Inflation Is Down, but Is It Contained? With Mish Schneider

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0:56Inflation is down, but does that mean it's contained? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Mish Schneider, Chief Strategist at MarketGage.com. Hi, Mish. It's great to see you. Always so much fun to be here, Maggie. Thanks for having me on. So we have had so much going on in the market since you were last with us. I know you were traveling all over the place. But today, if we look at the action, we had another rally in stocks. They've been on a tear all month. NASDAQ leading the way up over a percent, a percent and a quarter. Treasury yields backed up, but just a little bit.

1:29That 10-year still well off its peak, and the dollar hit a two-month low. So investors, the message that seems to be coming through is investors think inflation's tame, the Fed's done hiking, maybe in fact the next move some point next year will be in ease. How are you thinking about this macro environment? Well, I have not for one second stopped believing that we are ripe for a potential hyperinflation move. And it's always a matter of where is it going to come from. So people like to pinpoint the reasons why we're more deflationary. And certainly there are areas of the market that are more deflationary at this point.

2:08But really, if you look back and step back, we see many, many areas and pockets that are still extremely rich, particularly in the grains and some of the soft commodities. And with the dollar falling, we have a couple of other inherent problems that could develop. And I sent you a chart, but before we get to the chart, because it's really a fascinating chart and it actually gives us a time projection. Oh, there it is. It's up. Okay. So this is a chart and we'll start with this and then I'll give you a couple of reasons. So this is a chart that tracks the current inflation to that period, the famous period between 1966 and 1982.

2:49I know before all of us were born, but nonetheless, this is really when inflation was obviously the thing. And so what's amazing is if you look at the peak of inflation in 1974 to 1975, that sort of orangey line that's running with it is actually right on top at that peak in 2022. So you can see how if you go back a little bit before that, the blue line represents that decade, the yellow line more of what's going on right now. Look how closely it's been. And then it goes up to that 1974 peak. And that fits perfectly with the 2022 peak. And then look what happened. We spent two, three years coming down in inflation during that time in the mid 70s, just like we're coming down in inflation as we're getting to the end of 2023.

3:45And there's a little bit of a turn up there, which that's from two months ago. So So that tells you something really interesting. What kind of mistakes happened back then that could happen now to create, if we're so well in line, if you look at that next peak up that happened after 1977, as we got into 79 and then where it totally went away in 82, that puts us at 2024, 2025 potential of where we could also spike in inflation. So why? I mean, that's obviously the big question. So a couple of things. And if I'm going on, stop. No, please. I just want to point out for people, in case you can't see it, where we're sitting right now, that sort of orange line, is on the downward trajectory, right?

4:35We haven't traced up. And then what Mitch is talking about is now that next peak, which took us even higher. But we're just on the downward, getting to sort of the bottom of that peak. So what are the, and it's amazing how well that lines up. Well, also, you can say, too, that if 74 peaked with our 2022 and then 77 was the nadir, so to speak, that means that 2024, we could still see inflation come down lower than where it is now. And that would only make everything a lot more complacent, right? Which would, of course, just like what happened in the 70s, make things really dicey for what could potentially happen to get us back to those 1979 levels.

5:19We're back. The chat is so funny right now. George is saying we need that old 50s test pattern on the screen, which is so true. And I know, Mish and I know exactly what you're talking about. There's probably somebody in the chat who doesn't. someone else is saying, Shane, it's not your fault. Welcome to your first live daily briefing. This rarely happens, but we're all joking that we're going to be tortured into the holiday because we're already half on vacation mode. And somebody thinks Paul Tudor Jones took you offline, Mish, because he doesn't agree with your inflation. So we love it. That's not true.

5:54Actually, that is not true. Paul Tudor Jones has been saying this, that he, so let me go to the reasons why. Wait, one more thing. And Matt said, said, where do I put another quarter in? We love you guys. Thank you for your sense of humor and your patience. Okay. So I've done so many of these interviews with you guys, and that has never happened. Yeah, it's been, it's, I think as everybody's online, trying to get their travel plans changed if they're in the East coast because of the storm that's coming, we can go on and on. So anyway, so we were, we're just looking at the screen. You were just going to talk to us about what, what the maybe policy steps that led to that happening in the seventies and eighties.

6:31could line up if this is what to watch for anyway. Right. So there are really three, besides the obvious geopolitical stress heats up again, seems like the things in Gaza have more lateralized. So that's not really been a factor. Oops, Maggie, you're now frozen. Well, just keep going. Can you hear me? I can hear. Okay, great. Just in terms of policy, if the Fed might be forced to buy our debt, which we know is well over$30 trillion. If that's the case, that means that they would have to actually go more towards a QE and digitally print money, which would, of course, devalue the currency, which is also already, as we've seen most recently, under some pressure, with still conversations around about pricing oil and something else other than the dollar.

