An Upcoming Contraction in the Broader Energy Complex?

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1:24And now to the top analysis of today's markets.

1:34Francis, great to have you back with us. Delighted to be back, Ash. Thanks for the invite. Yeah, it's always a pleasure. You know, Francis, I read your note over the weekend. Lots happening right now. Let me just set the table here for folks who aren't following markets as closely as you are. Give a little bit of context to this discussion. Actually, this morning, I was just reading Edward Jones's weekly market wrap, getting a sense of all the rising risks that we see out there. Obviously, I watch this pretty closely. Let me give you a little bit of a context on how I see what's happening in markets.

2:01Just some key takeaways to set the stage. S &P 500 up roughly 6.5 % year to date right now, largely on multiples expansion. Earnings forecasts right now, however, are decelerating. Indeed, we're in a period of what is beginning to look like a full-blown recession watch, all eyes on the labor market. The March ADP report was pretty grim. 145 ,000 jobs added, 245 ,000 expected manufacturing and services activity decelerating. And yet, Oil up over 80 bucks a barrel. WTI on my screen trading, it looks like about 81, call it 8038 right now. And gold over$2 ,000 an ounce. A lot going on in these markets.

2:43Francis, big picture. How are you looking at all this? Great question and quite a bit to unpack in there. First of all, the one thing that we're not so sure about the sustainability of, Ash, is the energy markets. We feel we've seen something technically that points to an element of demand destruction event not too far out. On the gold and silver side, we've been optimistic for a while a seminal shoe did drop in terms of a technical level, which I'll also return to in a second. So the short answers to each of your key points. Indices broadly, we're in this hyper stagflation. That's kind of our phrase where you've got the forces of inflation still there in spite of very much contracting overall, certainly for retail and consumer part of the market.

3:36I will say there's hot spots. So there might be quite a lot of rotation in the index whilst you get a fair amount of churn up and down. So I'm not overtly aggressive or high probability anything, but I'm seeing the military industrial complex, for example, doing very well. Government has lost expenditure. I'm not seeing the retail and consumer in nearly as positive a light for stock. So it does depend where you are in the broad sense. And the index is masking probably quite a bit of churn and reallocation. So that would just be an over the top comment to some of the elements you raised in your opening statement.

4:14Let me follow up on one point that you made there, because it's a word that was in your note, and it really grabbed my attention. It grabbed my attention again when you said it. Hyper-stagflationary. Boy, that's a scary word. You've got to dust out the history books to get back to a period where we saw that. What does it mean? What are the implications, and what are you watching to understand it? Yeah, so it means any demand-destroying type event, in whatever form it comes, it's not my impression, whilst you will likely get some degree of bid back in bonds, we're never going back to the CV19 events.

4:47In other words, inflation has now got a stronghold and you might push him down, but he's going to keep climbing up that cliff face coming for you. That's the one part of it, in spite of a very substantial. And again, I think it's retail that bears the brunt of this and the consumer negative environment. You mentioned jobs, layoffs. If you look at the big tech guys, you know, they're averaging between 10, 15 percent. I've looked at a whole list right the way through Amazon. of job cuts. And we're no longer talking about the cleaner, the janitor and the candlestick maker. We're talking about 200 ,000 a year jobs, 150 ,000 a year jobs, middle management tech.

5:32In fact, when I was talking to Daniel DiMartino-Bucci referenced, in fact, sorry, Jeffrey Tucker, he referenced that Twitter cut four in five employees and that still manage to function. So there could be a lot of wood hacking out of the middle of corporations. And that - There were some reports over the weekend that I was reading that some of the acceleration hiring in the Valley, some analysts believe was just essentially to hire away the competition that you had folks who weren't maybe necessarily doing the most productive work at these big tech firms, but they were so rich with cash that they were being hired to make sure that they didn't go to the competitors.

6:07I mean, wild stuff. Yeah, it's kind of a resource denial strategy, isn't it? Where you throw cash at denying your rivals resources. And that happens also in the IP world, by the way. Many a good invention gets bought out and buried to protect already established product lines. So this kind of bizarre business, you know, the notion that big business particularly is an innovator and doesn't do very non-economic things to protect market share and product lines or denial of service to other megacorps clearly comes unstuck with both those stories. What I'd love to show you, which I think was a big shoe drop, and I'll start technically with if you're ready for me, is the gold market and why I feel that anti-fiat category, which of course branches across also to Bitcoin, is very, very interesting because in some ways, I draw a parallel, gold's relationship with silver, both as monetized metals and Bitcoin with the old category, often Ethereum being the flag bearer for that, but not exclusively the flag bearer.

