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postcards from the florida republic
tuesday, may 23, 2023
Dear Old Friend,
It’s another fine day by the Gulf of Mexico.
Insider Buying Is Warming Up in May
This month, we’re seeing the strongest pace of insider buying-to-selling filings since October 2020. It seems executives are bullish about the debt ceiling resolution – and they anticipate government spending will save the U.S. from recession in 2023. Now ask… why do we following insider buying?
Executives buy for one reason. They expect the stock to rise. In the last 10 days We saw sizeable buys at General Motors (GM) and Oaktree Capital (ORCC). I like GM as a trade (put spreads) and the second as a long-term buy and hold, thanks to a 10% yield.
Here are select CEO and CFO buys over the last ten days.
|AAT||American Assets Trust||2,771,654||0||1||0|
|ORCC||Owl Rock Capital||1,000,188||0||1||0|
Today, I’ll explain the great opportunity behind the GM CFO buy.
A Tale of Two Economies
It’s important to remember that Americans now live in a tale of two economies. One is the government – which controls the interest rate and can derive money from nothing. The other is the private sector which continues to see its cost of capital rising. Pressure on capital costs will lead to more distressed companies. We expect this trend to pick up in oil in Q4 2023.
There’s one name that I’ll be talking about next week with my colleague in Switzerland. The broadcast will be the first podcast for Florida Republic Capital and will be available to readers at Trading Pub and MoneyMorningLive! Our subjects will center on OPEC, global oil opportunities, the pending metals shortage, geopolitical tensions, and more. Check in next week.
Chart of the Day
Hedge funds remain very bearish right now. You’d have thought they learned their lesson by being overly short in April and May. OPEC will start to ramp up production cuts this month. U.S. rigs are shutting down. M&A activity in the Permian Basic is accelerating at a breakneck pace (look for big oil producers to shutter higher-cost rigs and sit on their assets in Q3/Q4).
And momentum is positive in the S&P – bullish for oil stocks and could aid a short-term recovery in beaten-down refineries.
I remain contrarian on oil and gas, mainly because inventory levels should decline later this year. That said, crude remains in backwardation, meaning investors are better off focusing on individual names instead of crude ETFs. There is great value in the Permian right now. But there is also a sizeable amount of opportunity in midstream assets (non-K-1s) and royalty trusts.
See you out there,
Florida Republic Capital
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.