How Low Can U.S. Stocks Go? With Greg Weldon

0:01We are still in the very, very early days of crypto. That means the potential upside is enormous, but it also means we're still in the Wild West era. That's why Real Vision is launching the Crypto Academy, to stand for quality in an arena that's full of noise. To find out what we're doing and be one of only 1 ,969 people who will get lifetime access, yes, lifetime access, rather than having to pay an annual subscription, visit realvision.com slash learningcrypto. That's realvision.com slash learning crypto. Click on the link in the description.

0:46How low can they go? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Greg Weldon, CEO of Weldon Financials. Hi, Greg. It's great to have you back on. Thanks, Maggie. My pleasure. So we're looking at a situation where US stocks selling off once again. And the S &P and NASDAQ both off over 1%. Looked like the NASDAQ tried a little tiny bit of a comeback, moved off those lows, but kind of slid back down here right at the close. Both of them are down 10 % from their July highs. Companies, in particular tech, really seem to be having a hard time delivering the kind of knockout earnings that investors want to see.

1:25What do you make of when you look at the selling we've seen in equities? Well, I think this is kind of what we expected, to be honest with you. If you remember the last time I was on, we discussed this, how you probably have this kind of relief rally or celebratory rally in the summer when the realization is inflation is coming down, the Fed's probably going to be into a pause mode, and that would be good for stocks. And everyone, you know, you're close to new highs, you can push this thing higher. But then I said, look, maybe you make new highs, but maybe you don't. But either way, come the fall, you're looking at an economic reality check.

1:57And that's exactly how we said it. And to the degree that we also said the place to be was was Infotech, the high flyers until it wasn't. All right. It's kind of one of these things like to get out. Well, when you start to see energy towards the end of July, kind of pick up the allocations and some of our quantitative models. You saw crude oil breakout gasoline, too. And it was a dynamic where, you know, you see the shift in the in the rotation in what was already a very narrow breadth. I mean, last time we were on, it was like, you know, we'd break it down by all the stocks in the S &P 500 and then in the sectors.

2:31And within the sectors and within the top stocks, there was only 30 % of stocks that were in bullish trends versus 20 % that were in bearish trends. And this is when you were rallying, and not that far from new highs. Right now, you've completely flipped the switch. You're 50 % bearish trending stocks right now against less than 20 % bullish trending stocks. The infotech has broken down. And not only that, what's really interesting to me is semiconductors, we're the leaders, you know the names, we talked about it last time. And it was like you get kind of this little political dynamic. And all of a sudden, when you know, semiconductors not only breaking down themselves on their own merit, below the two-year moving average, for example, violating near-term trend lines.

3:12But these semiconductors are breaking down against the XLK Infotech ETF and against the S &P 500. And when the leaders start to break down and you see that leadership start to fade, that's a bad sign. So we have expected this decline and we expect it to go further. Yeah, that was my next question. It sounds like you feel like this has momentum. So what levels are you looking at? How ugly could this get? Well, I don't want to get too ugly because, you know, we don't want to be a gloom of doomer all the time. I think there's a lot of opportunities out there still. but at the same time, you have a market that has not come to grips with the economic dynamic as you head towards a recession.

3:49And a lot of people want to say, we just had a great GDP number, and the economy hasn't rolled over yet. And the labor market, you know, has shown some signs of softening, but it too hasn't rolled over yet. And I would counter by saying, look, you can't start to time out the timeline from when the Fed started raising rates, because the Fed was so far behind the inflation curve when they started raising rates, it's not even funny. The real Fed funds rate was deeply negative, about the most stimulative it's ever been, frankly. Really, only in May did the Fed catch up to the inflation curve. In June, you're finally starting to post a real Fed funds that's positive.

