#996 - Are Commodities a Buy Here? | With Mish Schneider

0:09Our commodities are by here. Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Mish Schneider, Chief Strategist at Market Gauge and part of the RV Marketplace. You can find Market Gauge research on both macro and the crypto space over on the RV Marketplace because as all of you know, Mish and her team do amazing work in both of those worlds. So we're lucky to kick off the week with you, Mish. Hey there. So great to see you, Maggie, and team behind you, Real Vision audience. That's right. Brian and Super Mario are on the job today, as they always are. So we've got a really busy week and we really are anymore.

0:49We've got a foot in both worlds all the time because we know that Bitcoin ETF has been moving and there's been a lot of stuff going on. But I want to just start with equities. And if we look across the market, we had tech rallying again. The Nasdaq was up 1%. I'm not sure where we're settling here, But we saw nice gains once again driven by those mega cap tech names with Google, Apple, and we're hanging on to them. Not quite where we were at the highs, but hanging on to gains. NVIDIA again. But we saw the S &P 500 up to a lesser extent. The Dow was only the Russell that really didn't participate.

1:25We saw those yields inching up again. And then we had, of course, the dollar a little bit weaker. But it seems like those two markets are a little bit on hold for the Fed. So let's talk about these tech stocks. Every time I feel like people are like they peaked, I'm going to take profits, this is it, we see another rally. What are you thinking about when you watch what's happening in the tech space? Well, I think the rally today was in anticipation of this meeting that they're having at NVIDIA to talk about the future of NVIDIA and AI. And there's obviously a lot of optimism and we know long term there should be optimism.

2:02But I don't look at it as whether or not we've peaked. This is the way I'm looking at it right now. I think that even if NVIDIA went up another 100, 150 points from here and I wasn't in it, I wouldn't even be upset. because the bulk of the move, to my feeling, has happened already, just looking at that stock. What happened with Apple and Google, that's an interesting bit of news. And it will be amazing for iPhones if they figure out using AI with Google, or I should say Alphabet, technology, does that make improvements? And God knows Apple needs it because Apple has been stagnating and really has been at a loss at new technology for quite some time.

2:47And as far as well, the supercomputer actually sold off today and semiconductors, the ETF itself, which is part of the modern family went up, but not nearly enough to go anywhere near the highs. So as I said, could we get more? Absolutely. I'm kind of starting to look at short opportunities, which we can talk about. But I almost don't really care because I think that whatever we're near a peak, whether it's today or tomorrow or in six months from now, or was it last week? That's another possibility. And what we're seeing is just record inflows continuing. People are into the FOMO situation and possibly at this point going to get hurt.

3:30Yeah. That's always the worry, isn't it? But it's so hard because then this is, by the way, You all know we've been in the middle of a two-week series, how to unfuck your future, Raoul's favorite phrase. But we spent the first week really talking about the challenges. And part of why I think people are chasing this mission is because they're just so desperate to try to make gains and sort of grow their wealth where they can, because it feels like it's so hard to get ahead and you're falling behind. And tech has been this really bright, shiny area of the market that's really provided the returns for everyone.

4:03So it's hard to, so many people falsely call it the top as well, but you're right, very dangerous to chase where we are right now if that is not in your risk profile. And we'll get into a little bit of that later. So if you are not worried about missing a little bit of what might be the top, do you rotate elsewhere? How does the rest of the market look? One of the things we keep hearing from people is that they're very concerned about the breadth. And some people think there's going to be rotation, but I don't hear that from everybody. How does the rest of the equity market look? Well, typically, right.

4:38People will say, well, if the growth stocks are peaking or consolidating or even ready to sell off 5%, 10%, 20%, that must mean it's time for value plays. And that's why so many people look at things like consumer staples and utilities and small caps. And so really, though, none of those have been very impressive right now in terms of the rotation. But that isn't to say that they haven't been somewhat impressive, particularly if we're looking at the small caps, even though they underperformed into the gate today and have been underperforming, they still haven't necessarily fully broken down. If you look at a weekly chart after that big move up that we saw in IWM, it's come off a little bit, but nothing to really get too concerned about.