7:25Also, you know, yuan getting a little bit of a pickup. Even the yen finally bottomed against the dollar this week. So that would be one thing to look at is what happens if nobody wants to buy our debt and the Fed's stuck having to buy it. OK, let me just interject. I think there was an auction today that went well, though, right? It did. It went well. With this steady stream of supply that's coming, eventually maybe it doesn't go well and they've got to come in as buyer of last resort. Right. And also we now had some kind of resolution to the closure of the government, a government default got averted again.

8:01But this is another type of default that could happen, actually. The other thing is good old Milton Friedman economics. Our money supply right now is really super low. And that's because the Fed decided to control inflation with 21 hikes of the interest rates, leaving the money supply alone. And at some point, that money supply will have to be replenished. That, too, can be extremely inflationary. So the other thing is that I'm seeing projections from Morgan Stanley in particular, and I like the economist that works there. I know her personally, Zentner. And she's saying three rate cuts in 2024, five in 2025.

8:44five, that sounds like a reaction to spheres of recession, which, of course, we know is exactly what happened going back to the 70s, is we got recessionary, the Fed reversed course and started reducing the interest rates. And then boom, inflation got out of control. So, you know, these are really the things that we're keeping an eye on. Now, that doesn't mean you have to trade with that level of fear right now. But going back to that graph, Maggie, I think what's so fascinating is it's a mirror image. And if it's a mirror image, it should be at least referred to and watched. Yeah, well said, Mish.

9:24And Christopher, I'm not sure if you missed that. He was asking for a recap. It's just looking at this period between 1966 and 1982, you saw a big decline in inflation and then a big spike back up. And they track really, really closely. So So the concern is, and I think Mish, you rightly point out, if it happened before, could it happen again? Not saying it is, but as we go over all the time, this is a game of probabilities. And so given some of the things that could line up, it's worth at least keeping on your radar, which right now, if you look at market reaction, it's like done, right? Inflation is done.

10:02And so that's going to be perhaps where the tension is, but that's a longer term story. So curious, given that, how you're thinking about commodities right now, because we've seen, and that's a big grouping, so we can split it up into energy, certainly in food. Do you see the potential for that to turn around or what's happening? Give us short term and then kind of medium, long term, how you're thinking about the commodity space. Okay. Well, yes, there's many different categories of commodities. So, you know, and we've talked about this now on this show for two years, that I'm still thinking that food commodities are not necessarily rolling over.

10:45Maybe some are, but some aren't. And, of course, we always have to start with my probably rock star famous call out in sugar with Real Vision audience. And it's still trading at close to 28 cents a pound, which was really the highs that we have seen and not for a very, very long time. So if you think about the 70s, it was exactly what happened when sugar peaked and then it came off. And then in 79, it started going up to about 40, 45 cents a pound. If it breaks out over this 28 cents and it closed at like 2760 in the continuous contract today, that's very hard to argue with, right? I mean, sugar is the insidious substance that's in every food, comfort food, but also really basically a staple around the world.

11:32We know that cocoa went to 1978 highs. Gee, what a coincidence. Another 1970 reference this last week. Orange juice went to new all-time highs. Why? Because of weather. And then, of course, they had some kind of a crop disease that continued to impact it. And now, all of a sudden, I'm looking at soybeans. And you have Argentina and you have Brazil having tremendous drought. In fact, Taylor Swift had to cancel her concert, right? because it was 140 degrees. Someone died, actually. Yeah. I mean, besides the fact that it's Taylor Swift and somehow she manages to get her name in any headline. In any news item.

12:13It's like not even seven degrees of separation. It's just one. Exactly. But still, 140. I mean, think about 140 degrees Fahrenheit. Yeah. I can't even fathom it. But the point is, is that, you know, people have dismissed weather issues and now people are focusing if we move on to oil, that we're actually possibly going to have a milder winter, which is why natural gas has gotten killed and go to the tank. That looks more deflationary. So it's nuanced, but commodities are nuanced and they are volatile and they do get 20, 25 % corrections. And then when they go parabolic, just put up an OJ chart.

12:55You can see what it looks like when something goes parabolic, when it gets to that point where everybody wants in. And so that's my long-term view. And my short-term view, though, going back to soybeans I started to mention, if you look at the January contract of soybeans, it's trading at around 1360, 1370. Gets to 1380, 1400. We're not that far from highs that we saw at that peak at 2022. And this is with supposedly different fundamentals, right? Rising interest rates. So that has to make you scratch your head and go, Well, if these food prices are going up even with these higher interest rates, are they anticipating lower interest rates?

