We're Changing Latitudes (Things I Think I Think)

[We're Changing Latitudes (Things I Think I Think)](#) En route to the tropics... let's debate market topics... Garrett {NAME} OCT 4 [Icon]( [Icon]( [Icon]([Icon]( Dear Fellow Expat: The last time I was in Puerto Rico was in mid-2005. I was researching a tuna canning operation. On our last night, when we stopped to look at the sunset and have dinner, someone stole the tires off our car. I didn’t make it back to Chicago for two days after that. Today, I’m [heading to John Mauldin's](birthday party. It’s a chance to clear my head and have strangers ask me questions like: - “Wait… Who are you?” - “Wait… You had a root canal two days ago and flew four hours? - “Wait… How do you know John again?” - “Wait… come on… do you believe the Fed will will print money forever?” As I sit on this Southwest flight, [no Florida-style religious miracle awaits](… no spiritual awakening in the sky. There is ample opportunity to think for four hours. Let’s get to some conclusions on things I think I think… No. 1: So… Buy Visa!!! I read the most unintentionally bullish stock market report ever this week… And it wasn’t even a stock market report. It’s the lawsuit from the U.S. Justice Department against… Visa (V). Doha Mekki, Principal Deputy Assistant Attorney General in the US Department of Justice Antitrust Division, argued an antitrust argument against the credit processing giant. [But all this legal suit made me want to do]( is buy a Visa. These are the arguments Mekki made about the company’s strength. - Dominant Market Position: - Holds 60%+ share in the $4 trillion US debit card market - Holds a crushing 65% share in booming online transactions - Unbeatable Network Effects: - Massive scale with banks and merchants - Competitors (Mastercard, STAR, NYCE) left in the dust - Sticky Customer Base: - Massive moat: High switching costs for banks = loyal customers - Money-Making Machine: - Earns 19 cents per $100 in transactions - Has effectively no financial risk from fraud - Has a mind-blowing 83% operating margin in North America - Monopoly Tactics (Warren Buffett's Favorite): - Clever pricing strategies lock in market share - Exclusive deals with merchants for ALL transactions - They have deals in place with their competition in PayPal, Square, Apple, which means they have the power in the relationship. So… all that happened here is that the DOJ antitrust suit highlights VISA's strength. It maintains a massive moat and monopoly power, which delivers sustained high profits. You know who loves that? Warren Buffett loves companies with wide moats, and VISA has a fortress! And if the government does break it up… all they’ll do is create more shareholder value by accident. There’s more to this… I’ll dig into it tomorrow. No. 2: This Judge Thought He Was a Savior Speaking of antitrust… Earlier this year, a Federal Judge blocked JetBlue’s offer to buy discount airline Spirit. At the time, the judge sided with the Justice Department, arguing that the deal would hurt consumers and reduce competition. He also speculated that JetBlue would abandon the cost-centric business model that made Spirit popular with a core audience. [He went on to write this in the decision.]( “Spirit is a small airline, but there are those who love it. To those dedicated customers of Spirit, this one's for you.” This one’s for you… HA! Since January, Spirit Airlines stock has been down 90%. This morning… shares cratered nearly 27% on news that the company is on the verge of bankruptcy. Here’s a judge who thought he could bend the will of markets. This one’s for you… people who love Spirit… Do you know what reduces competition? Bankruptcy. Do you know what hurts consumers? Bankruptcy. Do you know what’s going to happen now, likely? Someone will buy Spirit out of bankruptcy for the price of a hot dog. And they’ll probably eliminate the entire pricing model that the customers like. The losers will be shareholders and the customers. Congrats, Judge. Take a “victory lap” now… No, seriously… run laps… now. No. 3: The Best Article I’ve Read in A Month Kudos [to Quoth the Raven.]( Yesterday, the author took a blowtorch to the ongoing saga that [FEMA is running low on money]( as the hurricane season starts. He doesn’t go into the fact that we spent all this money on noncitizens and that we’ve been shoveling hundreds of billions into the black hole that is Ukraine. [He writes:]( And in my short time in the world of finance, I’ve seen enough omnibus spending bills—with [funds allocated for]( things like border security in Jordan, Lebanon, Egypt, Tunisia and Oman and family planning to halt population growth that "threatens biodiversity or endangered species"—to have developed a deep loathing for how our government and our Treasury manage finances. That’s just the appetizer, though. Soon, the author tacks and points out the obvious. At a time when our currency debasement is in full swing, and the Fed can just hit a button to print money (like they did in late March 2020 at the height of COVID), our government doesn’t even have the decency to print digital money to help the people in North Carolina. The kicker: In other words, if the money is all fake, and we can conjure up as much of it as we want without any consequences, as both political parties would have you believe over the last several decades, why should FEMA ever be asking for more money to help hurricane victims? Probably because they can’t funnel this funny money through NGOs and think tanks. Don’t worry, though. I’m sure they’ll create another $250 billion for the war machine. He concludes: We don’t even have the decency to press a couple buttons, make the hollow gesture to stock FEMA’s bank accounts before the nation goes bankrupt and at least fake as though we care about our own citizens anymore. Of course not. They honestly don’t like us. They make that clearer every single day. We aren’t a serious country. We’re an extraction point. [Prepare accordingly.]( No. 4 - I’ll Take “Dumbass Ideas” for $800, Alex Japan has now [entered the stupid building](. The nation’s prime minister ordered his cabinet to prepare new stimulus to help people burdened by higher prices. They’re printing money… when prices are elevated. Is anyone home? This has been the trend for the last 16 years - and the stupid is not going to stop. [Food prices just jumped]( by their highest levels globally in 18 months. And they’re printing money… to help people with higher food prices. What are the odds that food prices will GO DOWN after more stimulus is printed… If the people on this plane had been reading what I was reading, they’d have bought out the bar cart by now. [Here’s what I wrote this morning on the subject](. No. 5: CNN Is Harder to Watch With the Sound Off I had breakfast at an airport bar this morning, watching CNN with the sound off. Matt Egan was talking about oil prices, and they flashed that damn “$100 Oil?” tag on the screen. I just want to remind everyone that oil is currently under $75. OPEC has abandoned its price target. U.S. producers are cutting their output costs and raising production. And… a move to triple digits would be… a 33% increase. That’s a lot. Oil prices are impacted by geopolitics. But also by the last barrel - or marginal barrel. EVs are eating into those marginal barrel returns. So, too, are gloomy economic prospects, even in the face of stimulus. As I’ve repeated since BEFORE the Ukraine War started… invest in oil as if it’s selling in a $60 to $65 range. The best way to do that remains the same: [The midstream with strong dividends and appreciation upside](that can deliver double-digit total returns annually. Don’t make this complicated… and stop gambling. Stay positive, Garrett {NAME} Secretary of Finance [Icon]( [Icon]( [Icon]( [Logo Image](#) Postcards from the Republic 1125 N. Charles St. Baltimore, MD 21202 This email was sent to you because you subscribed to this publication via FinPub. 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