#944 - 2024: Bull or Bust? with Greg Weldon

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0:582024 bull or bust. Hi, everyone. Welcome to the Real Vision Daily Briefing. with me today is Greg Weldon, CEO of Weldon Financial. Hi, Greg. Happy New Year. And to you, too. Love that we're kicking off the new trading year with you. Not a great look for stocks to start the year, but I'm not sure anybody's too surprised at this, given what happened, that sort of rally into year end. But we did see the Nasdaq fall. Nasdaq down 1.6, S &P down about a half a percent. Dow looks like it's ticking into the green. The Nasdaq was off more than 2%. So not closing on its lows, which is interesting. Bond yields also look like they're edging up a little bit earlier, but that 10-year remained anchored below 4%.

1:45US dollar up. Bitcoin has been moving, of course, as everyone waits to see about that ETF. So sort of a lot going on as people plug back in from the holiday. What's top of mind for you as we kick off this new trading year? Well, I think it's interesting when you look at the stock markets action today, in fact, yeah, the tech sector gapped down, the XLK in particular, and the big names, you know, led to decline. But I thought it was interesting that one of the worst performing sectors was homebuilders and kind of linked to the real estate sector. And it had been the best performing sector over the last month.

2:18And you talk about, you mentioned it, bond yields higher. And it was kind of the thought process this morning when I started looking at the markets, you know, two o 'clock this morning. It's like, well, bond yields have risen, and that's why stocks are down. Well, maybe bond yields, you know, up and down here. We got supply issues with bonds we could talk all day about. The fact of the matter is the 2025 Fed funds futures hasn't moved at all since last week. All right. The end of 2024 rose, you know, a few basis points. It's still below four. So this is not because all of a sudden there's this rethink over the Fed or bond yields arising.

2:49There's any real risk here when you see that you had enormous gains in a lot of these sectors, you know, justifiable to some extent, especially when you start to think about lower mortgage rates, we don't have enough homes and this kind of thing. You see the leading sectors and include tech where you're taking profits, you had it run up. And I think, you know, you had some buying towards late in the week last week, kind of boost up that year end, you know, incentive payment kind of thing. You know, so you have to talk about all of that in the context of, has anything fundamentally changed? And I think you could say that technically this market is overextended because you're pricing in nirvana.

3:26Fed's going to go to 4 % next year. We're not going to have a recession. And what's the upside here? I mean, you've priced the upside. So you deserve to have some kind of correction. The dollar really kind of was the leader of the pack in terms of the importance of the moves because it bounced from a key level. It looks like a longer-term breakdown. We know as going forward, the economy, we have some key numbers, obviously, this week. But the last month's numbers were really not good at all. And you have another issue that is right in front of us that not a lot of people are talking about, which is the banking system.

3:59And some of the numbers out of the Fed on loans, on security holdings, on their term facility program. So there's a lot going on underneath the surface in the banking system, let alone the Middle East, all right, where energy prices are on the verge of breaking down into what could become a much escalated conflict. So I think that the market's priced in kind of best case scenarios in a lot of ways. And I'm not sure that's how it's going to play out. Yeah, and you just mentioned a lot of the risks that were out there, and some of them have sort of accelerated, especially when you're talking about what's happening in the Middle East.

4:30The market was just looking right through all of that at the end of the year. And we discussed at great length on this show why that might have been the case. But it sounds like you think the markets or investors are too complacent. Complacency is the exact word I would use. You nailed it on the head here. I mean, it is. And when you kind of think about the Middle East, it's not just the Middle East. And you have much bigger picture dynamics going on here. You have Xi has told Biden allegedly at their powwow, look, we're taking Taiwan back, you know, get with the program or don't, you know, it's gonna be your choice.

5:04But we're letting you know, it's not gonna be a surprise attack. He announced it today. I mean, you know, literally first day of the year, it comes out, says we will be unified. Don't stand in the way this is gonna happen. And when you look at now Now, threats against Japan, threats against Korea. We already have the dust-ups with the Philippines. We know there's issues with Vietnam and gas rights. You know, China is making a move here. They're colluding with Russia. You have Iran and Saudi Arabia kind of together. And when you look at that side of the world, you look at the Red Sea, you look at the Persian Gulf, you look at the shipping, you look at oil, you look at where China is.

5:36it's pretty obvious to the naked eye where we're at with this being a much bigger geopolitical picture that has far more, you know, far reaching, you know, tentacles of what this could mean longer term. And I think that the market has not even begun to deal with any of that. There's a lot of opportunity to be created there too. But this, you know, I look at 2024 as a year where you're going to see things that you really couldn't have envisioned seeing. And some of the things that I think we could envision seeing. And that's, well, we're going to dig into that a little bit in just a minute. And that's worrying because this is, you know, some of the other issues we were worried about are talking about inflation, the Fed.