4:27All right. R-Star, 310 pages of white papers they published in 2018 tells us everything we need to know. 50 basis points is neutral. We need to be somewhere above that. They want to be restrictive. So what does that mean? Well, finally in June, July, they got restrictive. You got 100 basis points. Now, you're about 175 basis points right now above the rate of inflation. They're restrictive right now. But when you time that out, it's only like five months they've been restrictive. So you can't expect the economy to have rolled over. We certainly see the preliminary signs, housing's crashed, mortgages have crashed, and you're now seeing it in the consumer.

5:02When banks started to tell you, we have to have more loan loss reserves, write-offs, credit cards. We've talked about all that all year that it was coming, And now it's here. So this recession is still maybe a few months away. It really hits the first half of next year. And I think the stock market has not dealt with that yet. Yeah, which has not bode well. What about the Treasury market? Has the Treasury market, what does that mean for Treasury rates? That's a really good question. That's kind of a$64 million question right now. I look at it this way. I think the Fed is on pause and they don't want to raise again.

5:36Again, the big question for the entire, all the markets and the Treasury markets specifically is this. We know the base effect brought inflation down. We talked about this months and months before inflation started falling. I even think I said on the show, you probably go to four and you might see a three-handle. You got a little lower than I thought. You saw a three-handle, kind of exactly what you expected. It's easy math to do when you compare energy prices versus where they were a year ago, food prices, where they were a year ago. Commodities are very simple to kind of calculate. We have the reverse base effect kicking in now.

6:07So what if you saw inflation without really much of anything changing? Maybe you could have a little bit higher oil prices. They're coming down now, which is something we think is going to happen in the near term, but not in the longer term. So say you get a month or two from now, and you have the base effect kicks in on energy again. What if inflation goes to 5 %? Now the Fed's neutral. You've obliterated their restrictive policy. So that's where the idea comes from that maybe they got to go to 7%. That's the math behind that thought process that appeared, you know, maybe whatever it was six, eight weeks ago.

6:38That's why. And that is a real possibility. Then the question becomes, does the Fed willing to ignore that? OK, because the economy is cracking big time and the stock market's down. I said on this show, too, not to kind of, you know, continue to repeat that, but we said that I didn't think that the Fed wanted to even begin to speak dovishly until two things happened. Number one, eradicate the easing priced into the back end of the Fed fund strip. You've done that. All right. The Fed funds for next year, the D24 Fed funds, was at below 3 % at one point earlier in the year. All right. That's up to five now.

7:13So that's job one done. The second thing is disinflation in commodities and the stock market. So now we're going to see some of that, too. And I think the dollar going higher, you have a lot of international concerns. We're so centrically focused here on the U.S. What's going on in Asia is highly disturbing. We could get into that, but it's kind of off the beaten track. But there's a lot going on there, too, in terms of emerging market currencies. We have a crisis going on. We got a lot of global. If Brian wants to put the map up, our members are all over the place. And if you're listening on YouTube, you're not part of that membership.

7:49So move over so we can get you on the globe and you can participate in all of these conversations. So I do want to get to that. Let's stick with sort of this part of the conversation first, but we'll put a pin in those Asian economies. So they want to go back there. So unclear. It sounds like you're saying it's a little unclear what happens to yields from here. And there's a potential, if we see that sort of blip back up in inflation, for them to kind of make another run before they peak. How are you thinking about the Treasury issuance and all that as well? Well, that's the other side of the coin here, OK?

8:24So the inflation thing is one thing. And I think that what this does is it kind of gives you a chance that the short end has seen the highs. And if you get in a situation where stock market is down and inflation goes up and the Fed even talks about hiking, well, or talks about not hiking, then you could see the long end go up because they're acquiescing to higher inflation at the same time. What I think for right now for treasuries is curve. We said this maybe two months ago. The curve would start to un-invert and then begin to steepen. And that's what we're seeing. You see the two-year note has not been able to really stick above 5%, 5.10 at all.

