Will CPI Rock the Boat? With Tony Greer

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1:22The oil market and what to expect from tomorrow's inflation data. Welcome to Real Vision Daily Briefing. It's Tuesday, July 11, 2021. I'm Ash Bennington, joined today by Tony Greer, editor of The Morning Navigator. Tony, welcome back. Slash, how are you, my man? Dude, I'm great. I'm stoked to be with you here today. So much to talk about. First, I have to mention real quick, we kicked off our big week-long crypto gathering on Real Vision yesterday. We're having a lot of fun. I'll tell you a little bit more about that later in the show. But if you'd like to go check it out, realvision.com forward slash gathering.

1:56That's realvision.com forward slash gathering. Tony, we teased it at the top of the show, oil markets all eyes on CPI ahead of tomorrow's inflation print. Lots going on in these markets. Man, I've been hanging out with crypto for the last couple of weeks. Tell me, Tony, what have I been missing? Well, you know, the oil market's starting to firm up a bit, Ash. And I know everybody is getting excited slash hysterical about it. But it hasn't done anything that it hasn't been doing for the last several months, which is bouncing hard off the lows, bouncing into moving average resistance, and failing there is what it's been doing.

2:33As of now, oil's holding the rally, right? So we got news that OPEC is going to stand pat on their output cuts. The market tightened up quite a bit in the front end of WTI. There's several front end spreads have gone back into backwardation. So there's a little bit more tightness in the market with fairly steady gasoline demand. And I would say, given the fact that everyone is expecting a recession and much less gasoline demand. So that's kind of what's got oil propped up right now. You know, we're in the middle of, you know, it's against the backdrop of a falling dollar, which is probably going to help the commodity complex a little bit within the context of yields rising and the S &P having a very slow-moving, float-away, low-volatility, complacent rally towards 4 ,500.

3:24So it really does feel like summer month trading. And we're looking to figure out where the chess pieces are going to land us by the end of the year is essentially the study that I'm always working on. Summer trading day. Listen, we should say, on WTI, I got it on my screen right now, CL1 New York Merck. This is WTI August 23 contracts close out the day just shy of 75 bucks, 74 spot 89 up about 2.6 % on the day. What's your target? What's your outlook? Well, you know, if it breaks through the 200 day ash, that's what, you know, officially gets me excited. That's up and around. Let me just make sure I've got the right number here.

4:03That's up and around 77 and a half dollars. So not far away at all. Giving crude oil is on the move and was dramatically oversold. The one thing that it's got going for it this time that it hadn't had several other times, several other attempted rallies is a triple bottom down at 67. Every time the market went down below 70, the spike lower was usually pretty steep in price and short in duration. And so kind of an indication that the market is not accepting the prices down there very well. And here we are testing the upside again. But if there's a failure between here and 77.5, we're going to find ourselves right back into the mid-70s because still, like I've been saying before, oil likes these prices here.

4:50So I was saying that at the bottom of the range. I'm going to keep saying that at the top of the range until the range breaks. And then I'll readjust my view. Tony, we mentioned CPI at the top of the show. Let's talk a little bit about inflation slash rates. 726 meeting from the Fed right now. 88 % hike implied rate, 5.29%, just about 5.3%. We're in the 500 to 525 bps range right now, effective rate 5.07. What do you think in there? What's your outlook? The Federal Reserve has been pretty clear about raising rates. It sounds like that is going to happen. I would imagine they're doing it until they see an inflation print that gets back to the two-handle that they're looking for.

5:32You know, if we do get that, it's easy to see that, you know, maybe they'll reverse course and say that we'll be neutral for a while or something like that. But I think that they're forced to contend with the inflation impulse that I feel like the bond market is picking up. You know, we had that massive reversal in yields back in March, Ash, where they had been marching higher. We had that reversal in yields back in March. And now yields are headed back up toward the highs of the year. So we are back into the resumption of trend, bonds heading lower. This is something that we have to be careful of because like we saw last Thursday, bondless dislocations to the downside where yields spike are usually very bad for the equity market.

