Staying Afloat in a Sea of Data

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1:24And now to the top analysis of today's markets.

1:34What to make of the data? Welcome to Real Vision Daily Briefing. It's Thursday, April 13, 2023. I'm Ash Bennington. I'm joined today by Mark Ritchie II, manager of RTM3, analyst at Minervi Private Access. Hey, welcome back, Mark. Pleasure to have you as always. Great to be back. Good to see you, Ash. So Mark, interesting day. Lots cooking gold prices to talk about PPI data and lots going on in equities. What are your thoughts? Big picture, where are we right now, Mark? Yeah, really good question. If we start with equities, it'd be good to back up in terms of, let's say, the last time I was on, which I think was right around the beginning of February.

2:14I want to say February 2nd or 3rd, which almost topped the market in terms of the short term. And what I was pointing out then was that the rally off the lows had some considerable breadth, And I think I used the word firepower in terms of what looked like a potential character change in the market. That had me pretty constructive. Well, things have gotten more nuanced, more mixed, lots of cross currents from there. And I would start by pointing out we really have a split market in terms of equities. And the best way to describe that is just sort of look at the NASDAQ and then look at the Russell.

2:55Depending on which lens you're looking at the market through, you're going to interpret it very differently, at least if you look at the technicals. So, yeah, we can go from there, you know, anywhere you'd like to, Ash. But I think, you know, if you think the Russell is the market, which would be a, you know, it's a broader cross section, it has given back the entirety of the rally. Small problem, though, you've got the NASDAQ, or on the other side of the coin, you've got the NASDAQ, it looks like it may wanna break out and move higher here. So happy to get into how I look at that, how I'm handling it and dealing with it.

3:32Yeah, well, let's jump in and talk right about that, about the divergence between equity markets here in the US in terms of the indices. Why Russell 2000? What is the characteristic of that smaller cap index that you think makes it so important? Well, the biggest thing is that it's the largest sort of cross-section of the market. And as I've often said, it's a good gauge for risk appetite. So if you and I are on the risk committee of any institution and we want to put on more risk, well, where's the riskiest area in terms of equities? Smaller, mid-cap names. They're a little less well-known, a little less followed.

4:10There's more potential there for alpha. Obviously, the other side of the coin being a lot more potential there for risk. And what we really had after that rally in February, and if anybody remembers, I was saying, I want to see the market to potentially broaden out in terms of participation. So the Russell was leading off the lows, which was very constructive. Well, it rolled over. Now it's back below all its major moving averages. And a lot of that, of course, was on the heels of all that really nasty news we had in the SVB, Silicon Valley, and Signature Bank. Well, Russell is full of a lot of small banks and related financials.

4:50And even the whole idea of, do we have a credit crunch coming? What companies are going to be most susceptible to having to refinance debt at rates that are going to put a lot of pressure on their potential business or even their future? Well, the Russell is loaded to the gills with those type of potential companies and risks, where the NASDAQ, especially the NASDAQ 100, if you look under the surface, it is really being held up by those mega cap type names, which tells me that right now the equity market, again, depending on where you look, by the way, the Dow and the S &P are kind of sitting in the middle.

5:29So NASDAQ is your lead dog. Dow and S &P are sort of in the middle. And the Russell, if you were just looking at that, you'd be calling for new lows. Who's going to win out that tug of war? And it doesn't mean that one necessarily has to win. That's another important point. Right now, I would say if you're going to be constructive or bullish on stocks, you need to be selective. I was hoping that the breadth was going to continue to broaden out after January's advance into February. That has not happened. In fact, even if you look at the leading NASDAQ in terms of the participation below the surface, as of today, only 40 % of the stocks in the NASDAQ are in long-term uptrends and intermediate term, meaning only 4 out of 10 stocks are above their 50 and 200, which tells me that the majority of the strength is held in a very few number of issues, i.e.

