Is the Fed About to Spook the Markets?

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1:10Is the Fed about to spook the markets? Hi, everyone. Welcome to the Real Vision Daily Briefing Halloween edition. With me is Tony Greer, editor of the Morning Navigator newsletter. At least I think it's Tony under there. Hey. Maggie, how are you today, hon? So some background. Tony threw down the gauntlet sending us an email this morning saying, everybody better be in costume. That's it. That was the extent of his email. So we all accepted the challenge. So for those of you who are listening on podcast or audio only, I am a pirate, which I thought was appropriate given Real Vision sort of came in pirate ship beginnings.

1:47Love it. Our director, Mario, who is a real life Super Mario, that's what we call him, as you can see, is donning his namesake. And our producer, Brian, is I think a snowboarding Olympian. That's what I'm going with. And you're Jason. That's Jason, right, Tony? Did I get it right? Yeah, I think so. The best Friday, the 13th character ever. A classic. All right, now we all need some pumpkin ale and we're good to go. In fact, I was looking in the chat and I feel like it has a very Friday vibe, people. Like people are ready to go. They're all excited. So let's crack this, Tony. Let's get some market talk in here.

2:23So if we look at across today, so stocks up on the day, at least I didn't check in the last two minutes, but they were. But third month down, Treasury yields flat heading into the Fed meeting. But there's been a lot going on, as you and I were just talking about before we came to air. So what's on your radar as we wait to hear from both the Fed and Treasury on Wednesday? Yeah, yeah, that's the big deal, obviously. That's front of mind with the FOMC meeting tomorrow. And month in today, you can kind of work backwards into the scenario that we've just seen. right we've seen a steep spill in the equity markets to a new low you know through the weekend um etc etc with the the fomc tomorrow we're seeing like you know a relief rally for sure off the lows right the heavy selling's been done out of the way so that you know the prices are all cleared now um and we'll wait to see what happens but there are some major macro moves going on right number one the yen is getting freight trained again the bank of japan um you know said their 1 % bond purchase rate in the 10-year is now flexible or so a reference point rather than a hard line.

3:36There's been a three-standard deviation implosion to a new low in dollar-yen, in the yen versus the dollar. That weakens the yen versus everything, strengthens the Aussie dollar. It's really a pretty heavy macro mix that goes on under the hood there. Yeah. Also in the macro world, we're living in the US here through a bear steepener trade so far where interest rates are going higher and the curve is steepening. That's a very important point right now. We were dealing with it over the summer at minus 100 basis points. Now it's steepening. We're down to minus 18 basis points. So it's steepening toward the zero boundary potentially through that.

4:21And the VIX is very sensitive to that. So when the VIX sees a steep move higher in the curve, people tend to buy insurance on the downside, sell stocks. And that's why we have this bit of volatility that we're dealing with here. So I would say that that stuff's really important. Market sentiment is really negative right now, Maggie, right? We're at extreme fear. We're at the point where hedge funds are extremely short. And that's via a JP Morgan note that came out. I think that's important to know. Yet today we're seeing, with this relief rally, we're seeing the VIX cascading toward 18. So it's really interesting to play the markets.

4:58A lot of the individual trades are working. There's a uranium breakout that we can go into. But those are the things on top of my mind that we can go from there. Yeah. We were actually, Brian and I were talking about you, because when these things are moving, that's always what you say. And I think your posture says it all, right? Even though there's this volatility, you have max sentiment bearish. I'm assuming they're extremely short equities. but you'll tell me if it's also bonds, but bonds, you meant bonds? No, equity. I meant equity. They're extremely short stocks right now. Yeah. I'm sure they're short trend followers or all short bonds three years into a fair market.

5:32Yeah. I'm figuring it probably applies to both, but there's opportunity, especially for some shorter people with a shorter term focus. So I'm not surprised to see you sort of, I don't want to use excited. It's probably not the right word, but like really engaged with the market right now. So let's unpack some of that. First of all, with the Fed tomorrow, is that an event or are we just assuming they make no move? Someone in the chat said, I hope they go half a basis point, 50 basis point move. What are you thinking here? You know, I don't think about these things, Maggie. I let everybody exhaust themselves and punch themselves out.

6:12And then, you know, all of that goes down the toilet and we deal with what actually happens tomorrow at the meeting and how the market reacts to that. So I'm going to just go with they're probably going to do nothing. But I would imagine that after a 10 % slide in the stock market that Jerome Powell might have something to say that might be one of those moments that we've seen a thousand times where the Fed is speaking and the S &P is rifling higher out of a ditch. It won't be the last time, won't be the first time that happens. And I'm not saying it's going to happen. But I could see that being the case.