6:18Those are more quantifiable, right? You can be on either side of the argument. There's a difference in that. In fact, I heard someone say New Year, same debates, because there's still a lot of disagreement about those things. You start to get into geopolitical issues. This becomes much dicier. It's so hard to game out what happens in those circumstances. Add to that we're in an election year. And just a reminder to underscore what Greg's talking about. Again, Maersk suspending all shipping because of what's happening now. We talked about that right before we all broke for the holiday, halting all Red Sea shipping until further notice.

6:53And we have ASML with the chips again, with the US and China sort of heated up on that front. So there is a lot going on. I just want to mention, by the way, Greg is the latest member of our RV marketplace, which we are super excited about. We look forward to seeing all of his reports and research there. If you haven't checked it out yet, I encourage you to head over. It's realvision.com forward slash marketplace. And you can see everything. You can see the offers that RV members get. Brian showing you what it looks like on the screen right now. So super excited to have you, Greg. But I know one of the things that you're focused on, we're talking big picture as we start the year.

7:35So we have geopolitical. You're also very worried about debt levels. Well, yeah, I mean, record amount of debt posted in 2023,$307 trillion. I mean, try and sink your teeth into that number. It's astronomical. I mean, you know, and of course, this is one of those things, same conversation beginning every year. But this has reached a kind of a critical mass point to me when you're talking about the trend in interest rates, which has gone from a 40-year downtrend to the new uptrend. So in that context, you're going to have stress. And I think people understand that. But it gets really specific here in the US.

8:09And not to be a gloom and doomer, but we get paid to assess risk. And here's where the risk is. All right. Right now, you have a situation where you're looking at the banks in particular. You saw recently, over the last three weeks, they bought$92 billion worth of securities. and loans are down by around$20 billion. You look at what's going on with small banks. Their deposits are exactly where they were two years ago. They have not changed at all. I mean, you're within hundreds of millions. It's really tight, right, to two years ago. In the meantime, lending has gone off the chart. And the growth now on lending is about$250 billion a year right now for small banks, what the Fed classifies as small banks, whereas deposits are now shrinking at an unprecedented level.

8:50And what happens? All of a sudden, the Fed's term funding facility, which is kind of the emergency thing they set up back in March for ABB, right, is getting tapped. $20 billion in the last four weeks. It's at a new high of close to$140 billion. I look at this as like this is sending a signal that we have some issues in the banks, probably in the small banks. So who cares? Small banks, right? Well, 1990, small banks were 15 % of all loans. Now they're 42 % of all loans. And that goes to the extent that commercial real estate, small banks, you know, hold everything. 80 % of the commercial real estate loans.

9:23And there's like$1.7 trillion maturing in the next year and a half. When you look at the debt maturing in emerging markets, it's off the charts. Even in the industrialized issues, look at something like$13 trillion in debt that matures in 2024. So you have real issues with interest rates, low interest rate debt that is going to have to be refinanced, especially in emerging markets. It's huge in 2024. So these are a lot of the risk points that are more kind of, you know, the things we're used to seeing in terms of macroeconomics, aside from the geopolitical, aside from what you mentioned, which can't be understated, the division in this country and the potential for civil unrest in a political situation is going to be a circus in 2024.

10:05for. Which, again, is not something that we are used to discussing as a risk when you're talking about developed countries, certainly the U.S. I mean, the idea of civil unrest is something that we usually talk about in different parts of the world. So that is a risk. And Maggie, that opens the door for China here. They want to take Taiwan. I mean, we're too busy with our own situation. You got people flooding in the country. I mean, it's a mess. We look weak geopolitically. We pull out of Afghanistan. They're in there immediately building a road into Africa. Why? For resources, you know, so the degree to which this political situation could be kind of the, you know, the smoke screen that allows China to really break loose here.

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11:57Yeah, when we are going to be focused on that and touching on the geopolitical aspect of this as we move through the year, because it's going to be very important. And it's that sort of when you're looking at the risks for the market, something that's high up. Talk to me a little bit, Greg, by the way, for those who are watching on video. Oh, there he is. OK. Skype is just very unhappy these days. So we're freezing a little bit. But as long as our audio is OK, we're going to keep going. So don't worry if it's not your eyes, people. We're all slow to move. It's not the new year. It's us, but we're going to persevere.

