#968 - Who Wins the Bond Battle? With Tony Greer & Jared Dillian

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0:53out. Who wins the bond battle? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Tony Greer, editor of The Morning Navigator, and Jared Dillian, editor of The Daily DirtNap. And both of them are also members of the RV Marketplace. You can find and subscribe to their fantastic work by hitting the marketplace tab on our platform. Hi, gents. How you doing? So Maggie, how are you? I'm doing okay. What up JD? Oh, what up? What up? That's a big sigh. It's been, it's been, it's been a crazy day. It's been nuts. You ever have one of those days, days where like your entire list decides to email you at the same time.

1:36Like, yeah, that's what it's been like for me today. Is that a sentiment indicator? Are people really confused about what's going on? No, I just, I had my, my issue today was kind of interesting. Um, I don't mean to get off topic. I know we're talking about bonds, but we're talking about everything. So go ahead. Have you taken a look at Nigeria? Uh, no. And I'm going to guess that a lot of people haven't. So tell us what's going on. You should, you should check it out. The Nigerian stock market has crashed like 60 % in the last week. And it's due to a couple of currency devaluations. But it's super, super interesting because Nigerian stocks have been going down for 20 years and GDP has been going up for 20 years.

2:21They have a big inflation problem, but the market cap of Nigeria can fit into my Zincan at this point. It's one of these things, Like if they had a Javier Malay, like it would be one of the, it would be one of the most spectacular rallies of all time. So NGE is the ETF. That is crazy. First of all, how much does everyone love the fact that we, we, we like bounce right into Nigeria? Like I love the unexpected and I love that, you know, we've got an eye on the globe or that you guys all do for us. That's amazing. currency. So the other thing I want to say, so I just Googled as you were talking and all of the top headlines are about football, soccer, World Cup kind of football.

3:08Not surprisingly, because that's what most of the focus is. You got to go down a few before you get to anything happening with currencies and the stock market. So just so we understand, you're kind of eyeing this as potentially an amazing opportunity at some point. There's always a huge amount of political risk though, right? With this kind of market. Yeah. I mean, it's anything that goes down 60 % in a week can obviously go down another 30 % easily. So it's super risky. But I am keeping an eye on it. Well, I mean, right now the chart is just a horror show. So, but, you know, over the course of three to six months, if it forms a base, I don't know, it might be pretty interesting.

3:58So, yeah. So they changed the trading ban. The central bank made some adjustments, which sort of sparked this whole period of turmoil. All right. We're going to put a pin in that conversation because I think it's super interesting to talk about that against the backdrop of some other stuff. So let's get to U.S. bonds and the U.S. market first, but I want to circle back around to that. Because clearly you put it in your note and that's where you're getting some calls. So I think there's more to say about that. So there seems like there's turmoil and confusion everywhere, even in some developed markets, because in some way we're locked in that same debate that we were in at the end of last year.

4:44I think we were all hoping for some clarity, but where's the U.S. economy? I mean, is it hotter than we think? Is it not? Could inflation, you know, could we see a resurgence inflation? What's the Fed going to do? They said they were going to pivot, but are we really going to see all those rate cuts that the market priced in? Did the market get ahead of itself? Did stock get ahead of themselves? And we've seen a little bit of volatility coming back into bonds, Tony. So walk me through some of the action that you're seeing, because I think people thought maybe that was in the rearview mirror, but it doesn't seem it is.

5:16No, I feel like within the context of that treasury market bottoming, which kind of coincides with the chart that I sent you guys, which is 30-year bond futures, the market bottomed in the fall of last year. It crated to a new low, broke range, and then got back up within that range pretty quickly. So that's something that makes a technician sit up in his chair the first time. And we held that range on a retest just recently earlier this year. So it looks like we were forming this head and shoulders bottom that the bond market can absolutely take off out of, especially if we're pivoting towards lowering rates, et cetera.

