What’s the Fed’s Next Move?

0:06What's the Fed's next move? Welcome to Real Vision Daily Briefing. It's Tuesday, September 19, 2023. I'm Ash Bennington, joined today by TG, Tony Greer, editor of The Morning Navigator. Tony, always great to be with you, man. Stoked to be back. Oh, it's so good to have you back, Slash. How you doing, all right? I've been doing great, man. I've been doing great, hanging out in crypto land, doing some deep dives. Awesome. Before we move on, I have to send a lot of really, really warm greetings from the Beaver Creek Precious Metal Summit because there are so many fans of yours out there that I just wanted to make sure I mentioned that for them online, okay?

0:42Oh, that's awesome to hear, man. I wish I could have made it out this year. Yeah, maybe next year. We'll talk about it, but let's proceed, man. So let's proceed talking of which we were talking just before we got on the air here. We're looking at cycle highs on the two and the 10 on a yield basis. Let's just read through this real quick. On my screen right now, 10-year treasury yielding four spot, 367, that's a cycle high. a two-year over 5%, 5.099 right now on my screen, right ahead of the Fed meeting tomorrow. Really interesting, right? I mean, we've got yields pinned to the highs, despite the fact that we got a miss in housing starts this morning, permits were a little better.

1:19And so I guess maybe that evened it out a little bit, but the inflation beast is not going away. And in my opinion, Ash, this move in bonds and treasuries just in the last several days, call it since the beginning of this week, last week, has been due to just a resurgence of the commodity complex behind natural gas and oil. If you look back over the last week, and I'm talking the last rolling week from today, natural gas is up 7%. WTI crude oil is up 3%, traded up to a really good resistance level at 93.5 and then backed off. Now, that was a straight line move, basically from 77.5 to 93.5 at the highs, right?

2:03What did it do alongside it? Platinum and gold miners were up 2 % in the last week. Palladium, aluminum all woke up. XLU and XME up a percent in the last week. Bloomberg commodities index closes above its 200-day moving average. I mean, the fact is, is that the natural resources markets are not going away. And I think that's why rates are pinned to the highs. Yeah, you got to take a little bit of victory lap. I saw there on Twitter at 93 and a half on WTI. Yeah, well, that was just a natural chart point for me. But thank you for noticing, Ash, because we work hard on those things. That was the objective from the moment we put the trade on and the breakout, the double top from October, November of last year at 93, 92, 90.

2:47So this was a logical place to make a sale. There was some kind of a fugazi comment on the tape this morning that seemed to be maybe just a fin-twit rumor rather than possibly a Biden administration rumor that they were going to make another SPR sale. Now, that came out this morning with some legacy media sources attached to it, but nobody ever had the story. And it was interesting to see that despite that headline, which may have been perceived as negative, right, that's the SPR is what held oil down through the last five or six months. And suddenly, we don't know if that's a real headline. Oil trades$2 higher to a new high.

3:27So in my opinion, that's the kind of weak side in oil is that the market is noticing that incremental SPR sales mean that the SPR is getting closer to empty and therefore that's an incrementally bullish headline. So it's a really interesting and dynamic in crude oil right now. For me, the next couple of bucks may be down, but that's okay. The trend is intact, very well intact. Hey, Tony, talk about the Strategic Petroleum Reserve, what it can do, and most important, perhaps, what it cannot do in terms of offsetting energy prices over longer time horizons. Yeah, well, that's what this SPR was set up for originally, was to kind of prevent another 70s situation from happening where we're waiting on gas lines and things like that, right?

4:08That would be something strategic to use it for. I think it's fair to say the Biden administration has strategically used it to keep gas prices down so it doesn't look like this huge pivot towards carbon neutrality isn't causing a huge stir in the fossil fuel markets, which it absolutely is because we know the ultimate source of that power is the fossil fuel markets. So what the SPR has been is drained from about 600 something million barrels to less than 300 million barrels at last sale, which gets it really, really depleted. And I've also read that it's going to be extremely expensive to refill the SPR should we empty it to the bottom.

