Risk: Don’t Make This Mistake Around the “Port Strike”

There will be a lot of temptation to trade this headline. But hedge funds and institutions knew about this strike months ago. Don't get sucked into the noise. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more [Risk: Don’t Make This Mistake Around the “Port Strike”]( There will be a lot of temptation to trade this headline. But hedge funds and institutions knew about this strike months ago. Don't get sucked into the noise. [Garrett {NAME}](floridarepublic) Oct 1 ∙ Preview floridarepublic   [READ IN APP](   Editor’s Note: I am running a soft edition of this letter that I’d consider producing once a month for readers interested in the intersection of national security, government influence, and the 40% to 50% of the economy driven by government spending and direct intervention by politics.  This is not a letter about politics. It’s a letter about making money off the $6.2 trillion annual spending in Washington and the continued money printing, Congressional spending, and actions of the Federal Reserve. [Get your copy here](. --------------------------------------------------------------- Equity Storm Watch Is GREEN on the S&P 500 and GREEN on the Russell 2000 We kick off the fourth quarter today with an eye on Friday’s jobs report and the start of earnings season in two weeks. Markets are taking a bit of a breather this morning as they digest comments from Fed Chair Jerome Powell and updates on stimulus from the Peoples Bank of China. Gold and silver are pushing higher, and Bitcoin is finding support as more monetary inflation follows. However, markets are ahead of their skis in anticipating that the Fed will cut interest rates aggressively in the coming few months.  This morning, RBC Capital’s Head of Derivatives Strategy told CNBC that she’s seeing a dramatic increase in hedging across the markets. The “volatility of the VIX” (vol of Vol) has picked up significantly, raising concerns that serious drawdown possibilities are possible. The worry is rising around earnings and the election, a stark shift from the first six months of the year.  So, there remains good reason to be cautious in this environment. --------------------------------------------------------------- Dear Fellow Expat: Yesterday, I received an email from a reader asking me how to trade the possibility of a large shutdown of ports nationwide. The speculation is that a prolonged strike could paralyze the supply chains ahead of the fourth quarter and ultimately impact the holiday shopping season. What’s the best trade here? How should you position your money… I’ll tell you… [Upgrade to paid]( What’s Happening? Upwards of 45,000 U.S. dockworkers have walked off the job.  This strike will now shut down ports across the East and Gulf coasts. The state of North Carolina reals from infrastructure collapse in the wake of Hurricane Helene. The strike will shut down 36 ports, about half of the nation's maritime trade. The union representing workers wants better pay from the United States Maritime Alliance (USMX). If prolonged, the strike could cause widespread delays, affecting holiday shopping and potentially increasing prices across various sectors. The impact is expected to extend beyond U.S. borders, affecting international trade partners like the UK. The union wants higher wages and a bank to automate port operations. They’ll get the former… but the latter will obliterate them in the years ahead. This was basically the plot of Season 2 of The Wire, roughly 20 years ago. President Biden has vowed not to intervene using the Taft-Hartley Act, citing his support for collective bargaining rights. This impending strike is the first by the ILA since 1977. So… what’s the trade? Don’t Fall For This I will admit that I haven’t focused heavily on this event over the last few weeks, [but neither has the U.S. Secretary of Commerce](. Raimondo’s been campaigning… I’ve been looking elsewhere in the markets. Instead, my eyes and ears have been tied to China’s stimulus – which I predicted would happen months ago—and positioning ahead of that event - while using our signals to time movements in and out of the market. … that doesn’t mean I’m not focused on the supply chain system in America. I’m just not trading it. In fact, if you think you want to try to trade it now, I guarantee you that you’ll be very disappointed. Why? Because hedge funds, institutions, and impacted companies already made their moves a few weeks ago. In essence, [the big moves have already happened](. [In fact, rumors of this strike came months ago]( and companies have already imported roughly 80% of all goods likely for sale this Holiday Shopping season. Reuters was writing about this in June (while I was traveling and focusing on the Permian Basin). Simply put, the impact isn’t as widespread in the fourth quarter