5:53And then we walked into the FOMC last week into 60 Minutes. And Friday, Monday, there were two huge moves down lower in the bond market with rates going higher. It had to do with some of Powell's comments. And to me, this is the battle royale that's going on right now is kind of deciding the direction of interest rates. if they're going to be trending much this year, or at least where the next move is for the next quarter. So to me, it's like I put that chart, I send it to you guys, because I can make as good a bullish case as I can a bearish case. And I think that those are the forces that are taking place right now as the market kind of sorts this out.

6:32Rates have been pretty volatile in a tight range, but sometimes that means that they're kind of getting ready to break that range and move on to another one. So I'm sitting up in my chair. I don't really have a strong view. I'm kind of just spectating so that I can decide whether some of my other ideas are going to pick up headwinds or tailwinds with higher or lower interest rates. So it's just one of the things that, you know, one of the side battles that I'm sitting here speculating, I mean, excuse me, sitting here, just spectating and watching with my big popcorn can and waiting to see what happens.

7:02And that's about it. Yeah, it sounds like you think that is going to decide a lot of other things. Like Treasury, the rates really dictated a lot last year, you know, because we were all sort of keying off that. And it sounds like from what you said about waiting to see how other things pan out that you think that's going to be the case again. Yeah, I kind of do. My base case is that at least the high in yields is behind us and that we're going to stay pretty range bound going forward. So that this kind of, you know, this pullback in Treasuries contributes to that. And so if they stay in a range, that'll suit my view and it'll be good for my equity view as well.

7:39Yeah, which we'll get into in a second. What about you, Jared? And are you in your bond trade still? How are you looking at bonds here? No, I'm flat. I got out of it before this tick higher in rates. So we've gotten, in the last week, we've gotten jolts, which was hotter. We got payrolls, which was much hotter. We got consumer confidence, which was much higher, especially on present condition. We got services PMI just the other day where prices paid was incredibly hot. So, you know, from October to December, we had a run of pretty soft data, and now the data is starting to turn around. And, you know, you've seen these rate cuts get pushed forward.

8:29I wouldn't be surprised if we don't get any rate cuts at all. You know, if the data continues like this, like the manufacturing recession that we were in, we're kind of coming out of like if you're the Fed and you're thinking about cutting rates, like I understand that real rates are 3 % and monetary policy is restrictive, but it doesn't seem to be slowing down the economy at all. Like, why cut rates if you have Fed funds at five and a half and everything is fine and unemployment is 3.7 % and you're adding 330 ,000 jobs? Like, so I think Waller, you know, Waller's speech in October is a little bit stale and expired.

9:13And I think that, I think these rate cuts are going to get priced out. I don't have a position, but I would actually, I would rather be short bonds here for sure. So, yeah, I mean, are you, do you think they're all going to get priced out? We already know people are reducing expectations for March. They weren't completely gone for March, though, interestingly, unless they are, unless they are now. The last time I looked, they were still hanging on to a very low probability. I mean, but May, they've still got May on the books, no? Yeah, I mean, Loretta Mester said today that rate cuts would be appropriate in the second half of this year.

9:53So I think that's what you're going to see. I mean, I think they're going to kind of stick to this rate cut idea, but I think it's going to get pushed into the second half of the year. And if the economy stays strong, then it's just going to get indefinitely pushed out. So, yeah. Range bound rates, baby. Hey, everyone. We're going to take a quick break right now 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.

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11:20Yeah, but I mean, is that so, you know, you're looking at some other decisions or sectors that you're interested in, Tony. Do rate our range bound rates with a pretty decent looking economy necessarily a bad thing? No, it's an amazing thing. It fits my 94 into 95 analog, which I've been hanging my hat on quite a bit, where in 94, we raised rates from 3 % to 6%. Stock market couldn't really handle it, was off 1.5 % that year, and a very volatile up and down year, reminded me of last year quite a bit. and then 95, 96, we went on, you know, the beginning of the tech boom run and it was very similar where everybody was kind of throwing rocks at the rally and it was like, oh no, no, this tech stuff is here to stay and it's for real and if you faded this early in the game, you're going to have a big problem and I feel like, you know, that we're seeing similar tailwinds with the way, you know, batshit crazy NVIDIA is trading in the semiconductor sector, you know, But they've only just gotten started.