4:52So, you know, hanging on to those narratives, getting closer to zero barrels in the SBR or call it 100 million barrels, which is maybe a couple of days worth of, you know, oil. Right. I would imagine that, you know, incremental sales are going to be more and more bullish the price, but we'll see what happens. Well, that's exactly what I was alluding to, Tony. The fact that we're talking about only a couple of days, essentially, of full supply, it can have a dampering effect, I guess, at the margin. But at the end of the day, this is a relatively small stock relative to the demand side here in the U.S.

5:23Yep, absolutely, man. And that's what's forcing, you know, inventories are drawing down. They're kind of surfing at or below five-year average inventory levels across liquids, meaning oil, gasoline, and diesel fuel. So the market can see that. We've seen a recent spike in front-month spreads. Just after we saw this run to the upside, it looks like – A lot of trade and a lot of speculators probably bought front month. And then you had another follow-up where people got long time spreads rather than just buying front month crude oil up$8,$9,$10 off the recent low. So there's been quite a trade developing in that arena.

6:05And we've got to keep a close eye on it to see how it develops. Through 93.5 Ash, I have like 105 as my next resistance level. So there's room on the upside. Yeah. By the way, I should add, shameless plug here. But I think people may be interested. Obviously, we're talking about this with you, Tony, from the perspective of the trader, you being the quintessential trader, talking about this from a price level perspective. Two interesting shows where we've touched on some other points this week. Conversation between Rick Rule and Tracy Shukart earlier in the day, today that I actually hosted, where they were talking about some of the factors that Tony and I may get into a little bit later today, which is just how long it takes to bring additional supply online.

6:41This isn't something like an Amazon next day delivery for oil and gas. This is something that the petroleum companies essentially have to plan out over 20, 30-year time horizons, very capital-intensive, long-term projects. We talk about that. And I also had a conversation yesterday with Harris Kupperman, also known as Kuppi, of course, and Louis Gove, where we talked about, in essence, their thesis about how treasuries may no longer become the world's reserve asset. This is the de-dollarization hypothesis that you've heard about on Real Vision before that some of our guests have articulated. But they made this interesting point, Tony, that maybe natural resources, maybe harder assets become kind of the functional glue behind the global economic and financial system as people are looking for a method of having something that isn't going to be a subject to inflation and perhaps the de-dollarization trade.

7:32I thought that was a really interesting point. I mean, when Luis Gave and Kupi are sitting together in the same conversation, I can tell you my eyes and ears are peeled. Those are two of the best in the business. two of my favorites. And it sounds like they may have this view, right. You know, it seems like that's where the, it seems like there's a lot of upside in hard assets right now. I mean, it's a microcosm of what we saw in the last, you know, week where hard assets really woke up. But what he discussed is like a next cycle thing for me, where, you know, rates are much, much higher, the price of crude oil is much, much higher.

8:08And then that's when you could probably see technology, you know probably get beat up pretty good like it did at the beginning of last year and that would lead to a scenario that they were describing for me that's like months to quarters down the road if not quarters to years but we'll see yeah obviously a very different time horizon and no matter how it shakes out it's an interesting hypothesis i think to think about it because there is a real sort of intellectual heft behind the thinking uh and it's part of this crash boom thesis that we're unpacking here on real vision i have to ask you uh in relation to that what are your thoughts on uranium tony is this something that you're following it seems to be something that comes up quite a great deal here at Real Vision.

8:44Yeah, there's a really interesting kind of shortage of uranium inventory right now. There's a scenario where the utilities are basically forced buyers at any price to make sure that they have uranium on reserve. And there's kind of a gap in between when the next bit of supply is coming on. So that is why you're seeing the uranium stocks break out in some style. I mean, the pennant chart in the uranium sector is a beautiful flat bottom and break out once again through a pennant flag that looks like there's a lot of room to run. So that to me is the, to me, that's a great fade, the ESG net zero movement trade, because, you know, as we see the failure across, you know, the windmill sector, which Doonberg brilliantly discussed recently and failures of solar panel sector and things like that, you know, it looks more and more like fossil fuels are going to survive this and that hard assets are going to come back in favor.

