Arm Shares Soar on Market Debut

0:06Are the bulls armed and ready? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me Today is Peter Buchbar, CIO of Bleakle Financial Group. Hi, Peter. How are you? Hi, Maggie. How are you doing? Good afternoon. I'm doing okay. And so are the markets today. We have kind of green arrows all around, pretty good looking gains for U.S. equities. It seems like a successful IPO of British chipmaker Arm helped the mood early on. What did you make of the market action and what did you make of the debut? So I don't know what to make of the market today. It is expiration tomorrow, so there could be some influences there.

0:42While stocks rallied, bonds interestingly sold off. The 10-year yield now to 429. So I think that that is a bigger picture, important thing for everyone to keep their eye on. I think the arm caught sort of the lack of supply of new issuance and being in the right space and industry and all the AI hype definitely helped out. and also the salesmanship of SoftBank. I don't extrapolate that to the rest of the market because in my 30 years of doing this, it is a higher stock prices lead to more IPOs as opposed to more IPOs leading to higher stock prices. So I don't say that, oh, this means the window for IPOs is opening, everything is fine because once the market sells off again, then that IPO window gets shut again.

1:37So it was definitely an opening. Markets have hung in in the face of the rise in interest rates. So it certainly was an opportunity. But the only IPOs we've seen and we will see are the select few, the bigger companies. But even like Instacart, that IPO, at least right now, and the price talk is a valuation that's much lower than what it was previously as a private company. Yeah. Well, and that in of itself is a whole conversation about some of those private valuations. But totally, you know, great point about it kind of being able to sort of hit it today, but, you know, maybe not a harbinger of what's to come.

2:22I'm wondering, you were, I know, looking at the ECB as well. And so much of, you rightly point out, the attention has been and should be probably on those bond markets. ECB move, it seemed like, again, like maybe investors looking past the move today into the future. What's your sense of that? Well, the setup with the ECB is whether they were going to hike or not, we're pretty much done with the ECB rate hikes. And obviously they threw one in there, but Christine Lagarde sort of hinted that they've done a lot and this could be it for a while. Still, QT is going to continue on there, their version of QT.

3:02So it's not like the tightening is going to end. And because their deposit rate of 4 % is still well below the rate of inflation, just because they stop raising doesn't mean they're going to start cutting since inflation is their sole mandate. But at least today, the market says, OK, maybe they're done. So the euro sold off. European bonds rallied. European stock markets were up, call it 1 % plus across the board, which was a factor in also helping U.S. stocks. But that's what made it unusual for the U.S. bond market to sell off, even though European bonds rallied. Yeah. What do you make of that?

3:45I would think that, first of all, why all of rallies? Is there enough to go on, or does it seem like it's more just a reflex and maybe a rebound from the weakness we've seen? Well, I think today it could be the almost$2 rise in oil prices with crude WTI back above 90. PPI driven by a jump in energy prices that was hotter than expected. Jobless claims, which came in at only 220 ,000. On top of the other bigger picture challenges for the U.S. Treasury market, and that is BOJ tightening and a budget deficit in the U.S. as a percent of GDP on the last 12-month basis that is at 8%, which is an extraordinary level when the unemployment rate still has a three handle on it.

4:35So it's a combination of factors. But at least today, it's probably oil prices, probably PPI, probably initial claims, because the retail sales number, the other data point that came out today, if you include the revisions in the prior two months, was actually a bit softer than expected. Yeah. When you look at all of the economic data, there seemed to be a lot of things to worry about. So obviously that was reflected in bonds, but not in stocks. You seem to get a very different picture. Which one would you be putting more weight on, the move in bonds? That's a good question. I think, again, because it's expiration tomorrow, I don't know what to make of the stock move.

5:11It could just be technical by nature. Maybe next week we'll get sort of a cleaner read on what the messaging is. I think that this market, since the October lows of last year, has really been riding the wave of, I don't want to miss the Fed has done rally. And this belief that somehow the economy is going to be just fine after all these rate hikes. And inflation is decelerating, another positive in people's eyes, X fuel. But I do think this rise in long-term interest rates over the past month has caught some people by surprise. because you have a lot of people that have been trying to predict lower long-end yields because they're only looking at the deceleration in U.S.

6:02inflation and believe that the U.S. economy is going to recession. And I've argued for a while that the analysis has to run much deeper than that. And we're coming off an epic bubble in sovereign bonds that is unwinding. And now you have also the last major central bank, Bank of Japan, that is now tightening in their own unique way. And I mentioned that the budget deficit as being a challenge at the same time central banks around the world are conducting QT. So that has to be part of your viewpoint and thought process when trying to figure out where long-term interest rates go. But I think that that is an interesting complication of this rate story where people thought that there was somehow an all clear when the Fed was going to stop raising interest rates.

