Is Cash the Only Safe Bet? with Thomas Thornton

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2:44Is cash the only safe bet? Hi, everyone. Welcome to the Real Vision Daily Briefing. with me today is Tommy Thornton, founder of Hedge Fund Telemetry. Hey, Tommy, great to have you back on The Daily Briefing. Hey, thanks for having me. It's nice to see you. So for those who are listening and maybe not by a screen, not a great day for U.S. equities. All the major indices lower and the selling accelerated into the close, which is never a good sign. We had weak data out of China. The yuan hitting a nine-month low. More negative headlines concerning U.S. banks, the regional bank ETF. KRE was down over 3%, over 5 % in the last five days.

3:22And the 10-year treasury yield climbing back to 4.2%. That's a big move in just the last week or so. So there's a lot going on, especially for what's supposed to be a quiet time in the market. Tommy, what do you make of the action we're seeing? Yeah, so much for the quiet August that we all were promised. Well, you have a lot of macro stuff that's happening right now. You mentioned the currencies, and I'm really focused on the yen. Chinese currency, you know, yen hit a new low today. China's currency hit a new low. I think there's still dollar strength out there, and that is usually mixes with risk-off behavior overall.

4:03So I think that that's a real concern. The Japanese GDP came out yesterday, double the consensus. They were looking for about 3%. It came in at 6%. You have the national CPI in Japan coming out this week. They're going to be under pressure. That is the Bank of Japan is going to be under pressure to do a little bit more policy relaxing, as they called it, with their yield curve control. So I think that's a risk. And one thing that is really important, and you mentioned the U.S., I mean, with rates, you had the 10-year, 30-year, those hit recent new highs. They dipped last week, and everybody thought the bonds were going to rally, but they snapped right back up.

4:50And I think if you look at the Japanese market, it's more correlated with the U.S. rates market on the 10-year and 30-year. So I think you have some risk there. If rates become unruly, that will affect other markets. And we've seen that happen with the equity market. I think my gardener just showed up at the office here. Right on cue. You must have the same one that both I have and Raul has. And it's like everybody who mows the lawn in the neighborhood seems to have, I must have a red light that goes on when I'm on air. So yeah, he's just driving around on his little thing. And so anyway, I'll yell.

5:36So I think there's risk there with the rates market. And that could be, you know, that can really get unruly. And one thing that Bank of America pointed out is that there's been humongous inflows into the bond market last year and this year, record inflows. And it's very similar to the way I look at it in 2021 when you had record inflows into the equity market. And then lo and behold, in 2023 or 2022, you saw the equity markets get hit pretty hard across the board. So I think there's risk. Globally, you had the Russian currency taking it pretty hard. So they're trying to fix that. I mean, there's nothing they can do, I think.

6:22And you still have a war going on in Ukraine, which is troubling. So currencies are pulling back. I've been bullish. Last time I was on three weeks ago, I said I was really bullish on the energy sector. And I did take some profits in energy stocks. I had gains from 10 % to 25 % on some. And I'm waiting for a pullback. I think the pullback will be a higher low pullback that will be a really pretty good place to buy for the rest of the year. Technology, I'm still bearish. You're starting to see the Magnificent 7 turn into the Magnificent 1. NVIDIA is still on fire. I don't have any position in NVIDIA.

7:02Trade's too rich for me. And I think that their earnings next week, everybody expects their earnings to be blowout. And Jensen, the CEO, has done a magnificent job hyping this. And it's created this FOMO with all of his customers. They're dying for these chips. And so they are double ordering and doing everything possible. A lot of those customers are Chinese or Mideast customers, and they want their chips fast because they're afraid of sanctions or some problem that could arise. And you've seen sanctions talked about, but nothing really concrete yet for those. So I think that it's becoming a very much more narrow market as we go on into this August.

7:48Yeah. So when you list that long, it's really a laundry list of these things that are moving that should give us all a lot of concern, then you think, what could possibly go wrong? I mean, it sounds like everything's kind of setting up for there to be a spark that sends markets sort of, I mean, I don't want to use a word or a direction because I think you said unruly. They can go lower and that would create opportunities. Or fast moves, fast sort of moves that become momentum led and not really connected to fundamentals. So we're getting a ton of questions already. I want to get a little bit more on some of what you said.

