An Upside Surprise for August CPI with Tom Thornton

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1:07Is inflation too hot to handle? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Tommy Thornton, founder of Hedge Fund Telemetry. Hey, Tommy, it's great to see you. Nice seeing you too, Maggie. I have a big smile on my face. I'm laughing because Tommy is literally trading as we went on air, which I think only he can get away with doing. So - I'm done. I'm done now, I think. For now. If you see him looking at his screen, That's what he's doing. But so let's let's talk about this inflation number. We know that they've been closely watched because they have lately had the tendency to move the market.

1:39So the CPI comes in hotter than expected. A lot of its energy, but even core still running above what the Fed would like to see. Stocks initially shrugged it off or they've kind of whipped around all day. But the Nasdaq's kind of consistently been hanging in there, hanging tough today. What do you make of this? I mean, did the number change anyone's expectations? It looks like the Dow is going to lower S &P up fractionally, the Nasdaq up a third, so they're sort of the best performer of the three today. But what did you make of the number? Did it change anything for you? Not really. It was a mixed type of report that we were expecting because we expected the core to drop and the headline number to increase.

2:23And we've been seeing both go down together and cooling off. Look, I think that one thing I mentioned to you back in July when we were on, I think it was early July, I said, I'm a little concerned about the base effects with energy prices potentially moving higher. And I was buying a lot of energy stocks and I had a full buy signal on crude in late June. And now, truth be told, I have a sell signal on crude today. So that's a DeMarc sell signal. So I'm a little concerned. I sold an energy position today. You know, really great return, better than I anticipated. So that's good. But I think that, look, inflation, there's two risks, and we've talked about it all year.

3:14It remains sticky and high or it starts to increase. And it's not really reflective in this number, but it could be for the August data, excuse me, the, yes, the September data next month when we get it. So it could be a little bit tricky. I do think the Fed's on hold this month like everybody else. November's meeting is in early November. I think it's the second. So it could be a live meeting. They could raise another 25. But you also have Q3 earnings that are going to take place in October or, you know, you'll get the bulk of them. And if the market is reacting poorly to those earnings, then I think the Fed could pause.

4:01But the narrative remains that we're going to stay higher for longer. And with that in mind, it's still tightening. Yeah. So, you know, we've got the question about tightening and then folks are looking out through into sort of next year and there's still rate cuts. That's the interesting thing. the longer we go here talking about higher for longer, then you raise the question of these rate cuts. And I know that I think we're getting a dot plot update, you know, an update of their financial conditions in September. And a lot of people are starting to wonder, are we going to see a change on that?

4:37Andrea spoke with Michael's survey this week, who is concerned that the market is too optimistic when it comes to a Fed pivot. Let's have a listen to a clip from that, and then we'll talk on the other side. And I think what we will continue to hear from the Fed and for that matter from the ECB is that they will disagree with the discounting rate cuts next year and basically sending the signal that 2024 we will be on hold. And so we need to see a lot more evidence of the recession and particularly the US recession before you can embrace a more bond friendly environment and a more normal cyclical bond rally.

5:17I mean if you look at macro, if you build the macro models on kind of long yields or 5-10 year yields for the US and look at it right now, with inflation where it is, with the labor market where it is, with wage growth where it is, with the Fed where it is, you should expect bond yields actually to be clearly higher than they are today. So let's call it the macro magnet is still for higher yields. So as long as the economy moves along nicely here, yields should continue to climb. We need to see those clearly higher unemployment numbers, I would suspect, before we get into a more bond-friendly environment.

5:57That full conversation and all of the content from our series Crash or Boom, How to Profit from What's Coming is available on our website. If you're not a member, we just launched an amazing new platform. So now's the perfect time to come join our community, scan the QR code, and you'll get all the details you need to access all of that. So I don't know. Do you feel like that the market is going to have to come to terms with this, Tommy, about taking some of these rate cuts out? And what does that mean? Well, there's two elements that are happening right now. The Fed is, you know, they don't talk a lot about QT, but QT is still fully in effect.

6:35And the Fed's balance sheet is still way too high for their liking, I'm sure, in case they have to pivot hard and enact QE. So I think that's a high bar for that to happen. But look, if you go back and review what happens after the first rate cut, it's usually after the market or some dislocation occurs. And I don't think the Fed's going to do any rate cuts unless something in the market occurs where it's some sort of liquidity event, something really dramatic. And that would take the market, the equity markets and the bond markets for that matter to really dislocate and sell off hard. And I think that's a possibility.

