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Good afternoon: A short note on a very busy day… I’ll be in Fed mode soon… in about one hour… I’m always looking for that 2:35 trade. However, I expect that this press conference will center more on the relationship between Jerome Powell and President Trump than the Federal Reserve’s relationship with the equity markets. But before we get there, let me tell you about Ed Yardeni. In an email this morning, a note stated that the economist and market expert believes we could see the S&P 500 hit 10,000 by the start of the decade. Now… you might think… WHAT? Huh? But I think… he’s right. As I noted, this market started to change following the Tax Cuts and Jobs Act of 2017. At the time, the U.S. began ramping up funding of the U.S. government debt in T-bills. Roughly 11% of debt issuance was in T-bills then. Today, it’s about 20-21%. And Bank of America has said that it could go to 25% on the backside of deficit funding from the One Big, Beautiful Bill. As I’ve explained, T-Bills help promote leverage… and everyone likes to crowd into the same leveraged positions repeatedly. This is why I’ve said I see a strong INVERSE relationship between the Bank of Montreal MicroSectors FANG Index 3X Inverse Leveraged ETN Exp 8 Jan 2038 (FNGD) and the leverage of the S&P 500. When this thing cracks above its 20- and 50-day moving average, it seems to align with sharper drawdowns in the Magnificent Seven stocks - which are heavily concentrated in leveraged funds, ETFs, and active investor flows. I feel like it’s a good time to go back to school and do a dissertation on this… The point is - I think Yardeni’s target is possible. Yardeni argues that it’s because of “Animal Spirits.” This draws the image of bulls and bears fighting in the equity markets. But as I’ve drawn from the work of Michael Howell and J.D. Henning over the years, I’ve concluded that there are no “bull markets” or “bear markets.” There are only LIQUID MARKETS… and ILLIQUID MARKETS. So… based on this… I conclude that Yardeni’s 10,000 prediction is viable because… Of math… And I’m explicitly citing the never-ending pace of monetary inflation, the ongoing money printing, and the increased leverage. Plus, as I said, President Trump has now proposed putting as much U.S. debt as possible into T-bills until interest rates decline and we can refinance everything later. I don’t even know what the hell could happen if we did this. My hypothesis is… If the U.S. issued only T-bills for two years, it would flood markets with high-quality collateral. That would drastically increase leverage in the repo and money markets. That would fuel a huge swell in short-term capital (or liquidity) that would pump a risk-on rally in the S&P 500. The issue is that the need for constant refinancing creates a VERY fragile system. Any disruption. And I mean… ANY… Inflation creeps up, foreign investors leave… there’s repo stress like in 2018, and then you can see a sharp unwind. What would happen then? The Fed would have to step in. This would be a restart of Quantitative Easing, although they would probably call it something else. And that’s where Mr. Yardeni’s 10,000 figure doesn’t seem so insane. Leverage… liquidity… and hopefully growth because of AI? I’ll discuss the latter tomorrow. For now… pay attention to the leverage. It’s right there in front of you. And as always… Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
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