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postcards from the florida republic
what you missed, what I’m watching, and what’s investable today
tuesday, may 30, 2023
Dear Old Friend,
Greetings from Zug, Switzerland.
I’m writing to you from the balcony of my friend’s home overlooking the farming community. It’s breathtaking… but I’m simply too tired to take it all in.
That’s what happens when you can’t sleep on planes.
I will be taking a nap after this… But first…
Sell the News? Short the Metals?
We have a tentative debt ceiling deal to avoid the so-called X date. Unfortunately, a I noted over the weekend, it’s a rather weak “deal.” The deal only cuts about $50 billion in government spending (or 0.2% of GDP). The GOP will likely need help from Democrats, as members of the Freedom Caucus could turn the deal upside down.
Regardless, we are not likely going to see a dramatic market reaction until the votes are counted. If the deal passes, we’ll then see if this becomes the ultimate sell-the-news event… or if markets continue the insane AI-driven momentum into June.
Gold is already pulling back – and so is Bitcoin. Any sudden change in deal sentiment, and both could slingshot higher again.
Now Let’s Talk About the Fed
We’ll now shift our focus to two places. First will be the Federal Reserve and its FOMC meeting on June 14. As I projected, the markets have increasingly priced in another hike. The odds of a 25-point hike sit at roughly 61%. That’s a rather stark shift from sentiment a month ago, when there was some chatter about a possible cut. Jamie Dimon has said we’re looking at 6% to 7% on the Fed funds rate. All the while, the Fed is still cutting its balance sheet.
Meanwhile, the question is how much money Treasury Secretary Janet Yellen plans to authorize and borrow. I’ve now seen estimates between $700 billion in new debt (Goldman projection), while Jeff Turnmire suggested on a roundtable with me that the figure could be upwards of $1.2 trillion. Any draining of liquidity into U.S. bonds could provide the same economic impact of another rate hike.
The question is where that money will come from – the money markets (meaning we’d need to see higher, more attractive rates for would-be borrowers) or it’s coming from the equity markets.
I don’t know the answer – and I’ve been asking everyone who will take my calls. Seems like we’re gearing up for a wild June.
The De-Dollarization Trend in Focus
Finally, we must keep a close eye on the developments around the BRICS and their quest for greater financial influence. The BRICS (Brazil, Russia, India, China, and South Africa) are looking for new members to join and reduce their exposure to the influence of Western (G-7) economies.
This morning, Bloomberg reported that Saudi Arabia was looking to join the alliance. This week, I’ll take some time to explain the significance of this movement, how it could impact the dollar and global commodities, and its impact on your money.
Remember, I publish Postcards and other commentary on Substack. I’ll be back later today… Now, it’s time for that nap.
See you out there,
Florida Republic Capital
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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.