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Dear Fellow Traveler: Well, I forgot to send this yesterday, because I was nerding out on the Federal Reserve reports…. I joined Michele Steele over at StockTwits. We talked about liquidity, momentum, and what we’re seeking in a market bottom. Great conversation…  All right… I’ve got a fever… And the only prescription… is more Chart Party… Chart 1: Cancel the Baseball SeasonIf you think the financial markets are a mess… take a look at this…
Baseball - like the markets - remind us - however - that one day does not create a track record or a trend. I’ll still take the under on 3.00 ERA this year… And if anyone wants to trade him to me - even if I’m NOT in your fantasy baseball league - I’ll take him. I’m obviously long illiquid Paul Skenes assets.
Chart 2: It’s a Dollar ProblemSyz Group made this its chart of the week. It’s showing the ongoing pressure in the global dollar funding world. We’re now past the U.S.-organized dollar shortage in Iran or the ongoing shortage creating chaos in Venezuela. This is the Eurodollar markets facing a squeeze, primarily in Asia where buyers are scrambling to get dollars in order to pay for exploding oil prices. The spillover is creating serious consequences for the global financial system.
Are swaps on tap? Are we reaching that point? Jeff Snider at Eurodollar University has been on top of the ongoing weakness in the financial plumbing. He’s using the term that we finally need to start using. Credit Crisis. Not liquidity crisis… A credit one. The race on the dollar is happening now. Keep a very tight eye on the Secured Overnight Financing Rate (SOFR). Say it with me… if the credit system freezes… “Money Printer go…. BRRRRRRRR….” Chart 3: The MAG 7 Continues Its ProblemsNothing to see here… Just the Magnificent 7 taking it on the chin even harder. I remind you that market structure plays a significant role. Lots of people was chasing the same stocks, unwinding leverage, and failing to recognize that it’s dangerous to be a herd when our negative momentum signals emerge.
The bearish calls are now starting to arrive around concerns with liquidity… I think this could be in the COVID range for a downturn… and it all comes down to the plumbing. If the Fed gets creative like the Bank of England did in 2022, then that would be the bottom for now. Chart 4: Moving from One Crisis to the NextYou think this crisis is any different than the past ones? Nope… All we do is move from crisis to crisis… even though Janet Yellen said in 2017 that we likely wouldn’t see another financial crisis in our lifetimes. Whoops…
As I described it… a never-ending process of suspended animation. And as John Tuld taught us… “It’s all hands on deck now Sam, there is going to be a lot of money to be made coming out of this mess.”
I CAN’T WAIT…
Chart 5: Energy Supercycle in One Chart When I did the Iran presentation a few weeks ago, I was decidedly focused on a handful of assets. Refineries, midstream energy, upstream oil production, and fertilizer. As you’ll see in a chart toward the end, all of those sectors are in breakout momentum mode. The question now is whether momentum turns into a realized, sustainable investment trend in these spaces given their valuations. Here’s the problems in the global oil and gas sectors in one stunning visual.
The ongoing war has wiped out lots of capacity and put so much production behind a vital chokepoint in the energy economy. Even if the war ended tomorrow, Ras Laffen is shut down… for a long time. It will take years to bring so much of that capacity back. And by then? Guess what… The U.S. and Brazil will likely have accelerated their downstream energy capacity. You know who won’t be a leader though? Germany… Chart 6: Not So Fast Germany There are charts that showcase policy failures… and then there are CHARTS THAT SHOWCASE POLICY FAILURES. Congratulations, Germany, you’ve sunk your own battleship. Germany was a leader in nuclear power for decades. Today, they’re not producing anything anymore.
It’s absolutely stunning that this was their solution to… anything. This country’s leadership has been wrong about energy for decades now. It’s easy to forget that they basically just leveraged their entire economy on Russian natural gas for years, and then the lights went out. But they were playing stupid games long before COVID and the Ukraine War. I traveled to Germany in 2010 as part of my graduate program for a Transatlantic Energy Security seminar. I was STUNNED by the level of irrational thinking at the Minister of the Environment and the Minister of Energy… and - naturally - my professor - knowing how I felt about their failed Desertec Project… asked me not to keep asking questions. Seriously, they thought they could just turn Northern Africa into a giant solar panel for Europe and that this energy was going to replace the bang of nuclear energy. Chart 7: Meanwhile, in China…China’s continues to accelerate its battery presence and electrification of their economy, setting a breakneck pace that’s hard for the West to replicate. Someone asked me on stage a few years ago how it was possible that China continues to showcase these hockey stick like moves… and places across the West continue to struggle to build anything. It’s a simple answer… China doesn’t have private land rights. They can announce a national initiative, and no one can do anything or tie it up in court because… well… that private ownership is banned. Then, someone in the audience asked me if I was advocating for the end of private property in America because this was my answer. Um… no. I’m not endorsing that… I like my land - thank you very much - but please be aware that policy creates incentives, which creates outcomes. I was speaking in fact… not in opinion.
The West can’t keep up right now. It’d be awesome if we banned all the red tape and made it possible to build shit. But we create bad incentives… It’s easier to build a Leveraged ETF that trades Bitcoin than it is to create a battery farm in Maryland. So… our smart people just play the financialized economy instead of the physical one. Chart 8: This Isn’t GoodWell, Archer Daniel Midland (ADM) and Bunge (BG) are ripping because of this expected outcome. Consumer defensive food names are getting beaten up because of expected margin expectations. But… yes… food prices are heading higher.
Them’s the rules. Chart 9: Momentum StrengthLastly, Money Printer Elite members got access today to a new tool that we created. We took all of my top momentum and conviction studies and put them into a blender to create a weighted conviction machine around strong momentum trends and a combination of fragility and liquidity. What came out is a high-conviction trading screener that gives us insights into what to trade to the upside, with tight stops and even spreads to define risk ahead of time. These are the Top 10 strongest names, according to the data set.
It’s not shocking that this is telling us what’s working in the world. Agricultural stocks in Archer Daniels Midland (ADM) and Bunge Global (BG) aren’t shocking, and neither is seeing the upstream oil-and-gas producers aligning with refineries and fertilizers. The longer this war goes on… the higher the odds that strength remains in these sectors… Chart 10: And Now the Losers.This was an interesting takeaway as we called it a day. The two worst names on the screen were Visa and Mastercard, telling us everything we need to know about the threat of rising rates, consumer spending, and projections of a weakening economy in the face of rising prices. Insurance stocks are under pressure, alternative asset managers linked to private credit, real estate investment trusts due to rate pressures, insurance, and - gulp - Berkshire Hathaway.
I will say this… and I want you to hear it explicitly… When the money printer turns back on… when the policy accommodation does happen, when they panic… and QE will send many of these names into reversion breakouts. It’s right there - and so obvious - this is the financialization basket… and while the negative pressure is set to build… These are the stocks that will get rescued when the BRRRRRR does begin. Now… we have to be patient. For now… 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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