8:33So that's the kind of the moves that you're seeing that is causing you concern. And it sounds like you're getting a little bit more cautious because you took some profits where you were ahead. It sounds like you're kind of squaring up a little and kind of getting ready for something. Is that a fair assessment? My fund is net short 40%. So I'm and I'm enjoying some nice shorts like Wynn Resorts. I shorted before earnings. Ralph Lauren before earnings. Let's see what else. Apple, Tesla. Those are all working. And, you know, it's not it hasn't been an easy year for a long, short portfolio manager, unless you've been long those seven stocks.

9:15But those are starting to break up a little bit. And that's generally what happens. And the valuations were absurd on all of those. The Magnificent Seven had a PE ratio, an average PE of over 50 times earnings. And so that's unsustainable. And so I've just been patient trying to navigate around sectors and stocks that I see the opportunity for just pick off some downside. Yeah. I think it's always, you always underscore this. I think it's worth underscoring again that you have been doing this for a very long time. You're an expert at position sizing. You always make sure that you have the appropriate mechanisms in place so that you don't get totaled on one of these if it doesn't go your way.

10:00And you're short term, like you're very nimble. You're in and you're out. Some you go longer on, but you're a professional trader. That's not going to be everybody's point of view who's listening. So I think that's really important. And you're trying to sort of look for where there's advantage, where there aren't other people, which is when you were talking about last time you're on, you're talking about energy and shorting tech. And probably everybody thought you were nuts. Yeah, I think they did. I think you were in financials as well. I did. And I did sell some of those out. I don't have any financial exposure right now, but those did work for a bit.

10:36And, yeah, I'm not CNBC. I'm not going to talk about the stock of the day that's up and doing great. And I'm going to talk about what I see happening in the future. And, you know, sometimes I'm right. Sometimes I'm wrong. And I own when I'm wrong. And, you know, the thing that I think is concerning me is we don't like for the equity markets, we have this giant CTA long exposure. CTAs are just basically big trend-following quant funds. And we're starting to get to levels in the lower 4 ,400 level where they would turn seller. And if we have a two-standard deviation move on the downside, that flips about$250 billion for them to start selling.

11:28And they're just systematic. And that will create some real downside. So we're not there yet, but that's a risk. On top of it, I track about 20 different internals within the markets, and we're not oversold on those. And some of them are very basic type indicators. And I look at the percentage of stocks above the S &P, above the 20-day or above the 50-day, and those aren't at oversold levels yet. Market sentiment is not at oversold levels. It still remains pretty buoyant. Bond market is not at oversold levels as far as being overly bearish. It's in a bearish territory, but it's not overly done.

12:08So we still have these to resolve. And when those do get oversold, I usually will come on and say, well, this is what I'm buying and I'm buying and I'm buying. And I get the same comments where people are like, you're crazy. But, you know, last year I traded more on the long side because we had these good dips to buy than on the short side. And it was a pretty good year for opportunities. And I think that this volatility, I welcome it because it opens up the volatility window for opportunities on both long and short side. Hey, everyone, we're going to take a quick break right now to hear a word from our partners.

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13:56Yeah, I think that's really important because it can sound super bearish all the time, the headlines. But if you are opportunistic and you have the tools and the knowledge to do it, then there may be some fantastic opportunities coming. But it sounds like it's going to be action-packed, to say the least. But if your perspective is different and your risk profile is different, then you're really going to want to plug in and pay attention. If capital preservation is the name of your game, then it might be a really stressful time. So super important to know the difference. And if you don't go to the academy, we always say this, we have modules on all of that.

14:31Know who you are before you jump into this stuff. So let's get to some questions, Tommy.

14:39Oliver saying, at what price will you back up the Cybertruck and load up on Tesla?

14:47well you know the problem i have with tesla is i i think the demand is starting to weaken and we track a lot of china this this week i think they announced right they're cutting prices and their margins are becoming more in line with the traditional automakers you have a lot of different things that are working against tesla right now one you have a fleet of cars that it's becoming a bit stale. They all look the same. They've been in production for five years or more. And there's really nothing new on the horizon. You have interest rates really high, so it's expensive to buy a car right now. You've got these great discounts and these rebates that are out there, which should be really good for Tesla, but you're not really seeing the increase that you would expect when you're getting$7 ,500 perhaps off the price.

