Postcards: Good at Life, Better at Scrabble

Things went off the rails at 7 pm yesterday, and I'm not talking about NVIDIA's earnings call. Plus, we look at who else is winning in the global financial markets. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ 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: Good at Life, Better at Scrabble]( Things went off the rails at 7 pm yesterday, and I'm not talking about NVIDIA's earnings call. Plus, we look at who else is winning in the global financial markets. [Garrett {NAME}]( Feb 22   [READ IN APP](   Market Update: It was a bad day for shipping, with Teekay (TK) taking a broadside sweep after earnings today. I was surprised by the reaction here - but it is a largely retail stock with little institutional support. Overreactions are common, and a lot of money is flowing into technology. I’m still long shipping. I expect 2024 will be much better for this industry - as these earnings came before our Red Sea events. Markets continue to diverge in this AI Bubble. It’s wild to watch… raise stops on semis. Dear Fellow Expat: Well, there’s good news. I’ve officially won the family championship belts in “Life Junior” and “Scrabble Junior.” Family game night was going great until I decided to pass on the last turn of Scrabble Junior to ensure I could finish the final word (the rules are different) and get the final point. The crying, screaming, “Not Fair” calls from my wife… my daughter were loud… and often… and filled each room as she ran around in a circle. While going to bed, she told my wife that she had a good day controlling her emotions… until the end of Family Game Night. She said… “Mommy, I was choosing the right path all day… and then daddy won those two games… and there were two paths… and I took the wrong one…” Life Junior is a terrible game. You go around a board and collect stars, and it’s basically a game of 100% luck and poorly designed. My review: Zero stars. Scrabble Junior is weird because the words are on the board already, and you fill in the letters instead of creating your own terms. I’ll say one thing. I’ve done a lot of fatherly duties. I’ve been the only dad there during gymnastics and ballet classes. I’ve had tea parties during work hours. I’ve even thrown countless games of Life Junior, Uno, Rummy, and whatever made-up games she invents on the fly in the backyard… so that she can win (and we don’t have pre-dinner tirades.) But there’s one thing I will not lose… and that’s Scrabble. My wife had to explain to Amelia that I once beat her by +500 points in a game… Lisa has a record against me that even Glass Joe from Mike Tyson’s Punch Out would mock. And he was a career boxer at 1-99. I can’t play chess… and I can’t play basketball. But I am an evil genius in Scrabble… No mercy. Who Else is Winning? American markets are winning… American companies are seeing capital flows that defy logic. The Magnificent Seven now has a combined market capitalization higher than the stock markets of England, France, Japan, and Mexico… combined. Nvidia has a market capitalization larger than the GDP of Canada. It is larger than the market capitalization of the S&P 500 Energy Index - despite the latter having 673% more net revenue than the tech giant. Just three companies (Apple, Microsoft, and Alphabet) have bigger market caps than the EuroStoxx50, FTSE 100 and the SMI20 combined. And here’s where the hangover has to start. US equities now weigh ~70% in the popular MSCI World index. We’ve easily surpassed the Dot-Com Bubble era and reached a new record. This tells us that the markets could face a serious retrenchment if American investing goes out of style. What gives? Understanding Global Conditions America remains the cleanest shirt in the laundry thanks to its currency reserve status and strong financial markets. Efforts to bring traders into the fold with the Chinese Yuan haven’t taken hold. There appears to be a fracturing of efforts put in place by Chinese officials in recent years. Given that China uses more U.S. dollars than we do, money flows out of Hong Kong and China and into U.S. markets. Banks keep arguing that the Yuan will recover in the second half of the year. Good luck with that… The Yuan is in trouble and will likely see its value decline in the foreseeable future due to the nation’s fight against debt and deflation. That will undermine China’s ability to be that central leader in the BRICS movement. The War in Ukraine sapped international capital flows for Russia and redirected much money to the West. Given their sharp polarization, it’s hard to have a lot of confidence in Brazil now. However, India has been the one nation beating the U.S. markets - as reform continues to benefit its companies, we’re seeing names like Tower Semiconductor (TSEM) look to build plants there. Now, here’s the very clear thing. Valuations Don’t Matter… Right Now This rally among the technology sectors proves that the focus on valuations in a market where global liquidity expands (citing Michael Howell’s definition) doesn’t matter to algorithms if the PE ratio is 100x earnings. Nvidia is a perfect example of this - as the stock now trades above 100x earnings. The algorithms are looking for momentum (prices moving higher), and taking part in a crowded bubble trade is a surprising way to make money on the way up… and (PYA) protect your ass on the way down with tight stops and by using dip-buyers to their advantage to sell. We could look at all of these different sectors around the globe and say that valuations are cheap and attractive. But are they? Especially in a world dominated by Quantitative Easing, constant debt refinancing, and an exposition on monetary and consumer inflation. Do emerging markets look attractive to you right now? Does anything in Europe… where the industrial base is leaving, look attractive? Russia’s economy? Energy? Refineries are trading at 2x to 5x earnings, and few investors want to touch them - despite strong capital efficiency and high economic moats. Or there aren’t enough shares available to retail investors for them to prop up the price. Nope - it’s all about monetary and fiscal expansion here in America. It’s all about the themes we keep discussing: Dirigisme, decarbonization, digitalization, and debt. This is where the money is… and will be through 2026. Look at the policies of recent years… and look at all the money flowing here. The Inflation Reduction Act and CHIPS Act were $1.2 trillion… in money that’s largely borrowed or invented… everyone is getting a piece of the action. They’re just starting to deliver this capital. There’s money earmarked for the CARES Act to keep going… And the CARES Act was $2.2 trillion… and that money is still penciling in waves of capital that haven’t been deployed, especially in healthcare and education. This is all of our money… and some people are better than others at capturing it… Which is what we do. So - with our Equity Strength Signal Green and the S&P 500 still above its 20-day moving average, look for more money to continue flowing into the Mega-cap space and for the AI Bubble to continue its pathway in an environment of expanding liquidity. Suspend all belief… and wait for the signals to go Red before shortening. 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]()