Postcards from the florida republic: An independent and profitable state of mind.
If you get a chance to stop through Santee, South Carolina, make it quick. We tore up I-95 on Friday – and settled in this sleepy freeway town an hour south of Florence.
While looking at a local dinner menu, the option for six oysters for $4.00 was a red flag. It’s not shellfish season – that ended on May 15. So, there's either a glut of oysters in the Carolinas… or people here in Santee don’t know how to arbitrage like the Florida Republic does. Those are wholesale prices back home…
I settled for safety – a burger – and wrote my schedule for the week ahead. I’ll be in Baltimore for extensive discussions on the expansion of the Florida Republic and our research objectives.
In a moment, we'll look at coming market events and why they matter.
Volume 48: Today… EVERYONE is a Twitter Expert On _____
As I drove at the start of the second leg today, my wife read the live reports from Russia about this supposed “coup.”
I told her to get off Twitter – because everyone is a self-appointed expert in the latest breaking story.
I assure you, not even the CNN experts have a solid angle for approaching “Russian coup attempts” – as they describe the situation on the ground. It all felt like bizarre theater.
Reports first said Putin had left for St. Petersburg, and one of his many strongholds, because of Wagner boss Yevgeny Prigozhin’s "coup attempt."
Putin himself invoked memories and images of the Russian Civil War in prepared remarks on Russian state television. Then headlines here in the West started in on civil war. Then, CNN said Prigozhin's “March to Moscow” was halted after Wagner reached a deal with Belarussian President Alexander Lukashenko.
Then reports said Prigozhin had asylum in Belarus… Then reports said that Prigozhin was exiled, and troops fell under Russian military honcho Gen. Sergei Shoigu’s command… Then reports and reports…
When I finally read Twitter, there was ample speculation that the S&P 500 would rally on the news of a coup… or that oil prices would move lower because markets would see it as a sign of stability soon. Or how auto metal prices would fall…
What the hell are these people on social media talking about?
Why would anyone be risk-off right now if a civil war erupted in one of the world's nuclear powers? Especially in a top-three global oil producer like Russia? Why are people actively posting this under their own names?
When did everyone become a geopolitical expert on Russian commodity flows? Do people know how Russia works?
Let me give these self-appointed experts a few scenarios…
What happens in the chaos if a bunch of “businessmen” with guns show up at a local oil refinery or export facility and decide they want the property? What happens in that situation?
What happens when people who had Putin’s protection now start abandoning their businesses or self-sabotaging machinery? What happens when there are turf wars? This isn’t how the West works.
I think it’s impossible to calculate what is happening and stupid to speculate. And one of the reasons is that our media, Wall Street analysts, and think tanks all look at Russia through one very Western lens.
Then again, this isn’t uncommon for financial and political talking heads.
I always listen to people do this when talking about the concept of “bringing Iranian oil back online” after years of sanctions against the nation’s leaders. They don’t understand that rebuilding infrastructure at key supply chain chokepoints could take years. Sure, there might be a headline reaction… but that typically ends up fading quickly – as the armchair analysts find themselves quickly on the wrong side.
My all-time favorite story about this bias was when I worked on an agricultural analysis of grain elevators and other commodity facilities in South America. A few of us were working on ways to address supply chain challenges across Argentina.
During a client meeting, a consulting team based in Chicago that wasn’t linked to my company arrived. There were a few young American consultants from prestigious universities. One of the consultants from their team argued that the client should lobby the Argentine government to build railroads to move commodities.
People I’d barely seen smile before erupted into laughter…
That South American nation moves on diesel trucks – even if the grain elevator lines are four miles deep. Why wouldn’t they suddenly agree to this Booth consultant’s brainy ideas?
The last Argentine who bucked his trucking union to advocate for a rail system was shot in the back of the head.
I listen to reports from Poland or Latvia if I’m looking for analysis on anything related to Russia. Find their media’s websites and use Google Translate. Don’t listen to American media’s sudden fascination here, especially when they ignore many other important stories happening on our shores.
Some people claim to be experts in everything.
And they wind up experts in nothing.
Current State of the Market
Now, let’s explore the state of the equity markets.
As I noted yesterday, the S&P 500, corporate bond, and Treasury bond yields… all have identical returns at 5.6%.
There isn’t much incentive in this environment to buy stocks.
Other central banks around the globe hiked rates this month. The view is that inflation continues to roar. The Fed paused – and food commodity futures spiked (although there’s much more to the equation than rate-pause speculation.) The Fed has signaled at least two more hikes for the year ahead. I think we’ll get more.
Market momentum – our primary lens into the market – has ticked lower for four straight trading days. It starts the same way almost whenever a selloff is about to happen. The pace of buying slows down… it drops… drops… drops… and then, the selling commences and overwhelms any dip-buying activity.
After four days of falling buying strength, selling picked up…
What will happen next week? That’s the mystery of short-termism.
On daily charts, the iShares Russell 2000 ETF (IWM) took a turn negative on the Relative Strength Index, Money Flow Index, and MACD. It looks like the ADX is next. That’s bearish…
If the selling picks up… the downside is about $173.50.
Here’s the thing. We don’t know if the market will tank or if the robots will step in and buy the dip. I need to see an official negative momentum reading at the end of a single day.
Right now… it’s still early. But I like to take precautions now.
I do know that when this indicator goes negative – that’s been where the worst negative events have occurred. We avoided big selloffs in December 2018 (a 20% drop on the S&P 500), late-February 2020 (down 33%), the June 2022 nine-day collapse that was the largest selloff among hedge funds in 15 years, the August and September 2022 selloff, the December 2022 tax harvesting selloff, and before the March 2023 banking crisis.
The bottom line: Read Postcards, hedge on Monday… and thank me later.
Sometimes that selloff doesn’t come, and we bounce right back into positive momentum territory. That’s when we lift any hedges and buy right back on this dip (while everyone else is nervous.)
The Week Ahead – McCormick Reports This Week!!!
On Monday, June 26, we’ll get earnings from Carnival Cruise Line (CCL). This has been a ferocious momentum stock over the last few weeks. Even though investors are looking for a big hike in forward guidance, this stock will break out or break down quickly. If you’re a person who likes to day-trade with Volume Weighted Average Price and Bollinger bands, this will keep you busy.
On Tuesday, Walgreens Boots Alliance (WBA) will report earnings. I’d appreciate it if someone would ask this health company why they converted half their Chicago stores into liquor stores. That CVS and Walgreens ("pillars of health") are knee-deep in booze-selling never made sense to me.
On Wednesday, Micron Technology (MU) reports earnings. Isn’t this a Nancy Pelosi stock? She made a killing on Apple (AAPL) again, buying options on May 24. This is one of the heavily subsidized U.S. semiconductor stocks. Buy and hold. While we’re focused there, we have a European forum on central banking. Get ready for many self-congratulations from Federal Reserve Chairman Jerome Powell, European Central Bank President Christine Lagarde, and Bank of England Governor Andrew Bailey.
On Thursday, my favorite earnings report arrives: McCormick (MKE). I grew up in that board room, and times have changed since the 1990s. This company buys by the pound and sells by the ounce - it’s a window into the status of global supply chains, consumer strength, and the ever-growing conglomeration (and monopolization) of international food. Listen and read the conference call report. It’s that important.
On Friday, the first half of 2022 concludes for the markets. This is always an important time for portfolio rotation. I wouldn’t be shocked to see some more crowding into the top stocks in the S&P 500 while the rest of the markets (including the Russell 2000) sees selling pressure into Friday.
I’ll be back on Sunday with more.
To your wealth,
Florida Republic Capital (Available on Substack)
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.