Time To Take Profits in Tech? w/ Greg Weldon

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

1:35Is it time to take profits in tech? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Greg Weldon, CEO of Weldon Financials. Hi, Greg. It's great to see you. What's up, Maggie? How are you doing? I'm doing well. You look no worse for the wear. We were just talking. As you all know, we're a little bit delayed. And Greg had some serious car issues. But we're happy to report that he's OK. And you made it. Driving back from the gym, you find out your brake fluid is gone. And you have no brakes. It's a little sketchy. Yeah. It's totally sketchy. And I'm so happy that you're OK and grateful that you hustled into the seat after that sort of perilous experience.

2:10So cool and calm under pressure, which you kind of need to be in these markets, right? So we saw stocks ended in the red as the debt negotiations continue to grind along without any resolution. The VIX was up. It's still very well behaved, but it was up a little bit today, about 8%. At what point do you think investors start to lose their patience and start to send Washington a stronger signal? Well, patience is really such a good word to be used right now, today, because there's patience being shown and there's patience not being shown. But when it comes to the debt ceiling issue, I mean, come on.

2:50This has to be the single most stupid thing we ever talk about. Like they're not going to expand the debt ceiling. You know, what people kind of, I think, don't fully grasp is when they hear this is really the bigger picture message, which is simply the government is broke. They're insolvent. They can't continue to operate unless they can continually, perpetually borrow trillions and trillions more dollars. And as it becomes a thirty one point four trillion dollar public debt. OK, now you each time you want to boost that by a certain percentage, the nominal underlying figure is a lot more money.

3:24So I think that that's the number one big thing that people just kind of don't get and they want to spend all this money and the Republicans don't want to raise taxes. And oh, my God, I mean, this is politics at its worst. You're going from having like a, you know, a two party system that was our strength that has now become our kind of our downfall because it's so divided. It will get resolved. It's not going to be a problem. There's no way they're going to default on their debt. They don't want to have to blame each other. So to me, it's a nonstarter. The patience factor comes much more in terms of the Fed.

3:53Yeah. Oh, the Fed. We'll circle back to some of the issues you raised. But what are you looking at for the Fed? Because I think it was Jim Bianco the other day had a chart we liked. It was what the Fed's saying and then what the market expectations are. And they're pretty far apart. And the Fed's continuing to sound hawkish. What's your sense of what's going on? Yeah, Bianco is one of the greats in our business, so always pay attention to Jim Bianco. I've been saying the same thing for a long time. I mean, if you look at the deferred Fed funds forwards, for the end of next year, at one point, they were below 3%.

4:27I mean, the market is anticipating 200 basis points of rate cuts by the end of next year. And high probability, over 80 % last I looked at, that begins this year. Now, the Fed, they don't want to see this. They don't want to hear this narrative. They want to see inflation come down. They want to have inflation down for a period of time. This Fed has been probably too transparent. It goes back to 2018. I talk about this all the time. 11 white papers the Fed put out on their new policy paradigm. Over 300 pages. I read every single page. The Fed told us exactly what they were going to do when inflation started to rise.

5:04They were going to let it rise. There was no tolerance bans, no point where they begin to day action just because it's reached a certain level. It would be above average for an extended period of time. And the time length they were talking about was eight years, right? And they let that happen, right? They were way too slow to start tightening. They were way too lame at the beginning with just a 25 basis point increase in the first hike. I mean, come on, after it's already too late, they missed the boat. And now they're making the mistake on the flip side, you would think, all right? But at the same time, if you listen to what Powell has said, if you go back to 1978, Paul Volcker testifying on Capitol Hill, the verbiage, the words, the syntax is almost exactly the same.

5:44All right. This is the Volcker playbook. Powell told us in 2018 at Jackson Hole, Volcker's his guy. And we can have inflation because we know how to defeat it. The problem is, Maggie, you know, the debt dynamic is so much different now than it was in the 70s. You can't fiscally blow your way out of a recession now. All right. And the bigger issue It was a debt, you know, black hole and a debt implosion and a debt deflation if you push too hard. So Powell has almost become like the executioner here, where he's told us we want the labor market to have rising unemployment, right? Now it's kind of when you hear the Fed and Janet Yellen talk about the banking system, they're very complacent about this in the sense of we expect further tightening in credit.

6:29So they kind of want to bring the T18 down on the consumer in terms of credit. The amount of credit the consumers borrowed over last year is a record amount because they needed to pay the bills. So already now, the Household Survey on Credit was just an enormous number, huge report. You're up$3 trillion since the pandemic. That's 20.5 percentage points in three years. That is wholly unsustainable. Not only that, consumers have borrowed at the highest cost of borrowing for consumers in history. So this is not sustainable to the point where all of a sudden, after being way down in historic lows and no one's worried about it, The delinquencies are on the rise, the transformation into delinquent, and now the serious delinquent, and it's all about credit cards.