12:25I mean, semis are up 12 % this year so far. And that number could triple, quadruple if they go on a run. And if rates stay sideways, I can stay bullish technology as long as I want. If they rise, it'll be hard to stay bullish home builders and retail and things like that. And if they fall, forget it. You have to be in technology first. And then the industrial stuff might pick up and follow right behind it. As you said, Matt, because the economy isn't showing signs of driving off into a ditch in any way anymore. So, you know, this is where my scenario comes into play that the stock market can hire a little bit higher rates, right?

13:04Especially when commodity prices have dove, you know, taken a nosedive. We're talking about$3 gas now around the country, which is, you know, like a savings for everybody and every industrial that's been, you know, kind of sucking wind on the way down. and the S &P is at 49.75 looking to take on a 5K handle. So all that is due to the fact that higher yields are tolerable by the stock market if the economy doesn't fall off a cliff. And so that's what we're seeing, and that's just fine for my bullish stock scenario. Yeah, it's interesting. We were talking to Julian Biddle yesterday about just trying to read what on the surface are conflicting signals.

13:42So we're still in the thick of earnings. Chipotle earnings coming out, crushing estimates. Restaurant traffic grows 7.4%. That's the headline crossing. Somebody in the chat, Bo, is saying Ford's up 7 % after the close. I mean, this earnings period, Jared, has been, I mean, there have been some, it's been pretty good, though. I mean, companies seem to be handling the situation and being able to come up with pretty good performance. You know, first, let me say that Chipotle is my greatest miss in my entire career. It is my greatest miss. Like I ate a burrito in 2006. And I said, I have to buy this stock.

14:24And then it went public in 2008. And I was like, no, it's too expensive. And, and, and then, then it went up a little bit, then it pulled back in the financial crisis. And I said, no, it's, it's a little scary right now. And I could have bought it at any point in the last 18 years. I think there was also an opportunity where they're having a lot of supply chain and salmonella. I didn't buy it then. I'm just the biggest idiot in the market. Mine's Costco. It's like it makes a new high every other day. You pull out of the place, pull out of the parking lot two to bid four times a month with a Toyota Tundra full of stuff that I buy there.

15:02And I still haven't been smart enough to get in stock. So talk about embarrassing misses. I mean, see, it happens to all of us. And it's funny because you're both tortured by having to go there to both these places all the time. So I'm stopping out at like a thousand dollars a share. I'm stopping into the goddamn thing. I don't care if it's the high. I just need to own it. You know, at some point I want to take delivery of the certificates and forget about what I paid for them. It'll be fine. That's fantastic. What do you, yeah, four tops estimates, guides toward a strong 2024? I mean, these are the kind of headlines, presumably the Fed sees, and they're like, hmm, why would there be a rush to cut rates?

15:45So you can imagine why it falls out. Having said all that, I kind of want to lay out my moderately bearish case against stocks, okay? Yeah, go ahead. Like, the technicals are not good. You know, I kind of have my own proprietary methods. One of the things I look at is MACD divergence. There's a big divergence. Breath is terrible. It was better today, but it's been terrible. The MAC7 is not even the MAC7 anymore. It's the MAC4. So even that breath is declining. And it really feels to me a bit like 2000 when breath was getting worse and worse and worse. And at the end of it, you had one stock that was holding up the entire market, and that was Cisco.

16:29and then Cisco missed. And that was the beginning of the bust. So I kind of wonder if the same thing is going to happen and the last stock standing is going to be Nvidia. You know what I mean? It's just the MAG-1 and everything else. Like it kind of feels that way. So let me ask you a question. This sort of comes up. Everyone makes the distinction that, oh yeah, stocks are not a record, but it's really just the MAG-7. If you look at a lot of other stocks, they're not that great. It's not that strong of a market. If the MAG7 kind of has a blow off top, does it mean it hurts the rest of the market?