12:34So in terms of the, and I think the crypto Rx on the YouTube chat is, I think, underscoring some of what you're bringing up, Greg, saying the bond market's broken, housing market is breaking, unemployment is rising. How is there an argument for being bullish? So I think that it's really important as we talk about these risks, and you mentioned it before, that you have to watch out for the risk and understand the probabilities. But in volatility, there are also opportunities. So how are you thinking about the markets here? Are we going to see that continued volatility? Are you taking a bearish posture?

13:14Or do you see opportunity in some of these areas? Yeah, I don't think you can be bearish here. I think that it's corrective mode. if we have a downside move, at least for now, until something gets uncovered with the digging in terms of banks or geopolitical pops off or something, certainly could exacerbate what would have been a correction and make it something worse. That would be my kind of fear here. I think that when you look at the Fed and you look at where inflation actually is, all right, so you're, you know, let's call the core rate 4 % and the Fed's, you know, 5.5. They're where they want to be, sufficiently restrictive.

13:50Inflation falls below 3%, which is a very real possibility. I mean, let's look at gasoline, right? The two-year moving average of gasoline right now has fallen below the level we've seen in two years. So these are new lows. And now the base effect in gasoline is going to start kicking in. And it was kind of the one thing that could have led inflation higher that now is probably going to remain a negative. So you have inflation fall to three, and suddenly the Fed at five and a half is punitively tight. And in that case, you could see them cut rates to four. So you can't really necessarily be bearish in that situation because if the market corrects, then the Fed would tend to maybe start to even talk a little dovishly as opposed to just kind of this shifting of the narrative.

14:30It becomes outright dovish rhetoric, which we really haven't seen yet. So I think there's risk to be embarrassed here. I do think a lot of the key is off the dollar. The dollar holds the key here, and that kind of links back to the Fed, and it links back to what's going to happen the next time there's a problem. And that gets back to the banking system, of course, again, because what happened back in March? Well, in March, outside of three weeks in 2020 at the height of the pandemic, the week of March when SVB failed, that's the most money the Fed printed in one week ever, all right, ever. They're doing QT and they print the most money ever in one week for one or two banks.

15:06Imagine they have a small bank issue. And that raised the question, okay, small banks, actually banks below $10 billion in assets, control 35 % of commercial real estate loans in this country. So when do you define if you have 10 or 15 banks that are$25 billion in assets, is that too large to fail? Conglomerate of banks? So how much money could they print? So I think the dollar is at risk because ultimately, that's going to be the lever. And I think that's what makes certain commodities attractive, certainly makes the crypto area attractive. and it makes gold and silver attractive, even though they might be kind of tied to the stock market if it gets whacked in the initial phases here.

15:46But when I look at the bigger picture of debt and money printing and debasement of the purchasing power of your wealth, income, and paper money, it's pretty much clear to me that gold will be higher by the end of the year. So that's so interesting, your point about small banks, because it's not just the banks themselves. It's that connection and exposure to commercial real estate. There has been an extended pretend, right? Like everyone's, many people have come on and talked about the ticking time bomb that is commercial real estate when they have to reset and refinance. Some of these projects will not, you know, won't come back.

16:23Some of these office parks and buildings. But it hasn't been in anyone's interest to call anyone on the mat on it, right? Because everyone's kind of on the hook. Look, if there's a problem in the banking sector, that sort of changes, doesn't it? Because that bank that's been working with that commercial lender, who knows what happens then if we see some of them go under. Is that a motivation for the Fed to maybe accelerate its plans to ease? Do you think that they're looking at the impact the higher rates have on the banking system and they're concerned about it, even though they haven't said anything?

16:58I think that's why they made the shift they did in December. I really do. I wrote that immediately. I said, they know something we don't know. And we kind of already knew what was happening. This is the very early stage of this flip in the long-term, the funding facility they use, right? That they just opened in March. And this is something I've been all over. So I think that's exactly why they shifted. All right. There was no reason they had to do that other than something we don't know because inflation at four doesn't warrant them saying we could see not only did they reverse, they were more dovish than the futures market it was, which was really dovish.

17:33That's what was shocking. They went mandlebound. They took it up a notch big time. And when you talk about that too, we cannot forget the fact that since the middle of 2021, the Treasury has increased the public debt by$9.97 trillion. It took 37 years to create$9.97 trillion from 1971 to 2007. It took us 14 quarters to increase the debt by that much. Not only that, in the last quarter, third quarter, federal debt, which public debt, let's call it what it is, public debt of$835 billion, one of the largest quarterly increases ever, coming on the back of one of the largest quarterly increases ever.

18:16They're still doing it. Transfer payments are still$4 trillion annualized. They're still spending money like crazy. The problem is that public debt held by the public rose by$870 billion in the last quarter, which is the second highest ever. So when does this become, we're a bankrupt country that can't afford to help these other countries anymore. And we really, you know, we have all these now new obligations to all these people flooding into the country. And yet what we're doing is taking from the people that would might get social security in the future so we can pay our obligations now. And we're basically borrowing from the future to pay for now.

