postcards from the florida republic - may 25

postcards from the florida republic

thursday, may 25, 2023

Dear Old Friend,

We’re a week from the so-called X date (aka the default bluff) of the Treasury Department.

Leaders in Washington have threatened retirees and to furlough firefighters if we don’t grant them the power to borrow more money, debase the currency, and accelerate our debt spiral (instead of running a balanced budget for once.)

They’re doing it for our own good, you know.

What should we own if the government defaults?

We’ve discussed the short-term Treasury ETFs, the metals, etc.

But how about a contrarian idea: Cash…

Yes. Cash. Remember, cash rallied after Lehman’s collapse and after the COVID collapse. A race to cash – the very thing in which those unpaid debts are settled – may be popular…

I’ll discuss other ideas like Silver this weekend.

And I’ll explain why I’m approaching this debt ceiling event more like a siege than a functional fiscal policy debate.

Click Your Heels and Say “AI” 3… Thousand Times

NVIDIA shares jumped 28% this morning after executives said “Artificial Intelligence” a few hundred times during their earnings report.

The company also forecasted $11 billion in revenue for the second quarter. That would imply that customers – heading into a recession – will boost CAPEX by $4 billion. Perhaps that’s a sign there’s still a lot of money floating around…

This stock has been a death trap for anyone shorting it.

Yes, it’s utterly irrational for a stock to possibly trade today at almost 200 times earnings and 35 times sales.

But remember – momentum is a different phenomenon in the market.

Valuations went out the window in a frenzy, and short-selling can create forced buying. Unfortunately, this has happened plenty of times. Last night, NVDA added $220 billion in market capitalization in an hour. That figure is larger than the market cap of its three biggest competitors: AMD, INTC, and MU.

This stock will eventually come back down to earth – but trying to short a strong trend can be dangerous. Instead, you must keep a close eye on several key multiples to determine when to take action against a stock – and AVOID the temptation to buy options on these names. There are better ways to do this that reduce your risk and protect your money.

We are monitoring its price action, and it’s rivaling Tesla (TSLA) during its 2016-2020 run and Cisco (CSCO) during the Dot-com run. It feels similar, almost like a cult stock around a huge trend. People lose fortunes shorting those.

When it does run out of steam (they always do), we’ll be buying the ETF that we’ve been holding cheap puts on during NVIDIA’S run for leverage: The AXS 1.25X NVDA Bear Daily ETF (NVDS)

Why Are We Listening to Russia?

Oil prices fell Thursday after Russia downplayed rumors that OPEC+ would cut oil output during a June meeting. Buy the dip.

As noted, the International Energy Agency forecasted a supply and demand imbalance (shortage) later this year.

Of course, Goldman Sachs also said that oil prices were likely heading higher toward the end of the year. Typically, I’d reexamine my forecast whenever Goldman Sachs is long something.

And Finally…

So, it will be Miami (Florida Panthers) hockey against Dallas or Las Vegas in the NHL Stanley Cup finals. Talk about a reckoning.

Perhaps we should default on our debt and start over.

See you out there,

Garrett Baldwin

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.

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