Postcards from the florida republic: An independent and profitable state of mind.
We started our return to the Florida Republic…
Today, a 4.5-hour trip turned into seven hours thanks to the traffic and congestion around Washington, D.C. I don’t want to hear complaints about Florida traffic gridlock when Virginia-D.C. roads exist.
Rather than featuring “Road Work Ahead” signs each mile, Virginia leaders should post more honest signs on the roads.
Something like: “Barrel Storage: Next 100 miles.”
The Virginia Department of Transportation – flush with American infrastructure and stimulus spending, apparently bought thousands of orange traffic barrels. Instead of fixing the roads, the DOT stores all these traffic cones on the highways… even in the middle of lanes… with no plans for further action.
The result is a later-than-expected Postcard on Saturday night.
But there are rules. One essential rule is to make time for market preparation regardless of the schedule. One hour a weekend is essential to your investing and trading preparation.
Here's a quick read to show you what's coming in the holiday-shortened week ahead…
The Third Quarter Begins
The second quarter is behind us, which means the first half of 2023 has come to an end.
It was a story of artificial intelligence, a ruthless baseball bat smashing enture capital, overcrowding in the largest seven stocks in the S&P 500, and underperformance in commodities, value stocks, and the small-cap arena. The "Big Seven" rallied after a dismal second half in 2022.
Believe it or not, we're fast approaching earnings season, and the outlook for profit expectations favors the energy sector most.
As I’ve said, energy companies are very good at generating shareholder value and applying financial discipline in today’s environment. You see many energy names with strong Piotroski F-scores, cheap valuations, and ample cash flow. On the S&P 500, analysts are bullish.
Meanwhile, everyone who's been reading these understands the valuation and macro story in the market. Bankruptcy filings are surging to the highest levels since the recessions of 2008 and 2020.
Yet markets are back to their highest level for price-to-sales ratios since the Dot-Com bubble.
Simply put: Something's got to give.
If you’re buying or speculating on unprofitable stocks with very high price-to-sales ratios, pay very close to our momentum indicator, tighten your stops, and keep dancing. Move much closer to the chairs in case the music stops.
The Week Ahead
On Monday, markets will be open. But the equity markets close at 1 PM EDT, and the bond markets shut down an hour later.
I’ll wake up in Gainesville and hit the road for our last travel leg through the Republic. Traders can anticipate a traditionally low-volume day given the July 4 holiday. The day features a critical construction report – spending has increased over the last two months. A supply shortage, lack of seller interest given their existing interest rates, and increasing demand have pushed homebuilder stocks up massively since October 2022.
Meanwhile, the S&P 500 will rock 'n roll when Tesla (TSLA) reports quarterly deliveries. Monthly delivery reports will also arrive from various Chinese electric vehicle (EV) producers. Please pay attention, as we’re big in the Florida Republic on the trends of electrification and decarbonization.
Finally, the weekly crop report comes out for those interested in the agricultural markets - as everyone who likes to eat should be. U.S. soybean and corn conditions are sitting at some of their worst levels in decades thanks to drought. Expect conditions to worsen and look for speculation to take the Invesco DB Multi-Sector Commodity Trust - Invesco DB Agriculture Fund (DBA) even higher, even after Friday’s 5.7% jump on the June ending stocks report.
On Tuesday, the market is closed. Have some barbecue. Focus on the positive. This is still a largely free country, and it’s worth celebrating. In the Florida Republic, we take this holiday very seriously. I’ll take my daughter to a parade, then to swim as the meats smoke a few yards away.
On Wednesday, we’re back to business. The Federal Reserve will release the minutes from its June meeting. The Fed did not raise interest rates during its recent meeting. What we’re seeking in these minutes is any hint of dissension in the ranks over no rate hike. Another hike is all but certain in July. This market could experience a risk-on move later in the day. Even though momentum improved into the year's final week, be cautious, and tighten your stops in this environment.
On Thursday, it’s all about biotech. The FDA will decide whether to approve Biogen’s (BIIB) Alzheimer’s drug Leqembi. Expect a lot of movement that day in the healthcare sector. I’ve written in previous reports that I prefer the long-term outlook for AbbVie (ABBV), which specializes in chronic diseases. We’re also watching the jobless claims report as we witnessed a surprise decline last Thursday.
Finally, on Friday, we’ll get the June jobs report. We’re seeing a big uptick in government jobs, and wage growth continues. The average forecast calls for more than 200,000 new jobs and a decline in joblessness to 3.6%. More importantly, I am looking at GasLog Partners (GLOP). That day investors will decide if they want to accept a deal for their shares at $8.65 for the remaining outstanding units to GasLog Ltd. (GLOG). Investors would be insane to accept this deal, as it trades at about half its book value and well below basic cash flow analysis. This shouldn’t sell for anything less than $10.00. I might buy GLOP.
That’s my plan.
Here's Why It’s Critical You Read
Preparation is key when it comes to the markets.
If you can, find an hour on the weekend to read. It’s not negotiable when it comes to managing your money.
Some people read Barron’s, others the Wall Street Journal.
I read the weekly recap from Syz Group (I get it from their LinkedIn page). It’s about 100 pages – with a chart and a paragraph on each page.
I also read Barron’s, Seeking Alpha, as many analyst reports as possible, Morningstar, Finviz, and the news feed on Gurufocus.
Most great investors I know or follow study for at least an hour daily. Fund manager Bill Miller reads a large stack of investment briefs at a Chinese restaurant outside Baltimore a few days a week. Grant Henning studies every stock that hits a new 52-week high or low for momentum purposes.
It feels like it is an impossible task, but it’s critical if you want to improve your knowledge and experience. With the advent of AI, research will become easier with time.
Start by setting aside a specific amount of time each week that allows you to read and absorb information. If you’re a visual learner, use YouTube tutorials to your advantage. Find what works for you the best.
Moving forward, I’ll continue to send along these Postcards each day. We’ll also start broadcasting the show State of the Republic a few times a week on YouTube to fit around your schedule. I look forward to more conversations very soon.
That’s all for today.
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.