17:04Or could you actually see some rotation into some of these other means or small tech? Or it just means the whole thing has to have a correction before you have any kind of constructive? The whole thing has to have a correction. Yeah. One thing that Helene Meisler pointed out yesterday, I mean, yesterday we closed within a whisker of the all-time highs. And there were more new lows than new highs in the New York Stock Exchange. You know, like that's, you know, I mean, and that's been happening a lot over the last couple of weeks. We've been having more 52-week lows than 52-week highs. Tony, what's your thought about stocks?

17:42Like, would you be looking, do you need to see a correction? Are you constructive? Do you need to see a correction? Or do you have a little bit more of a nuanced view of how this could play out? Yeah, I remain sort of a little bit more humbly constructive when I hear smart guys and good traders like Jared say that he's moderately bearish and that there's things to look out for. I always have my ears open to that. I see risks in the fact that we're super complacent. Volatility is compressed. The VIX can't lift its head up above 15. And I say that because usually that means that once it does, it's going to go to 30.

18:19You know, and so I'm definitely, you know, I have a sort of my methodology of sort of keeping a trailing stop loss is what allows me to stay in these markets. And then as long as I'm diligent enough to keep moving them tight to the market as the market rallies, I get out at a good price for my trade and I can reassess if things come apart. But I'm still in the mode that unless there is a dramatically fast steepening of the yield curve towards zero boundary, right now we're at like minus 30 basis points and two's tens. If there's a viciously fast steepening, that's what's going to cause a sell-off.

18:57And I'm still of the mode that the rally has been so sort of difficult to latch onto that once we get a steep sell-off, there's going to be plain vanilla money there, like mutual funds that are like, here's our chance, all 5%. let's start putting money in. And then for whatever reason people are selling, there'll be a lot of stock that changes hands. There'll be a lot of volatility. We'll be in the washing machine and not knowing what's going to happen. And next thing you know, we hold the moving averages and we start bouncing higher. So that's a scenario that I'm totally ready for. I know that there's got to be some kind of a shakeout dip this year.

19:31You know, the ranges are shrinking. You know, like Jared said, there's a lot of hallmarks of complacency and a few things that rhyme with 2000 and a few things that don't rhyme at all. So it's a brand new world to me. And my eyes are open to, you know, everything everybody is saying on times like these, it's hard to make money at the highs, right? That's like sort of the trader's mantra. And we're proving that right now that unless you've been sitting long, the S &P, tough to make a call every day. It really is. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the today's top analysis on the Real Vision Daily Briefing.

20:08I think that's a great explanation of what's going on. And you've both said before, and I think this is really important, that sometimes you don't do anything or you wait until you have your moment. You got to get ready, but we're all addicted to action. We talk about this a lot. We've talked about it with Denisha. We don't think we have to be doing something, but sometimes if you've got a framework, you've just got to be ready for the opportunity, which it sounds like you're doing. You're just waiting until you get that sort of all clear. Jared's getting readings off the speedometer of his Corvette and thinking that they're for the market.

20:40I don't know what is some of the things that he mentioned there were, but we'll see if those pan out as being bearish, but it's fine. We've got a question here we're talking about, and we've been spending a lot of time talking about the Fed and rates because that's been driving so much globally, truthfully. But Bo has a question, And this is important, and it's kind of been on the burner, but it doesn't make its way into the conversation every day. Gentlemen, can the global economy work through a China recession without much collateral damage? So U.S. economy might be looking good. Feds may be dealing with an economy that's more resilient than they anticipated, even when they came forward with the dot saying that we're going to get Fed easing.

21:21But what about China? And Jared, I know you've kind of been looking at this a little bit, right? What's on your radar when it comes to China? Yeah, I mean, I've embarrassed China for a long time. I've been kind of wondering that myself, if there would be any spillover effects from the Chinese stock market into other stock markets. I mean, the one spillover effect that we're seeing is a lot of that Chinese money is being repatriated to Japan. So, you know, Japanese stock market has been going up and up and up. And there was actually, I don't remember what hedge fund it was, but there was an Asian hedge fund that basically got carried out because they had it on the wrong way.