5:25So I would say in terms of the rotation, I wouldn't necessarily be going into those levels right now. Even they've been a little bit overdone and somewhat dragged up with tech at some point when people were just looking for something else to buy in the equity space. You know, for me, it's really been all about what happens right here with commodities, especially since some of them have made new highs or at least 10 year highs. We look at the agricultural ETF, DBA, which is something you and I have talked about a lot through the years, gold and silver, gold miners still relatively underperforming.

6:02I think if you really want to go and look, this week is going to be very, very pivotal in terms of what happens with the Fed, what happens with the interest rates, and how that impacts or doesn't impact certain commodities. Yeah. So I'm guessing maybe it is a time to buy, to answer our question at the top, some commodities, and you like it better than maybe other parts of the equity market. Let's talk about those rates, though. And I heard someone today say that she was a senior stock strategist, I think at RBC. And she said, I'm a stock strategist, but today, everybody's a rate strategist. You have to be, because so much is keying off of what's happening with rates.

6:41So what are we looking at for the 10-year? We've seen rates back up. All of a sudden, we've had this series of hotter than expected economic data, inflationary data, a lot of different kinds of indicators coming in. It wasn't just one. It's kind of been a series. So what are you thinking about in terms of the 10-year right now? Does it seem appropriately priced? What are you expecting from the Fed? Well, this is such a great question because it's complicated and interesting because for first of all, right now, if you're looking at the 10 years, right, they spiked last week and then went up even higher today.

7:19There are certain schools of thought that believe that we've reached normalization. In fact, I think we talked about it before where the Fed funds rate normalizes between five and five and a half percent and the inflation rate may not get to 2%, but at least core inflation stays somewhere around 4%. And that creates a situation where we have the no landing, in essence, where the economy continues to do okay, inflation may waver but doesn't get out of control, and the Fed says, we good, we good, we good, we did our job. That's the perfect scenario, right? But we know that there are other factors to look at.

8:01So to me, since we're talking about rates, we always like to look at the ratios for risk on, risk off. And one of my favorite, well, I should say two of my favorite ones are how the junk bonds are doing versus the long bonds, and then how the long bonds are doing versus the SPY. I sent you one chart on the TLTs we'll look at in a moment, but let's talk about the junk bonds. So the junk bonds, looking at HYG, are still okay. They're, I would say, more risk neutral, but they're certainly not risk off at this point, which tells us essentially, right, you know, yay, we're at some level of normalization and we shouldn't be worried too much.

8:41And depending on what side of the fence you want to look at, rising credit card debt, or you want to look at the fact that actually households have better wealth now than they had before, businesses, debts back down to pre-pandemic levels, things are better than people like to report, then we're good. But if the junk bonds start to fall down from here and they're sitting right on the 50-day moving average, so if we're looking at HYG breaks down under 77, then I think you need to have to somewhat pay attention because it means this level of normalization can't last. And what would ruin it? Either recession could ruin it.

9:20And I don't think, even though we've avoided it to this point, doesn't mean that we should completely take it off the table or some kind of a hyperinflation would ruin it. So those are our two situations that we have to keep. And it's very yin and yang at this point. The other ratio, of course, is the long bonds to the SPI. So let's take a look at that chart that I sent you on TLTs, because I think it's very clear and so important right now. So essentially, if you look at this chart, today we have now testing the lower regions of support that we've seen over the last couple of months. I think 91.87 or so was the low in TLT, and today it went down to like 92.40.