6:48Stocks are vulnerable on the upside in the extremely short term. Like we said, with everybody short, we've reached some really serious support levels. We're at the 200-day. We're grazing through the NASDAQ's 200-day moving average, the same in the S &P. I mean, if we bounce from here from an oversold condition, just before we figure out what the next move is, it wouldn't be shocking at all to me. So that's kind of the way I'm postured for stocks. You know, there's a really, like we said, we should talk about the really interesting breakdown and breakout in uranium today behind Cameco. You know, there's an earnings cloud, you know, earnings mushroom cloud rally of 7%, which is a two sigma rally.

7:30They beat estimates. They tweaked 2023 earnings range higher. The stock's on a seven month winning streak. They said they see tremendous nuclear demand outlook. Their total industry long-term contracting volumes in 2023 have exceeded the volume of the last 10 years, which is an exciting type of bullet point to be able to drop on a call. So that sector is on fire. Like I said, there's always a bull market somewhere, and that's one of them. Yeah. And TrillianX asking to that point, would you be buying any dip, uranium dip, after Cameco raised its guidance for 2023? You know, it sure looks like a stock and a sector that wants to erupt from a long-term consolidation on its first moving set of serious moving average support levels.

8:21So we just saw Cameco and uranium sector, URA, the ETF, literally bouncing off of its 50-day moving average and then not going far, but forming this really solid range right on the first relevant moving average support level. And now we're getting this good news. The stocks are starting to break away a little bit. Cameco is breaking out off that range, not to a new high yet. But yeah, it feels like that they want to go. And I feel like the price of uranium is going to go anyway. There's a shortage right now for sure. All the utilities are trying to hold back and say, we don't want to pay these runaway prices.

9:00They're going to have to pay or they're going to have to shut down their reactors for baseload power. So I think that there's going to be a scramble at some level there, or at least it seems really vulnerable to the upside. And that'll be part of the trade. And we'll have to navigate it from there. 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.

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10:30So and this is what everyone's been waiting for, right? There's been the sort of fundamentals on paper have looked good, but it's been hard to get any action happening in that uranium space. By the way, for those of you who may have missed it or if you missed yesterday's daily briefing, Doonberg was on. I know you were chatting with him right before we went on. And he made a really interesting point that he thinks that supplying the data centers, just the power needed to run AI, is going to be also part of the scenario that kind of breaks the opposition to nuclear because just the tech needs are so powerful.

11:08And just as a group and the enthusiasm around that, strong enough to maybe counter some of the environmentalists who've been holding on, the sort of older guard environmentalists who've been holding on. Super interesting. I think he's going to do a piece on that. So I look forward to that. But worth everyone just sort of making a note of that, because I think it's a really interesting conversation that not a lot of people are having. So I want to pivot back for a moment to this Treasury situation. So Treasury already said it's going to be auctioning off$776 billion in debt. But Wednesday, I think before the Fed meeting, Janet Yellen is going to give details on the size of the auctions, the mix of the maturities.

11:45Jim Bianco was on with Ash, just on with Ash on the platform. And he's worried about the impact of all the supply hitting. Let's have a listen to that, and then we'll talk on the other side. Just so everybody knows what we're talking about, remember we had the government shutdown for the first six months of the year. And the Treasury couldn't issue debt. And they borrowed against, you know, they did what was called emergency measures or extraordinary measures. And they borrowed against government pension plans and everything else. And then when they were able to borrow in June, there was this massive burst of Treasury bill issuance.

12:18Well, Treasury bills are less than a year and a lot of them are less than six months. And so they're coming. They're maturing now. They are they have matured and they're maturing now. And the Treasury said that they're going to shift out that borrowing into longer term notes and bonds, five year notes, 10 year notes, 30 year bonds. And that's really got the market worried that it's going to be drowning in supply, which has been a narrative for pushing prices higher. Well, the Treasury is going to announce its borrowing expectations for the next quarter on Wednesday. And if we see that, that could be another catalyst.

12:52If we see that they are going to indeed plow straight ahead in issuing more notes and bonds and less bills, that could be another catalyst for higher interest rates. So and interestingly, that was part of a crypto conversation. If there's not more evidence that macro and crypto are totally intersecting these days, Jim had some very interesting takes on how the Treasury auctions will impact the crypto markets as well. Really fascinating conversation. That full interview is on the website. If you are joining us from YouTube and you are not a full RV member, you are missing out. Jump on a trial and come join our community.

