Postcards: How I Learned to Stop Worrying and Love the "Bailout"
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Postcards: How I Learned to Stop Worrying and Love the "Bailout"
Today, I’ll show the only tool you need to call a deep market bottom and come out wealthier on the other side of this China/U.S. bond crisis.
Dear Fellow Expat:
The Wall Street Journal warns China could soon face its “Lehman Brothers moment.”
It’s a call back to the defining calamity of the 2008 Financial Crisis.
That “moment” was the long-expected collapse of one of Wall Street’s oldest and most-connected banks. It was a slow-moving drama - before Netflix binge-watching. For 18 months (what could easily become three seasons of a riveting show about awful people), Lehman did everything wrong to avoid its inevitable demise.
The finale was a decision by the U.S. government (and a Treasury Department run by the former CEO of Lehman’s rival bank Goldman Sachs) to go bankrupt with no financial support (or last-minute bailout) on September 15, 2008.
U.S. leaders thought they’d accomplished something the day after the bankruptcy.
But things quickly went wrong and stayed wrong.
The results were a paralyzed global credit market, a massive bailout of corporate America, and the eventual zombification of the financial markets over the last 15 years after multiple rounds of central bank intervention.
So, are we going to do big bailouts and lots of money printing again?
Of course, we are! We’ve already done it five more times since then! Do we really think that BlackRock, central bankers, and politicians want to lose their jobs for what’s basically financial alchemy and false claims that we embrace capitalism?
At this point, I’ll say it. Just bring it on… Bring on more of the same…
We know how these markets work. We play the shell game often. We know seven out of every eight new dollars goes to papering over (refinancing) existing debt. (Howell, 2020)
Today, I’ll show you how to play their silly game and win.
A broad market decline may take markets on a rollercoaster… followed by more printing, inflation, and bailouts…
But don’t worry about it. Enjoy the sunshine.
For today, you just need to discover a simple tool to time a deep market bottom and come out wealthier on the other side of ANY market crisis.
Total Crash or Just Another Bailout Pattern?
China is in trouble.
The country’s doing all it can to defend its currency. That may require selling up to $850 billion in U.S. Treasuries in the future. That’s not de-dollarization.
That’s trying to survive.
China is a massive user of U.S. dollars. It would need to wean off the dollar (a huge challenge for them) before a BRICS currency, or Yuan ruled the world.
But who will buy US bonds if China sells U.S. Treasuries to protect the Yuan?
It won’t be China or cash-strapped Americans.
I’m a student of financial crises, especially over the last 20 years. I damn well know the answer is the Federal Reserve.
Of course, the U.S. will take a hit from that sale. But China will be way worse off.
The only way China gets out of this situation is by doing what central banks do —-- pumping money.
Otherwise, they’re eyeing a deflationary crisis that brings global liquidity down – perhaps to levels we haven’t seen since Lehman’s collapse. Here’s the thing: That sort of crash could take the entire Chinese Communist Party with it.
[Note: Did people really think China practiced “capitalism” when they decided to go big over 30 years in “centralized banking?”]
So, if China pumps more money into the system – it will create another massive round of money papering over deflation and debt.
As that happens, many people will tie up a lot of their money into gold coins, the Japanese Yen, or duration bonds because they believe them to be safe-haven assets.
But the real inflation protection and upside opportunity at the onset of printing and QE madness is the U.S. stock market.
You’ll want to be in the equity market – ride the next momentum rally higher – and then buy all the safe assets you want with gains… later.
What a Crash and Reinflation Looks Like
As Michael Howell notes, “Money moves the markets.”
The combination of central bank, private, and cross-border liquidity is directly linked to risk asset (stock market) performance. I will do a seperate post on this subject, but it’s your most important sentence as an investor.
This relationship with the market will stay the same for a while.
If China or the U.S. pumps a lot of capital, the equity markets will get another boost.
For fun, we’ll again watch worthless companies benefit from the onslaught of liquidity pumped into the system – eager to paper over their own existing debt with new debt.
Assuming they aren’t bankrupt yet (and the music still plays), unprofitable stocks like Beyond Meat (BYND) will likely surge. Algorithms, responsible for north of 80% of the trading in the markets, do not care about basic fundamentals.
When it’s all said and done – sometime in the future, the Federal Reserve’s balance sheet will surge north of $12 trillion.
And it will likely keep climbing as America creates more debt.
Central banks – leaving their nations awash in debt – will make us repeat this entire process a few years later.
Do we really think that they’ll allow asset prices to crash?
That would cost them their jobs… and they’d have to explain – once and for all – how this whole shell game came crashing down.
It’s been 15 years of legalized theft in the form of money creation and inflation from pensioners, fixed-income retirees, retail investors, and the entire middle class working class (there is no middle class.)
Finding the Bottom of This Crisis
My definition of Equity Momentum (and how to measure it) is your best bet of knowing when it’s time to buy back in this current market.
But there’s an even earlier clue than the daily MAC-Divergence (MACD) reading that I also explained on Thursday.
If you want to maximize your conviction on calling the bottom after any financial crisis occurring next week… month… or year…
We have you covered at Republic Research. It’s RIGHT HERE.
We call the Blue Line below the Republic’s Executive Quotient (EQ).
The EQ measures insider buying-to-selling in real dollars of executives at public companies on a one-to-one level.
This means that executives across many companies collectively buy their own stocks with their own money… compared to selling stocks in their companies and pocketing the cash.
Look at the periods of extreme buying pressure on the EQ since 2008 (the blue line topping out at the top of the chart).
In that case, the big moves higher ALWAYS coincide with major policy shifts to accommodate the economy – but ends up turbo-charging risk assets like equities.
The strongest monthly EQ readings include the following:
October 2008 (Lehman’s collapse and government stimulus),
March 2009 (After the first massive EQ program),
August 2011 (After the first debt ceiling crisis),
January 2016 (After China’s Yuan crisis,
December 2018 (After the bond-equity crash and Fed’s pivot),
April 2020 (After the Fed pumped $5 trillion); and,
October 2022 (After the British Gilt/global liquidity crisis).
In the event of a deepening crisis and policy change by central bank coordination that expands their balance sheets and pumps more liquidity, a spike in the EQ pattern will happen again…
And then… it will be time to buy with confidence.
Just follow this letter to know when the EQ reading is rising.
I talk about it… every day across multiple publications… Be sure to subscribe or leave a comment below.
Stay positive,
Garrett Baldwin
Postcards: How I Learned to Stop Worrying and Love the "Bailout"
Your overall thesis of sitting on the sidelines and waiting for reentry, is similar to what Bill Bonner’s team has been stating for almost a year. basically have very little in equities and sit the remaining in cash and gold, waiting for the reentry point.