6:18So there's your risk right there. And where that catalyst comes from, I couldn't tell you. Yeah. You know, this is something that you're so good at, Tony, talking about expectation versus reality, the way stuff gets priced. You mentioned this idea that the Fed's not going to be satisfied until we get down to the 2 % target range. Right now, we're at about 5.3%. This is the May number, the most recent print for all items, less food and energy. Core inflation there. You know, obviously, we're more than double that rate. How do markets begin to price expectations about what softening inflation looks like versus where the target is?

6:57How do you think about that? Well, you know, it's always hard, Ash. I've been using the break even five years as a good barometer, you know, given that's going to price real rates versus inflation. And, you know, they are definitely picking up that inflationary impulse that I've been writing about and talking about. you can watch the bond market's reaction to the headline CPI data. And so far, they've been really, really muted because we've had CPI marching lower since the 9 % peak right through the last CPI print. So if we keep it marching lower, then eventually, there'll be an impetus for the Fed to lay off.

7:37But the way inflation generally works is that we have this big breakout to 9%. We'll pull back to somewhere around 3 % or 4%, and that impulse will come roaring back. So that's kind of what I'm expecting to see. And so I'm not really expecting the number to just fade into the twos, really, especially if commodities stay buoyant and the dollar falls over. So we'll see how that pans out. Yeah, that's the lesson that you just explained there from Arthur Burns, that when you get complacent, you see that a number can surge back upward, and it can be absolutely catastrophic. But it is sort of strange, right?

8:11You mentioned this range, 9 % down to about 5%, obviously moving in the right direction. Expectations are for cooling. Expectations right now are for a below consensus print. But you really do have to get your head around what that means and what the path looks like to get there. I know you've been looking at 10-year yields as well. What do you see there? That's a crisp, pennant flag breakout, Ash. And when that started happening, that's when I kind of gave up my view that yields were going to continue lower as a follow through from that reversal in March. You know, when you see, you know, 10 year yields consolidate for a long time like they did and they break out, you kind of expect them to go on a run for a long time.

8:52And it looks like they just broke out of this pennant flag. It looks like they can march higher through 4%, given it's going to back and fill a little bit to the breakout area of about 3.75. But it looks to me like the new range in the 10-year is 3.75 bid at 4.5 or something like that. And that makes a lot more sense, given the fact that we know that real inflation isn't really backing off much. We know that oil prices, energy prices aren't backing off much in WTI gasoline, diesel fuel, et cetera, et cetera. So all of that stuff is still off the highs, but still at inflationary levels. And the bond market's just not letting go of that idea.

9:33What we've got going on simultaneously, though, is a little bit of a bubble in technology where everybody's raced back into that sector. And so they're forgetting about the higher yields for now, since they have a new religion in artificial intelligence. So there's a couple of pushes and pulls going on in the macro world here, but we're trying to keep our eyes on some of the sectors that just came alive, like oil services, home construction, airlines, things like that. These are really, really tradable breakouts in some other sectors. So we're gonna see what happens. It feels like tech can pull back and natural resources can come alive.

10:08Yeah, I'm looking right now while you were talking about that, the technology select sector spider for tech. Right now on my screen, I'll basically call it 40 % on the year. This is XLK. Yeah. Yeah. Well, we've just had semiconductors of the leading sector that I see. And oddly enough, right behind, they're up 49%. Oddly enough, right behind them now, we've got home construction, ITB, the ETF with full of home builders is up 40 % on the year, despite 30-year yields rising. So that's kind of a head scratcher. But we've been on that trade on the Morning Navigator and are doing really well with it.

10:43So we're going to trade it tactically and expect to continue. Yeah, by the way, just to zoom the camera out a little bit, give the bigger picture, I want to talk about U.S. equity markets here because there's some very big gains year-to-date. S &P 500 right now, year-to-date, up 15%, a little more than 15%. NASDAQ Composite up more than 31%. NASDAQ 100 up more than 38%, all those expressed on a year-to-date basis. Red hot, Tony, just red hot. Yeah, what's going on in the rotation now, Ash, is you had big tech get out with that big lead when yields were sort of sideways and consolidating, or at least clearly not going any higher.