7:16So there's almost an interesting parallel across two separate industries. And the shoe has dropped, I feel, for what we've regularly referred to as the god markets, the god markets of anti-fiat being gold and also the god market of crypto being Bitcoin. We feel Bitcoin's reversed. We feel gold has broken out of a major continuation pattern. So I better show you that to make my case. So I'm going to ask for the share screen to pop up and hopefully we'll be able to see that in a second. So overall, what you should soon be seeing is a bull flag continuation. If you can confirm that's coming up nicely, Ash, it'll be great.

7:55We had a bit of a foundational element, a capping, descending grind line through there. This was the events of March 2020, this little dip and re-rally that led to a small flag structure that jumped you up for your final high. We are seeing this seminal event that occurred in the last week and a half, Ash. I think this is a big moment as a break for a bull flag on quite a big time frame chart. I'm showing you on a fortnightly, that is two weeks. So I'm splitting the month slightly just to get a bit more detail. as this being a break. So in reasonable timeframe, we're seeing the secondary high and the all-time high fall, in our opinion.

8:37So this is a bad, and why is this happening? We're seeing distribution out of US debt. So there's a dollar confidence crisis, but people have got to remember, currency is borrowed into existence. This goes hand in hand with debt markets. So there's actually also a bigger problem. There's a debt possible problem. So China no longer feels the need to treasuries. If they're doing bilaterals with Brazil to engage in yuan, that means less dollars are needed on hand as the global currency. So you've heard a lot of this theme now, and it seems to have stepped up. And one of the biggest beneficiaries is not another fiat.

9:14It is, hold on a minute, whilst there's this challenge to the main fiat, the god of fiats, call it the dollar, maybe we should be stepping out of the fiat game because there's no clear depth provider to the level of the dollar but clearly the dollar is under threat gold is benefiting in this environment and debt is having a problem generally of late however more recently we've seen that little dip on debt that the yields that show that the yields might drop a little bit so there is a bit of peak there's a bit of pivot nerves around and I think maybe 25 basis points more out of power because you wouldn't want to look too soft.

9:57But there's even a possibility that there's not much more before there's some form of breakage in the system. And that's what we're seeing in the energy markets. You don't cut production. This is the thing. You don't cut production if you're happy with price and you're selling all you want. That is a right sizing to what must be a demand diminishing contraction. So we had energy cut. So I'm trying to pull a lot of macro seeds here together. We're talking from Bitcoin to gold to oil to debt markets. And overall, I think we have the seeds of the next. We're known for calling the single digit oil prior to the events of March 2020.

10:41And one of the things is the energy markets are always a tell. And we highlighted natural gas. Natural gas was a head and shoulder. I'll jump quickly past that one because it's interesting to see. Now, you can't run your car on natural gas, nor can you run it on uranium. You need petrol. But there are some substitution aspects that do come into play. So if I go to the Natty Gas, you'll see that we had a massive head and shoulder. It was the first to fall over. I'm going to choose that particular option first. You'll see it here. But there you go. This was a big head and shoulder that occurred.

11:17And I'm going to take it to the weekly level. So we were all talking about Europe being in the dark, you know, in August, September, lockdowns and shutdowns. And we started to see this volatility in natural gas forming. So we've had one energy complex completely roll over and fall down. And that was the triggering event. And it broke and made that head and shoulder target. and is still very close to lows, losing a little bit of its downside, but close to lows. We've also felt uranium isn't looking particularly strong either. And if you look at Sprott's uranium, it feels a bit more like the oil ready to potentially have a little bit of a dip down.

11:57You've got the squeezing structure. It's gone very low volatility, usually a precursor to a move. Many of the bulls think that will be to the upside because we've got a big, you know, having been seen the move, having seen Sprott come out, there's quite an investor call that is now pro-uranium. It's had walked a very long desert. But that doesn't mean it just keeps going up in a single-minded fashion. We're going to take a quick break and 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.

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13:30Francis, let me jump in and ask you a question because you raise a really interesting point here. I'm curious if you could give us a little bit of context on the relationship between the price of oil to the price of other energy indicators that you're looking at, sometimes called the liquid balance. You make this point, you can't run your car in uranium if the price of oil goes up. Talk a little bit about what the time horizons are and how you see that substitutability as well as the relationship more directly in price. yes it's it's at a retail level there's very little substitute you know if you if you've got natural gas running to your stove that's what you're running um but i think at a corporate uh and more institutionalized level and it's also a bit of an oil tank it's not the kind of thing that gets switched on and off at a flick of a switch but long run as a general category it's very rare that you'll have a super dominant very expensive individual uh components of energies while two others are cheap and falling.

14:28Because then you start to get the structural, there's time for structural adjustments to take place. And of course, in oil, you also have heating oil and other things. And those tend to be more readily switchable to gas, et cetera. So it's not a pivot that at a retail level, you would easily do. We don't have a switch on our wall that just pivots your heating oil to natural gas. But at a more institutional and corporate level, those things tend to over time adjust. So I'm pointing out that you've got two in a category, one that looks precarious and wanting to roll over, one that's already has done.