8:59You see the SHY, which is the short-term Treasury ETF, has like a quadruple bottom over a two-year period really holding in there. So I think there's possibilities that the short end holds and could even rally if the stock market does what I think it's going to do. Then the question is, does the bond market react to that or does the bond market react to the blowout completely, you know, just irresponsible fiscal picture we're facing? All right. I just did the numbers on the latest budget that came out last week and the September and their fiscal year. It's a nightmare. It's totally unsustainable.

9:34So not only that, but you have fiscal easing working against the Fed's tightening, too. It's another reason why the economy has kind of persisted a little longer than we might have thought. Let's not forget that. But I do think curve steepening is probably the safest bet right now in the Treasury market in terms of what the longer-term picture is for bonds. I would say longer term, you have the end of a 40-year downtrend of lower lows and lower highs in bonds and inflation. That has turned. At some point, the Fed will have to acquiesce to higher inflation. At some point, not the next step, but two steps out, you'll probably see them go to a range of 2 % to 4 % or 1 % to 3 % or something that lifts the bar a little bit on inflation.

10:13And that's when the bond market has trouble, let alone the debt. It's insanity. I'll give you one. I called the piece we did on the budget on Monday. We titled it around Albert Einstein, where he says insanity is doing the same thing over and over and expecting a different result. Now, I would say in the Fed's case, in the Treasury's case, and even the economy's case, insanity is completely the opposite. It's doing the same thing over and over again and expecting the same result that we can keep reflating our way out of this. And we can if we're willing to pay$100 for a loaf of bread. So there's a fine line there.

10:48And I wouldn't want this job. I'll say, no, we try not to be too critical of the Fed because it's like Nick Walenda walking across the high wire in Niagara Falls. I mean, you bounce deflation too far, you're off. Inflation too far, you're off. It's a lose-lose proposition. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus 500 Futures, you can trade crypto without the hassle of opening a wallet.

11:19With just a few clicks, you can register and start practicing with their free and unlimited 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 Plus500.

11:53With over 20 years of experience, Plus 500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading and 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.

12:14Yeah, with a very difficult set of circumstances in Washington to deal with, and we're moving into an election year, so it's not like cooler heads are going to prevail. We'd be distracted by all this politics now as we're heading into what is, and we've talked about this too, China, Russia, OPEC. China brought Iran and Saudi Arabia together, Shiites and Sunnis. I mean, come on, did we not see what's going on, the new axis of power in the other side of the world who has a manifest destiny outlook in terms of the Maoism that is Xi, essentially? And I think that what's happening in the Middle East is going to pop off in so much a bigger way that it's a massive risk.

12:48And I'm just shocked at how complacent the markets are and how everyone seems to think ceasefire. Ceasefire hasn't even started yet. What are you talking about? Ceasefire. So I kind of don't get the complacent. It is very interesting. The markets have been extremely, extremely calm against the backdrop. We have such limited time here. We're going to pivot right back to what the markets are going to do. But just for those who are interested, first of all, we're going to drop links to Greg's work and where you can find it consistently in the chat and in the description so you can find his thoughts there.

13:25And as our members know, Raoul just sat down with Dee Smith for a very long geopolitical conversation. I just sat down about a week or 10 days ago with Peter Zion to speak to him about geopolitics. You can find both of those, of course, on our platform. And also we unleashed Peters now on YouTube as well. So go ahead and have a look at those. Really interesting. We want to hear your comments and thoughts, but there is a lot to take in on to your point, Greg, right now. It's a very, very complex geopolitical situation, but you layer on that, the complexities that we're facing from a macro point of view with this, like, are we in a new regime or not new regime?

14:07So we may not have seen the peak in treasuries. We're really caught between the economic fundamentals and all of this issuance and the sort of politics of what's happening in Washington. And if we look at equities, I'm curious where you think sentiment is, because we're going to play a clip here. We had this, because of what happened last year, this feeling and the enthusiasm around AI and some of the technological revolutions that we know are coming. We've been talking about them all week in our Exponential Age series, and we know that they feel real intangible. We spoke to Andy Conson yesterday.

