Postcards: Our Worldview Hack...

I asked people to read everything... now I'm offering the cliffnotes. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: Our Worldview Hack...]( I asked people to read everything... now I'm offering the cliffnotes. [Garrett {NAME}](floridarepublic) Sep 24 floridarepublic   [READ IN APP](   Before we get started, [I’m asking readers to sign up for Postcards from the Republic]( Finpub.com. It’s a quick signup… and we’ll send you the latest report on midstream AI when we wrap it… even if you’re not a member of Republic Risk. [Join me here]( FOR FREE, offer feedback, and get your free report at the start of October. --------------------------------------------------------------- Dear Fellow Expat: So… maybe you didn’t want to [read 14,000 words last week?]( Let’s cut it down by 1/12th… that sound good? Compromise? Here’s a shortcut to what we discussed last week in how we see the world, and why you should become a member of Republic Risk. As one of my readers recently described the Republic. Not just that, I hope… but analysis that “You Can’t Unsee.” [Upgrade to paid]( The Financial System’s True Design The global financial system is designed to perpetually support liquidity and prevent deflationary crises. As engineer W. Edwards Deming said, "A system is set up to create the results it achieves." The results we see in financial markets reveal the system's true design. My worldview rests on three key pillars: - Global Liquidity - Market Momentum - Insider Buying We’ll explain each. These factors are deeply interconnected and provide a framework for understanding market behavior and identifying investment opportunities. Global Liquidity: The Lifeblood of Markets [Michael Howell of CrossBorder Capital]( defines global liquidity as "every dollar, all cash and credit in the financial system, influencing asset prices and global economic activity." This includes not just central bank actions but also shadow banking, corporate balance sheets, and the money in the cushions of households. Howell's research shows global liquidity cycles driving market booms and busts since 1971. Ainslee Capital via CrossBorder Capital Global liquidity today is $177 trillion, up $9.5 trillion since January 2023. The bulk of this liquidity ($106 trillion) comes from shadow banks, not traditional central banking. This global liquidity measurement has a direct causal relationship with the performance of the MSCI Index. Cross Border Capital Funny what nonstop financialization can do to a financial market. Even more interesting… wait until Friday when I show you the impact of this on the purchasing power of the U.S. dollar over the last 31 years. Key insight: "Money moves markets," as Howell states. Liquidity (and its related cycles) has been the primary driver of asset prices since 1971. Part 2: Market Momentum: Riding the Waves J.D. Henning's doctoral research identified seven stages of stock price movements. \ JD Henning We can gauge the overall market direction by measuring the number of stocks in extremely positive or negative momentum. This approach allows for a market-timing approach for moving to cash or using hedge and income-generation options. His discoveries challenge the notion that markets are purely random or efficient. “I work at a college as a janitor even though I feel like I'm smarter than most of the people who go there. Sometimes I see an equation written on a blackboard like half an equation and... I just figure it out.” When many stocks enter negative acceleration simultaneously, it often precedes major selloffs. Conversely, broad positive acceleration signals buying opportunities. We have built an on-off switch using similar math and complementing it with the works of other momentum experts, such as Gary Antonacci'l Henning’s father, Grant. This is how it’s behaved for us over the last two years (we’ve been on air and in print talking about this on a regular basis). Republic Risk readers get regular updates. We also focus on reversion momentum. Oversold conditions in the Relative Strength Index (RSI) and Money Flow Index (MFI) often lead to short-term rallies, even in downtrends. Algorithmic trading amplifies these reversions, which investment legend Stanley Druckenmiller discussed in 2018 to much fanfare. Part 3: Insider Buying: The Ultimate Market Timer Corporate insiders have consistently "called the bottom" during major crises by aggressively buying their stock. This typically aligns with central bank interventions and liquidity injections. See the blue line? That’s the five-day moving average of insider buying to selling on a dollar-for-dollar basis. The higher the blue line, the more extreme insider buying has been since 2006. You’ll notice key moments of insiders calling the bottom on the aggregate. - March 2009: Start of QE1 - Late 2011: European Debt Crisis - Early 2016: China crash and Shanghai Accord - Late 2018: Repo Crisis - March 2020: COVID-19 pandemic - October 2022: Bond market