What Does Rate Volatility Mean For You? with Tony Greer

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2:17What does rate volatility mean for you? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Tony Greer, founder of TG Macro and editor of the Morning Navigator Newsletter. Hey, Tony. How are you today, Maggie? I'm doing all right. A lot going on today. We had Moody's downgrade some U.S. regional banks, kind of reminding us that's still a problem. Export data from China was the weakest since the COVID lockdowns began. So that caught a lot of people a little off guard, maybe, and certainly raised some eyebrows. So, I mean, a lot of movement in the market. As you look across, what was top of mind for you?

2:54Yeah, you know, you nailed it right on the head, Maggie. Those two simultaneous headlines had the S &P on its back early at 9.30, 10 o 'clock this morning. It traded to a new low for the move of 44.82. We saw a classic pre-waterfall type sell-off. We saw the VIX spike to 18 with the morning selling. We saw a tick index low near minus 1 ,500, which is an extreme selling level. We had oil under$80. We had LME copper breaking down under the 200-day moving average. I mean, at 930 this morning, the whole thing looked like it wanted to keel over and die, right? And then what happened was, quite honestly, in my eyes, the energy spread started by holding in on the dip.

3:42And I'm talking about September, October calendar spreads in crude oil, gasoline, diesel fuel. They held in on their deep, extreme dip levels. Next thing you know, spot prices recovered in energy. You have full reversal of the commodity complex with a$3 rally in a straight line in oil. And it turned into much less of a de-risking day. I think the S &P still ended the day down a little bit. But we had a lot of sectors recover. There were two Sigma-type sell-offs this morning in everything banking, right? KRE, KBE, XLF, Bank America, Goldman Sachs, JP Diamond, all of it was two sigma move in the hole.

4:25That's selling wore itself out. What happened was today, in my eyes, there was no materialization of that just agnostic, get me out of the S &P, it's been a nice run type of selling. So when that didn't materialize and energy stabilized,$3 rally in oil, that's risk on for all the oil stock traders, at least. We saw all the energy sectors plus airlines, oil services, and utilities settle in positive territory today. The biggest losers of the day was everything technology, semiconductors, software, cybersecurity, internet stocks. So that's more signs that we're seeing the commodity-based stocks hold in with higher interest rates and tech stocks not really able to do the same with higher interest rates.

5:13So that's kind of the broad vibe that I'm getting from the market right now. Yeah, and you're right because while I was watching the action early in the morning, I thought, oh, gosh, here we go. Because it did look like it was getting that feeling like everybody just wanted to bust lower and you're going to get one of those momentum days that just fed on itself. and then it didn't. Some people talking about the fact that I think there was a treasury auction that went okay too. Maybe that helped on the outside. But, you know, speaking of treasuries, it's really interesting because Jim Bianco tweeted out a chart earlier today that caught our attention and it's been coming up a lot on the programs we've been doing, the volatility in bonds.

5:50I mean, you know, for folks who aren't, I think Jim said this, who aren't used to watching it, these are big moves and bonds we're seeing and it's all over the place. It's been ricocheting back and forth. there's a chart, I believe, of the 10-year. And a lot of it seems to be based off this recession, no landing, inflation. We've got inflation data coming out later this week and a lot of division. I know that you talked to Kevin Muir on the platform today, and you guys spoke about that for quite a bit, and were kind of tackling the whole bond issue, weren't you? Yeah, well, Kevin was tackling it, and I was listening.

6:25Let me tell you, Maggie, he's forgotten more about the bond market than I'll ever know. So I'm all ears when I talk to Kevin Muir and filled with questions and I get a lot of answers from him. And the conversation today kind of gave me a little bit of confidence that broadly speaking, the way I want to approach this market is that rates are going higher and we are going to be fighting in fits and starts. But we are going to be fighting inflationary battles that are going to cause these dislocations in the bond market. So that's what I came away with from it today. He dropped a lot of eureka moments on us, man.

7:00Kevin knows how to unpack certain markets better than anybody I've ever heard. So there was some really valuable stuff going back and forth today. Yeah, absolutely. It couldn't have been more timely given the backdrop of volatility and that big debate, which is, you know, that's what's pulling it back and forth, because one day there'll be stuff coming through that seems to confirm, you know, one camp and then on the other side. And Tony's right. So for those of you who don't see these and who aren't members, we do these peer to peer interviews where we get frequent guests and people that we respect and admire like Tony to kind of flip roles and be the host and talk to people that they and traders, analysts, strategists, thought leaders that they follow and respect to kind of dive into a subject matter.