6:30the herd is thin at this point. Well, let me ask you about exactly that. Let's talk about big cap tech for a moment. I'm looking on my screen right now at XLK Technology Select Sector Spider Fund, looking on a year-to-date basis up over 21%. What's your take on that, the companies that comprise it, and the broader environment and ecosystem in which they exist? Well, to the point about risk appetite from before, right? People don't want to broaden out from, you know, go out the risk curve at all. We've seen it compress. Well, if you're a long only manager and you have to put money to work, are you going to go with Old Faithful, a stock that you know that feels a little bit safer or, you know, something that's a little bit more risky?

7:15Specifically, though, NVIDIA is clearly your liquid leader right now. I think some of that is an AI sympathy play as AI has just kind of gone bananas and are there any pure plays in AI? Very few. So NVIDIA at least seems to be in pole position fundamentally, depending on who you listen to. They're providing a lot of the chips that are going to be needed in that whole AI revolution. I would be watching that closely to see, does that consolidate? And this is where, like I said before, when stocks and equities go on a run. You want to see how do they act when they pull back. And the heavy mega cap names are really the only things that have acted well.

8:01If those crater, the whole market's going down at this point, or at least going to probably retest lows. But there's a very real possibility that we continue to be range bound, or you can have advances that are led by few names. We saw that throughout 21. So I'm not saying the market can't go higher. Those names can put the market on their back, drag the indexes higher, sort of kicking and screaming. But what's going to wind up happening is if you don't own those or own the index proper, you're going to almost have this feeling of a disconnection. Like, how am I not making any money yet? I'm reading that the market is sort of going higher.

8:41And that's sort of the devil's always in the details when you hear that, oh, the market went up today and people look at their portfolio and go, well, I didn't make any money. What happened? Well, it's because when you have cap-weighted indexes and you have some of these big tech names that are just behemoths that make up such a large percentage, you have to either decide, if I can't beat them, join them. I've got to have that type of exposure. The catch-22 being, though, if then those take a rest and we see rotation out, it's what makes these grinding type sideways rotational markets much more challenging because you feel, you know, it's like two steps forward, two and a half back, you know, and you're getting bounced around and where the healthier the advance, there's it's this sort of like, you know, the rising tide easily lifts more boats.

9:36Well, you know, this is kind of interesting. I was thinking as you were saying this about this idea of folks crowding into a smaller number of names as a sort of a security play. You do start to wonder, I mean, S &P 500 up year to date about about eight and a half percent, 8.4 on my screen right now. And you got to wonder when you see 21 plus percent on XLK, does does safety exist if everyone piles into the same trade and it gets crowded and it gets overbid? I mean, it's a real question. That's a great question. And, you know, the other point I was going to make in terms of does safety exist? this was the point where I was making all last year was there was nowhere to hide, you know, as equity markets were just kind of going down.

10:18This is why I would be an advocate at times for cash. Cash is safer than anything else. That if 22 didn't teach you that lesson, then nothing will. Because if you were long ball, long goal, long bonds, none of them worked. Cash was kind of the only thing that sort of helped you. But right now, you know, this is where I'm continuing to hold higher than average levels of cash because I'm just not seeing that stronger wind at our back for the time being. And just to make that other point, you made the point, okay, NASDAQ's up close to 20, S &P 8, Russell, flat, maybe even down a little. I didn't look at it today.

10:58So very, very divergent in terms of the overall performance. Well, that would be more indicative of at least a bear market rally, not the big, at least for now, the lows are potentially still in. The problem is where are you going to allocate the capital as it's been bumpy and rotational? And if you haven't been in the NVIDIA type names, you're probably not seeing that 20 % up type performance after the first quarter. We're going to take a quick break and be right back with more of the day's top analysis on the Real Vision daily briefing.