15:02And then you get the output cuts that has done retained price. The only thing that was different to the precursor of the CV19 events was in fact the weekend. And Raoul was all over this on that weekend as well, because we both commented on Twitter at the time and I saw his tweet. when Russia and OPEC met, the Saudis primarily, they refused to do cuts. And then you opened that Monday with an absolute spill and then down it went. This time they are preemptively working together, which is actually negative for America and the dollar, because it's going to keep a little bit of heat in the inflation number, which is going to add to the stagflationary element, which is why we consider this as a hyper-static stationary element, because you're getting the oil being kept up by a right-sizing of what will be supplied, so that price is being held.

15:58They don't want to go the glut route, where everybody has to pump more to make the same revenue number, and you lose that stability of the markets where it goes to the extremes. Everyone starts pumping more because everybody needs a number. And in some senses, that's more damaging, because the thermostat of the oil price in demand reducing times actually helps a correction. It reduces costs on people. So in actual fact, this adds to the pain level. Your head has been waterboarded under that water for longer because you're not going to get the release on the oil. All this at the same time as we're seeing gold going up.

16:36So there's a head and shoulder. If you do the cross gold, and I'm hoping we might have time for that, If I take oil and I divide it by the gold futures, for example, even though it's gapped up on that production news, if you divide it by the gold futures, what you're actually seeing is a second head and shoulders very similar to the one that preceded the events not that long ago. So let's have a look at that for you. So that is, for us, a big macro head and shoulders. Some of you might see this right now. Now, this is US dollar, WTI, the Western Texas Intermediate contract. There's your overall head.

17:17You've already had what we refer to as a monarch head and shoulder. It's a smaller one right at the very top, the king, if you want, inside of the head. That has already performed. And that performed to there. This is where we get a rally. That's why there was a good temporary target or point. But the big threat is not gone until you run this right shoulder. So that's typically where stop losses would be placed. You've got something about you, but I can't see that chart on my screen yet. My apologies. I omitted to go to share screen. Sorry for that, guys. Jumping in and out and turning it off each time had me fooled there.

17:53Let's go straight to that. And I'll just restate that. So here we have the Western Texas Intermediate with gold. And I'm highlighting the head and shoulder that we see. This is essentially oil divided by gold. So we're using a different monetary component. And you can see this left shoulder, this big macro head over here. And we have a right shoulder structure. Now, whilst you are rallying here and you had the gap on the production cut news, you have already triggered this. And you've made the smaller head and shoulder that is in the top here that I've also highlighted. We call that a monarch.

18:29It's the king. He sits right at the very top and he has the narrowest shoulders. That's already made. So you tend to get rallies after target mates, but the danger is not gone until you clear this right shoulder and invalidate this head and shoulder. And just to give you a quick view on that, this is very similar to what happened the time before. So for those that say it didn't work, well, here's what happened the time before. This is a small history redux for three years ago, in essence. And again, you had this neckline and you had that structure. There's the right shoulder over here. You can see the left shoulder and the head.

19:06And then we had the extreme spill that took us to almost infinite, to zero, basically, in the gold-silver ratio. Of course, we traded zero on the Western Texas immediate contract. Let me say this, of course. This production cut was a surprise last week. At least it caught many flat-footed in terms of expectation. But let me ask you this. When you're pricing this in precious metal, when you're pricing this in gold, what are you filtering out? Is it noise on the dollar? What does it give you a clearer picture of? Yes, we're taking money to be gold and we're treating everything else as fiat. Because the dollar, unfortunately, instead of being the stable coin in the crypto market, has in fact become part of the story.

19:47It had an extremely strong spell that we'd predicted and spoken to was coming. And then since then, it's had an extremely weak spell. So what you're actually getting is there was quite a bit of volatility on the dollar. So by bringing in gold, you're bringing in a cross commodity. We like cross commodity trades because there is an inflationary element. There's a danger to going short oil. You know, if the inflationary part of the stagflation, the hyper stagflation starts to go up and you're too early with your demand destroying event, just being naked short oil is actually a potentially very threatening position to be in.

20:21And you just saw an example with a gap that can destroy accounts and run stop losses. However, by being cross commodity, the inflationary effect is evenly distributed amongst them. And you are almost hedging that out. It's not necessary. There's no such thing as a perfect hedge, but you're certainly getting that. And gold is a very, very honest anti-fiat hedge. It's about as good as we have at the moment. And, you know, that brings us, I suppose, to Bitcoin because we've mentioned it and we've not shown the chart on it. So it would be worth showing this. We think Bitcoin is going at least for a 40 to 42 and a half K run following a major reversal.