7:26And one of my main concerns has not necessarily been just the equity market selling off, but the bond market. And it's amazing if you go and you look at the inflows for TLT going back to March of 22, when the Fed started to hike rates, inflows just came pouring into TLT. And since then, it's down about 33%, which is a lot of yield lost. But you still get all these, I get all these questions like, When can we buy bonds? And last month, we saw the first outflows in TLT. And so far this month, we've seen outflows as well. So my concern is that if we see rates spike higher and become unruly, you could see a bond capitulation and rates really move higher.

8:19And I know that like Andy Constant was on the other day, and a lot of other people are concerned about the treasury issuance that is coming. And look, they have to issue more debt. It's going to hit, I mean, you have the other part of it's going to cause the deficit to spike because of the higher interest that we're paying. And you have a huge amount for next year that's going to have to be issued as well, because you have a lot of short-term stuff expiring. And I think that that's a real risk that we'll see rates stay higher for longer. And look, maybe the Fed's going to, they'll see that and they'll have to cut rates.

9:03But historically, once they, when they cut rates, you get a spike in the equity market, the bonds rally, but it takes more than five cuts to really start to make a difference. I mean, we talk about the lag effects when they hike rates. There's a lag effect when they cut rates. It's not like COVID and they're going to throw this bazooka and a half at the markets. That's not going to happen. So I think that there's a risk when they start cutting rates, there's probably something bad happening. And I'd speculate it's probably something in the markets and the economy. Hey, everyone, we're going to take a quick break right now to hear a word from our partners.

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10:54which is you're right and i don't think that well let me ask you the question based on the positioning of the market right now does it seem like people are anticipating that everybody's talking about it nobody's yeah but we still have all these it's true everyone's talking about it but everyone's been talking about the recession forever too. And when you look at, I mean, look at, look at, let's talk about tech for a second, right? If that was, that was the scenario, you would think that maybe people would getting, be getting more cautious. And yet we see that relentless move higher. I think Microsoft is up today.

11:31Now the gains have slowed down for sure, but that sort of sell off, that rotation into sort of safer places to hide in the, in the event, something like that happens as doesn't seem to be happening. Do you see it happening under the hood? I think that I think these mega cap tech names, the magnificent seven are completely overbought. They're not cheap either. I mean, so people are paying up for companies that are fantastic companies. Nobody can deny that, but they're not cheap. And even if you look at Apple, they've had three quarters in a row of growth slowing. And I really don't, I mean, I don't see the next iPhone 15 being this needle mover that's going to get people that, well, we're going to do this upgrade cycle.

12:21They've been saying that every sell side analyst has been saying, oh, there's this upgrade cycle coming, but Apple makes great phones and I don't need a new one. I don't need to spend$1 ,200 on a new phone that has a little better camera and whatever. It just doesn't make a lot of sense. So I think that Apple is really at risk and the stock trades poorly. And if it breaks the recent lows around 170, I think you could see a 10 % pullback from there. And again, look, I love Apple. It's a great company. But I think their growth is slowing because they don't have any new products in the pipeline. And I think the same thing with Tesla.

13:02I think Tesla is really devoid of any new products that are going to move the needle. I mean, the bulls got all excited yesterday with Morgan Stanley upgrading the stock. And it was the most asinine upgrade I've ever read in my life. It was something that they came out today and said, And they said, oh, we had this a lot of pushback on the note. And they said it was an intern exercise for the summer to go through this and come up with this AI thesis for Tesla. And Adam Jonas came out and said that their Dojo supercomputer is worth$500 billion. $500 billion. That's like four times Intel. And I just found that to be absurd, like a lot of other valuations that he puts on Tesla.

14:00So he pushed back on it. And then today he also said that their quarter looks weak. Their margins are going to be hit. They've had huge price cuts across the board on all their cars. And some people say, oh, that's genius because they're going to have more customers owning Tesla. But the bottom line is they've been a margin story and they have to cut prices to get demand to move the cars. And I just I find it to be difficult to understand because they're going to have a quarter over quarter decrease in deliveries. Their margins are going to be down again. And I really don't see this new, you know, refresh with a new bumper and a couple other little things on their Model 3 that's going to move the needle.

14:51And there's always the, oh, in 2030, there's going to be, they're going to sell X amount of cars. But we're in 2023, and I just find the valuation to be absurd. And listen, I'm short the stock. I had a great year last year. I have a great record with it. I'm down a little in it right now, not by much, not anything to cause a panic. But the bottom line is I think that people are way over estimating the power of where they are right now. And I think the Cybertruck, which I think is an abomination of an automobile, I don't think that's going to move the needle at all. And I think if anything, it's going to be a drag on their earnings because it's not cheap to make.