11:38Well, now we're getting into the old question, cash is king or cash is trash, depending upon your views of inflation. Let's talk a little bit about that because we got PPI final demand out today, an interesting number. PPI FD month over month. The consensus on this was zero. Consensus ranged from minus 0.1 to 0.2 positive. the actual quite a bit lower than both, minus 0.5%, minus half a percent on a prior of minus 0.1. So clearly deceleration there. Year over year basis, 2.7. Now there's some base effects in this prior month, 4.6. But also, I just want to talk about this for a second, because X food and energy month over month, the consensus was 0.3, a consensus range of 0.2 to 0.3.

12:23These both positive actual print, negative 0.1, inflation moderating quite a bit. Any thoughts on that? And by the way, then we can transition this conversation into gold, talking of inflation. Well, for starters, obviously, and there's been a lot of macro folks on Real Vision who are smarter than I and following that, that have been sort of calling for this, that, you know, look, the boogeyman of inflation sort of already died, you know, maybe a few months ago, if not further. And the risk now shifting to, rather than the Fed being behind the curve, have they overcooked the turkey in terms of over-tightening?

13:03And the latter point, that remains to be seen, I think. But clearly, inflation looks like it's slowing. Powell even said in his last presser after that, hey, we have more sort of tightening in the system already from the ongoing hikes that they've done. And well, you're starting to see that bore out the data. And I think the market, though, is really shifting its focus from have we, for lack of a better word, yeah, slayed inflation. But now is the economy going to slow down responsibly or have we slammed on the brakes to the point that we're going to go into the windshield or maybe through the windshield in terms of economic growth?

13:47And this is where I think it's really most interesting, where there weren't a lot of playbooks that made sense last year. And I think you could make the same argument here, given that because since the Silicon Valley Bank news kind of hit, I think that sort of was a little bit of a turn, right? Where everyone said, okay, maybe our focus shouldn't just be inflation in terms of like this tightening is now really starting to come home to roost. and where I would go with that is to say, so look what happened in yields. Short-term yields, clearly in terms of price bottom, yields looked like they peaked.

14:26And if you have, I sent over a chart on that, that was the biggest move we had since that beginning move in the beginning of 22. And if you look at the sort of reverse correlations, bonds were not a flight to quality at all last year. In fact, bonds were the problem, right? As rates were rising, it was causing this yield compression dynamic where it was forcing selling in stocks. Well, is it possible that as that reverses the other way, well, stocks no longer have yield compression as a headwind? The question is going to be the counterbalance in terms of recession risks, meaning how bad is this going to be the other way?

15:08But is it possible that, again, if stocks are looking out three to six months, that pullbacks might be shallower if they're anticipating that the Fed is going to have to sort of switch its stance? And that's where I think the devil is really going to be in the details there to say if the Fed goes, yeah, we're going to kind of go on pause, but then let a little bit of a lot more pain in the economy sort of happen before they become accommodative again. A little difference, say, going on pause versus saying we're going to provide liquidity. Now, they did provide liquidity with this whole banking program.

15:43So even what does it mean to really provide liquidity, I think, is going to come into sharp contrast as well. But I would say it's very possible stocks might continue to be volatile. But I think as long as rates have come off and potentially peaked, I would say in the intermediate term, that's going to be a bullish driver for stocks. Well, that's certainly the speculation based on market-based metrics of forward yield projections. We still have folks from the Fed talking about rate hikes, it's important to point out. via John Williams from the New York Fed saying that essentially that he thinks one more may still be appropriate.

16:18So he may still have that as a headwind, at least in terms of tail risk to think about. But I wanted to shift gears here into an adjacent topic, a related topic, gold price. Right now, gold on my screen looks like$2 ,040, headed toward an all-time high here. Mark, what are your thoughts? Well, let me start by saying I historically have a love-hate relationship with gold. I would jokingly say that I love to hate it because it's been one of these assets that is always floated as the great refuge and savior and all these kinds of things. And generally, I jokingly say I hate to invest in it and like to trade it or love to trade it because the primary reason for that, though, being, Ash, is we have not had a cyclical bull market in gold in over a decade.