7:42And we actually have a clip from the conversation that Tony and Kevin have. Let's play it for you and then we'll talk on the other side. And what's happening, I think, is that we're having the Fed raising rates. It's not really affecting the economy the way they think because private sector is locked in a lot of it. Consumer isn't moving. They're not sensitive to it. And not only that, the higher rates are sticking more money in actually the private sector's genes. So ironically, what really needs to be done if you want it to slow down the economy is – Fiscal stimulus needs to be withdrawn. Right?

8:21Like if we think it through, we in 20 kind of, let's say 2009 to 2020. The problem was there wasn't enough fiscal stimulus. And that's why the economy was so, you know, lethargic. And yet now we have a situation where the economy is flying. And so, by the way, for 2008 to 2020, they kept trying to lower interest rates and push money through that way. It didn't work. It was actually one of the crappiest recoveries we've ever had. And then all of a sudden we do all this fiscal. And yet instead of saying, OK, now we should be pulling back on the fiscal because the economy is flying, they're doing the opposite.

9:03They're once again trying to fix it with interest rates. and monetary policy doesn't work the way we think, especially in a situation where everyone's already locked it in and there's kind of, the Fed is in a really tough spot because the Fed's tools are not appropriate for the job. I mean, that was as good an explanation. I loved his analogy of sticking money in the pocket of the profits in the jeans. That was fantastic. That full conversation, by the way, with Tony hosting Kevin, must watch. You can find it on our website. And again, if you're not a member, check out the anniversary special that we are running.

9:43It's nuts. So Tony, how were you thinking about this when you walked away? I know that you had said you had some eureka moments. Yeah, one of the things I appreciate most about Kevin is he's not just an intellectual. He makes you think about your portfolio, right? And when we're talking about the risk to the world famous 60-40 portfolio, you know, that he kind of pointed out some of the pitfalls in. And, you know, all of us have some kind of a portfolio model in our head that we try to stick to. But what was so great about that conversation with Kevin is that he makes you think about the 40 part, right?

10:21He makes you think, am I safe, you know, within these bond ETFs that are just, you know, they're just a percentage of my portfolio because I've constructed a portfolio. But in reality terms, am I facing what's really going on in the markets and making an adjustment to my portfolio so that it doesn't kill me? Right. Like that's the important thing to take away from what Kevin is telling you, because in this spot conversation in the moment right now. Oh, yeah. Maybe yields go higher. Maybe inflation is a little bit more persistent than we think. Next thing you know, six months down the road, your bond portfolio is off 8 % to 15%, which is like, what?

11:01And that's the kind of stuff that I appreciate in talking about Kevin with. And I have kicked the tires and already made some adjustments to my portfolio since that conversation today. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo.

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12:22you got in there and asked some great follow-ups too and i i i agree with you i really like that and the thing i liked about it again the whole thing was super accessible and i think all of us just based on the fact that we all have to go through and sort of you know um click those wheels right it's all through like in the powerpoints whether you're talking to your financial advisor or doing it yourself in your 401 it's like what percentage do you want and you sort of just get used to doing it by the names. But the conversation you both had really challenged you to say, what are they in there for?

12:51What are they supposed to be doing? And based on what you believe, are they going to still provide you with that, right? Whether it's a hedge. That part was the part that you go, oh, okay. And now different people have different thoughts about that. And that's why I loved your follow-ups. But it was super helpful because that's something we all need to think about, right? We've all got these percentages of assets in our, regardless of whether you're a professional or retail, and we really sort of need to think carefully about that in this environment because, you know, it's a tough one. So we're getting questions about, and of course you guys touched on commodities too.

13:27So I just want to dive in with a question before we talk a little bit more. And TrillionX asking, Tony, with this rebound in the commodity related sector, do you think that the rotation from tech and growth to value cyclicals has more room to go? I'm just wondering how you're thinking about the signals, because we've also had some volatility in oil. I think last time we talked, you've been waiting for a long time. You were starting to see signals that made you more confident. How are you thinking about that kind of rotation right now? Well, after today's price action, I am supremely more confident that that is what's going on.

