Postcards: A 700-Year-Old Trick Still Fooling the Markets

Here in Puerto Rico, it just sounds like a Mariachi band following me around on the Manhattan subway. Plus, the week ahead. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: A 700-Year-Old Trick Still Fooling the Markets]( Here in Puerto Rico, it just sounds like a Mariachi band following me around on the Manhattan subway. Plus, the week ahead. [Garrett {NAME}](floridarepublic) Oct 5 floridarepublic   [READ IN APP](   Dear Fellow Expat, Giotto di Bondone was an Italian artist from the late Middle Ages. He lived in Florence in the 13th century and studied under the great mosaic artist Cimabue after the latter discovered the Giotto at 10. The legend goes that Cimabue had left his shop for a little while. And Giotto, in his prankful ways, painted a fly on the nose of a portrait the master painter worked on. Upon returning to his painting, Cimabue saw the fly on the painting… He swatted at it… once… twice… three times. It was an illusion, one that highlighted Giotto's talent. Following Friday's jobs report… I'm reminded of the painter and the fly. Just as Cimabue was fooled by Giotto's masterful illusion, it seems the financial markets are being duped by an equally convincing economic mirage. Friday's jobs report caused excitement and action. Bloomberg and others are swatting at this economic canvas with glee, celebrating a huge bounce in new jobs and declaring the Fed's policies vindicated. "Soft landing achieved!" they cry. Dig a little deeper, and the true nature of this "stunning" jobs report reveals itself. A few weeks before the elections, a record 785,000 government workers were added in September, pushing total government workers to a new record high. This was the record's biggest monthly surge in government workers (excluding the outlier print in June 2020 during COVID-19). Let that sink in for a moment. We're not seeing a bloom of innovation in the private sector or a manufacturing renaissance. No, we're witnessing a tidal wave of bureaucratic expansion that would make even the most ardent fan of red tape blush. This happens when unproductive people with little understanding of business run the nation and the states. This is the direction ahead. But don’t be shocked when we see downward revisions in these numbers. They always seem to creep in months later. It's the economic equivalent of my high school yearbook photo—it looks great at first, but age reveals all the flaws. That said, in this market, we have to accept the pretty picture until the paint starts to crack. The money might be as real as Giotto's fly, the gains are as substantial as a painted shadow, but the game continues. We participate because, for now, that's where the action is. Our job is to play skillfully but always with one eye on the exit, ready for the moment when the painting is finally seen for what it is. Where am I… Let’s dive into the week ahead. [Upgrade to paid]( Chart of the Week For the first time since March, we’ve moved into an Extreme Greed sentiment, arched on the back of the strongest annual return ever in an election year. Look… I hate to be that guy… but there is good reason to be concerned about the Treasury Department's efforts over the last year. While interest rates hovered above 5%, the Treasury Department engaged in widespread monetization and manipulation of bonds… aiding the economy with the same benefits of a 100-point cut to the Fed Funds Rate (without the cut). [NYU professor Dr. Noreil Roubini documented this.]( The core concern moving forward is that this sort of policy could become the NORM in election years. We’ve seen many people take victory laps around the 785,000 new government jobs… and people bragging about the economy. But as E.J. Antoni notes… nominal growth is up $6.5 trillion since late 2020. Debt is up $7 trillion. According to Alf Peccatiello, only about $1.5 trillion of that growth… is driven by labor, productivity, and inflation. He argues that we’ve spent $7 trillion in debt to generate $5 trillion in debt-based growth. That is insanity… And it’s made worse by the fact that the people doing this… all have Ph.Ds in economics and finance from the Ivy Leagues. It’s unsustainable. But it’s all an effort to cling to power… the future be damned. As I have explained time and time again… there’s a hedge… [And I give it away for free.]