9:40So that's the way we're looking at that. Yeah, you know, it's interesting. Rick Rule said something that I thought about you with earlier today. He was talking about the $4 trillion that have been spent predominantly on energy generated from solar and wind and said, look, and what do we get for our$4 trillion? Well, the carbon neutral mix has shifted from 81 % carbon-based to 80 % carbon-based. Yeah, exactly. It reminds me of that Joe Kennedy interview that's on Twitter where he's interviewing somebody that represents the whole climate neutral movement, net zero movement in the administration.

10:15And he's saying, what is that going to do to global temperatures if the US spends$50 trillion? And the guy's like, listen, man, we got to get our act together. I don't really know, but it's really important. And you're like, oh my God, they just put this guy up there against a serious person. And that's where you see people making bets against climate, against the whole net zero movement failing. It makes more than enough sense to me. By the way, I don't know if you've seen this. This literally just crossed here. I'm looking at BBC. This is eight minutes old. Rishi Sunak considers weakening key green policies.

10:50And I believe this is a brand new story just crossing about not potentially meeting some of their, and I'm skimming as I read here, as I speak rather, it looks like they're potentially weakening their net zero carbon emissions commitment by 2050 in a quote, more proportionate way. That sounds like they're to a certain extent weakening or backing off those initial commitments. I guess reality got in the way. Yeah, it sounds like Alex Epstein's voice is finally being heard around the world. And he's a pretty big proponent of a serious switch away from fossil fuel will mean several hundred million to billion people dying.

11:33So maybe something worth considering. Yeah. I mean, look, this is really about the time horizons here. I think everybody wants to see a world where we don't have carbon emissions. That'd be wonderful. But how do you get there? What's the path look like? And we're not here to do philosophy or politics. We're here to do finance and markets. And the reality is all of these policies, all of these headlines, all of these conversations have an impact on the price of these traded commodities. That's why we talk about it. Totally fair. 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.

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13:21Both. Interesting. The curve, yeah, the curve has been flat for like two weeks now. It's been minus 65 at minus 80 basis points, give or take. The fact that it's still buried at that depressed level still means that there are going to be economic snowballs coming through the window just when you think that there's going to be liftoff in your sector or the S &P or whatever risk you have on. And that's going to snowball is going to come through the window and kind of temper the idea. And that's what we continue to see. We saw the permit. I mean, the housing starts missed today. We have seen several bits of weak data along the line along the way.

13:59And that's what the inverted curve means. I would expect more of it, especially as it's becoming apparent that the curve can stay buried while yields continue to rise, right? So I would guess that that's sort of a bear steepener that continues to be in effect at some level. So something to consider. That's why the equity market's very much swimming upstream right now. Yeah, I saw, I mean, I just love the phrases that we create in our business. There's a Bloomberg story talking about a hawkish hold. It's a hawkish hold tomorrow is priced into markets from the Fed. What will they think of next, Ash?

14:36Well, I know what I'll think of next, which is what I wanted to talk about, this conversation that I have with Tracy Shukart. We've got a great clip for you talking about energy and commodities. This is from my conversation today with Rick Rule and Tracy Shukart. Let's take a look. The Fed looks at core inflation, which doesn't include anything you actually need, right? So like energy and food. So, but when we look at those markets and we think we're looking at higher for longer And that's just the way it is. We are kind of out of these 40-year period of abundance and hitting an era of scarcity with higher rates right now.

15:19And that's going to affect every sector, specifically natural resources, right? And if we just look at energy alone, really, you can't do anything without energy. You can't grow food. You can't live. You can't move anything. So I think that we're going to be, again, in this period where we're going to have higher inflation. And the Fed's either going to raise rates to ridiculous heights and break something in the economy, or they're going to have to, again, look at accepting higher inflation rates. Oh, great clip from Chasey's shoe chart there. I chuckled a little bit as she was teasing around at the beginning of that, talking about how essentially the Fed only counts the inflation you don't care about.

16:14The joke here being that the two of the biggest inputs that we deal with, of course, are fuel and energy prices on the one hand and food prices on the other, which, of course, are not included in the core. Tony, let's switch gears here and talk a little bit about stocks. What's your take on what's happening in the S &P? We were joking around. It's been a very quiet day. What's your take overall call big picture? Yeah, as a technician, I don't jump into the bearish boat like I feel like the majority of people want to do right now with a bearish outlook on the economy. I'm kind of staying on a fairly positive view of the markets.