14:05You know, I was kind of vocal in my Slack channel today when spreads were ticking at their lows, you know, I'm talking about across the oil complex. And I'm saying, you know, if this doesn't hold here, then this whole gasoline driven rally was a flash in the pan and easily buttoned up. And that was such a great capitulative moment. You know, it was, you know, the oil bull saying, this is our last chance, guys. You know, if we go down now, it is all the party's over and from that moment of negativity everything held and rallied so to get back more directly to the question um i do think that there's room for more of a rotation into some of the commodity stocks and out of the technology stocks that we've been talking about that have caused a little mini sentiment bubble at some level um you get more confidence in it on a day like today and what this really is going to be now is going to translate into in my opinion in some form of revival of the great rotation, right?

15:03We had been trading the great rotation. That was 2020 straight where everything tech got crushed and commodities are 2021 straight. Everything, commodities rallied, tech got crushed. And then we had to try to figure out what the next move was. So excuse me, that was 2022 straight. I'm really losing track. The years with COVID, it's like, don't ask me years. You got to say, is it all blended into three giant blob of horrible? And I just can't remember. I can't remember. They absolutely have. So I think I have a good explanation for this, though. At that point, what I call the great rotation, which was the Bloomberg Commodity Index divided by the NASDAQ, was basically trading at 0.25.

15:43It rallied to 0.50 at a point when oil was trading at its highs and tech was on its lows at the end of the year. It has sold off in that last commodity sell-off that we saw for the first six months of this year that was really a bear marketing commodities. And now it looks like the time is finally right for crude oil to come alive. So we're in the middle of summer. We're seeing a gasoline tightness-driven rally. We're seeing OPEC cut production make the right commentary that they're going to keep production cuts going, possibly even steeper. So to me, the setup is right for oil to come alive here.

16:18And this is just going to be a regeneration of the great rotation, which really traded all the way back to where it started from. So I'm talking about this ratio going from 0.25 to 0.5 and back to about 0.28. And so now the great rotation is picking up again where commodities may have a chance to outperform tech in the short term while we burst this AI bubble and possibly go off to the races in oil. Great potential for that to happen for sure. Yeah. You know what's interesting, too, that you're pointing out that it was like the great capitulation moment and then it held. That's in the face of that really weak data from China.

16:54I mean, that had a lot of people concerned. You would have thought that would have just thrown fuel on the fire with that for those people who were worried about the supply side. the bulls in the energy market should have their chest out after today's session, right? We had spreads hold on the lows. We had a$3 straight line rally from the low to the high of the range in WTI crude oil. Excuse me. In addition to that, we saw things like refiners. Marathon Petroleum today traded to a new all-time high. XLE was a two-sigma loser earlier this morning. It recovered to settle in positive territory. I mean, there are some things to be really excited about in the energy market after today's session.

17:37That's for sure. Yeah. So we have Jim is asking, is energy extended? Is there more room to run? I think you just answered that, Jim. Let me know if there's. I can add a little color, Maggie. Sure. I'm sorry. So we're at the top of the range here at$83 in crude oil. 50 cents or so above this level. there is going to be a breakout for$8 or$10 that is going to happen because we're at the range top now. Can it fail? Can we get more weak data out of China that scares the bulls and catches us offside a little bit? Can absolutely happen. But if we see crude oil tick about another 50 cents higher, I'm expecting CTAs to pile in further on the long side, and that's going to drive the market higher.

18:21That's a great caller to add.

18:26Doug asking, if rates will be persistently higher, does that mean DXY will be higher and therefore commodities will struggle? Is the dollar factoring into your? Yes, it is. Of course it is. That's great. That's your risk case, essentially, in my opinion, is that we do have these rising rate or persistently rising rates, maybe not spiking, but they're kind of trading higher. Could cause more kind of short covering, the dollar trading maybe a little bit more. If it causes the dollar to break its downtrend, which I kind of see it as being in, it's been making lower highs despite good performance lately.

19:05If it breaks the downtrend, that's the risk to a commodity rally. If the dollar starts soaring, there's no way base metals are going to hang in against that. So that's definitely the risk. But at the same time, we've seen years where the dollar goes down and commodities wind up rallying at the end of the day or the end of the year. So I'm not going to let that hold me back from being a commodity bull. I may let it temper my bullishness and my positioning if something like a dollar explosion happen. So that's, um, that's great. Uh, I'm just thinking, uh, Doug, if you want more color on that, I don't know if you follow Brent Donnelly, but he was talking about he's, he follows Forex really closely and he was tweeting about not today, if I'm not mistaken about the dollar in the short term.