turmoil - October 2023: Collateral crisis (10-year bond hits 5%) - August 2024: Nikkei implosion. Insider buying usually precedes major policy shifts that boost liquidity and drive markets higher. We’ve used it as a barometer to identify liquidity bottoms, central bank support efforts, and the bottom of negative momentum events. The Interconnected System These three pillars work together: - Global liquidity cycles drive overall market trends. - Equity strength indicators signal short-term market direction and potential reversals. - Extreme insider buying confirms major bottoms and aligns with policy support. Understanding this system reveals why markets often behave counter-intuitively. For instance, the S&P 500 rallied in 2023-2024 despite high interest rates and Fed balance sheet reduction. This was driven by a $9.5 trillion increase in global liquidity, largely from shadow banking. The system is designed for perpetual bailouts and liquidity support. Central banks, fearing debt deflation spirals, consistently intervene to prop up asset prices. This has been the pattern since the collapse of Lehman Brothers on September 15, 2008, marking "the day capitalism died." What Investors Should Do - Focus on liquidity over traditional metrics: P/E ratios and even earnings matter less than the money flow in the system. It’s been this way for 16 years. - Watch for momentum shifts: Use tools like RSI, MFI, and broader momentum indicators to identify potential market turning points. Negative momentum events have distinct opportunities for traders and investors. [Here are six rules.]( - Follow the insiders: Heavy insider buying during crises often signals imminent policy shifts and market bottoms. We do this all week at Republic Insider ([go here for a free report on Enterprise Product Partners]( - Understand the playbook: Major marketing plumbing problems are typically followed by central bank interventions and liquidity injections. This pattern has repeated consistently since 2008. - Key assets to consider: - Gold and industrial metals (benefit from monetary inflation) - Electricity and midstream energy assets (structural demand growth) - Banks (which benefit from QE at the Fed) and insurance stocks - Blue-chip stocks with Piotroski F-scores and buybacks]( - Prime real estate (finite supply) - Bitcoin (cyclical but benefits from long-term monetary expansion) - The "AIG Indicator": AIG stock is a proxy for global default risk. It consistently rallies after liquidity crises are resolved, making it a potential bellwether for market recoveries. - Correlated plays: Student loan servicers, leveraged mortgage REITs, asset managers, and regional banks often benefit similarly to AIG from liquidity injections. - Be prepared for reversals: Markets rarely move in straight lines. Expect sharp rallies as algorithms and short-covering drive temporary reversions even in downtrends. - Cash is a position: Build cash during negative equity signal periods to prepare for buying opportunities. - Think globally: Major market moves often stem from international events and coordinated central bank actions (e.g., the Shanghai Accord in 2016). Challenges to the Worldview This system has persisted since 1971 and has intensified since 2008. However, risks remain that could fuel the next big downturn in the market - before the next major monetary support aims to prevent a debt deflation crisis: - Debt overhang: Trillions in public and private debt need refinancing in the coming years. - China's debt deflation risk - Potential instability in the Japanese carry trade - European deindustrialization challenges While the system is designed for perpetual support, a true breakdown would have severe consequences beyond financial markets. Anyway… my best friend is Ben Affleck… In Conclusion… The global financial system is designed to deliver consistent results: liquidity-driven asset inflation punctuated by periodic crises and subsequent bailouts. Investors can more effectively navigate this landscape by understanding the interplay of global liquidity, market momentum, and insider buying. Remember: "Every system is perfectly designed to get the results it gets." The results in financial markets are not accidents but the intended outcomes of a system built on perpetual liquidity support and crisis management. Investors who grasp this reality can benefit from the long-term inflationary trend and the short-term opportunities created by liquidity-driven market cycles. It’s all right there in front of you. If you’re on the sidelines in cash, don’t blame me when the S&P 500 rips to 6,000… and climbs to the top of this monetary cycle. We’ll worry about 2026 and beyond later. For now, you need to be in the game. And… as I’ve said time and time again, we’ll raise the Red Flag for Republic Risk readers when it looks like the next major selloff is underway. [Upgrade to paid]( Stay positive, Garrett {NAME} Secretary of Defense 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]()