Postcards, Pictures of You, and the Week in Review

Danger signs across the market are building... but the music is still playing loudly.

Garrett Baldwin

Oct 19, 2024

Dear Fellow Expat:

My wife and daughter have departed for the Sunday Taylor Swift show in Miami.

Today, it’s just a man in a tracksuit…

Taking in all that’s right with this place.

The windows are wide open on a 75-degree day across Lutherville.

The light scent of cumin and pepper has filtered down through the sky from the McCormick spice factories. A brisk breeze will kick up with a slight chill, a reminder that real fall weather is just around the corner.

And - for once - it’s not Taylor Swift and country music blasting across three floors.

But a playlist that includes Talking Heads’ Born Under Punches, the Clash’s Straight to Hell, and Pictures of You by the Cure.

The latter includes one of the most iconic guitar styles of the 1980s alternative music scene.

It’s a swirling, ethereal sound, rich in melody and arpeggios… as if it were developed accidentally…

As the dogs lay, the music blares, Indiana football continues its undefeated streak, and I pine to play the guitar but can’t really…

There’s a lot to be optimistic and thankful for…

So, let’s get to our weekly recap…

Chart of the Week

Here’s the chart making rounds on Twitter and LinkedIn, sending the usual suspects into the typical… dire warnings given the last time we saw this chart.

Remember those zombie flicks where the undead just won't stay down?

Our stock market has a similar situation, and it's scarier than a tax audit on April 14th.

The Russell 2000, an index full of smaller companies that we all love to root for, looks like a graveyard. A whopping 43% of these little guys are losing money faster than a drunk gambler in Vegas. That's right, nearly half of these companies are zombies, shambling along, munching on cheap loans instead of brains.

Now, why should we care?

First off, this is like economic constipation.

All that money is stuck in these zombie companies instead of flowing to the cool, innovative firms that could grow and make money.

Or that money could be going into the things that worked 10 to 100 years ago… helping to lower costs and effiencies in teh things that really matter: Housing, food, and other real assets.

The market is funding a bunch of Blockbusters when Netflix is knocking the ball out of the park. It’s just a gross misallocation of capital.

Second, with interest rates still elevated, these zombies are in trouble.

They've been floating along on cheap loans, and now the bill is coming due.

Spoiler alert: Most won’t be able to pay… or they won’t be able to roll over their debt and refinance it.

This latter element is what’s so important.

Companies need to be able to expand their balance sheets to survive… and if they can’t take on any new debt (no one will lend them money) - that’s where the sharks start to circle.

You’re probably wondering - well when is that music going to stop?

The simple answer is that this challenge can take a lot longer than you can stay solvent betting against these zombies.

But we do know that a massive wall of debt is facing the global markets - and an incredible amount of that debt must be refinanced by the end of next year - both at the corporate AND government level. I expect next summer to be a doozy.

This all speaks to the massive misallocation of capital in the last 16 years - at the government level and in corporate America.

How do you defend against it?

Here’s a simple, four-part plan:

Keep your portfolio diversified and steer clear of these names as we approach the top of our current liquidity cycle.
Focus on companies that AREN’T swimming in debt. Seems logical, right? Well, too many people like to speculate on garbage.
Look for value to emerge if really great stocks go on sale because the rest of the financial markets take a gut punch.
Finally… remember that cash IS a position. In the land of the broke, the guy with a dollar is king. The currency in which all the debt lies tends to rally when there’s a shortage of them lying around to pay off all that debt.

That’s what happened in 2020.

If our SIGNAL goes negative… cash is your friend.

Our Top Articles of the Week

Yeah, I write a lot. And I’m sometimes criticized for writing too much.

Fun fact, though… writing is how I learn and digest information. I’m doing it anyway… so why not break down the issue so I can formulate my opinion…

Steven King writes 5,000 words daily… an no one gets mad at him…

Am I comparing myself to Steven King?

Not really… but did you see that horror story in the Russell 2000 chart above?

Just saying… I can scare you if you’d like…

No. 1 - China's Economic Gamble: Why I'm on High Alert

I've uncovered why China's recent economic decisions could trigger the next major global financial crisis. This week, I broke down China's unconventional approach to stimulus, its potential impact on global interest rates, and the ripple effects I already see in commodity markets. Don't go into next week without understanding this...

No. 2: The Real Driver Behind the S&P 500's 60% Surge

We knew the secret force propelling the S&P 500's dramatic rise, and it's not what the mainstream media is telling you. Once again, we dove deep into why global liquidity, not AI euphoria or economic resilience, has fueled the market's ascent. If you want to understand how the world works, click here.

No. 3: The $35 Trillion Elephant in the Room: America's Debt Crisis

As we approach the 2024 election, we've discussed a critical issue that no candidate addresses: America's staggering $35 trillion debt. Today, we are exposed to the stealth tax that is inflation and why calls for higher taxes miss the mark. Then, we explain why understanding our debt crisis is crucial for protecting your wealth and the best assets to own for the lingering debt crisis. Go here now.

Okay - we’ll be back tomorrow with the Week Ahead.

A reminder - we are still continuing this transition over to Finpub.com.

So, click the link - and you’ll be able to access the letters via email each day.

Also, please check your Promotions folder if you use Gmail.

You’ll need to open the email, click the far options tab, and go down to Label As:

Once you unclick the Promotions box, your emails will arrive in your primary box.

Here’s me doing so with a Ticketmaster email to ensure that my wife and daughter actually get to go to the concert… and this quiet “Garrett Time” doesn’t get disturbed.

Stay positive,