7:11So this is a problem for the Fed going forward if they're going to be the executioner that's going to bring the guillotine down on the economy, kind of like they said they want to do. So this narrative in the market of they're going to be cutting rates, they're going to be forced to cut rates by next year because of the economy, and we're going to price that in. The dollar peaked well before the Fed was done or even talked about being done. And that came way down, you know, 20 % year over year gain, that turned into nothing. And that's why gold's at$2 ,000. You think the Fed wants to turn now with gold at$2 ,000 in the stock market within a few percentage points of new highs?

7:43Absolutely not. So when you come to the stock market, the question is, does the Fed want to see pain in the stock market first? And I think that that's kind of the way this has to play out. And I think the pricing in the futures market may not be too optimistic, but you're not going to get there in a straight line, not from here. So tons to unpack there. Let's go from the last thing you said, because we started the show out talking about whether it's time to take profits in tech. I mean, everyone kind of has been expecting them to break the stock market for valuations to go down. And instead, especially in tech, right, that was the future profit going to get killed by higher interest rates.

8:23And anybody who was shorted, it's been it's been terrible for them. We've seen and it's been it's granted narrow, but it's gone up and up and up. And today we have an Apple Broadcom deal in the news. You know, chips have been hot. We have AI everywhere. We see what's happening with NVIDIA and Microsoft. Are you worried about valuations here? Can this thing keep running? Or is it that area and then everything else in the stock market? How do you see that? Yeah, I think it could keep running. And if you look at a couple of stocks, I mean, Amazon, for example, and even Meta, I believe the metaverse going forward to reality.

8:54That's still a real story. It's kind of gotten overshadowed by AI recently. But I think in the future, that's still a good play longer term. You have Amazon, which had a 61 % retracement of the move from 2008. You know, you've had big pain in some of these high tech that have put in patterns now where I think they're probably value even here. but those are the ones that have been beaten down as opposed to NVIDIA or Oracle or, like, say, Broadcom, which have just taken off, all right? I think that when you have this much money still kind of sloshing around and when you're looking at moving money around, this still becomes a top pick until it's not.

9:29It's almost like musical chairs. Is tech going to be the one left with no chair to sit down in when the music stops? I don't know. I'm not worried about it right here, but the market to me is pretty neutral, even though you want to be exposed to the big cap tech. That has been the place to be. It continues the place to be. They're the strongest internal quantitative readings for bold market trends. So yes, I think that that's still at play. But I worry about come August, September into early October. And what is the situation with credit then? And what is the Fed's narrative then? And where is the market pricing forward Fed's funds then?

10:04And then maybe you get a reality check for the stock market, and everything just gets obliterated, much like what I think the Fed wouldn't mind seeing, frankly. right now. They want to reduce credit because credit is frothy. And that doesn't come without paying. You're making a differentiation. And several have. Even today, I was talking to Jim Rogers earlier. You've got this long-term view that the stock market's vulnerable. But in the short term, it's hard to fight it. It sounds like that's what you're saying. It's hard to fight that liquidity moving into these tech names. Absolutely. And it's very, you can see how powerful it is.

10:36Just take a look at charted, NVIDIA, Oracle, or Broadcom. I mean, any of them. And I think even the lesser names are starting to pull up. You even have some of the consumer staples acting well because they've had these huge declines. Now, consumer staples not in a position to lead the market back out of this. So I think that's still a major kind of yellow flag, caution flag waving at the racetrack. But when you look at where that strength is coming from, three of the top five bullish trends in consumer staples in the XLY are home builders. And the XHB is acting well, too. So I think you really can pick your choices.

11:09When you come to home builders, we know it's a fundamental story that is continually dominated by lack of supply. You have home sales have come down and thus starts to come down, permits have come down, and you're on the verge of taking out a trend line. It goes all the way back to the housing crisis low of 2009 and 10, right? When QE started in March of 2009. So when you look at that dynamic and then you compare what the homes are and how many homes we're starting and building right now compared to like the late 1980s. It's kind of similar, except you have 30 million more people in the US now than you did in the 80s.

11:43So I think this is a long-term problem where the home builders are acting really well too and probably continue to act well, even to the degree that they're not really outperforming the market yet. But I think that's a place where you can probably hide in what might be coming next. Even in this higher interest rate environment? Well, yeah, but I think rates have peaked in terms of the Fed and mortgages. So you've already seen some of the decline. You've already seen a little bit of life. I mean, let's be real. I mean, the refund index and the MBA weekly mortgage activity numbers hasn't been this low in 25 years.

12:17The purchase index from its peak was down over 40%. So the mortgage market got crushed. The NBB, the ETF for the mortgages got crushed. So there's been a lot of pain there. And I think that that will be one of the things that will kind of lead out the next wave. The question is, how do you get the Fed in a position to support that thought? And that remains the big question. 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.