17:11In fact, if you even study historically bull markets, and what I mean by secular, obviously some of this is semantics, but if you're not making regular new highs or all-time highs in an asset, I would argue you're not in a secular bull advance. Well, if you look at the chart that has sort of been floating around on Twitter really for over a year is this big, massive base, cup and handle, as the term I would use, other people use their own definition, probably want to define technicals. Look, it's been in a range now since the peak in 2011. And the only rallies we've had have been more of a cyclical nature.

17:51So if you weren't a little more tactical, you probably didn't do well or you got bumped around. And I'm saying today, literally, as you said, we're potentially close to kind of making history. Whenever markets are doing that, you should at least be paying attention. And I don't normally give short-term tactical advice, but even this rally off the lows has been tough to participate in. You've had one pullback that probably shook out a lot of the loose hands. And then we ripped right back after sort of that Silicon Valley bank news. And what's interesting, though, if it was just a flight to safety, I would have expected gold to sell back off.

18:31And it stayed bid, which tells me that there are definitely interested buyers. And if you look at the volume, it hasn't been explosive, but it's been constructive, which tells me right here, I think, is an interesting spot where if we really are breaking out here, I would expect gold at least to run to 2 ,300, 2 ,500. And the first pullback, shakeout, or consolidation should be a low-risk buy potentially. And I'm also starting to see gold equities trade better, which is a really good sign. I like to take my, again, cues from the individual equities to form my overall view on the market. We're starting to see more gold stocks hit the relative strength new highs list, meaning they're trading better than other competing equities.

19:25Anybody will tell you, precious metals stocks have been in the doghouse for a while, because, again, we haven't had a secular bull market in the underlying asset. Now, why is that happening? I'll leave that to some of the macro guys, but this is where the market is a leading indicator for me. So when historic breakout happens, you can sit there and ask questions and go, well, until I make sense of it, I won't participate. Or I pull out my risk management playbook to figure out, is there a way to play this from a low-risk standpoint where I can participate? We're going to take another quick break and be right back with more of the day's top analysis on the Real Vision Daily Briefing.

20:13you know talking about some of the technical signals here i want you to bring in us a different view a different perspective on this i should say uh from francis hunt this is a conversation that i had with francis it's live on the essential tier today this is from a show called the deep dive an upcoming contraction in broader energy complex but it's about gold let's take a look right now so in reasonable time frame we're seeing the secondary high and the all-time high fall, in our opinion. So this is a bad, and why is this happening? We're seeing distribution out of US debt. So there's a dollar confidence crisis, but people have got to remember, currency is borrowed into existence.

20:51This goes hand in hand with debt markets. So there's actually also a bigger problem. There's a debt possible problem. So China no longer feels the need to treasuries. If they're doing bilaterals with Brazil to engage in yuan, that means less dollars are needed on hand as the global currency. So you've heard a lot of this theme now, and it seems to have stepped up. And one of the biggest beneficiaries is not another fiat. It is, hold on a minute, whilst there's this challenge to the main fiat, the god of fiats, call it the dollar, maybe we should be stepping out of the fiat game because there's no clear depth provider to the level of the dollar, but clearly the dollar is under threat.

21:35Gold is benefiting in this environment and debt is having a problem generally of late. However, more recently, we've seen that little dip on debt, the yields, that show that the yields might drop a little bit. So there is a bit of peak, there's a bit of pivot nerves around. And I think maybe 25 basis points more out of power because you wouldn't want to look too soft. But there's even a possibility that there's not much more before there's some form of breakage in the system. Mark, we were talking a little bit during that clip offline about what was happening in your view in terms of Francis's opinion.