11:24We had all the technology sectors following. And then as the rotation changed this year, what we're seeing right now is energy stocks all flipping from negative to positive on the year. At least oil services just did that. Those are the sectors that have been lagging. Those are catching up towards unchanged now. Sectors like airlines that were sort of flat to up a couple of percent on the year just vaulted and went on a bull run. Oil services went up 7 % two weeks in a row to up 5 % on the year. So the natural resources stuff is coming alive while technology is consolidating at the highs. So naturally, that's kind of a little bit of a tailwind to the S &P.

12:05And that's why, like we see right now, we're kind of floating away towards 4 ,500 with very little resistance. Yeah, very well said. Listen, while we're talking about tech, I want to take a look at this clip. This is Raoul Powell yesterday talking on the Crypto Daily Briefing Crypto Gathering 2023. The question, is it game on Raoul's macro setup? Let's take a look at that clip. My hypothesis, and you've heard me talk about the everything code, is that debasement of currency is the main driver of asset prices. globally. Currencies are getting debased by excess printing. We all know this from crypto, that if you have too much inflation in your money supply of a token, it tends to go down a lot.

12:48And that's the same with currencies. But all of fiat currencies being debased, and that's driving the reserve currency of the dollar to get debased against asset prices. So optically, it makes things like the S &P 500, property prices, gold prices go up. But once you divide them by the debasement or even just use the Fed balance sheet as an easy approximation, what they tend to do is operate in line with the debasement. They're just holding water. They're not making you wealthier. There's not much of an investment. It's kind of like a bond of old. But I found in my work that two things really outperformed technology and crypto because they've got secular adoption cycles too.

13:33You know, Tony, we can get a little esoteric sometimes on Real Vision, but Raoul Pal right there, simple as pie. Two things outperformed, tech and crypto. He doesn't mince words, does he, Ash? You know what I mean? It's hard to get bearish crypto when Bitcoin is up 85 % on the year and we've got a set of brick nations trying to form their own currency backed in gold. So it's not surprising to me that Bitcoin is having such a good year. Right behind that, the NASDAQ is up 40%. I know that Raoul is generally a lower yields type of guy. So he's probably thinking things like that. Maybe he's thinking that yields are peaked here and tech is just going to take off.

14:12The ARK Innovation ETF staging a real, real breakout today, which is probably another cue that Raoul's taking if I know Raoul. And yeah, it's hard to fade this stuff right now. I just feel like if anything, I'm starting to see the natural resources sectors wake up and do the things that the tech sector did at the beginning of the year when it was starting to give some clues that it was done going down. So we'll see if the sort of baton gets handed to natural resources from tech here and that gap between them doesn't close. I feel like there's a good chance that that could happen between now and the end of the year.

14:48We'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.

14:57Tony, we've got a lot of questions coming in. Lots of old friends here, familiar names. What do you say? We jump in and hit these guys. Fire them up. Let's go. First question, Bonito from the Real Vision website, regular viewer. Tony, looking at the new and used vehicle market and imported durables, might we actually be seeing some deflation creep in? Man, I don't feel like I feel much deflation. I know the headline number is sort of gradually chooching down. The realflation number is gradually chooching down. Luckily, I'm not in the car market at the moment, but I'm sure that I will be soon. You know, that seems like it's something that was directly affected by supply chains and things like that.

15:36So I'm kind of expecting that deflation to kind of stay around and for car prices to come back down. But I am not an economist. So I'm trying to look for the trades on the screen that I can make money on. OK, two questions about oil. Jack Weaver from the Real Vision website. What are you thinking about today's move in energy E &P names? They look good. You know, it looks good. I'll be more convinced when XLE exploration and production, you know, gets back up above its 200 day moving average, gets back up above the ascending trend line that it broke down through. You know, this is still for me, you know, the energy stocks, while it could very well be the bottom of their consolidation and a rally into the end of the year, nothing has happened on the screen to indicate that yet.

16:26So while we just saw a great rally off of the lows, it's just a rally back to the middle of the range. So until it rallies through the top of the range and proves that it can sustain that rally with several closes above these key technical levels, I'm not leaving my feet, and I'm not getting excited about it. But yeah, could happen. We got another E &P question coming up. Boy, our viewers are really paying attention. You can just tell by the questions. TrillionX Macro on YouTube. Tony, do you think we have seen the bottom of oil prices for this year? And if yes, do you prefer those E &P names to refiners for the next six months?