( Chart No. 2 Just FYI… The MSCI China is now outperforming the MSCI US on the year. Gavekal Research via Syz Group Two things. The first is the Why: China is engaging in a massive stimulus… Second, I’ve been forecasting this all year. And it’s not over. There will be trillions of stimulus coming. This goes back to a report I wrote at the start of the year, telling investors to keep a close eye on Baidu (BIDU) and trade it when stimulus enters the equation. I noted this again in May [when Michael Burry disclosed a stake](. I wrote: I named BIDU one of the top stocks to trade this year based on momentum and moves by the People’s Bank of China. The stock is flat, but the trading swings have been wild. Burry is likely betting on a significant expansion of monetary policy operations in China to prop up the system. BIDU is up 33% in a month since China started pumping... Weibo (WB) is now up 58% in a month. Why? STIMULUS. That’s it… that’s all it is. It can’t be that simple… right? RIGHT? Sadly… it is. It’s been out in the open for a decade. People just don’t take the time to pay attention because it seems too simplistic. This has been the Church of David Tepper for the last 15 years. Tepper’s doing great. [I said - last week - to listen to Tepper.]( was right all week… We’ll probably see this same situation happen here in the U.S. when we hit our next cyclical bottom in late 2027 and 2028. This is how the world works. Let’s get to the week ahead. Monday, October 7 Event: Every Fed Member Gets to Talk (Call Your Mother) Why it matters: The Fed's talking heads will be yapping all week, trying to convince us they know what they're doing. They’ll be saying that the “soft landing” is here. We only needed to borrow 7% of GDP to generate 3% in economic growth. That’s not a net-negative loss… no. Gosh, people are economically ignorant. Republic Speak: Watch Kashkari, Musalem, Williams, and Bostic perform linguistic acrobatics, walking the tightrope between "we've got this" and "please don't look at the mess behind the curtain." But remember… they’re keeping the net up… [“This is the Greatest Show.”]( [A circus-themed illustration of global central bankers as cast members of 'The Greatest Show'. The setting is a grand, vibrant circus tent with colorful lights, financial charts, and market graphs swirling in the background. Jerome Powell is the Ringmaster at the center, wearing a red coat with gold embellishments, a top hat, and holding a cane. Christine Lagarde is a trapeze artist in a sparkling outfit incorporating the EU flag. Haruhiko Kuroda is depicted as a strongman wearing a striped outfit, holding symbolic weights. Andrew Bailey is a magician in a dark outfit, holding monetary tools. Yi Gang is a juggler dressed in an outfit with traditional Chinese elements, juggling symbols like the yuan, inflation, and economic growth. The overall style should be colorful, with a lively atmosphere reminiscent of a circus show.]( Keep your eyes on Neel Kashkari. He’s my dark horse for the next Fed Chairman. He will likely remind us that he was once the TARP guy as if managing a $700 billion bailout is something to brag about. He also worked at Goldman, if that matters. “You are not gonna let me get down a single bite, are you?” - Too Big to Fail Musalem, the new kid on the block, will probably try to sound important while saying nothing. Williams? He'll give us that doe-eyed look while explaining how printing trillions is good for your wallet. And Bostic? He'll moderate a talk on "Dynamic Business of Professional Sports" because that's what we need from a Fed president. No… that’s actually happening. Just keep buying the dip. At least until mid-2025. Japan and China are printing like fiends. You’re not fighting the Fed. You’re hedging against them. [Upgrade to paid]( Tuesday, October 8 Event: PepsiCo earnings call and General Motors Investor Day Why it matters: PepsiCo's results will give us a taste of consumer spending, while GM will try to convince us they're not just another dinosaur in the EV age. I think it’s always important to know where all that taxpayer money on SNAP is going… Pepsi. Republic Speak: We learn if America's still guzzling sugar water and munching on glorified corn dust. PepsiCo's earnings call is like a national health check-up, but we're measuring Mountain Dew consumption instead of blood pressure. There’s something fun to watch this week… Pepsi recently purchased Siete Foods, a small, Austin-based health food company. The customers are distraught that Siete sold to the evil empire. So, watch for news on this deal, especially