6:53Hey, 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.

7:16unlimited demo. See 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 Plus 500. With over 20 years of experience, Plus 500 is your gateway to the markets.

7:51Visit 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. Plus 500. It's trading with a plus.

8:05We have been laser focused on those tensions. We've been doing a special series all week, crash or boom, how to profit from what's coming next. And that has been the sticky part, that sort of the story around bonds that is in some way not related to some of the data coming in or the sort of traditional business signals you'd look at. I caught up with Lizanne Saunders from Charles Schwab and David Rosenberg this week as part of that series. And David is concerned that the market is too married to this idea of a soft landing. Let's have a listen to them. we'll talk on the other side. Well, I really don't think that there should be a debate between soft landing and recession because they are really two different parts of the business cycle.

8:56The soft landing is the transition or the bridge from the previous business expansion to the contraction phase. And soft landings, which is what we're in right now and we've been in for the better part of the past year and change, they can last several quarters. 1969, soft landing. 1979, 1981, 1989, 2000, 2007. These are all years where people were saying, where's the recession already? Where's the recession? But it was that transition phase. And every recession followed a soft landing. You know, the economy is this, you know, $27 trillion beast that doesn't fall off a cliff. It's not like the stock market and it's not like the CRB index or even Bitcoin.

9:48The economy is a juggernaut. So I think that it's almost a false debate. That full interview and the entire series is available on our website. If you are a member, scan the QR code. Well, if you're a member, go check it out. If you are not a member, scan the QR code and jump on some of the great deals we currently have going on, as well as our new platform, which we're so pumped about. And you can see more about that on YouTube, on this channel, so you can see what's going on. So, Peter, interesting. And by the way, in that, for our members who have followed the conversations we've been having with David, we talked about the fact that the timing has been tricky for a lot, including David.

10:27He was early. the transition, as he calls it, has been stretched, but he still thinks the business cycle is intact. What's your view on the economy, Peter? And then I want to dive a little bit into the data, because you really drilled down on some of the stuff in the retail sales, which I thought was really interesting. So I'm in the same camp as David, who's a dear friend, on the economic side, and that it takes time for the very sharp rise in interest rates in a condensed period of time to play out and have its impact on the broader economy. And that just because it hasn't happened yet in terms of a recession or economic downturn of note doesn't mean it's not going to happen.

11:10David and I have disagreed on the direction of long-term bonds, but at least on the economic side, we think very much alike. And I think it's somewhat simple to think about is that when interest rates change, when they go up, it affects not just incremental borrowing and activity going forward from here, but of course, obviously, those that have existing debt that needs to reprice. But not everyone's debt reprices all at the same time. Now, if you have floating rate debt, yeah, it reprices at the same time. If you are a LIBOR plus borrower, you've been negatively impacted by the rise in rates.

11:54But those that have had some fixed portion to loans that they've had, it all matures in different times. Those that have been able to access the capital markets over the last three to five years have been able to push out their maturities to 2024, 25, 26, 27, whatever. And they're not necessarily impacted right now. Right. There are those that have loans coming due this year and next year that are going to get stung by the new interest rate reality. But I think what this shows is that this plays out over time. And just because, again, it hasn't happened yet in the aggregate on the economy doesn't mean that there's not an impact.

12:34And if you break up parts of the economy, you can see where some of the strength is, but you can see where a lot of the vulnerability is. And with the consumer being the biggest chunk, well, let's just listen and hear what a lot of retailers had to say over the past four to six weeks when the slew of earnings came from Walmart and Target and Costco and Home Depot and even smaller companies, smaller retailers. And it was all very much a questionable consumer, less so for the upper end consumer that is spending certainly more generously relative to the lower and middle income consumer. That is definitely challenged.

13:19I mean, when you think about Dollar Tree or dollar and a quarter tree in Dollar General, when they talk about slowing business and they're selling stuff for a few bucks, that should tell you a lot about the state of the economy. I mean, this week there was a Wall Street Journal article on pet owners that are trading down to more reasonably priced food from premium food. And that tells you that something's up with the economy. And then Walmart tells you that they're seeing a more diverse customer base, which is another way of saying they're seeing higher income people that are shopping in their stores.

13:56So I think the cumulative effect of inflation is beginning to matter. I mean, a consumer doesn't say, oh, wow, inflation was 9 % last year. It's only running three to four now. I'm going to go out and spend because inflation is lower. Well, no, they're responding more to the 20 % increase in their cost of living over the last bunch of years. That's what they're responding to. And then U.S. manufacturing is in a recession. Maybe there's some hope and signs that – I see there's a glare on my face. There's hope and signs that maybe this destocking that has been taking place is coming to an end and maybe we're on the cusp of some restocking.

