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Postcards from the florida republic
An independent and profitable state of mind.
At Republic Research, sell calls on existing long positions to generate income when momentum goes negative.
We shift to cash and wait for the next wave of capital to reenter the market. A central bank may pump more money into the system. But we don’t try to “short the world.” I don’t like actively betting against U.S. companies – unless it’s Beyond Meat (BYND). More on that garbage stock tomorrow.
In negative momentum, we can buy hedges on what we own with ProShares Trust - ProShares UltraPro Short QQQ -3x Shares (SQQQ) or the ProShares Short Russell 2000 (RWM).
And we wait to learn WHY momentum is negative. Typically, it involves a global liquidity challenge. A few challenges exist right now: China’s real estate market, the U.S. regional bank woes, and Japan’s Yield Curve Control plan.
When momentum is negative, we get out of the way – and treat the day to address other things building. Now that my wife and daughter are not in the house – I have turned my attention to uncluttering my life.
Call it spring cleaning in the August heat.
We also need to use this period of negative momentum to do portfolio cleaning.
Downtime becomes an active opportunity to find new ideas and trades WHEN stability returns to the market. Let’s dive into ways to simplify investments, trading, and life…
What The Hell Is That? Why Is It In This Garage?
I’m not watching screens today.
My cell phone will alert me when momentum turns positive. Over the last week, I’ve been vocal about trading the Direction Daily FTSE China Bear 3X ETF. But I expect China’s Central Bank to start pumping money into the system again soon. That’s my only other trade. And I set a hard stop on this back near entry at $10.00. That’s it.
Now, I’ve turned my attention to the garage.
It’s about 115 degrees in the garage right now.
The golf cart is about to slump over from the humidity. The heat from the leather seats could probably warm a bowl of soup.
The nearby shelves are packed… And it’s a tale of the 2020s.
This garage is a testament to the insanity of the COVID years.
The things we bought that we were sure we needed. Yet many things are still in the box. There was an electric hedge clipper that didn’t come with an actual chain to cut the hedges.
The manufacturer went out of business.
Yet, it’s taking up lots of space.
I don’t remember how much money I lit on fire for that…
What other treasures do we have here?
Well, let me ask you a question…
Do you have a deep freezer chock full of deer meat and popsicles?
Like a lot of deer meat…
…As if we were crossing the Oregon Trail.
The popsicle situation is out of hand. No one in my family eats the Grape popsicles from the Popsicle “Orange, Cherry, Grape” combination box.
It’s just a graveyard of Grape popsicles in every freezer we own. I’m petitioning the company to only make Orange popsicles…
There’s also a lot of frozen ham that my father-in-law gave us.
“Tim…” I scream into the yard. “Come get your ham…” But he’s two miles away with his own overfilled garage refrigerator…
What else is there?
Well, did you buy a very sizeable beef jerky dehydrator?
Do you own an industrial woodchipper that is still in the box?
There’s an industrial room drier left behind by the guys who fixed our guest room after the hurricane. There’s a bicycle with no wheels (a perfect metaphor for the Federal Reserve).
Four extra golf cart tires… A second mulcher for smaller projects – even though we cleared the trees a year ago.
A third greenhouse… in a box.
And the toilet paper!
Oh… the toilet paper!
The stuff we bought in a panic… but never use … because it’s single-ply from Amazon.
Declutter Your Portfolio
I could probably give away half of the stuff in this house – and
still have more things than the average Canadian.
Would you like some of these things? They’ll be on the curb.
COVID made consumption even more irrational.
The same goes for investing and trading.
The Post-COVID era created a nation of traders and brought many more people to the market for the first time. The problem is that it became VERY overwhelming for the average person.
Call options are very speculative – and they’re not designed to be successful. Someone else is SELLING you a call. And typically, there is a very low probability of success.
Three call options with a 30% probability of success will only see all three of them – in theory – end up as winners less than 3% of the time (It’s “high school” math: 0.3^3).
Here in the Republic – we sell calls on long positions.
If there’s a stock we like – and we’re buying and holding – a negative momentum period allows us to generate income by selling a call for every 100 shares we own. If the stock pulls back, the value of the option we sold will decline.
We can buy back the option or let it expire. We pocket the premium.
If those options aren’t for you, then we have something simpler.
It’s the basic sovereign model of the Republic – something we’ll be unveiling in the weeks ahead.
The basic strategy is to allocate our investment across four equity classes: Alternative, Refuge, Fortified, and Risk Assets. The model is 10-40-40-10, distributed across each category.
As momentum turns positive – or quarterly – it’s important to rebalance the portfolio to maximize returns and declutter your investments.
I know that there are many ways that people can trade and invest – but we’re focused on a model that targets growth, strong management, reliable income, and real assets.
We don’t want to overcomplicate things.
We want to keep it simple. And we can do so by understanding how money moves, where it moves… and when it stops moving.
That way, we can get to the other things that matter.
If you’ll excuse me, I need to riffle through my office closet to see what else I purchased in the middle of the night in March or April 2020.
It’ll be like Christmas, with lots of surprises.
Secretary of Finance
On Tap This Week
Tomorrow… I’ll discuss a stock I dislike with a burning passion. In a sane world, they’d ban its product and fire everyone.
On Friday, we’ll dig deeper into the state of momentum and how you can harness it to live a simpler life as an investor and trader.
Saturday, we’ll look at next week’s calendar in Republic Speak.
Sunday is a surprise.
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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.