15:42Valuation just makes no sense. I mean, it's still worth more than all the legacy automakers combined. You have a fairly unstable CEO. You just lost the CFO. I mean, I don't know what the next thing is going to be that will move this lower, but my main thing has been demand, and it is starting to slow. It's very clear. They're saying, oh, we're going to close the factories for retooling. They just opened two factories. They're brand new. Why do you need to close them to retool? I think it's just a matter of having too high of inventory, low order demand, and really stale looking cars. And the full self-driving, I mean, that's another thing that it's coming soon and coming soon.

16:26And we've been talking about that forever and we'll see. So it sounds like you're not even looking at a price yet. I have no reason to buy this. It makes no sense. It doesn't fit into the valuation parameters that I track, and I don't think it's a very solid company. So TrillianX asking, what do you make of this bear steepening? Do you think we have room for a rotation into value and cyclicals? Yeah, I think that is possible, that we'll see a rotation into value in cyclicals, definitely. I think the steepener is, it's kind of stalled out here. But if and when it starts to move, you know, that's the old, we're going to go into recession.

17:16And that's been, you know, the recession is coming, the recession is coming, and that's the boy who cried wolf. And even I have thought, like, second half of this year, we'd start to see it. But everything in the economy, I mean, retail sales were really strong today. You've seen the labor market really strong. You're going to see – that's the other thing. Last time I was on, I said you've had energy prices go up in July. I mean, the price – the average price of unleaded gas is up 10 % since July 4th. 10%. And that's going to filter into the CPI data for August that comes out in September. And that's ahead of the next Fed meeting.

17:54So if the CPI comes in a little hotter, which I think it will, I think the Fed's going to have a dilemma. Are they going to raise one more time? If they don't, I think they're just going to hold rates at these high levels for longer. And they're not in any giant hurry to cut rates because the economy still is good. The wages are strong. Unemployment's at 3.5%. I mean, they're not cutting rates at 4 % unemployment. That just makes no sense. And they're afraid, they're really afraid about inflation coming back because historically you see these waves of inflation that it comes back and, oh no, what do we do now?

18:32So I don't think they want to make any big giant decisions, but it's either they're going to raise 25 or keep rates real high. I mean, it's just, it's going to be interesting to see what the CPI comes in at. Yeah, that's going to be and it's going to be really interesting to watch that meeting that is now very much in play, I think, because we keep getting these strong numbers or at least mixed enough strong on the consumer. New York manufacturing was weak, but we've had that kind of divide between manufacturing and services for a while. They have another problem, though, don't they, Tommy, which is what's happening with banks and the financials.

19:06The higher rates go or the longer they keep them higher. It's going to continue to put pressure on those regional banks. Does it stay contained there? I mean, you sort of got in and out of financials, it sounds like, at the right time. But what do you think about that sector from here, especially the banks? Yeah, I had a long trade in the regional banks that worked out. It was sort of a wise guy, cute trade that I got in and I got out with a gain. It's interesting that rates are higher than when SVB blew up. And we're not really hearing about it. It's some of the banks that have longer duration debt on their books.

19:48And I mean, maybe it's just their selective disclosure, but I think that's a real risk. And look, I think that you also have regulators or regulatory agencies and Fitch and all the others that are starting to downgrade some of the banks for the real estate concerns, which is another, you know, it's coming, it's coming, it's coming type thing. But, you know, until that really cracks, you know, it's sort of status quo. So we're seeing some weakness. Nothing, I should say, where it's really concerning. Yeah. We've got some people asking about, Avery, asking about the deflationary forces in China and the spillover effects in both DMs and EMs.