10:03So you can see some people are seeing an inverted potential head and shoulders bottom going over the last few months, but I wouldn't necessarily get hung up on that. To me, what's important right now is that as we're coming into a Fed meeting, as many people feel the market has priced in three cuts, quarter reach, so that means interest rates might go down about three quarters of a percent by the time we finish 2024, this chart is saying that it's scared. And so what makes the TLT so interesting right here is three things. Number one is if the bonds started to go up, if the long bonds started to actually rally from here and got through 100, people would be like, oh, yay.

10:45But we would be like, oh, no, because that would seem more recessionary and at the very least stagflationary because it would also goose, obviously, some of the precious metals and commodities. Number two is if it goes down from here and the yields really start to get choking, we're going to see that impact, if the normalization has worked, think about all the layoffs and think about some of the more negative stats we've seen in manufacturing numbers, et cetera, then that could actually also choke us into a potential recession or at least force the Fed at some point to have to get even less aggressive and more dovish.

11:24And we know that there's been a lot of liquidity being added anyway into the markets, just not in the classic way. And number three is if the bonds, yields go up, bonds go down and break this 92 level, not only could that mean the rate of change in terms of the yields spikes harder, but we have to really watch what happens commodities. Because if commodities react by going down, then that would be the deflation, disinflation that people have been talking about. But if they hold pretty well or go down less than what the equities market would go down in that situation, then I think we have to say, wow, there really is some major supply demand, geopolitical issues, and inflation can still come back and haunt us.

12:10So that's a lot to say, but that's kind of what I think we have to keep our eyes on vis-a-vis the TLT chart. Yeah, no, I think that's so important, Mish, and you're really echoing something that came up. And we've been saying all along that the future is uncertain, right? It's hard to know. There are these scenarios that we have to sort of try to give probability to at the same time because it's not clear right now because we've had all this fiscal money coming in from governments and some unprecedented – we're coming out of this unprecedented pandemic that it's hard to gauge what's just going to happen.

12:42But this is exactly the conversation that Julian Brigton had with Tavi Costa as part of week one of our series when they were talking about the risks they see with inflation. Let's have a listen and then we'll talk on the other side. 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. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo.

13:14See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready? You can move to real money with as little as$100 once your account is approved. And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments. S &P 500, NASDAQ, gas, and much more. Explore equity indices, energy, metals, Forex, and beyond. With a simple and intuitive platform, you could trade anytime, anywhere. Experience the fast, accessible futures trading you've been waiting for with Plus500. With over 20 years of experience, Plus500 is your gateway to the markets.

13:48Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus500. It's trading with a plus.

14:01Good news and bad news. First, the bad news. Mint is shutting down. The good news? There's an even better alternative. Many Mint users are turning to Monarch Money and loving it. Monarch is the top-rated all-in-one personal finance app. It gives you a comprehensive view of all of your accounts, investments, transactions, cash flow, net worth, and more. Plus, create custom budgets, track progress toward financial goals, and collaborate with your partner. And now listeners of this show will get an extended 30-day free trial when you go to monarchmoney.com forward slash vision. Monarch has a tool that allows you to easily import your data from Mint and keep all of your tags and categories.

14:47It's the most customizable budgeting app. Change the layout of your dashboard. Toggle between light and dark mode. Create custom budgets and notifications. Set up automatic rules for transactions and notifications and more. Monarch is obsessed with constantly improving the product. They release updates every two weeks and allow customers to submit suggestions, vote on requested features, and view the product roadmap. After reading the reviews, I can see why it's the top-rated personal finance app. And right now, listeners of this show will get an extended 30-day free trial when you go to monarchmoney.com slash vision.

15:28That's M-O-N-A-R-C-H-M-O-N-E-Y dot com slash vision for your extended 30 day free trial. Go to monarchmoney.com slash vision. You know, we've always looked at these ratios like you and I have talked about these things where you've got kind of commodities down here and you've got, you know, tech stocks up here. And there are two ways that these ratios can correct. I like to refer to it as the nice way. Tech kind of goes nowhere for a long time. Commodities play catch-up. Or the cheap stuff, mining, metals, industrials, all that sort of thing plays catch-up. The cyclical stuff plays catch-up. Or the nasty way.