15:39And it's, I mean, I want to use a really negative word, but it's just horrendous looking. And nobody that's a serious truck owner is going to go out and buy this. Nobody, no construction worker is going to buy this. They're going to buy a Ford F-150 and that's the core of what they do. So anyway, I just, and I can't wait for all the comments. Oh, you know, clown, all that stuff. You know, I laugh at it. But, you know, the bottom line is I have my money with my bet on this. And if I'm wrong, I'll cover it and redeploy it at another time. And that's what you do when you're a trader. You know, it's funny the way.

16:21So when you're when you're talking about this, it's always been the case or for for many in this. It's really they're really buying Elon Musk, right? They're buying the myth of Elon Musk. They're not really looking at the sort of sales and everything. They're just buying the idea that this guy knows what he's doing. And it's all over the place right now. Right. He was in Capitol Hill, tested by an AI. We saw SpaceX looks like they're improving. Walter Isaacson's biography is coming out on him. I mean, everywhere you turn around, it's Elon Musk. Yeah. And the DOJ is investigating him. And even worse is the Southern district of New York is investigating them.

17:03And they're not, I mean, If you look back on the history of the SDNY, they go after whales. They're not afraid of going after whales in any way. And if Elon Musk and Tesla are in their sights, I think that's a real negative potential out there. But look, that's not my thesis. My thesis is slowing demand, which is happening. And so that's how I see it. But look, that's not something, if I was long the stock, I'd be sleeping at night thinking, wow, they're investigating them for possible criminal problems here. I mean, this is, you know, it's really serious. So when we look at stocks like Tesla, Apple, that Magnificent Seven, there are a lot of people who have been really concerned about the valuations, really feeling like this rally is way too narrow, way overdone.

17:59And yet, if you weren't in them, you missed that rally and were going into the year end. Is there a lot of pressure to own those names to try to make sure that your performance is up to snuff for those in the professional? Oh, God. I mean, you wonder why there's been very shallow dips in these. It's because people just launch right back into them. And the other day, I have a custom basket. it was up 2%. The market was basically flat. And yesterday, it was down 1.5%. And today, it's up 92 basis points. And the S &P was up 12 basis points. So look, I've missed these. And I raised my hand. That's fine.

18:46But I just can't, from my personal investing point of view, I just can't chase these at these levels here. And, you know, I might or might not be short a few of them. May or may not be. To that point, we talk all the time about sort of understanding your framework, right? And trying to stick to that framework, you know, throughout, which is so important and why we feature sections on that on the academy so that, you know, you know. We got a question. Let me see who it was from. The names are, because we have a new platform. I know for those of you who are on it and testing it out, I hope you love it.

19:28It's so fun. But we're kind of living in two worlds right now. So some of the migration is a little bit funky. But Trillion X asking, what's your view on gold in an environment where the U.S. Treasury is no more the risk-free asset? Well, gold, I've had a negative bias on gold for a while, and I still think it can go lower. The thing is, this is the type of market that we've been in for the last couple of years, where if something's working, then people will pile into it. But if it's not working, you don't have the sponsorship there. So you have the typical people that are very much long-term gold buyers or owners, but you need new people to come in and chase something higher.

20:21But it really hasn't worked at all as an inflation hedge, which it was supposed to. You have the dollar that still looks positive. I've been biased long the dollar. And as we mentioned I've been biased short bonds. So, you know, I just, it's just a big rock and I, oh, central banks are buying it left, you know, hand over fist. Well, it's not moving the price higher and it's just kind of sitting there and you're not getting a yield from it. So, you know, there's probably other things to do. So look, if all of a sudden everything goes to hell in a handbasket, gold may work. But at times when things sell off and you have a big dislocation in the market, guess what people are going to do?

21:10They're going to sell anything that's not nailed down. And that will include gold. It doesn't necessarily hold up in down markets. If the Fed says, OK, we're done for good now and they start cutting rates, then you probably will see gold work. But as of right now, I'm just sort of, eh. 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.

21:41I just want to circle back to that idea of a bond capitulation. Some people have also been talking about bond vigilantes coming back. I think you're talking about something different though. The bond vigilantes would be people who just like are, fed up with inflation and don't like the policies that people are pursuing. And even if the Fed is trying to get rates lower, just say, no way, you got to pay me to hold this. Does it look the same? What do you think is the capitulation story really tied to the issuance, just a lack of buyers? Talk to me a little bit more about what your concern is there.

