You know what I really like?
Other people's kids.
My daughter's schoolmate had a birthday party. The theme was dinosaurs. There was a dino cake, a dino waterslide, and many other toys and treats - all things Paleo era.
Of course, I was cornered by a mystery eight-year-old who insisted I learn the differences between a standard raptor and a velociraptor.
"Oh really?" I nodded.
This happened... twice... while I was trying to watch the Buffalo Bills and Miami Dolphins game.
When I asked whose child that was... the host family didn't know who I was describing. Maybe he was a neighbor who just showed up.
Or maybe... he was a ga- ga- ga- Ghost!
The Week Ahead
We see the world through global capital flows, equity momentum, insider activity, and other anomalies across the market.
Our Equity Momentum readings are negative, with only the energy sector in positive conditions (out of 11 industries). Technology has been under pressure since mid-August, leading the QQQ lower.
Communications stocks have steadily improved over recent days.
There is room here for a short squeeze in the market with a relatively muted economic and earnings calendar this week.
The same happened last year at the same weekly period. Still, that market bottom accompanied broad, coordinated efforts among central banks as the Bank of England capitulated and largely engaged in a soft default to stave off a pension crisis.
We're seeing a lot of comparisons to last year because of seasonality... and a lot of chatter about financial crises.
A recent Fortune article states that five economic shocks happening right now that are a perfect storm. Will Daniel cites:
- The National Debt hitting $33 trillion and a government shutdown in focus...
- Oil pushing north of $100 per barrel...
- UAW strikes possibly crushing the U.S. auto industry...
- Roughly 44 million in student loan debt starting their repayments...
- Mortgage rates pushing 8% and a possible housing freeze...
These are all headlines - and things we've been writing about since... the inception of this publication. But they're not addressing the underlying problem in the global system.
The bond markets are stressed. The dollar is strong. We'll leave that to tightening global liquidity and weakening momentum.
As this chart shows, we've seen the sharpest one-year rise in the median 10-year government real rate on record.
It's all refinancing problems on the horizon.
It was a problem in 2018-2019 - when market spasms happened before the Fed pivoted on rate and balance sheet decisions.
Still, all eyes should remain on China, where controlled currency demolition seems inevitable. China's debt problems create refinancing challenges and global competition for credit.
October In Focus
With energy the only strong sector right now, I'll primarily focus on existing positions. But one additional company has my attention this month: General Dynamics (GD).
Shares are in a relatively neutral position right now. I see critical levels of $217, $219, $226, and $231. If this stays range bound, I would like a put spread down at the $210 level for a few weeks.
As I've previously commented, General Dynamics is one of the two companies that can score a contract on icebreakers. Barron's profiled the stock on Saturday, and it could get a bump that follows this sort of profile.
The GD $210-212.5 credit put spread for October 20, 2023, is attractive on Monday. Or a handful of shares for the long term.
It's not like U.S. military spending is going down soon.
Monday, October 2, 2023
Event: EV Delivery numbers from Tesla (TSLA), Rivian (RIVN), Fisker (FSR), and Lucid Group (LCID). We'll also see quarterly sales numbers from General Motors (GM) and Ford Motor (F).
Republic Speak: The UAW strike is front and center right now. Barring a dramatic decline in U.S. productivity due to widespread labor strikes - we're not going to make comparisons to the Weimar Republic as some talking heads have been doing.
The story Monday is about Tesla - which pulled ahead in the EV race and ate the lunch of the Big 3. Despite all the government support for the unions and renewed government assault on Elon Musk for failing to follow The Narrative, Tesla is winning this battle - and will win the EV race over the long run.
Tuesday, October 3, 2023
Event: The criminal trial of FTX founder Sam Bankman-Fried starts.
Republic Speak: Hey, remember when we all went to that FTX Salt Conference in the Bahamas?... You know, the one that felt like a massive birthday party for Sam Bankman-Fried... and no one thought it felt peculiar? Then we never talked about it again?
Good times.
The story of FTX is well documented. And we'll see some footage of author Michael Lewis interviewing SBF from last year before the implosion (on 60 Minutes). We're not expecting the FTX trial to produce anything new that impacts the crypto market.
Wednesday, October 4, 2023
Event: OPEC's Joint Ministerial Monitoring Committee meets to discuss oil prices and the impact of the cartel's cuts to 1.3 million daily barrels.
Republic Speak: We've been long oil... starting two weeks before OPEC made its cuts. Friday's oil selloff jarred me, mainly because these headline calls for $125 per barrel always seem to come before a major selloff. I've noted a counternarrative for oil remains firmly in place - but everyone is ignoring it.
Energy has been in breakout mode for 13 weeks, and now we've seen some weakness over the last two trading days.
A June 8, 2022, moment feels like it's coming - where profit-taking is fast and furious. Why wouldn't hedge funds take profits with refining capacity returning, winter blend gasoline season in play... and concerns about rising U.S. Treasuries.
As always, set stops if you've followed us on energy since the breakout started. If energy momentum turns negative, we will hold our positions in place, sell calls, and purchase the Direxion Daily Energy Bear 2x Shares (ERY) as a hedge or straight short position.
Stay tuned.
Thursday, October 5, 2023
Event: Federal Reserve Bank of San Francisco President Mary Daly speaks at the Economic Club of New York.
Republic Speak: For some reason, Mary Daly is still allowed to speak in public despite overseeing the arm of the Fed that saw Silicon Valley Bank collapse. It's just a reminder that there are... what... about 23 central bankers in the world? Christine Lagarde STILL has a job despite the never-ending calamity of central-bank-fueled problems across the European Continent.
It's been a cartoonish performance from the Fed over the last two weeks. Powell seems incapable of criticizing fiscal policy expansion in the U.S., which has limited his policy response. He doesn't want to be former Fed Chair Arty Burns from the 1970s.
But Burns complained AFTER his retirement in Yugoslavia about the same problems that challenged Powell and the Fed's policy decisions: War spending, fiscal policy expansion, increased government spending, benefit expansion. He's mirroring Burns.
Meanwhile, Chicago's Austan Goolsbee said this week that he's trying to process why long-term interest rates are rising.
What?
There's a duration problem, and the government has a $33 trillion debt level - with roughly $10 trillion in refinancing and new debt issuance on the horizon. The Treasury Department must avoid refinancing SHORT-TERM debt at higher levels because of the massive curve inversion. Oh... yeah... and then there's the whole... concern about long-term solvency...
(BUT WE HAVE A PRINTING PRESS... THEY CRY!!!)
And now Daly - who can't see crisis if it's starring here in the face - gets to give a speech... unchallenged. Can someone... please... for the love of all that is holy... challenge these people.
Friday, October 6, 2023
Event: The September U.S. jobs report.
Republic Speak: We've been looking for an oversold bottom - and a reason for Equity Momentum to finally turn positive in over a month.
The jobs report could be that turning point, but my focus remains on rising long-term interest rates as the U.S. government faces a difficult path to roll over existing and future debt. The labor market will likely remain tight, and wages are expected to increase again for the month.
Beware the Squeeze... and wait for a positive equity turn.
Stay positive,
Garrett Baldwin
Secretary of Finance
Garrett Baldwin
Secretary of Finance