13:33I don't think so. But lower interest rates would certainly only embolden them considering they're really high price at these levels. 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 Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks.

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14:55All right, so we have to watch that space. So it sounds like, do we chase them from here, or you just want to kind of watch? I don't think it's a chase. I think they're basing out. I think trading something like NVIDIA might be more of a chase, over$500. But at commodities, you have to remember, these are not corporate shares. These are actual raw materials. I read today that going through the Panama Canal, some ship paid, I don't know, some ridiculous price to get through because they've had problems getting ships through. There are still problems. The floatation, the vessels that are out at sea that are actually holding crude oil, they're down to two and three quarter year lows.

15:38So, you know, it depends on what fundamental you want to look at. So with commodities, if you start to get moves over 28 cents or over 1 ,400 in soybeans, or if you look at gold over 2 ,000, I know I've been talking about gold forever, but it hasn't really gone anywhere. It's kind of like in wait and see mode. And now actually miners have done a little better. If you take a look at some of these basic commodities that could spell trouble, they're not overpriced compared to NASDAQ, which looks a lot more overpriced. That doesn't mean it can't get more and more overpriced. But still, I still think the ratio between equities and commodities favors commodities.

16:16That's a really, really good point. So that and that was my next one. Can you can you if you're bullish commodities, does that mean you are bearish tech or or can you can you think that there are gains? Because it feels like tech is the is the rally that people just hate on because there have been so much concern about it being overvalued. And yet it continues to lead. We saw today the NASDAQ leading the market. We know Microsoft was one of the big leaders today. Of course, there's news around Sam Altman and open AI and all the drama that's happening there. But this sort of money flowing into AI seems sort of unstoppable right now.

16:54How are you thinking about the NASDAQ? Do you look at it as a whole sector or are you cherry picking around within that? Well, our quant models, and thank God for them, because they're mathematical and they're not going to get scared like we humans do when we see lofty prices that can't go higher when they can. They've all been long, NVIDIA and Meta and Google and Adobe and semiconductors, and actually, you know, reached some targets lately. So the pure math is telling you that that is in a trajectory to continue to go forward. And in terms of inflation, these companies that we're talking about have already proved pricing power, number one.

17:37And number two is AI. Nobody really knows yet what the value of it is. We do know, though, it's going to control our lives. And obviously, that's what we're seeing with companies like Microsoft. So when I'm going to look at where inflation might impact, you have to look at the more inside sectors of the economy, Maggie. You have to look at the retail. You have to look at the small caps. You have to look at transportation. Now, they have all rallied from the lows that we saw in this October, but they are nothing compared to what's happening in Nasticse. So let's take small caps and retail. I love those two in particular, granny and grandpa.

18:15IWM right now went from 160. It struggled today to get back over 180. The high in July was 200. So we're still in the middle of the range there. If you look at the retail sector, that was the one reason why I knew the market wasn't going to crash more in October, is that that held such an important level at 57 if we look at XRT, which was an 80-month moving average, which had broke, I would have started thinking recession, but held. But where did it go? From 57 to 64, it's still not even over a 23-month or a two-year business cycle. And these are all things we've talked about in the past. So that's where you're seeing the impact and where you will continue to see the impact if any of these things come to pass.

18:59Food takes another leg up. Something happens with oil, although right now we're more range bound there, or anything that can happen in terms of what we talked about with Fed making a misstep from a monetary policy. Those are the areas that are going to be impacted more than Nasdaq for sure. That doesn't mean Nasdaq wouldn't get impacted, but this is all speculative at this point. That's why NASDAQ keeps flying. But the others are kind of like going, OK, we're going up. But there's still some problems here with the economy. Labor, you know, which was supreme. You have jobless claims going up. You've had some slower numbers, housing issues.

19:35I mean, the market is confused here and inflation will be the thing that will clarify it. Yeah, small caps can continue to fly, in which case, you know, new highs all around or inflation is not necessarily away. and we'll start to see the small caps come back down. And that, of course, will create profit taking in the large caps as well. So do you, because a lot of people were talking about the fact that, oh, when you saw that big move November 1st and what's been happening since then, it's broadening out, it's looking a lot healthier. You had some big moves in all these different sectors. Are you looking, are you going to need to continue, Should we continue to look at the Russell and something like retail for confirmation that this can continue into year end?

20:23Absolutely. Yes. I mean, that is where my eyes are. Every time I see Nasdaq make a new high or NVIDIA today getting up to 504, my eyes immediately go to IWM. They immediately go to XRT. What are they doing? What are they telling us? You know, and I didn't make this up. I may have made up the economic minor family, but it was Stanley Druckenmiller who called these the inside sectors of the U.S. economy. I mean, because they are. I mean, that's really where you're going to get the best picture. Rick asking, 10 seem to be drawn to the 200-day moving average, 420-ish. What are your thoughts on the longer end of the curve?