12:51And in one of your reports, so obviously we're buying iPhones, we're using ChatGPT, we're definitely vacationing and going to restaurants and the services have been hot and still buying homes. But you sent over some charts, and it kind of paints a very dire picture. You mentioned all the credit card debt, so we've clearly been buying it on credit. But it doesn't look like it's a very healthy picture of the US consumer. I mean, I think we have, if Brian could dig it out, a retail sales year-over-year chart. There's a ton of retail charts. So if you can find it amid them all, Brian. But doesn't that suggest that it's going to be really tough for the economy to avoid anything but a pretty large recession?

13:32Yes. Yes, absolutely. And I did the piece, what's called, I was asking, is Jerome Powell the reincarnation of Charles Henry Sanson, who was the executioner of King Louis XVI in France in 1793? And I'm wondering, is the consumer on the chopping block? And I kind of think he is. And if you look at the retail sales numbers, which I'll detail a little bit in a second, it's like the guillotine has come down, but it hasn't yet broke the spinal cord. But when you look at these retail sales numbers, when you look at the dollars spent, first of all, you have to remember, these numbers are inflated by inflation.

14:04So the actual numbers, if you took the inflation dynamic that pushes the value of sales up out of the equation, these would be so deeply negative, it's not even funny. And in fact, every discretionary sector except eating and drinking establishments and online sales, every other one, clothing, furniture, electronics, appliances, garden supply, building materials, vehicles even, sporting goods, books and hobbies, and all that, every one is negative on a rolling 12-month basis year over year on a monthly count. And to the degree that garden supply and building material stores, Lowe's, Home Depot, had fared really well during the pandemic.

14:46Of course, you've got to stay home. Everyone's fixing up their homes. It's a do-it-yourselfers love fest, right? Well, you have a$1.6 trillion year-over-year decline in the monthly sales total for those stores right now. There's only one other time it's been that deep, 2007 and 2008, before you had a crisis. So when you have all of these things that are negative, you have deflation in consumer spending in retail sales. That is very evident and is actually not as bad as it doesn't look as bad as it really is because of inflation and the way they calculate these numbers. Yeah, which is a whole, you know, we've done some deep dives into that.

15:23There's some there's some issue with that. A lot of it's backward looking. A lot of it lags. So if that's the case, certainly the Fed is getting we know they're getting the regional surveys, at least, which are a little bit more in real time. We know we expect a pinch from the credit crunch, which is coming from the regional bank crisis. Do you think this is enough evidence for them to pause? Why do you think they're sounding so hawkish still? Isn't that slowdown coming? And won't that demand take care of inflation? Well, I think the hawkishness is in response to where the market is. So I think they have to keep that narrative up when the market is pricing in such a dovish outcome over the next 18 months.

16:04That's the last thing they want. So of course, they're going to say, why do you think the guy just said the other day, I think it was Bowman from Boston said, we have no interest in cutting rates until the second half of next year at the earliest. Of course, this is the narrative. And this goes back to Powell and what he said he was going to do. And he said, when we got to this point, we'd have to be restrictive for longer, OK? Because loosening too soon would be a bigger policy error than waiting too long at this point in time. And there's some sense that you could make a case for that thought process, for sure.

16:36But I think the hawkishness is verbal intervention against the market's pricing, because the Fed doesn't want to be seen as turning double-share with the stock market near record highs and gold at 2 ,000 and the dollar basically at big technical levels, where if you violate those levels, the dollar is going to be in big trouble to the downside. So I think that all works against what the Fed wants the narrative to be. And they will maintain that, even though I think they're done. I don't see them raising rates again. I don't see how they possibly can when inflation has come down to 11 letters below the Fed funds rate.

17:08You talk about where is restricted. Well, one of the 2018 white papers was all about R-Star. Where is a neutral policy rate? And they determined for the US basically 50 basis points above the rate of inflation. In this case, the Fed uses PCE, which is even lower than CPI, would be neutral. By that measure, they're neutral, if not somewhat restrictive right now. So they kind of are where they want to be. And you still have two months of base effect in inflation. That probably brings it down a little more. But the question is the stickiness of inflation. And food is a big problem. 40 % of the food items in food at home, which is 108 components, 40 % are still in double digit rates every month, month after month.

17:50So that's a big problem going forward. And the Fed has to be concerned about that. It is a big problem. And And it's actually something that I talked to Jim Rogers about today. We had him on for a deep dive. And he's also, but very much giving voice to the difficulty of this transition. But longer term, he's also worried about that food inflation, general inflation, and continues to like commodities in the face of what he thinks will be persistent inflation. Let's have a listen to a clip from that, and we'll talk on the other side. throughout history when everybody's printing money or whenever people are stimulating the economy it has always led to inflation it has again it will lead to more inflation and the best place to be when you have inflation is real assets and real assets are commodities I mean I own some silver right here I'll buy more if it goes down more and gold and other things as well But, you know, bonds are in a bubble and have been in a bubble for a while.

