Last night, my wife and I found ourselves in Tampa, Florida.
At Republic Risk Letter this morning, we introduced the Negative Momentum Alligator. He fell off his surfboard after the positive wave of momentum crashed over his head following an abysmal U.S. bond auction that showed weak demand for U.S. debt.
With our signals turning negative at the end of the day, we've avoided today's selloff - and moved ourselves back into a "Wait and See" approach.
"You will short the market... and like it!"
But there's another animal more dangerous than this guy above.
The Economic Groundhog.
"Punxsutawney Paul" Krugman - a person who has shamelessly turned economics into a partisan subject. He keeps saying the same things repeatedly - yet no one thinks of him as a forecaster anymore... You'll recall Krugman recently called for the Fed to abandon its inflation target and simply declare victory.
It seems that Krugman is getting impatient. He wants to claim victory...
He needs to.
So, yesterday, Krugman - a Nobel Laureate who should know better - tried to celebrate victory and claim "Six more weeks of Bidenomics spring."
This may be the single most disingenuous economic post I've ever read.
We did it! Inflation is over!
All you must do to believe this nonsense is strip out everything that matters to American consumers.
Just don't count energy... food... housing... or how you get to work into the inflation battle. Americans don't need any of those things, right?
Instead, live in a hollowed-out big-screen television and eat the copper wiring for sustenance.
Natural gas was down so we can celebrate that. Instead of buying bottled water, you can just suck down a bowl of LNG with your cracker rations.
Krugman later said he was being too flip about it. But he was just being arrogant.
He went on to try to explain himself, which doesn't work in the social media world.
Plenty of people called him on it. But I'm sure he already knows the obvious
The four things he removed from the CPI reading... represent two-thirds of it.
Data... that Krugman should consider.
The CPI report also suggests that "Food Away from Home" is only up 6%, while food generally is up 3.7% annually. Apparently, they're happy to lie to us at the Federal level (I go to the store four times a week. I can't name an item that isn't up more than 10%. Even the Iced Tea packs I buy are up 15% year-over-year.)
Krugman's declaration of victory would be the same as if he were the quarterback of the New York Jets. His team is down 3 points with ten seconds to go. It's third down, and he has to move the ball five yards to get into field goal range.
Instead, he drops back to pass, holds the ball for eight seconds, and then launches the ball directly through the field goalposts.
And then, he takes his helmet off, runs into the tunnel, and shakes his finger in the air claiming, "We're No. 1."
It makes absolutely ZERO sense to me.
I'd be angry at Krugman, but the Trump years completely shattered the man.
Equity Signals and ETFs
As you know, we have three primary signals for the market.
We track equity strength in the Russell 2000 (IWM), Nasdaq 100 (QQQ), and S&P 500 ETF (SPY).
Each sector has a positive way to trade it and an inverse way to trade it.
There are also leveraged funds that some traders like to use to either profit or hedge depending on specific market conditions. Today, I want to outline the ETFs that can be considered when these indicators change. (I don't recommend owning them late in a momentum cycle).
Trading these can be quite intense for some. But when the signals shift and the winds change... or sectors or indices are oversold, they can be a cleaner way to trade or invest for weeks instead of playing around with options.
The first column of letters are the tickers for ETFs that track the performance of each sector. The -1x are inverse ETFs. I don't commonly track those simply because not every sector has a reliable negative single ETF. But there are inverse ETFs on the key indices.
The final two columns (unless noted) are leveraged ETFs that deliver 300% performance based on the movement in the underlying index or sector. For example, the FAS (Financial Leveraged ETF) returns 300% of gains made by the financial sector in a day. And the FAZ returns 300% for the financial sector's losses in a single day. These funds use leverage to magnify such returns.
I don't advise that you run out and start trading these based on the signals.
They are essential to helping us identify the movement of flows and sector strength.
Of course, we're always focused on the individual signals.
If you want to invest in ETFs when positive flows come back into a sector, even the sector ETF with no leverage can be a much more desirable alternative than picking just one name.
We can wait until - for example - we see positive flows into Materials and buy the ETF for as long as the money keeps rolling in. For example, energy just had a 13-week rally before the selloff that I recently predicted.
We'll continue to focus on the best way to manage risk over at the Republic Risk Letter. I'll be back this weekend for insights into earnings season, expectations for next week, and the recent head fake that took this market lower on Friday.
Stay Positive,
Garrett Baldwin
Secretary of Defense