone. Goldman Sachs (GS) [noted that the cost of capital for a new oil project]( and a solar production project sat at roughly 8% in 2011.  But by 2021, the cost of capital for a new solar project plunged to 3% to 5%, while the cost of capital[for the new oil project rallied up to  20%]( It’s not like demand changed. It was simply the actions of financiers deciding that they didn’t want oil and gas and wanted to push solar projects into the world with easier capital access.  Now, this doesn’t extend just across the energy sector. We saw many American financial companies engage in a huge program called the Carbon Action 100+.  This group called itself the “largest-ever global investor engagement initiative on climate change.”  It includes 700 institutional investor members with roughly $68 trillion in assets in February.  The Action in “Climate Action” was to force other companies to phase out carbon emissions to zero by 2050. How do you force them? You starve them of capital… or take up proxy battles with those two groups I mentioned and try to force non-compliant board members out of a job. According to the Wall Street Journal, these members targeted 170 companies, like Home Depot (HD) and American Airlines (AAL). What a great business model!  Instead of Congress passing an unpopular law… or an agency unconstitutionally directing emissions reductions… the advocates could use the blunt power of capital financing (or take it away) to demand change.  However, with their deep pockets, the financial mercinaries are starting to back away. I’m talking about  JPMorgan Chase (JPM), State Street (STT), and BlackRock. Bank of America (BAC) reneged on its pledge not to finance new coal mines and Arctic drilling projects.  Everyone knows that these organizations have a fiduciary duty to shareholders, especially District of Attorneys in red states and Congressmen in D.C.. And these sorts of efforts and programs may violate antitrust laws.  Over the last year, conservative legal leaders have warned about antitrust and fiduciary duties. (I’d also warn about borderline racketeering, but that’s just me.) Luckily, The CA100+ is under the spotlight, and people are paying attention. Members are stepping back from this madness. According to the New York Times, “In our judgment, making this new commitment across our assets under management would raise legal considerations, particularly in the U.S.” a BlackRock spokesman said in February.  Do you think?  Maybe… maybe the tide is turning.  But I worry that this is just the second inning of a long game that will continue into the future.  Dirigisme and decarbonization aren’t going away any time soon. The most important thing we can do is tackle these two trends moving forward. This weekend, we’ll dig into healthcare and a huge announcement by health insurance giant Cigna (CI). Finally, It’s Tournament Time And finally… this weekend, we’re kicking off the Innovation Tournament. Innovation is a hell of a thing. It never sleeps. Innovation is how I talk to you. It's why we live in houses and drink beer from cans. It may be a mixed blessing, though, as it's also how a lie flies around the world 36 times before the truth gets its pants on.  And, of course, it drives long-term investment. So, we're going to stage a tourney to determin[e which innovation has had the greatest impact](. As we move through the tournament, I won’t be sending emails daily on the subject.  We’ll offer a few links for the matchups, including the bracket. I’m sure there will be plenty of controversy.  Up this weekend…  Play In Rounds GM 1 - 15 v. 15 - Gunpowder vs. Quantum Computing GM 2 - 15 v. 15 - Natalie Portman vs. The Door Lock GM 3 - 16 v. 16 - The Battery v. Sewing Machine GM 4-  16 v. 16 - Uber v. Integrated Circuit 1 v. 16 - The Wheel vs. Automobile 1 v. 16 - Indoor Plumbing vs. Toothpaste 1 v. 16 - Printing Press vs. Game 3 Winner 1 v. 16 - Internet vs. Game 4 Winner 2 v. 15 - Steam Engine v. Game 1 Winner 2 v. 15 - Written Language v. Game 2 Winner 2 v. 15 - Telephone v. The Sport of Baseball 2 v. 15 - Electricity v. Hydraulic Fracking Feel free to put your early predictions in the comment section. 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]()