22:06They were long China and short Japan. And I almost wonder if some of those spillover effects are happening in the U.S. markets. I almost wonder if some of that money is coming out of China and into the U.S. So, but I don't, I'm just talking on my ass. I don't really know. So, yeah. But, you know, we've heard people say, well, it's, it's, it's, you know, I mean, China can certainly stimulate if they want. And, you know, things have been so bad that maybe, maybe it's a buy. Is this another one of these instances like you want to, you know, when it, when a chart looks like that, just because it's ugly, does that mean you step in or, you know, what, what are the parameters that make you decide?

22:45Because you mentioned Nigeria too, right? What's the difference? What makes you decide, oh, something looks interesting. There might be an opportunity there, even if it's one that I'm going to do with, you know, risky money, like money I can afford to lose. And then something else that's like, that just looks like a falling knife. I don't want to go anywhere near that. Well, I mean, the point I've been trying to make about China, and I've talked about it before in the daily briefing, is that, you know, it's I don't I've never I've never bought a Chinese stock, not even a U.S. ADR or anything like that.

23:13I've never bought a Chinese stock, never felt compelled to. It's a communist country. Property rights don't exist. executives disappear. Like, why is that a place that you would want to invest? And there's a lot of degenerates in the U S who are constantly trying to pick a bottom in this thing and getting steamrolled. And honestly, I mean, it's, it's going to be a buy at some point for a trade, like anything that goes down 20 % can easily go up 20%. So, but I don't think it's a buy until everybody gives up trying to pick a bottom and actually gets bearish on it. And I'm still not seeing that. Like I'm not, I mean, obviously some people have made money being short, but I'm not seeing this Twitter consensus that China is uninvest.

24:00When you see, when you see people starting to say something that is uninvestable, that's usually the time that you want to invest, you know? Yeah. When they've thrown in the towel. So if I could just add a point to that, I feel like the markets are telling us exactly what the risk of China is. So if the risk of China's economy slowing down would mean that their markets would tumble and that would be the risk to U.S. markets, if that's what the question is, I think the market answered that question. Doesn't matter. Yeah. Doesn't matter whether the Chinese economy tanks. Doesn't matter whether the Chinese economy tanks 25.

24:39I mean, the Chinese stock market tanks 25 percent from the highs. Doesn't matter if Nigeria gets cut in half again. Right. The US market is functioning on its own just fine and shrugging off everything that's going on in the world. And I don't think that we're going to get the resolution on China until we have more clarity in November on who's going to be in office. Because it looks like it might be predicting bad news for China, and we know which candidate that's predicting. You know, China to me follows the same exact course as the EV trade and the solar stocks, excitement and rallying and buying into the Biden administration and selling and selling and getting out on what looks like it could be the end of the Biden administration.

25:24So that just seems like a one to one relationship to me that that I don't know. I think that we'll find out by November where China's headed. But I know that it doesn't matter to the U.S. stock market at all. Yeah, no, absolutely. And a lot of China's problems are internal dealing with real estate. And so – Disappearing executives. So there's no – right. The sort of contagion that tends to be global, not apparent right now. Actually, as we talk, it looks like China's up right now. Right. We just talked it off the lows. Exactly. That's all it took. That's all it took. One bull. That's hilarious.

26:03So we're going to jump around a little bit because we've got some questions. Uh, Joey asking, Tony, would like to hear your current thoughts on the oil trade. Whole sector seems stale last few quarters, still expecting a drop to$40? Uh, I don't know that I called, said that I was expecting a drop to$40. I'm sitting here on the edge of my seat with tons of popcorn and soda, and I have no idea what's going to happen. Price action is horrible. That much I know. I also know that refineries are operating still at massively high capacity and the refinery stocks are still ripping. So there's a couple of diesel spreads are tightening up.

26:43There's a couple of shortages in the market. So there's really mixed signals there. What's not mixed is that oil is trading along with the deflationary malaise that the whole entire commodity complex has been trading in since we decided we're pricing in a lot of rate cuts next year. So that to me has been also like a very obvious one-to-one relationship. And I'm not shocked that oil was weighed down to the bottom of the range with that. And if we break 68, I have no idea what happens next. I would imagine a 50 handle probably happens at some point. We test$60. And if we hold here and something batshit crazy happens in the world, we could go right back to 80 bids.