22:15Any thoughts you'd like to add? Well, you know, I would just point out that, and I mentioned this, I think, back in February as well, that it makes a lot of sense to me that gold might get flows. and flows ultimately are driving these markets. And so historically, from my understanding, institutions have been underweight gold to very underweight gold for quite some time. And I made the point in terms of 60-40, if people are even rethinking that to say, hey, let's reallocate some money to precious metals, that's gonna put a big bid underneath gold. Obviously, all the things with, all the information about central banks and the strength of currencies and all that kind of thing is relevant.

23:01I would say, if you look at the dollar relative to gold, gold most recently, so we had this rally and a pullback, the dollar has not made new lows while gold is pressing on highs. Well, it tells you it's not just the dollar phenomenon. Talk to somebody else in the gold industry. I am not an expert, but somebody who deals with bullion dealers, And they said all of their dealers currently are saying we can't get the metal fast enough, meaning the demand is unlike anything we've seen. And I said is even more so than, say, post-COVID. And he said, absolutely. Again, I would never trade just on that.

23:41But when somebody who is in that market is saying, I don't know that I've seen this cocktail before, and you have a chart that looks like that chart that's breaking into new highs. And I would also say the commitments to traders report is not – it isn't screaming bullish, but it's not screaming that we're anywhere close to a peak either. Commercials have a net short position. Anybody who follows someone like Peter Brandt would say normally they wouldn't want to go against the commercials, but they don't have a huge net short position. And if that starts to move the other way, they're going to be buyers right alongside.

24:17And the specs are not limit long, which would tell me even last year's pullback probably just rinsed retail out of the market. And if we start seeing all-time historical new highs in gold, every gold bug newsletter on this planet is going to be screaming, you know, buy six ways to Sunday. Whether or not that brings the retail guys back in, you know, you probably want to be, I would want to be lightening up into a move like that and then looking to buy it. But, you know, my general rule is when you see some type of a historic breakout, the first shakeout is probably a buy or the first base. So, you know, right now, that's what I'd be looking for, tactically speaking.

25:01Again, though, I want to look for ways to get on board something without having to, you know, take a stop or risk management that is five miles wide. And I'm saying that's why I think you should be watching gold right here. If I'm wrong, we come right back into the range and it's chop suey like, you know, every other time. If I'm right, to borrow from Rage Against the Machine, it's going to be bulls on parade for probably the next six to 18 months. It's so interesting you make this point about this, this kind of just incredibly dense, rich mosaic of data that we have. You reach a point where we have the amount of information that we do about markets and commodities now, where you're never going to have every indicator pointing in exactly the same direction, except under the most extreme of conditions.

25:46You're always going to have, on the one hand, X, on the other, Y. And it's our job to try and sort it out and figure out what means what. Yeah, I mean, that's a really good point. And I often say, you know, if all the information was there, you definitely shouldn't go with it because it's perfectly priced. And that's one of the challenges, actually, with a market like gold, because it's, you know, I don't know what the notional value, you know, multi-trillion dollar asset. it tends to be efficiently priced, which means oftentimes these breakouts to new highs, everyone's selling, they're not buying.

26:21And so when you, again, when you see a big market like that move into historic new highs, you should sit up in your chair at least and take note because those moves can be powerful. And if people are caught offside or bulls are sold out, they're going to have to come back to the table and start buying. Here's an interesting question. We've got them coming in right now from the audience, rolling in. And I wanted to just jump on some of them because we've got some good ones here today. TrillionX on YouTube wants to know, how about a short NASDAQ-long Dow strategy? I'm going to date myself here and make myself sound older than I intend.

26:56But I remember back in the late 90s, early 2000s, when I was one of the young guys working on Wall Street, I remember we would have these days where you'd have NASDAQ jump considerably and Dow sell off as people were literally selling sort of the old brick and mortar stocks and jumping into the new, at the time, so-called internet stocks. You have this interesting relationship between the indices. Any thoughts on that, whether there is a play to be had there, whether there is a strategy, as the questioner wants to know, shorting NASDAQ and going long to Dow? Well, for starters, that is probably not for your inexperienced folks.