14:42there's some pop-top potential signs of that. You know, housing is upside down where you have the pace of existing home sales near the lowest level since the mid-90s, almost 30 years ago. But new builds are obviously doing okay because of builders that are trying to fill that housing gap. So it's just a bizarro type economic situation. But I think the net result is growth will continue to slow as the impact of higher interest rates filters through. But even with the interest rate complex, it's still strange because those that are benefiting from higher interest rates, those that have savings and cash, well, they're getting 5 % now.

15:22So there are so many pushes and pulls to this economy that makes it not so easily applicable to previous economic cycles. Yeah, no, you're absolutely right. And that has, you know, again, we've been talking about it. I don't know if anyone had a chance to see, but the conversation with Larry and Luke Grumman dropped today as part of our series. And Luke made us all laugh because he was talking about the sort of boomer, the YOLO boomers, like spending all their money in Italy and because they're sitting on treasuries on bonds. Yeah. And so they feel, you know, and they were, you know, trapped and are at that stage of life.

16:00They're like, why the hell not? But it was funny because you don't usually hear people talking. And they're getting some interest on their savings for the first time. And that was exactly his point that it's that it's it's actually these rate hikes are actually stimulative for that group in particular, which is, again, confounding things. So someone in the chat, and I'm sorry, I didn't even know who it is because now our names are, we've got this bug going on where the names are coming in as a long sequence of numbers as we merge our two sites. But someone was asking, do you think the Fed is going to hike?

16:31I think the bigger question is, what do you see in terms of policy? September seems like most people don't think so, but I don't know. We got this inflation data in. anything change for you in terms of your outlook for Fed policy through this year? So the Fed has definitely surprised me with how high they've taken the Fed funds rate. So take my opinion with a grain of salt, because I never thought they would get this high. They're definitely going to pause next week. That is in the bag. The question is, is what What do they do in November? And I think if the trajectory of job hirings, and I differentiate hirings because the pace of firings is still relatively modest.

17:15If the pace of hirings continues to slow, and just to define, you look at the BLS payroll data. The last three months, we've averaged$150 ,000 per person per month job gains on average. The last six months, I think it's been 250. The last 12 months, it's been closer to 400. So you're seeing a clear deceleration in the pace of job gains. And I think if that continues over the next couple of reports before that November number, the Fed won't hike. And you're actually hearing a little bit more of dispersion in the opinions of Fed members. some voting, some not, that some are comfortable where we are right now, and some are leaving open the possibility of another one.

18:07But it's important to keep in mind, and it's important to put yourself in the shoes of Jay Powell and try to think what he is dealing with right now. And here's a guy who, this is his last job, he's got a couple years left, and then he's off to the golf course. This is not like a stepping stone to something else. And he is solely focused on his inflation-fighting legacy. He doesn't care about politics right now. He doesn't care about Joe Biden, who didn't want to reelect him or re-nominate him. He wanted a low-brainer. He does not want to see a circumstance where, okay, he stops, unemployment rate starts to rise, he starts to cut.

18:53But will prices go to$120? Inflation flares up again. And then he's like, oh, my God, I need to start hiking again. He does not want to be in that situation. So I believe he is. And so this whole talk about higher for longer, higher for longer, I think it's legit. And I don't think and, you know, some people say, oh, yeah, the Fed will just cut as quickly as they raised. Jeff Gundlach was on CNBC saying rates went up on the elevator. They're going to go down on the escalator. No. As long as Jay Powell is in that seat, he is not going to risk the pain of the 18 months of 550 basis points of rate hikes and trying to get inflation under control.

19:41Does he want a crisis, though? I mean, he also doesn't want that as part of his legacy that he blew up the next, you know, the next great financial crisis. And we've got some big stress points. We've got the banking sector holding all these treasuries that they're, you know, have a duration issue with. We've got commercial real estate. You know, this is a lot of people are can you fight inflation and not ignite a crisis at the same time? And that's been a challenge. That's going to be an interesting balancing act. I would say to that is, yes, he may cut interest rates next year. And I actually think that he will, but he's going to do it very gingerly.

20:22He's not going to slash and burn like he has in the past. They're going to be very methodical of what they do, again, because he's afraid of letting that inflation back out of the bottle that he's trying to recapture. So, yeah, Fed funds rate may not stay at five and a half, but it's not going to zero. And even if he put 100 basis points, it would still be four and a half. It's still 450 basis points above zero. So I think that anybody who thinks that he's going to just cut to the bone again, those days are over as long as he's chair. We're going to take another quick break to hear a word from our partners.