20:32So the Fed's grappling with the U.S. economy. It's running too hot. But we're all kind of wondering now, do we see a spillover from China based on the weak data and the fact that they say they're going to stop reporting youth unemployment? We all saw that headline made it all around. They kind of ended up everywhere because it seemed like a pretty dire sign of what's going on there. And people remain really concerned about the real estate. They make up the numbers. Anyway, they do. We're going to recalculate it. Those with, you know, I don't know, they'll figure some way where it doesn't show up as a dire situation for youth unemployment or youth employment.

21:12So, yeah, I don't really buy into a lot of the Chinese numbers. Look, if there is deflation happening in China and you've got inflation running hot in Japan and other places around the world, I mean, this is a really goes all together. But I think China's going to have to do some sort of helicopter drop and give their citizens money. Then you have like these giant real estate companies that are still under tons of stress, companies missing bond payments, various places. And if we're just hearing about it with the big headlines, there's thousands of them that are smaller, these smaller developers that we'll never hear about that are under total stress.

21:54So, yeah, I think that China's got a lot of big problems. The big China reopening never materialized. And that was something that Tim Cook said on the conference call. It really didn't go. But we're still positive, but it really didn't go. I think that's a risk. Mark asking, what are your thoughts on the pound? You watching the pound, Tommy? Yeah, I watch all the currencies. You know, this and euro have actually just sort of been drifting lower. Nothing that dramatic, but I think that there's the potential for these to drift a little lower as the dollar goes higher. I mean, it's nothing really stunning or a revelation in that.

22:40But, you know, I think it's really more in the Asian currencies that are going to be where the fireworks happen. But I do think that it'll just back off a little bit. Now we have the blower going. 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.

23:02So, you know, you mentioned an interesting thing is everyone had been, back to your comment and sentiment, everyone had been expecting the dollar to weaken, had been expecting bonds to rally. I mean, this is the setup that people thought we were in for. It looked like the Fed was done. and now it's kind of back to the joint where it doesn't look like any of that's happening or not everybody not everybody expected that true i'll tell you that because you have the same you you probably know the same people that are dollar bears uh come out of the woodworks and talk about the end of the dollar every time it goes down so you just it's it's sort of like the same people that buy gold oh gold's going up so they just talk about gold they never sell it they're always long.

23:43It just goes up and down and sort of sideways. But yeah, I'm sort of agnostic and I'll go long and short on anything which way my indicators are telling me which way to go. But I do think the dollar has got the potential to go higher. Sentiment's a little high right now. But it's this whole, if things break and get unruly, then things will get interesting. uh we you were talking about the energy trade that i think you said you lightened up on so what what are you expecting from energy from here because we've got weak china strong u.s right but i'm not sure oil's been trading off the fundamentals anyway what do you see happening it's been holding up well considering the weak china that used that was coming out prior to today look like it weakened a little bit on those headlines today yeah i think i look it's been a good trade for me.

24:34I've got long at pretty good levels, and I've been saying over the last week to lighten up on energy. It's more of a technical call, but I also think the fundamental backdrop is actually pretty good. Usually, people get bearish on energy and crude when we are moving towards a slowing economy, and I get that. However, it's a little different now because I think that the supply is going to stay restrained. You don't have a lot of drilling. I mean, the drilling, Baker Hughes drilling rigs, those are still pretty low right now. There's not that many rigs operating historically. And then you have the Biden SPR release.

25:18They're not releasing any more crude. And I don't think they're going to increase or refill the SPR anytime soon. They sort of missed that opportunity when crude was trading in the 60s. But then again, it's not that easy to fill, give me 100 million barrels, stop me within a dollar. No, that's not going to happen. So I think that they may just keep the SPR at this level. And that's actually bullish because they're not going to release more. And I think the Saudis are really being sticklers about their production. So they want crude prices higher. and that's kind of it. And I think that the demand is still pretty good.

25:59It hasn't fallen off a cliff in the US. It's still fairly good. So let's talk about that question we started the show with, cash. Is cash, I mean, you are being nimble and looking for opportunity, but is cash the safest bet right now given all of the uncertainties that are out there and the potential for things to sort of start to spiral? Yeah. Well, I think that if anybody has, well, if you have, here's my, if I'm talking to a family member, you have good gains this year. If you're up, you know, 10, 15, 20 or more percent, it doesn't make, it wouldn't make, I would say, take some gains, lock in some cash.