19:51So you might want to check that out when you're talking about commodities here, uh, Tony, are you talking about the entire complex? Cause I'm, I'm hearing you talk about oil what about some of the other metals like are we are we being more is it a monolithic group now moving or are you a little bit you got to be careful about what you're talking about i'm thinking for you people who might be in etfs where there's a basket of them yeah you know as a tape reader the one thing that i picked up is that you know oil is separating itself from the pack right gasoline is separating itself diesel fuel is that's what's separating itself from the pack The base metal complex, I mean, today was case in point.

20:30We've got bad news out of China. LME copper opens on its 200-day moving average and trades straight down. There are signs of breakdown there. Whether it's strong dollar, the weak China data, I don't care. Price action stinks in base metals. Their rallies have been fadable. There's been no sign, despite low inventories across the board, there has been no sign of any kind of upside fire drill in base metals. So I'm not looking for that. I'm not really hunting in that ring right now. I'm very, very crude oil centric in this move, quite honestly. I mean, even gold is backing off and probably rifling so.

21:10If real rates are going lower, that's been a weight on gold ever since. So I'm kind of not shocked that gold is pulling back now as well. So I'm really kind of oil centric when it comes to the energy bull market right now, Maggie. I mean, and between energy, oil, gas, diesel fuel, refiners, oil services, XLE, I mean, I don't have time to breathe outside the energy sector when I wake up and look at the markets. So John asking a little bit more specifically, I think you mentioned it briefly, about gold. It sounds like you're not, because you're more keen on oil, you're not really looking at gold.

21:44Is it looking good from a long-term perspective, John's asking? I mean, you know, what's interesting about gold is that it is held in despite real rates going a lot lower. You know, that's one of the things that you have to give gold credit for. I think it probably has something to do with, you know, I mean, Temin made a great point today that China's reserves, gold reserves were dangerously low in a world that the United States, you know, has taken the liberties of, you know, shutting people out of the Swiss system, confiscating gold, etc. You know, China has probably said, we don't have enough gold on our balance sheets compared to the rest of the central banks.

22:21So we probably have to catch up. I think that might have a lot to do with why gold is hanging in there closer to 2K rather than falling back below$1 ,700. So we'll see what happens. It hasn't broken through that$20 ,80 on the upside either. And now there's three tops up there. And people have been saying forever that there's no such thing as a triple top. Show them the gold chart and tell them what they think of this. So it's really tough one to figure out right now. I just lost money on a gold miners trade thinking that they were underperforming. Well, they underperformed even more. I stopped out.

22:52I lost a little money. And now I'm focused on the oil market where I seem to be able to make it back rather quickly. 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.

23:08And that has been the gold trade has been so frustrating for folks because there have been a lot of things that should be lining up for it, as you say, though, and it just hasn't materialized. You guys are asking such great questions. I'm just going to keep asking them right now. G asking, and this is related to your Kevin interview. I'm glad you had a chance to watch it. Kevin suggested we may be in a new regime where stock and bond correlation is positive. Without recapping the whole thing, I would just encourage you all to go watch it because there's a lot in there. But what was your kind of gut reaction to that, Tony?

23:46He was asking, what does Tony think of that? Yeah, you know, I mean, I can conjure scenarios. I'm not as good an economist as Kevin. So, you know, I can kind of make scenarios up in my head where I see bond and stock correlation being very tight and other situations where I see it collapsing, you know. But in general, you know, if we're going to have bonds rallying, rates coming off and stocks rallying, I can buy into that scenario. You know, I don't really see the side where rates can come off much further unless we do finally find that recession around the corner that everybody's afraid of, but nobody can see.

24:20So if we ever run into that, I guess maybe there'll be a scenario where that correlation could be pretty tight. I mean, why couldn't we go on some sort of an easing path that from these levels, everybody says, oh, let's get right back into technology again and oil's rallying so we can buy that, and then there goes the S &P. Yeah. Yeah. By the way, it's important to make a distinction, I think, and we always try to do this, but there are short term, I think you guys talked about them as squiggles today, but there are short term things that people say, could that happen? Sure. And then there are people who are kind of putting out their longer macro framework.