16:55I think that, you know, technology can be propelled by more buying in what has become the religion of AI. You know, I get that feeling because NVIDIA is not trading like a bubble stock. You know, it's had its chances to reverse and collapse from that, you know, tremendous two quarters in a row that it just put up. And it has not done so because people are still coming into that name and looking for other tangential plays in the AI space. And I've got a pretty bullish view on natural resources, which, you know, the oil market's proving itself that that can kind of run. It seems like the gold and gold miners are hanging in, things like that.

17:34Consumer discretionary names are hanging in so far. and as long as these sectors are riding above their moving averages, which most of them are now, and that's what kind of allows me to stay bullish. You know, the performance may not all be consistent, but it is there. And right now we're just seeing a situation where we've got a rotation where tech is pulling back a little bit and natural resources stuff is coming to life. So the kind of leadership dog race, as I call it on the year, the kind of lead is tightening where the leaders back off and the laggers catch up a little bit. And so I don't really get fatal on a pullback to an orderly pullback like this in the S &P.

18:12Volatility remains depressed. I think it probably remains depressed through the end of the year, barring the black swan event. And the fact that everybody is still completely negative on the stock market, if you ask me, I mean, I think CNN fear and greed is back to neutral. AA bull index is pulled back quite a bit. But in my opinion, and there's a lot of bearishness out there and a neutral market, a stable curve, and a couple of bull market scenarios like technology and energy and home builders, that's a recipe for a higher S &P on the year. So I don't really give up the ghost on a bull picture in the S &P just yet.

18:48What would make you change your mind, Tony? What would you have to see? You know, if technology and big tech, like the stocks that are in the lead this year, those big seven that have really been leading the entire S &P, if those were spooked by higher yields, if there is a swift rate of change higher in like a severe dislocation lower in the bond market is essentially what would change my mind. If something like that starts happening and we start looking like we're going into like what is now the third year of negative bond yields, and it kind of starts sliding into the end of the year where yields are firing higher, then I'd be concerned because under that scenario people are going to wind up pitching their technology and then everything else that's hurting them on their pad whether it's gold silver oil consumer stocks Facebook social media whatever it is they're going to be selling it if rates are flying higher at a rapid pace so that's really the risk that I see and I wake up bright-eyed and bushy-tailed every morning seeing if there's going to be a piece of data out that derails the bond market.

19:54And so far it hasn't been the case. So we'll see what happens. Tony, Jim Bianco said something that made me chuckle yesterday about the Magnificent Seven stocks. He said, whenever you see a collection of stocks, get a name, get nervous. It's like it's the nifty 50 all over again. Yeah, totally, totally fair. You know, totally fair. There's huge retail flow into it. We've seen the, you know, the flow chart of sectors on the year. And it's just a big set of, you know, shark jaws where there's nothing but buying in technology inflows, nothing but outflows from, you know, energy gold miners. And, you know, that's why we have a situation like we have now on the board where energy stocks are so unfavored.

20:34In the last week, crude oils rallied three and a half percent, traded a new high for the move. Energy stocks are down three to five percent. Right. It just shows you that they're still not loved and nobody's chasing them into a short cover spiral or anything like that. So it's going to take time before that ship turns around. Yeah. Tony, we got a ton of questions coming in. What do you say? Should we jump on some of these? Oh dear. Let's go. Let's see what the people want to hear. All right. First one's from David H on YouTube. You're going to love this one. Can you ask Tony if his buddies in the fun community really are cash heavy or is that just a talking point?

21:06Great question. Thanks, David. Oh yeah. I mean, across the number of consulting clients that I speak to, they're, you know, Their arms are folded and their feet are up on the desk earning, you know, 4 % in the treasury market, 5 % in the treasury market. Totally, totally willing to kind of wait this volatility out in the treasury market. You know, choose at 5%, 10 % is pretty appealing return idea right now with very little risk. So, yeah, there are a lot of people. I think it's a very smart trade at the moment. And, you know, maybe a little bit has come out to go chase this AI religion and NVIDIA or something like that.