13:29So, Tony, does it feel like there is a risk that rates continue to spike higher from here? I mean, we did have Jamie Dimon recently warning again about the possibility of 7%, saying the world's not ready for 7 % rates. Does it feel like that's where treasury yields are vulnerable on the upside? Yes, I don't like my company there, but I have the same idea. I definitely think rates are going higher. Right now, this scenario in the market is like, you know, fascinating to watch. And I have to point out that I am a spectator in the cheap seats with no position on and treasuries. So, you know, that that's just something I feel I should put out there.

14:05We are leaning on the October 27th low or 23rd low, I believe it is, which is literally a low that was built on the tweet by Bill Ackman that said he covered his bond short. and the tweet by Bill Gross that said, I forget what it was, something about lower rates, I'm sure, but I forgot what the details were. And all the people that are holding off and thinking that this is the low in bonds and that they're going to rally are kind of hanging their hopes on that. And I know that there's no way that a three-year rally, a three-year bear market in bonds ends with these two guys tweeting about it, right?

14:42We need a major event before it's over. So they're They're up against, you know, the issuers now, the Treasury, are up against foreign sellers. They see our national debt exploding. They see inflation rising. They see our Treasuries imploding. You know, the whole thing, that recession that's permanently on the horizon, the structural inflation that we have built in, it's not a pretty picture for the Treasury market right now. So, you know, there may be some relief rallies within this setup. But as long as we have this politically structural inflation, there's not going to be much of a relief rally at all, right?

15:18It's just the longer we go with higher energy prices, the more expensive things are going to get. And so I think that's kind of the world that we're heading into. Yeah. Someone had a question. I want to circle back and again, talk about what that might mean for stocks. But someone had a question about what you see happening with oil, what you see happening with WTI and Brent. Oil vol appears elevated. That's from Ralph. Broadly speaking, oil vol is elevated and it can go a lot higher, right? Like historically, we've been through scenarios where it's been way higher than it is now. It's just starting to break out.

15:51So the reason I think that it hasn't is kind of part and parcel of what I was just about to say is that first of all, since we made that 95 peak and failure from there, the price action has sucked. Excuse my French, but it's been terrible, right? So we're dealing with that. We're dealing with the fact that, you know, the world is starting to realize that that was sort of, you know, pre, you know, it had to do with a tighter WTI market, et cetera, et cetera. But that was a sort of pre Middle Eastern conflict sort of ramping rally. Right. And that's sort of when all of the unknowns are coming out.

16:27And then all of a sudden, you know, everybody starts to get their head around what's, you know, where we're looking at and what we're about to happen. The narrative cools down a little bit about, you know, all the violence, et cetera, et And all of a sudden, WTI is backing off and saying, you know what? The reality is there are really no oil-producing nations that are going to be affected by this in the grand scheme of things, more than likely anyway. And so now we're seeing a pullback. So the downside is a little vulnerable. I would imagine that the funds have gotten a little bit longer with the curve remaining in backwardation and the price kind of holding up in the top of the range.

17:04Price seems vulnerable to a move to the downside now. And I would probably buy a dip, though. It's still anticipating that we're going to see, with the seasonally low inventories, we're going to see fits and starts of rallies back into the 90s. So that's my view on crude oil. Yeah. So and at that level, not runaway, but still, it's not like we're seeing a deceleration that's going to feed into the inflation numbers. So problematic for a Fed that's looking for that. Well, the one thing that the Fed's got on their side is that we've seen gasoline prices come off pretty dramatically from the highs.

17:38We just had a recent, you know, kind of glut there. Crack spreads backed off, inventories rose, and sort of the gasoline price backed off 20 cents. So that was good. Imagine that for the administration, et cetera, et cetera. So we'll see if that lasts very long or not. But that's one thing that will factor in if prices stay down here. Yeah. So if we're looking at a treasury market, if we're looking at oil that has the potential to have these moves higher, if we're looking at a treasury yields, which definitely seem to have the path of least resistant higher or the risk is that they move higher, presumably that's going to be a tough environment for equities.

18:15Is it equities across the board or are we going to see one of these situations where there are certain segments that do well and others that bear the brunt? A hundred percent, Maggie. We're going to see it's another season, another year of it's never been more important to be in the right sectors. I think that rising interest rates are going to be persistent. They are going to be troublesome for the S &P, broadly speaking, for sure. Like, you know, today, NVIDIA cracked. And if we see kind of continuation of, you know, a pullback in the AI theme, a pullback that they, you know, some of the idea that they can't withstand much higher interest rates, that'll definitely hold the indices back.

18:55But, you know, there seem to be, you know, bull markets in the energy stocks. I like the fact that we just had some recent consolidation in the field. There's bull market in uranium. There's a bull market in home builders. Semiconductors are raging. Big tech is raging. If you look at the performance, Bitcoin's up 100 % year to date. The big tech stocks, an index that I have is up 70%. That just includes all the big tech names. It's like FANG plus Intel, Microsoft, Tesla, and one or two other names. Semis are up 37%. uranium is up 33%. Now, if you could have positioned for that back in January, you're the Greek god of trading.

