Postcards: Time to Learn The "V" Word

Oh... great... our old friend appears ready to return after a long winter nap... ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: Time to Learn The "V" Word]( Oh... great... our old friend appears ready to return after a long winter nap... [Garrett {NAME}](floridarepublic) Jul 22 floridarepublic   [READ IN APP](   [Republic Risk Readers Go Here for Your Daily Update]( The NASDAQ 100 will likely test its 50-day moving average. I’m not afraid to buy the dip on that to test that moving average… but I’d expect big swings starting this week. --------------------------------------------------------------- Dear Fellow Expat: I’m pretty sure this is all my fault. You see… I decided to try something extreme last week. I decided to start a 12-week exercise and diet program to jumpstart my recent return to Maryland. It requires a 45-minute walk a day (plus another workout)… a very strict diet… and no alcohol. So… I’ve been walking (where there’s nothing but time to think) and not touching alcohol… And in eight days… the world has given me plenty of things to think about… - Former President Donald Trump was nearly assassinated… - President Joe Biden has dropped out of the race… - Kamala Harris (Seriously… they’re now choosing Harris, right?) is now the DNC frontrunner… - The largest rotation from tech stocks to small cap in 20+ years happened... - Israel blew up Yemen’s ports… which will only accelerate geopolitical tension… and concerns me as a commodity investor and trader. What’s going to happen this week? Maybe the start of a volatile market season? Welcome Back Volatility I showed this chart yesterday… As we noted… volatility historically starts to pick up in mid-July of election year. Sprinkle in the fact that we’ve seen a tumultuous last nine days, and it’s hard to expect that the market will deviate from its historical path. I want to stress - volatility isn’t something that fuels stocks to ONLY go down. Volatility in the markets is the wild dance of asset prices, swinging up and down. And that’s why I want to take a step back… and explain what volatility is and why it matters. Don’t be afraid of the “V” word. Use it to your advantage. Volatility is the measure of how fast and how far prices move within a certain timeframe, painting a picture of the market's mood—calm or chaotic. We measure the standard deviation or variance of returns from financial instruments. The most popular is the VIX - or S&P 500 Volatility Index. I like to call the VIX the central nervous system of the market. The VIX is a real-time measure that reflects the market's expectations for volatility over the next 30 days. It’s measured from the prices of S&P 500 index options. When investors are jittery, fearing the sky might fall, the VIX spikes. Conversely, when the market hums along like a well-oiled machine, the VIX retreats into the shadows. Why does volatility matter? Because it’s the lifeblood of financial markets, the very essence of risk and opportunity. When volatility is high, the market is a rollercoaster, thrilling for some, and scary for others. It reflects the constant tug-of-war between greed and fear. Investors and traders watch it because it can make or break fortunes in the blink of an eye. Managing this beast is where the real craft comes in. [Diversification and proper allocation]( is a prime strategy: spreading investments across different asset classes, sectors, or regions to buffer against the wild swings of any single market. [Hedging is another tool]( using [options or stop losses to protect]( potential losses. It’s critical to have a backup plan, a safety net if the bottom drops out. Finally, have a long-term perspective. We’ve seen lots of movement in the markets over the last decade that can be scary. The world ALWAYS feels like it’s about to end… and the markets are set to implode - driving us into another Great Depression. But then it doesn’t happen - and all of the Permabears telling you to buy survival food are wrong again. While the market may be a tempest in the coming months, over the long haul, it holds an upward bias. Why? Because central banks and shadow banks continue to create more credit and debt in the system. That new money flows into risk assets. And look right here… 80% of central banks around the world are expected to ease their monetary policies by the end of the year. That might not be Quantitative Easing, but it’s a start… don’t worry. That QE will come, and the Fed will probably start buying assets again at a frantic pace. Why? That’s all they know how to do… No doubt about it. It’s hard to stay the course. You’re going to need nerves of steel and the wisdom to see past the immediate storm. You’re also going to need to make sure you have enough cash to get you through the storm - so that you don’t need to sell at a loss. All while you wait for a new opportunity that will come every few years (or even a decade) to buy the best companies in the world at a sharp discount from today’s valuations. At the end of the day, volatility will stir up powerful emotions—fear and greed, the twin devils of investing. It's easy to get swept away by the chaos, making impulsive decisions that can lead to financial disaster. We’ll be here each day to help guide you through these waters… Finally, On Biden’s Departure It was just last week that President Joe Biden said to George Stephanopoulos. “If the Lord Almighty came down and said, ‘Joe, get out of the race,’ I’d get out of the race. The Lord Almighty’s not coming down,” said Biden to Stephanopoulos. It turns out that Nancy Pelosi is not only the greatest trader in market history, but she is the Voice of God now. People have claimed that we’ve lived in a simulation for years now, and they assumed that it was Elon Musk running it. [Nope… it’s the Baltimore D'Alesandro family](. The most important thing about Biden’s departure for the market… is that it puts the entire focus of divided government back in focus. The odds of a Republican sweep are at 37% - which is nothing in politics. Biden’s departure will likely help the down-ballot candidates, and give some breathing room to contested Senate races that have been pushing toward Toss-Up category from Lean Dem. CNN released a report the other day called: The 10 Senate Seats most likely to flip… One could make the case that the first 8 were definitely in the cards for the GOP before this announcement. This decision completely shifts the political news cycle. The GOP will take West Virginia and Montana. The next two that were shifting toward the GOP were Ohio and Nevada. Time to move them back into the Dem camp for now. A divided government “market” is one that decreases the inflationary and fiscal pressures of a GOP sweep. As I’ve noted, the last two times that we had a Full Party capture of Congress and the Presidency, there was ample issuance of new debt - the Democrats in 2009 and the GOP in 2017. It is inevitable that the U.S. would borrow more under a GOP sweep because 1) It’s how the game works, especially with an emphasis on tax cuts 2) we have $9.3 trillion in debt requiring refinancing within the next 12 months. No matter what, deficits are going up… not down in the long term. No one has the political courage to do what needs to be done… so we are on our own. As I always say… no one is coming to save us. Hedge against monetary inflation across the board. What About Harris? This is Trump’s election to lose, and the more he talks… the less he accomplishes. He shouldn’t have said anything about Biden stepping down, but he did, and it was petty. I still don’t think Harris will become the nominee, but I’ve lived in political denial before. But what would President Kamala Harris bring to the market? The same policies of Joe Biden. Those were largely the same policies under the Obama Administration. On the economic front, this is going to be a battle over extending the tax cuts of 2017… Anyway… enough of this. This isn’t a political newsletter… Stay positive, Garrett {NAME} 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. Under company rules, editors and writers cannot recommend their positions. 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.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()