21:46But for the most part, man, there's cash on the sidelines for sure. Another great Jim Bianco line from yesterday. He was talking about the spirit of there is no alternative has passed. He's like, well, now there is an alternative and you see money moving toward it. Get Jim on the daily briefing. Let's do you, Jim, and I. Let's see what happens. Come on. Oh, that'd be fantastic. That'd be fantastic. I would take you up on that. Just spitballing. That's a great idea. Okay, next one. Trillion X Macro from YouTube. Tony, what do you make of the uranium melt up? We touched on this earlier. Our thoughts about the prices.

22:18You got to read Kupi's most recent write-up on it that, you know, where he discusses that it's basically just an air pocket of lack of inventory supply right now that's sending prices higher. You know, there was a clear breakout in spot uranium on the chart. And I don't want to say the wrong price because I know I'm referring to the ETF now in my mind. But, you know, it's a sector that I think gets legs the more you read about ESG failures, you know. And it just happened to come alive when we had that story about the windmills catching fire and breaking down and things like that. And those are sort of narrative impulses to me.

22:55But it doesn't shock me that they coincide with an actual move in the sector. So, you know, the sector's been strong for the whole entire year. It's catching up to some of the technology sectors in performance. People are definitely getting more educated about it. And you've got to be careful because some of the stocks are kind of thin and they fly all over the board. So while the breakout looks real and something that I would go with, it gets stretched and it's going to be volatile along the way. So don't just go pay the highs for no reason. Well, it's interesting, Tony, because you touched on the cyclical factors there and also some of the secular ones.

23:28Look, I don't have a preference in this. I don't have a religious sort of choice here. But the reality is if you're serious about carbon neutrality and you just look at the density of energy, the actual physics, there really is right now only one choice that gets you there. And it looks to me like it's nuclear. And that has to be a tailwind for the space. Absolutely. Absolutely. It's also, it's only going to draw more investment capital as time goes on. I mean, the sector is the story for people that are looking for opportunities, you know, people that are in the stock market and say, man, there's nothing going on.

23:59Right. I mean, I vehemently disagree. You know, there are markets like that and the cannabis market that quietly doubled off of its low to its high, right? If you look at MSOS, the US multi-state operators. So those are the two recent breakouts that are on my screen that are really, really tradable and worth watching very closely. 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.

24:30Tony I gotta ask you this question because I saw an article out from the AP yesterday talking about psilocybin and MDMA potentially getting rescheduled by FDA to treat certain psychiatric illnesses there's been just a huge amount of data in recent years talking about particularly MDMA and psilocybin how they've been used to treat and I know and this is in the case of MDMA, especially soldiers who experienced essentially post-traumatic stress disorder in combat. And the data on this is just extraordinary. I mean, it's showing results that we've just never seen from anything else. And I'm kind of wondering if you're following that as the next potential breakout sector or subsector.

25:09If you showed me how to trade it, if there was a ticker for mushrooms or MDMA that is going to get changed schedule, I would consider trading it, you know, but it's a really difficult thing to track down. It's like harder to trade than palladium, uranium and lithium. Right. If you can find something that is, you know, really levered to those prices, then dig in and trade it. You know, this is a great story, in my opinion. You know, it only leads to the possibility that, you know, like cannabis, that the product will become ubiquitous if it's something that's that helpful for the right people at the right time.

25:42So, you know, you can only root for that thing. Eventually, there'll be one big producer that shows up, and the big mushroom and MDMA maker will probably be a bull market name at some point or well-received. But we'll see. That's how it's got to transpire for me to put a trade on. Sure, follow the story. I think it's amazing. Yeah, listen, two points that are important to make. First of all, it's very early in the science here. This is not yet conclusive, but some of the evidence suggests that it could be a real breakout treatment. Secondly, there is an advisor shares psychedelics ETF that has just gotten blown out.

26:17I'm looking here. It looks like this listed publicly in 2021. It's off. It looks like some 80, 83 % from peak. So obviously not a positive return story for people who invested in that ETF. Yeah, stay away from that stuff. I mean, who's going piling into a mushroom ETF? But anyway. Yeah. All right. Next story comes to us from Jonas from the Real Vision website. What would make Tony interested in the grains sector? Is there anything that would make you interested in the grain sector, Tony? I love the way that question was asked. Very open-ended. You know, the more and more I get to know my farmer clientele, the harder it is to project the grain prices, if you ask me, right?