22:17Right. Look, I think that a year ago, well, two years ago, if you were long the two-year and you were getting 20 basis points, you're going to be thrilled getting 5 % today. And those are people that are going to stick around with those, and that's fine. But you have a long end that I think could dislocate, and that's the real risk in my opinion. And again, with the Treasury issuance, you've got supply out there that could possibly move rates higher. But look, if we have a surprise that becomes very inflationary, you could probably have a real problem with that. Because look, I'm going back and I'm looking at like Bank of America has all their fund flows and things like that that I've looked at.

23:09In the last two years, there's been huge inflows into bonds. And of course, yeah, they're short-term bonds and they're people that are getting, you know, six-month paper and it's 5 % or something, you know, fantastic. But those people that bought the long end, and let's just remember the regional banks, those geniuses that bought all the long-end paper at 1%. And now you're looking at these, you know, trading at, you know, I don't know my rates here. Oh, 10 is at 425. But they're down substantially with their capital. And again, I think banks, regional banks mostly, are really at risk if they, you know, I've had a conversation with a banker who handles mostly financials.

23:57And he said every bank needs to raise capital, everyone. And he said, but they don't want to do it because it'll freak out the market. And people like me will short the living daylights out of the stocks, which I would. And the people that are going to loan money to the banks, they don't want to be the first ones in. They want to be the last ones in. So there's this like waiting period and nothing's happened right now. So if commercial real estate starts to really weaken and they can't refi their debt and those real estate companies walk away from buildings, which is happening, that could be a bit of a problem.

24:37So those are like my doomsday type things. And I will say this, Maggie, and I should mention, I'm not fully short everything. I do have things I'm long, and I've been buying a few things. So I was just wondering about that. What do you like here? Okay, so I look for things that get exhausted on the downside. And I've been long utilities. I mean, that's boring, but it's kind of safe. I bought Citibank yesterday. It's really beat down. It's one of the more oversold banks. They're cutting jobs. That's going to help the bottom line. Yeah, they're in the headlines for them. And so the stock's working.

25:18It's a bit hairy, but we'll see how long it lasts. I think that, and the Barclays conference, the financials conference wasn't like, didn't come out like anything, you know, dramatic or terrible yet. Jamie Dimon ranted a bit about, you know, regulators and such. But so I'm buying that. I also bought Etsy. And this company is really operating well. The stock's just been beat down hard. I mean, I think it was like$100 just a few months ago. And I've been buying it around$65. Wow. So I like this. These are some brave buys here. These are not these are not stocks on everybody's top list for sure. Well, remember when I was buying energy, I had all the people in the chat room, you know, the clown thing, you know, that's so funny.

26:09We have a question about that. Speaking of Jonas asking, do you have an opinion about industrial commodity stocks that looked too expensive to invest, but now corrected like lithium stocks, Glencore, Alcoa, et cetera. So you reduced your energy holdings. You're looking at any of those industrial commodity stocks? I'm long US steel. It's a pretty sizable long position. I do think that they're going to sell themselves to, I mean, they're for sale. They know that. They're going to sell a piece, which would probably send the stock lower. But I'm long that. I'm looking at Alcoa. That's one that's on my radar as a buy.

26:54Copper can't get out of its own way. It's been sort of just dragging here. I mean, that's the problem in the commodity market as well. You know, we've seen basically the Bloomberg Commodity Index start to lift, and it's been acting better, but it's been all crude. And natural gas looks terrible. Until it gets over three, I don't even want to look at it. but you really don't have a lot of commodity, you know, this super cycle that people talk about. It's not there yet. And if crude starts to weaken, which I think could top here, around here, I want to buy it on dips. So that's kind of where I'm at with, with that.

27:32Doug asking, have you been, what do you think of the ongoing uranium stock rally? Does it have legs? I had a couple of people ask me about that today and it was, you know, The uranium ETF was up 3 % today. It's at the top of one of my monitors, which is basically when it gets the furthest above the 50-day moving average. I kind of missed that one. I liked it a little lower, but we'll see if it keeps going. I'm not quite plugged in on that one as much as I usually am. Nathan asking, what's your time frame when you're talking about Tesla and Apple? I mean, you've consistently been kind of bearish on Tesla, although you trade in and out, we should point out.

28:17You talk about your sentiment, but you're much more tactical with your position. Yeah, I'm very tactical. It's like, oh, you've been short since 2011. No, not quite. I trade around it and I use options around it and such. But yeah, last year I took great profits in it. And this year I've been adding to it as it's lifted. And, you know, we'll see where it goes. But my time frame on Tesla's, I mean, I'm watching this next quarter, and I think it's going to be very much an inflection that will show that demand is weakening. So I'm longer term. I think the stock could be under 100. We'll see. I mean, it's a very difficult, cult-like stock.