21:00Oh, you're talking about the yields, you mean? Yeah. Well, you know, again, right now, I think we saw a good auction today, and the yield curve has come in a little bit. I'm not really the expert in the whole bond levels as other people that are on your show are. But I will say that this is exactly, again, let's go back to mirroring history. This is exactly kind of what happened where things started to come in and things got more relaxed. I know we have the minutes coming out. Everybody's looking at that. I don't know how that's going to be much of an impact. But nonetheless, it's really going to be more, the yield curve is going to be more impacted now.

21:40Now, if inflation doesn't necessarily start going back up until 2024, we'll be more impacted right now by the economic numbers that are coming out and the Fed's taking a big giant pause. I mean, I don't know if that really answers your question, but that's my knowledge base. Right. We have some questions about gold. I know you're looking at metals. I think so. Talk to us a little bit about metals and what you're seeing. And I think copper has been that's been tough. So what are you looking at for copper and gold? Well, you know, it's funny because with copper, it was the one area on our risk gauges over the weekend that still showed a risk off.

22:20And there you go. I mean, that's exactly what we're talking about in terms of is there real economic growth happening right here? And I'm not even going to get into more government spending because that's another hot topic, but it's going on. Right. And so that's I think copper is really basically saying, you know, maybe the EV move is not necessarily as prevalent as people thought, although that could certainly change because copper is a big metal for EVs. But also in terms of the housing market, it's feeling the pinch there. I wouldn't lose track of it. But yeah, not necessarily where I'd want to be a buyer.

22:58Although I've been watching XME, which is the ETF for metals, industrial metals. And that's looking like over 52, 53, where it's trading right now, like it could be getting ready for another big breakout, which would drag copper along with it, I'm guessing. Gold. Gold is so interesting. I mean, I think everybody should have some position in gold. And when it dips, you know, obviously that's a good buy opportunity. This has been when it looks terrible, buy when it looks great, sell. And that's the way it's going to stay until one day that changes. And to me, the one day that it changes is going to be it breaks out over this major level.

23:38And instead of the sellers coming in, you're going to see buyers flocking in like crazy, just like what we saw in some of those soft commodities. And I still believe that. So it's trading in 1980. So it's been between 1900, 2000. $100 level in gold is nothing, really. And so I'm waiting very patiently. I like the overall chart. I think the momentum has to improve more, but I'm still waiting for a move over 2000. We've been long forever. And I don't see any reason to change that position. 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.

24:20Nivtej and anti-fragile, those metal questions were for both of you. You had some form of a question in there. So Mish, you're kind enough to send over some picks, check in on some we've talked about before. And there's some, I think, new ones on here. We got to start with coin though. You have been bullish on this for a long time and that call has been spot on. I just looked before we came on. I mean, I know it's been on a tear. It's up 214 % year to date. That's just crazy. Yeah, I'm kind of proud of that one this year because I stuck to the guns. You did. And that was a very contrarian move.

25:02I think you and Rao are the only two people that were, well, not there was a couple of others that I've talked to on spaces that have also mentioned that they were very bullish in coins. So that kind of helped me with a little bit more confidence. Not that I need anybody's affirmation on anything at this point in my life. But still, when it comes to that trade, because it was volatile and it was it looked like it was almost like gold, right? It looked like it was going to just crack under$70 a share. And then it just completely turned around. And everybody thought it was going to be the announcement of the ETF spot, which hasn't necessarily happened yet.

25:41but there's been a lot of other very bullish fundamentals for Coinbase, including some of the altcoins that have done very well. And I think on the last time I was on the show, we talked, we were on Link, Chainlink. We were on Solana. You know, that's - Solana's been on a tear too. On a tear, exactly. So the whole crypto space has been hot. Bitcoin itself is kind of boring here at 37, 38, sort of in pause, but that too looks like it's ripe. And I love the stories coming out of this Argentinian presidential election, because this guy is so filled with anomalies. But one of the most interesting ones, of course, is that he's very, very Bitcoin friendly.

26:19So we'll see. I think Coinbase has shot in the arm today too. It went up to like 105. I took a little bit of profits at 96, looking to maybe take some more profits, just a little bit higher from here, and then hold that tail and see what happens. That's fun. And so some of the crypto in general, is this sort of trading like a risk asset? Would you expect as long as stocks are going up and there seems to be that risk on that that's going to continue to move higher? Or do you think it's sort of decoupled and trading more on its own fundamentals now? I think it started decoupling in October because that's when we had our last conversation about all of this.