as some expect. Worse, hedge funds and institutions have been bidding up the supply chain companies for weeks. RXO Inc (RXO) has increased more than 28% over the last six months. Funds have told CNBC they knew about this months ago… We’re already seeing a sell-the-news even out of XPO (XPO) in the last few days. Now… everyone is speculating on this. Barron’s is arguing that FedEx (FDX) and UPS (UPS) will directly benefit from an expected surge in airfare. Well, Barron’s is just as much as a hype publication as anything else these days. They’re usually last to know… Are FedEx and UPS really great ideas? Is that what you want to bet on? Are you going to tell your golf friends, “Well, with the ports shut down, they’ll need more air freight.” Because that’s the basic thesis of Barron’s this morning. That’s something that no one who understands the supply chains would say. Consider the other side of this argument… because it’s extensive. Heading into the final quarter, both FedEx and UPS operate near full capacity during peak seasons. They may not have the additional infrastructure or workforce to handle a sudden spike in volume caused by a port strike. Even if demand for their services increased, capacity constraints could prevent these companies from significantly increasing their revenues in the short term. And just think about the actual story here: If the port negatively impacts the economy… it’s going to negatively impact FedEx and UPS in the aggregate. A port strike can have ripple effects on the economy, potentially slowing down economic growth and consumer spending. Economic uncertainty may lead businesses and consumers to reduce spending, lowering shipping volumes for FedEx and UPS. There are also operational challenges: Disruptions in supply chains can lead to volatility in fuel prices, increasing operational costs for logistics companies. Overtime and the need for additional temporary workers during disruptions can erode profit margins. And… it’s not like institutions haven’t considered this. Wouldn’t this already be priced in if there were a port strike? All while you’re betting on a prolonged strike… If the strike is resolved quickly, any disruption—and consequent benefit to alternative shippers—would be minimal. And you’d be betting on FDX on the back of that dismal earnings report and forward guidance? With concerns about the global economy? Wouldn’t FedEx benefit more from a massive stimulus from China and rate cuts… instead of “last-minute” shopping alternatives due to a port strike that markets knew was coming months ago? I think it’s too late, and I don’t have conviction about this story. Trends and Stories Take Time I don’t recommend that investors and traders make money decisions based on headlines. Investors should consider all the factors I listed (and more) carefully rather than relying solely on the seemingly intuitive recommendation from Barron’s. Especially when they might not have known about this possible strike until a few days or weeks ago. When we projected massive M&A activity in the Permian Basin, we did so in 2022… long before the big deals started. It took conviction and a lot of research. Simply put. I wasn’t focused on it. And because I wasn’t focused on it, I’m not going to make any recommendations tied to the story. In fact, I’d argue that most of the gains have already been made by institutions eager to sell into any strength linked to this event. What Are We Focused On - We are focused on the trends of government spending and monopoly power—[hence the report on ASML from this weekend]( - We focus on the boom in AI modular data centers in regions with cheap energy.  - We are light-years ahead of everyone on cheap oil and gas production and how that will benefit the Permian Basin’s supply chain.  - We’ve long written about companies like Weibo (WB) and Baidu (BIDU), which benefit from Chinese stimulus actions, and copper prices, which do the same.  - We are following insider buying, monetary inflation, and global liquidity - knowing when to push more chips across the table due to the very nature of the financial system.  I always warn investors that headlines are not what we want to trade. We want to get out ahead of these trends and stories so that when they do become mainstream ideas, we can then sell into the craze - and take gains from our long-standing trend success.  I am not “trading” the strike. I won’t chase this story. I’ll wait it out and reposition it if I’m interested. There’s no reason to force something, especially when you’re behind all the banks and their analysts who have been on this story for months. Now… let’s get into our market update and our latest portfolio move…... Unlock this post for free, courtesy of Garrett {NAME}. Claim my free post [Or upgrade your subscription. Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()