21:02We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

21:10Bo asking great, great point Peter Bo asking what worries you more right now? High valuations or the amount of time the yield curve has been inverted? Good question. Well, it's the high valuations that create the vulnerabilities. It leaves you without a safety net. If the S &P 500 was trading at 13 times 14, 15 times earnings, there would be somewhat of a valuation safety net. When you're trading at 20 times earnings, when the top seven stocks are trading at 30 times earnings and the bottom 493 are trading at 17 times, that's somewhat lofty, especially where interest rates stand on a trajectory basis rather than only looking at it on an absolute basis.

21:53So that creates its own vulnerability. Now, when rates are zero, you can sustain those valuations for a period of time without feeling that there's much risk. But when you have interest rates where they are, when you have earnings that are contracting for three quarters in a row now, that creates the vulnerabilities that I think we currently have right now. Someone in the chat, Ralph, says, I think we are at a 52-week low on the VIX. A lot of people have been commenting on the really low compressed volatility. I know there's been more volatility if you look at the move index for bonds, but is that another worrying sign that we have the VIX so low with these vulnerabilities out there?

22:43It very much should be. I think that the risk that this interest rate world that we're in brings is not deserving of a VIX with a 12th handle. And I don't know when it goes back to 30 or 40, but it will. but I think 12 is a sign people are just getting sucked into this soft landing and the Fed is done and everything's going to be fine thesis. And I'm amazed at how QT is just ignored by people. QE, don't fight the Fed. Now we have QT and high rates, relatively speaking, and there's no such thing is don't fight the Fed. It's just ignore the Fed is what the mantra is now. And you just can't have it both ways.

23:35But the market seemingly thinks that it can right now. I'm just questioning the sustainability of that. Charles asks a great question. What sectors are you most focused on when and if the market turns over? Is there any safety play outside of bonds? I would even say We had a lot of conversations about whether bonds are a safety play at all right now, Charles. So go check out that series. But what are your thoughts on that? Well, short-term bonds definitely will be. Yeah, I guess it depends on what bonds you're talking about. But be careful. We're on that spectrum. The ration matters, right? Absolutely.

24:11The ration has killed many over the last 18 months. I think we're still bullish on long. some commodities like energy, oil and gas stocks, and also other commodities like uranium we've been bullish on. So I think they'll hang in just as they did in 2022. For the end year in a row, still bullish on precious metals and think they will do well in a market downturn. And I think the most vulnerable are the ones that got us here. And that's the big cap tech stocks that But everyone thinks that, you know, AI is going to salvage their shrinking growth rates. How often do you have to I was going to say, is it a straight line up?

24:55But I'm going to rephrase that and say, how often are you checking on those energy holdings? Because, you know, we saw that energy move and then it pulled back and, you know, a lot of people bailed out. We just had Tommy Thornton on yesterday saying he is bullshit, but he's sort of being nimble and watching. He took some profits, closed out some positions. Now, he has much more of a trader perspective, which I think is super important to talk about time horizon here. How are you thinking about that sector and what kind of time horizon if you're holding and you're kind of bullish throughout? So unlike Tom, we have a longer term time frame.

25:30So we're not looking to trade it short term. I have a long term viewpoint that prices go much higher. So we're willing to deal with the volatility of owning a very volatile sector. And we've essentially owned oil and gas stocks since October 2020 and have held them. And yeah, we've had to deal with the downdrafts for sure, but it's been mostly higher as long as we feel like the bigger picture thesis on higher crude and natural gas prices are still intact. So, yeah, it hurts when you have corrections and probably better to be more of a nimble trader, but I'm just not that good at that and more of a longer term time horizon thesis investor.

26:20And we're sticking with our call. Yeah. First of all, you got to know what kind of trader you are. We have a whole section on that in the academy. But also you miss the moves when you try to get in and out and swing in and out. If you're not doing it professionally and you miss that move, sometimes you only have to miss five of them. And if you don't get back in on the right day, so that's the game you're playing is not missing that. Yeah, like Tom's great at it. I'm not. So I play what works for me and what my personality and style is. And I recommend that to anybody who is in the stock market is learn first about your personality and what works for you.

26:56There's no one set of rules that create success in the markets. No, absolutely. Absolutely. Absolutely. And again, go to the academy if you're not sure where you are. And some people think they're one thing and then they walk through it and they say, oh, right, I'm actually, that is not my profile. I am this profile. But that's super, super important. I want to finish off with China because it's come up a lot in our discussions. Trillion asks, asking, what is your assessment of the RRR cut from the PBOC, People's Bank of China, another reason to catch the Chinese falling knife? It's important to really slice and dice what's going on in China.