21:03I'm going to just switch the lights out on all the lines there. But so that it's easy to spot this. But 25K, such a key level for a chart such as Bitcoin. So many people have spoken of 100 ,000 and obviously 50 ,000. And for us, this constituted, and I'll go with a fat koki here, a left shoulder here. That was a bit of a rising wedge. We fell further. This was the FTX additional event that was November of last year. And then we have the right shoulder here. So I want to give a bit of good news to your crypto audience. We've been bears and boring bears because we've stuck with it for an extended period.

21:45So we have, you know, we are turning. This is, these flags have all played out to targets. There was, in fact, a head and shoulder we discussed before over there. That called literally the bottom. That ran 15 and a half. That was a target down there. So I got a lot of lines that will overwhelm everybody on this big time frame. So a little bit of spinning tops and tightness here. You could have a short dip towards the neckline, but we see a return back into where these flag zones were. and that neckline of that head and shoulder runs at 42 and a half. And you've got the midpoint of this big bear flag.

22:19I think you get a bit of heavy traffic there, might run into a bit of bottleneck and churn a little bit. But that's a nice move. Francis, let me ask you a question about this. And how do you tease out the technical factors versus the fundamental factors? Obviously, looking on that chart, going back to 22, a lot of news flow, a lot of fundamental activity. You can see those drops on the collapse of FTX, those big red candles. Give us a little sense of how you tease out what's technical versus what is, I guess, also the cyclical component of the halving cycle here versus what is fundamental. It's a lot going on in these markets, man.

22:56Oh, absolutely. And when you're doing a technical analysis of a chart, it's far better to be ignorant of the underlying you're looking at. In other words, it has to be purely technical. If you try build news in, what you end up doing is bending the technical analysis to news events. Everybody is narrative driven. So I'm actually chart driven. I've trained myself to be, listen, I look at this as if I'm looking at an equity I've never heard of. And I just draw patterns and key levels of significance where I see them. That's the only way you can do true and honest technical. If you're saying, oh, but on that day, this and that, and I've reached a point now where I can do, I'm quite cold blooded and can do that and now can at the same time simultaneously talk about the FTX collapse, the three arrows collapse, and various other things.

23:47Because people are still narrative driven. If I just sit here and talk patterns and lines and projections, you lose your audience sometimes. Some people don't have that level of belief in the ability of technical analysis to be precursor to major events. So you've got to bring in what they understand about it. So that's why you will have heard me bring a bit a fundamental into the description of what's gone on here. But in truth, I look at this as an equity I've never seen before on an exchange I've never visited before. A miner in Singapore or something like that. I don't think they have many miners in Singapore, but almost deadpan.

24:26And that way, you do your technical analysis on a far cleaner way. It avoids biases. If you're too filled with news and fear. You tend to carry that over into your technical assessment. You have to be actually peak fear, probably a good point to turn. So we see maybe a coming off first, but a move up. So we feel this has turned. And at the same time, we've discussed gold having triggered. Now, the interesting part about gold having triggered, so I'm jumping around a bit, Ash, I'm going to keep the charts up, is at the same time, silver is yet to trigger. And in the same way, the alt tokens, it's been a Bitcoin dominance play.

25:07In fact, before I leave Bitcoin entirely, let me just show you this chart as well. We called for the dominance to re-reach back up to the 47.5 level. This was a flag here. So when we were pivoting long, we said, you're probably going to make a sub 20K run on the right shoulder because that was the previous high of 2017. And we had a number of key levels there. It did exactly that. So on that point, we were very accurate. It was great fills for a number of our community members. And then we said the dominance, the run will pause when we get back up to the dominance of 47.5. That's here. And you can see this bull flag has played out on dominance as well very very nicely and dovetails with lots of legacy dominance highs so the question comes on gold when does silver start outperforming and in in crypto when do some of the alts and which ones will be the alts that start outperforming so i'm kind of front running a couple of narratives that we may not have time to explore in the fullness today but but these are very very interesting and the technicals will show you and it's our feeling that the lead alt even though it's far from perfect is ethereum and that you're going to start to get some dominance out of uh ethereum at some point again switching off the lines here we feel that this has got two very nice impulses on a bull move that at some point you will start to get an upside a third impulse and then an upside breakout on the F, but not yet.

26:43Not yet. We're seeing a slowing of the downside now that Bitcoin dominance has gone 47.5. And in the same way, parallel running these two narratives of anti-fiats, we're seeing silver coming up, holding, and I'm not sure if it's still holding the$25 Monday morning. It was until Friday. But we're seeing the gold-silver ratio reversing. So let me show you that. Another very interesting, which is similar. This is a big river. As you're bringing up that, you mentioned open questions, of which there are many. Talking about questions, we've got a lot of them coming in from our community members right now.