18:53And we're borrowing from the public and then selling them the bonds back. And then, you know, we're going to devalue the currency that those bonds are priced in. Does this not begin to sound like if this were an institution, these people would be going to prison? I mean, this is kind of like you might call it the biggest Ponzi scheme in human history. So, you know, you have to keep that in mind, too. The US debt is problematic, and I think it's come to a point where it's going to have to be dealt with. Yeah, and as you say, the important thing for investors is what happens to the US dollar in that situation, because we haven't seen that.

19:30We had a lot of conversations about that. We always come back to people saying, well, there is no alternative. But we've got some interesting stuff happening with crypto. So let me get a question here. By the way, welcome back, everyone in the chat. We missed you. We hope you missed us. And I hope everyone had a great break and a chance to reset and refresh because we are going to need it as we see from this first day. So Ralph asking, but others are too. Any thoughts on, I'm going to separate these, Ralph. He's got a whole list of them, but any thoughts on Bitcoin? And Federico asking, since everyone seems bullish on crypto now, isn't this a signal for having the opposite reaction from the market?

20:11So how are you thinking about crypto here, especially with that potential ETF? Of course, we don't know. It's not a given, but a lot of builds up that perhaps it's finally going to get approved. How are you thinking about crypto here? There's a lot going on there, and there's a lot of uncertainty. You got the halving coming up potentially maybe around April and how that's going to affect the supply. To me, it's a simple supply-demand function like any other market. Right now, demand is rising. Supply is kind of static. You went through a period where the cost of production, if you will, was above the price, right?

20:44So I think that we got bullish at around 21 ,000, I think, on your program. And we said 47 to 48 was our first target. We're kind of there. So a pullback now would seem to be technically warranted, but this is long-term technicals, too, that are kicking in. I see Bitcoin ultimately at new highs, and I think it could happen fairly quickly in the first half of this year. So we're bullish there. I'm actually maybe even a little more bullish on Ethereum for its wider uses. And it doesn't have some of the quirks that Bitcoin has too, in terms of that, and probably could take in more money even. But the extent to which this is still a market that a small amount of money coming in could drive it a lot higher.

21:27So I think that we're bullish. It's just that simple. And it plays in with the dollar too. Exactly. That's why I asked you. Let's just give you another scenario where Bitcoin and Ethereum would really benefit from this, all right? Because we're talking about you have a political chaos here in the US. You have division like you've never seen before, all right? At the same time, now you're talking about a situation with the debt, where all of a sudden now you have refundings that don't go well, the dollar gets hit, interest rates are going up, and this is kind of hurting the economy. I mean, would there be a perfect time for China to play the dollar card?

21:59And while there are issues around the dollar card being played by China, in terms of liquidity and debts and bond markets and all the things that people talk about. But their goal is to dominate and their manifest destiny in Asia. And their goal is to weaken us. What better time if we have some issue with the dollar going forward for them to come in and say, look, our exports, we want RimNinbi for them. Our imports, we're only paying RimNinbi for them. As the largest trader in the world, they're going to have that kind of power. And it's going to be interesting to see how that plays out. But in those kinds of circumstances, it's bullish for Bitcoin, not only from the US perspective, But, you know, look at all the places.

22:34Myanmar and Thailand are kind of at each other's throats. You start to talk about all the places where you can't run out to the bullion dealer or you don't have an account where you can buy GLD or something. What do you do? You got a phone. You got an app. You buy Bitcoin and all these currencies potentially. So I think the potential demand is huge and we're pretty bullish right here from a long term technical perspective as well. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

23:04it's going to be really, really interesting to see what happens over the course of the next month. So because if your head is spinning, thinking about all the things that we have to hold in this space, I don't blame you. But in addition to the, to the marketplace and trying to get all of our great partners in one place where you can kind of dive in, we are also, January is going to be education month here on Real Vision, because we really, I think Raul put a video out saying we've just all got to really make sure we sharpen our skills and understand what's happening. So week three will be crypto.

23:38We will be talking all about crypto from an education point of view, not just the news flow. Ash and Artur will be doing that as well. And we will talk about it here. But there's an education portion to that. But we're going to have a lot of other stuff as well. We're going to do a personal finance week, which is kind of new for us. But it's kicking off this week with My Life in Four Trades. We sat down with some real masters, as we always do and talk to them about their best trades and worst trades. And I had the chance to sit down with David Rosenberg, who many of you will know well, to share what he's learned about investing in life.