16:14And the nasty way is the bubble pops in tech. Everything goes down. But just the stuff, the mining, the metal, or the tech stuff goes down less because it isn't owned. And so those ratios correct. So when I kind of look at things and I look at the macro backdrop, which suggests to me that inflation's re-accelerating, that it doesn't matter whether the Fed doesn't cut because the market's already essentially priced the cuts for the Fed and is moving ahead. And that's what, you know, Jay Powell told us a while back, that financial conditions lead the world. And now all of a sudden he's choosing to ignore the financial conditions of ease massively.

16:56So I'm kind of thinking, you know, I'm trying to look at this and figure out, is this sort of a nasty or a nice way? And I am worried by the price action, some of these tech stocks. I think the two of them had too much fun during that conversation talking about the doom, the impending doom, but you know, Julianne, it was great. That was a great conversation. And that full interview is on our website, along with the entire week one of the series, which I really encourage you to take a look at. We, of course, have kicked off week two this week where we're talking about what we can all do to make sure that we're not screwed in the future.

17:30And we're going to get a great conversation with performance coaches today, Steven, Denise, and Gio. That's on the platform. That was amazing to get you in the right frame of mind. And then we're going to talk about longevity. We're going to talk about digital assets, of course. We're going to talk about technology. And then Raoul's going to join me on Thursday, along with Jamie Coutts, our chief crypto strategist. And then we have something really special on Friday, workshops. So we're always saying only you know your own financial situation. We can't give you financial advice, but you can roll up to this workshop and ask people specific questions about your concerns and portfolio.

18:08We're going to have the Nigerian brothers and Imran doing an options workshop. Raul's going to do retirement. Jared's going to do retirement for millennials specifically. And then we, of course, got Jamie doing crypto and the outlook for that, which I don't know if you saw the headlines today. Some of these estimates are all over the place. So what you need to know to do that. So sign up. It's first come, first serve. You have to be pro or plus to participate. But the good news is we are having an offer right now, 14 days of plus for just$1. So jump on that. Get yourself in the workshop. Everyone's going to be able to listen to them, but only a certain amount of people can actually participate and ask questions.

18:48So it's going to be super fun. And make sure you roll up with your questions for Raoul. If you want, dump them in the event channel on our platform before he's live because it's hard to get them in when you're live. There's a lot that come on that feed, so I'll try to get to as many as we can. But a lot of people came on and are disagreeing with him. Don't see eye to eye with Raoul, so we're really interested to hear how he's felt about the whole series. So join us for that. All right, Mish. So that was very interesting. And I think that spoke to exactly the point you were making. So let's dive into commodities a little bit.

19:22Given that outcome, it's hard to know which way it goes. How are you positioning? How are you thinking about the commodity space here? Well, the second chart I brought you, I just want to say something about what Julian said, The nice where tech consolidates and commodities catch up or the nasty where they both fall, but commodities fall less. Of course, I mentioned the third possible scenario, which is that ratio really narrows and commodities actually continue to rise in spite of the fact that tech falls. And remember, these are cycles. They're not necessarily permanent situations, which is why active investing is something we always preach.

20:01but I wanted to look at GDX because I have been all you know my goodness we talked about gold and remember so many questions have come in on our chats about gold oh when is it going up it's just been talking about it's going to go up and it hasn't gone up well I said just be patient it was like God looking over us waiting and sure enough it went up to 21 close to 2200 and now it's back sort of in the middle between 21 and 22. Silver finally got through 25 dollars an ounce Sugar, my good old sugar trade, is back about 22 cents a pound. Not terrible, but certainly not inflationary. Cocoa, we know, made new all-time highs.