19:41You know what I mean? Nobody could have seen that kind of layout coming. Nobody could have seen the whole Middle Eastern situation coming. Nobody could have seen any of this. So that's what I mean by it's really important to pick the right sectors, get out of the ones. I mean, God forbid you got caught long solar stocks or cannabis stocks. this year, you're looking at 40 % and 20 % of your money is gone. And that's just a little bit too much to be able to stomach for my taste. So that's just a really important lesson right there, man. If you're caught in that sector, you got to be really, really careful with your money and make sure you're in the ones that are performing and have a bright future like the ones that are on the top of the board here.

20:22But everything is probably about to change into an election year. And I think volatility is going to continue to stay pretty high. Yeah, it's interesting. So on the tech front, so many people have just been looking for a total washout with tech. It's like they weren't in it for a lot of the year, as you said. They thought that it was already too expensive. And so they were on the sidelines or they were somewhere else. And so is there, and yet you mentioned that hedge funds are short. They're very short. How is that set up for the end of the year? Are we going to get some, you know, people were trying to play catch up.

20:59And if these names just do not look like they're going to see much of it, not that they've not gone down from highs, they have, but you haven't seen this complete capitulation. A lot of them have been, it's been down off the highs, but it's not, you know, a blood bath. You see people coming back in at the year end as they just try to sort of get those names on the book and get some upside, or is that still a problematic area? Is sentiment still pied up against that? It's a tough call. We have the seasonality of fourth quarter stock market performance generally being really solid. That's sort of the historic flow that the markets were just selling off against.

21:36So now maybe into this support level where the VIX peaked at 23, hedge funds have gotten extremely short. Prices have adjusted. Right. If you look the stock, you know, these hot big name retailers and names like man, like Nike. And geez, I had the list in front of me, you know, Tesla, Nike, Victoria's Secret. A lot of retail names are just down huge on the year. Yeah. You know, and so like there's an adjustment, right? Like the adjustments all over the screens. Right. So it's not it's unfair to say that stocks haven't corrected yet. Right. A lot of stocks that deserve to correct are correcting, and the ones that deserve to go up are going up.

22:18It's the same thing as it always has been. So, yeah, there's going to be vulnerable spots in the market, but there's going to be bull markets too, and it's going to be the ebb and flow of that. And like I said, just more importantly, is staying in the right, making sure you're in the right lanes and out of the wrong ones. 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.

22:44Somebody just said, Tony, setting the table like a pro, always. TrillionX asks, what do you think about a barbell equity portfolio, 50 % tech, 50 % oil and gas to navigate this tumultuous macro environment? Of course, none of us, including Tony, give any advice, financial advice on what to do with anyone's portfolio because he doesn't know your risks or your time horizon. But roughly, how are you thinking about that interplay between tech and energy? Yeah, you know, it seems, you know, I actually kind of would, I would prefer to kind of keep those trades separate, quite honestly. The only thing I like about the barbell idea is that I love free weights.

23:23So that's really the only, yeah, that's the only thing that I like about being able to, you know, that's just kind of a, that's kind of just rigid thinking to me a little bit, right? You're going to say we're going to ride these two sectors out and see what happens. It's like, well, if rates go a lot higher and NVIDIA actually peaked and is on its way down, you're going to wear tech for a long way, man. I don't know if that's going to be any fun. You know what I mean? And God forbid energy breaks, oil breaks down through 80 into the 70s. And say again, first of all, there's 111 tops in the XLE at around 92, 93.

23:59it's something that I've like never seen before. And it's a sector that I'm so bullish that I have to have the conversation with myself and say, well, what if this fails? Right. There's literally a lid on this sector at the price. And, you know, it's something that's worth considering that there could be a real pullback in that in that sector, too. Although I don't think it could be a steep without a steep slide in oil because the market is not long energy stocks. All we've seen all year is outflows. So, you know, it's a complicated cocktail and that's why I don't like to just say, okay, let's ride this sector in this sector and, you know, kind of overweighted and see what happens, right?

24:34I am totally open-minded to anything in this type of tape and news backdrop. Yeah. Yeah. I think, which is so important. I love the idea of having a conversation with yourself because you really, really need to do that. We all do so that we don't sort of get locked into a narrative. On that, speaking of what's moving, you mentioned it briefly, Bitcoin. I think it's the best performing asset this year. It's a staggering year-to-date performance. We've seen a big move recently. Is that on your radar? Are you doing anything around that? Are you watching it? It's on my radar because I have to know what's going on.