14:41He was making some interesting points about why he's really skeptical we're going to see people come in and either buy this dip on these tech names or performance chase, which was a lot of people are kind of holding out for and thinking might happen into year end. Let's listen to what he said, and we'll talk on the other side. If you look at NVIDIA and you don't buy into AI, and I think there's a significant portion of people that believe it's hype. Just because it's up, I don't think you're going to likely chase that particular stock for performance because it's so antithetical to the reason why you haven't owned it for the whole year.

15:22And so I'm concerned about performance chasing in that narrow group. And so if you don't have performance chasing and there's plenty of taxable losses to offset taxable gains, all the things that are typically drivers for that seasonal effect just don't exist this year. And so I've been saying Santa's dead for about a month now. And I think that's going to disappoint a lot of investors. I wouldn't be surprised at all if the S &P is unchanged for the year. Of course, that was Andy from yesterday. And I love speaking to all of you who come on, Greg, because I think you all bring just a different point of view that we don't hear all the time.

16:08So when you're looking at this, how are you feeling about sentiment right now? Does it also feel like maybe that year-end push, that Santa rally that everybody looks for, is maybe not going to appear this year? How are you feeling about sentiment of what you're seeing happening under the hood of the market? Well, under the hood is a good way to put it, because when you kind of look at the internals, what you're seeing is liquidation and the kind of liquidation we haven't seen since 2008. I mean, you can really simplify this to make my point. Okay, you take utilities and consumer staples. These are defensive sectors where you might see some rotation of capital out of Infotech and into these places.

16:47But what we see there is the kind of volume is skyrocketing, all right, the on-bond's volume is dropping like a stone, you're taking out trend lines go back to 2008. And I like to watch the 52-week and the two-year, 104-week exponential moving averages for long-term trends. They have been bullish since 2010 on both of those, the XLU and the XLP. And they're turned to the bear side now with huge volume, with OBV dropping, this smells of liquidation. And if this catches on in a broader way, it'd be really interesting, especially if all the other things play in and bonds don't rally and the inflation does go up and the Fed doesn't talk, actually, because they told us pain is coming and here it is.

17:31You're gonna have to accept a little pain. So I could easily see this kind of turn into something more significant, serious, and frenzied towards the end of the year. Absolutely, it kind of feels that way to me. It looks that way to me. We've talked before about a lot of similarities in the patterns with 1987 as it relates to bonds and as it relates to the straight up pattern of the stock market. There's a lot of similarities. Now, I don't think it's going to crash. I think this is a slow bleed where it gets these rallies and everyone gets excited and it just doesn't work out. And is the Fed going to be quick enough?

18:03Probably not. Is the Fed going to be forceful enough when they need to be? Probably not. And we'll see what happens. But liquidation, to me, a kind of liquidation we haven't seen in almost 15 years. appears to be right here in front of us right now. I'm going to let that sink in for a second. I joked in the chat before we came on, is it Friday yet? I'm feeling like it needs to be Friday, people. Well, I'll tell you, when you're up at 12 o 'clock at night and you go to bed at eight o 'clock at night, it's like one long day and a whole week is a single day these days. I swear to God. It's so true.

18:34It's so true. We love this stuff. But listen, it's very important because we always try to test that condition to buy the dip. And for people who missed out on tech, super important to hear those cautionary words for you. So I really want everyone to let that sink in. Oh, yeah. That worked when you had a 40-year downtrend in inflation and interest rates. You don't have that now. So right there is a suggestion that caution is probably the better part of ballot right here and medium term even. So we talked about trying to find opportunity. So does the opportunity feel like you want to be shorting stuff?

19:08or are there things you like in this environment that you think will outperform? Both. I mean, so one of the things we're doing in one of our newer products that we've talked about, our portfolio dynamic, is taking like a CTA approach or taking a hedge fund approach and using ETFs to allow people that it's going to be increasingly harder to keep pace with the debasement of money as they're going to have to print more and more. It's what they're going to do. So as this plays out, and if you don't have the wealth effect in stocks, that's a problem. And in terms of keeping pace so that your money still buys you what it used to, probably not going to happen, but you're going to try.