20:44That's been like the NVIDIA of the commodities world. And the second weighted in DBA, that 10-year high, has been live cattle, which is also consolidating at these higher levels right now. Interesting to keep an eye on that. But the reason why I'm focusing on GDX, and I brought that chart of GDX, is because typically in inflationary environments, the miners leave the gold. And then, of course, in very inflationary times, the silver will outperform the gold. And we saw silver play a little bit of catch up last week, but$25 an ounce, I mean, if you think about it, in 1980, it was up to$50 an ounce.

21:25and the Dow was at a thousand. The Dow was close to 40 ,000 and silver is half of what it was. I mean, you want to talk about the classic undervalue, there it is. But the GDX interests me specifically because of the fact that the miners, the actual raw material, gold rallying for flight to safety is one thing, but metals rallying because there isn't enough supply and there's more demand is another thing. And that would mean to me what I said before, which is regardless, as long as we don't go all Volcker on rates, even if the yields go up even a little bit more from here or they stay pretty much at current level, commodities can still go up because the supply demand hasn't been factored in, really.

22:09And that's why we're seeing what happened with cocoa. You get one drought in Africa, West Africa, and then wham. So gold miners, the GDX chart. Now, most of the instruments in the overall market and a lot of the commodities have already taken out, what you see is the horizontal green line above the price. That's the January six-month calendar range high. It's still beneath it, which means that even though it's been dragged up, it hasn't necessarily done anything to scream inflation at this point. If it gets through those levels and it's above the 200 and it's outperforming the SPY, interestingly enough, That's the middle chart.

22:49And the momentum is starting to improve. But until it takes out that like 3125 level, which is where that January high is, and all you have to do is go back to the first trading day of January to see where it started. Now that's telling us something, right? Then now that's telling us that silver could easily get back up over its most recent highs at around 26 and a half and get to 30 or 35 or even 40. Gold can get to that 2 ,500 level. And more importantly, the Fed has lost control once again. And equities, including tech, will start to get nervous about aggressive rate hikes and go down because we're not in a world yet where technology can take the place of raw materials and the metals will reflect that.

23:35And food hasn't exactly been cheap either. So this is why to me, believe it or not, I like to simplify it to one instrument, just like TLT is the one instrument that's going to let us know what equities are going to do versus commodities. And GDX is going to let us know what commodities are going to do versus everything else. 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. Few investments make a better long-term hedge against inflation, depression, and economic downturns than precious metals like gold and silver.

24:09Plan for the inevitable and protect your environment savings with a gold-backed IRA from Noble Gold Investments. Noble Gold Investments is the gold IRA company that Americans trust. The founders of Noble Gold have more than 20 years of combined experience in buying gold and silver. They have secured more than$1 billion in precious metals for their clients. Gold remains steady when inflation is on the rise and the dollar is in turmoil. Its value doesn't just hold, it increases during inflationary periods. And unlike money, gold can't be printed. It's your shield in times of economic uncertainty.

24:50Invest in something you can hold. Go to noblegoldinvestments.com slash vision to get started. Don't wait. That's noblegoldinvestments.com slash vision. That's amazing. So Stuart has a great question. Is it generally more performant to be in the underlying commodity or the producers? Is something like an EM dividend fund a useful alternative vehicle for exposure? Well, it's interesting because you're seeing a classic example now where being actually in gold was far more profitable than being in any of the producers. But that's why we're watching GDX so carefully, because there has been a lot of talk, and I believe it, about how manipulated gold has been.

25:36There are countries that have been taking their gold out of the United States. China has been doing massive accumulation of gold, as has India. So that means right now, if you're watching the underlying commodity, it's being manipulated and not necessarily being produced. And at some point that would have to happen. So I think you have to really be careful. Let's take oil, by the way, at$82 a barrel. 80 was my huge base case for also another round of inflation. We got through that. But U.S. is tapping into our SBR reserves again. So there you go. Now, the oil companies, which had been somewhat underperforming lately versus what was happening in the actual oil futures, now some of those oil producers are starting to do a little bit better because, yeah, we're going to need to have more oil.