buzzwords like "strategic portfolio optimization." This is just corporate speak for "we're trying to convince you Doritos are part of a balanced diet." Meanwhile, General Motors is hosting an Investor Day in the land of rust and dreams. Expect a parade of suits trying to convince you that GM isn't just your grandpa's car company anymore. They'll throw around terms like "EV revolution" and "autonomous future" faster than you can say "government bailout." In the time it would take GM to design a new cup holder, Tesla VP of Vehicle Engineering Lars Moravy will have designed three new models, and Elon will have colonized Mars. Wednesday, October 9 Event: The Federal Reserve releases FOMC meeting minutes Why it matters: We get to peek behind the curtain of the Fed's decision-making process. Spoiler alert: It's less "Wizard of Oz" and more "Cliffhanger." Republic Speak: Wednesday brings us the FOMC minutes. This is where we get to see how the sausage is made, and let me tell you, it's about as appetizing as gas station sushi. Expect to see phrases like "carefully monitored," "data-dependent approach," and "transitory factors." They'll likely discuss the "labor market dynamics" as if they've discovered people need jobs. Here's a fun game: take a shot every time they mention "inflation expectations." But be careful; you might end up as loopy as their monetary policy. They'll probably pat themselves on the back for their "prudent management" of the economy, conveniently forgetting they were the ones who fed it steroids in the first place. Once again… we added $7 trillion in debt. It didn’t deliver. The real entertainment will be reading between the lines. Watch for subtle hints of panic, like "concerned discussions about global factors" – Fed-speak for "China's economy is a dumpster fire and we're worried it'll spread." And it will… which is why we’re seeing Japan and China print while the U.S. moves to weaken its currency. Thursday, October 10 Event: The CPI report release. Why it matters: Inflation numbers could make or break market sentiment. Republic Speak: This is where we find out how much of a pay cut we've all taken, courtesy of inflation. The pundits will say, “Inflation is coming down,” showcasing their ignorance. The inflation rate is coming down. Inflation doesn’t “come down”—it compounds. If inflation was 7% last year… and 3% this year… the rate is down. But you’re still paying… 10.2% MORE than you did two years ago (did we stop teaching compounding interest in schools or something?) It’s $100… times 1.07 (year one) times 1.03 (year two). You don’t add 7% and 3%. It’s multiplication, people. Once the CPI comes out… [Everyone… everywhere… on Twitter will suddenly be an expert on Inflation Policy]( and they’ll all dismiss things like the Chapwood Index, which measures the true cost of things people buy. I hate that economics is now a political thing… Thanks, Bill Clinton… [you ruined everything.]( Friday, October 11 Event: PPI report and major bank earnings (JPMorgan, Wells Fargo, Blackrock) Why it matters: More inflation data and a health check on the financial sector. Because nothing says "Happy Friday" like GDP forecasts and loan loss provisions. Republic Speak: Friday brings us the economic equivalent of a colonoscopy – uncomfortable but necessary. Let's start with the PPI report… This is where we find out if businesses are getting squeezed harder than a lemon at a mixology convention. If prices are up, expect companies to pass those costs onto you faster than you can say "shrinkflation." Then we've got the banking big boys strutting their stuff. JPMorgan's Jamie Dimon will likely tell us the economy's stronger than a bull on steroids while simultaneously battening down the hatches. Wells Fargo will assure us they've counted all their customers this time and haven't opened any unauthorized accounts lately. Progress, people! Their earnings call is less about numbers than convincing us that we shouldn’t break that bank into 10,000 little pieces. And then there's BlackRock, the final boss of the financial world that manages more money than most countries' GDP. Here's the kicker: all these numbers and reports, and what does it tell us? The financial world is a giant game of Monopoly, but the bank never runs out of money, and the rules are written in invisible ink. Buy the stupid dip. Now, if you’ll excuse me… I need to step outside into the Puerto Rican humidity. 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]()