19:45And you're going to have to be more nimble, more diversified, and do things you haven't done before. Like one of our portfolios right now, we're long the dollar through the dollar up ETF. We're long the short end of the curve through the SHY. All right? We are long. We have cash. We're 10 % cash, but it's in Bitcoin, not the dollar. We're also long gold. We're long energy. and we are short the S &P 500 to the bearish ETFs, which I'm not a huge fan of them. They're very tricky. They're kind of dangerous sometimes. But I think of the times that they have value, right now is one of those times. And I prefer futures all the time because they're quick.

20:20They're liquid. You're in and out. No issues around dividends and all the things they do with ETFs to kind of mess them up in terms of the flow. They don't reflect the underlying as well as they should, this kind of stuff. From a futures perspective, it's short certain currencies. It is short the stock market. It is basically long gold, long energy, and a bunch of select food commodities. OK, and we had some people asking about those commodities. And by the way, like I said, we're going to put Greg's work in. It's super detailed on this portfolio construction. And we're talking about sort of doing something on that, Greg.

20:57So we'll circle back because this is we keep hearing 60-40 is dead. Are you also feeling like that sort of traditional construct of portfolios is over with right now and that you've got to rethink what you're doing? What I say is buy and hold is dead. I mean, it's just this, the whole thing. It's not even 60-40. It's a bigger picture is dead. And again, 40-year trend, that's over. And it'll become increasingly difficult mathematically for officialdom to keep this thing floating. It's that simple. So you like energy, though. So what in energy? Do you like it in the equities? Do you prefer it in the actual commodity space?

21:32And is it oil? Is it nat gas? Is it a mix of things? How are you thinking about energy? Yes. Yes, yes, yes. To all of that. I like to have a little piece of everything when we're like this. So yeah, we have the XLE. I like the gasoline refiner shares best. And of course, this little merger activity hasn't hurt that play in my mind, at least in the longer term. I do like crude oil. I like uranium, URA, and some of the, you know, Cameco. We talked about that, I think, last time I was on. And I also like natural gas here, too. You have a supply surplus. And this is an issue. But it is starting to shrink.

22:09And you're going into the season here now. And you have a little bit of a cushion. But you don't have huge margins for error around the world to the degree. If you get really cold weather, I mean, yeah, of course, really cold weather, natural gas goes up. But it's so low now that I think all the bad news has been discounted. And I think that if you have a cold snap, this thing could be explosive. It could be$6 on natural gas. And then you start to talk about the base effect in natural gas, which got crushed last year through the winter into February. So that would add to the inflation dynamic right there as well, electricity and the whole nine yards around that.

22:44So I think natural gas is a play, not yet, but it will be, I think, at some point going forward. And let's not forget, when we talk about things like, oh, we're going to get a really cold winter, right? We talked about El Nino last year, you know, I mean, in March when it first started coming. Now it's affecting food commodities and crops all over the world. And I think that same vein, the polarization of the energy on this planet, I get really scientific with you, I won't because it'll bore most people. But the science is the polarization is real. It will continue to intensify. And from that perspective, you've got to be prepared for outrageous things to happen.

23:18And we're seeing some of that, you know, we've seen some of that recently. And I think a cold winter would be a big risk because I don't think people are thinking about that, paying attention to it. Natural gas is off the radar. So that would be one that I think could be a surprise. It's not like we have that and we have that recency bias. Right. We always talk about that, but it was really mild last winter. And so all those fears didn't come true. It's a whole new game. Right. And we just, by the way, to your point on extremes, for anyone who's sitting in the U.S., while we were worried about, you know, any of the number of horrible headlines that were getting hit with left and right, a Cat 5 slammed into Acapulco in Mexico, seemingly out of nowhere.