18:56We've never had such expensive bonds in the history of the world. Property in many places, Korea, New Zealand, many places are certainly a bubble. Parts of China and stocks have been bubblish, if not bubbles, and depends on the country. So the cheapest asset that I know is still commodities. It was such an interesting conversation with Jim and for some of our members who've already seen it. He was very transparent about how difficult this environment is, knew a lot about what he didn't like, but was kind of keeping his powder dry and keeping maximum flexibility. I noticed that too. But he talked about this, also three trading ideas.

19:42So the full interview is available on our website. I just scan the QR code and join our community, and you can see it. Super interesting, Greg, to hear from somebody who sort of lived through so many crises and profited from a lot of them, too, it should be said. What's your feeling about commodities here? I really like them. And I think the bottom line is you had a 40-year downtrend in inflation and in interest rates. It started with Volcker, 1982, when he took rates to ridiculous levels, choked the economy out. And thank God we had fiscal stimulus because we don't have that right now in the same degree that we did then.

20:17So that's a problem going forward. But as it stands, you have now turned the corner. I mean, you're not going to get interest rates lower than zero. The whole European negative interest rate experiment was a complete failure. They sucked money out of the system and totally worked in reverse and it sent a bad psychological message to consumers. So from that perspective, when you start talking about what's the biggest shift, all right, the biggest shift is QE. QE is only as recent as 2009. And if you kind of look at the last gasp in deflation, and then now what we had, and the pandemic certainly was a catalyst, but this would be happening anyway, because you have this turn now where you're printing so much money because the nominal underlying amounts are so much to get the same bang for your buck.

20:59Do you need to keep this bubble going? Because it's a 50-year credit bubble. And especially if the Fed's going to want to clamp down on credit in a credit bubble, I mean, wow, can we not picture how many ways that could go sideways? It is what the definition of inflation is, more money chasing fewer goods. Now you have both sides of that equation working against you if you want to fight inflation. So I feel that that is one thing. Number two, you also have a lot of commodities that are potentially in short supply autonomously. Supply demand fundamentals in many commodities, particularly the food commodities, which is why, again, you have to watch food when it comes to inflation.

21:36There's no base effect when you have 108 components in the food at home index. So like you have energy, it's crude, it's gasoline, they move together. You don't have that in food. You also have, although the predictions right now have kind of shifted to where we're expecting a very, not very hot summer here in the US, you also have a vicious El Nino forming in the Pacific. And this could wreak havoc on a lot of crops over the next 18 to 24 months. You're basically pinning all your hopes on South American crops. They're going to follow up a big US crop with some of these grains, right? The problem there is multiple in terms of currencies, in terms of oak keeper farms, in terms of so many different factors that kind of work against thinking that you have this really narrow margin of error, so thin in some of these food commodities, where any supply side disruption will result in skyrocketing prices for many things.

22:29So I like the commodity sector. We like some of the soft tropicals right now. Sugar has been a great performer. You can trade the ETFs for that. We actually just reinduced our ETF playbook to try and help people think more like CTAs, like what we are. You need to be involved in currencies. You need to be involved in bonds. You need to be involved in global stock indexes. And you need to be involved in commodities, things you've probably never been involved with before, to keep pace with the debasement of the value of paper money that all this printing of money initiates. So yeah, commodities, longer term, very bullish on them, because you know what they're going to do in the next time.

23:03Consider this one fact. Outside of three weeks at the peak of the pandemic in April of 2020, the biggest single week money printing operation ever conducted by the Fed and Treasury, single biggest week in history was in March because of SBB Bank. So it's like, oh my gosh, every little hiccup, man, we're going to print hundreds of billions of dollars. How quick were they with all this narrative about fighting inflation, you got a bank in trouble, and it's the largest single week ever of money printing. That speaks volumes to what's coming next and what the future holds. It's more money printing.

23:39It's more debasement of the value of your paper money and wealth and income. And it's higher prices for pretty much everything. And that could even include stocks. I mean, the Merval in Argentina makes new highs every year. Do you think that's a better standard of living for the people in Argentina? No, not necessarily, because they can't keep pace with the inflation. 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.

24:06It's a great point. And it touched on two things that, for those who saw my conversation with Raoul recently, talking about liquidity certainly fits into that. And just the new environment we're in, more cowbell, as he would say. So we answered Raoul's question and Green Avocado's question about inflation, I didn't even have to ask you, Greg. You're just rifling through what's on people's mind. Trillion X agreeing with you. With El Nino, there's no way food inflation will ease anytime soon. David's asking, what sectors are investable for a one to three year horizon? Oh, man, that's a good question.