17:03ED HARRISON Well, that's a good question. First, E &P versus refiners is a tough call. The refiners look like they've seen their highs. At least that's how they've been trading, where they had that great bull run where we saw the massive spike in crack spreads to 60. And then they stayed in that 20-bit at 40 range. And refiners were some of the best performing stocks last year. This year, they've seen that long topping process take place. and they've begun to break down. So until they start recovering their major moving averages, I can't get that excited about refiners. It might be a time this time where E &P can sort of take over that lead between, you know, just within the sectors and outperform a little bit.

17:48And then going back to the crude oil, I think I guess I kind of answered that with the last question where I kind of needed to get up above more significant levels before I can get excited about it. But it's at least encouraging that it's rallying while it's tightening. I think the market probably got a little bit short expecting a recession in the last several weeks. We put in a triple bottom, and it's everybody out. Next question from Jason Yoakam. This one brings a lot of what we've been talking about here together. Energy-focused question. He said, if interest rates start to back off, do you foresee ONG companies, oil and gas, going back to RBL strategies and leveraging debt?

18:23Or do you anticipate banks continue to hold operators to focus on capital efficiency and returning gains back to shareholders? Technical question about financial mechanics. I mean, I'm not a financial mechanic guy. I'm not sure what the question was exactly asking, to be totally honest with you. I mean, you know, if rates go lower, are they going to try to borrow money and continue to expand their R &D? Probably. Or their tech spending and things like that. But I'm not sure that it's the yield market that's what's controlling exploration and production companies right now. I'm pretty sure that it's the political atmosphere.

19:01And until we have a political atmosphere that's more friendly to oil drilling, I don't think many of them are going to make any drastic moves towards any more drilling projects that are going to be enough to really shake up capacity in any meaningful way. Boy, that's such a good answer because it does really focus on the big picture there. And I think that seems spot on in terms of the broader context for where we see the ONG space right now. It's fun when people are paying attention and giving great questions like this. It's great dialogue. Absolutely. Absolutely. I'm hoping I'm answering them sufficiently.

19:33Tony, always. Absolutely. The next one comes to us from Jeremy. Boy, this is a great question. From YouTube. How does a person stay humble in these markets? There's so much disconnected data. The markets keep you humble always, don't they? Ben, if humility isn't the first thing that you're thinking about before you put a trade on in 2023, I don't know what the hell you're doing. This year, with the curve buried at historic low levels, and we're seeing what I've been calling nonlinear chaos in markets. right? Because there are no, there haven't been really any follow throughs, you know, on, on breakouts that haven't had a drastic pullback that really test your metal.

20:15You know, things haven't been trending for the entire year where you can kind of get on a wave and ride it. You know, it's everything has been a hit and run trade. And I didn't start making money until I realized that probably four or five months into the year. And then I started making very little money, And all of that comes from a place of having humility versus the markets. I would say in my favorite trade is the small loss this year. I'm always trying to go where the market looks like it's going and the direction that I want to root for it to go. And a lot of times, I've just started off wrong-footed because things aren't exactly linear.

20:55What drove a particular sector yesterday may not be driving it today, and thinking that it will has gotten me in trouble. So I've been very, very, very humble this year after having an excellent year last year and coming out swinging. Man, humility is the number one thing to keep in mind in 2023. So that was a great question. Yeah, I guess the good news is if you ever forget humility, the markets will remind you of it real quick. And especially in this, just to build on some of the points you made there. What we've seen just that in this post-pandemic period where we've seen just all kinds of historical correlations break down in ways that we've just never seen before.

21:33I'm thinking just a couple of days ago when we saw the JOLTS report, ADP and NFP just going in different directions, man. It's like it's looking at a different month. It was just such a bananas move. We just lived through a period where we saw jet fuel and diesel prices backing off and airline prices couldn't rally at all. And then all of a sudden, jet fuel and diesel prices started rallying, and the airlines jumped out of bed. So there's really a lot of stuff that's really non-contiguous, just not necessarily rhyming with historic correlations that are going on in today's market. And I don't know that I can explain them, but I do respect them.

22:14Well, the good news is I don't know that anybody can explain them. I know. That's for sure. That's for sure. But the good news, the better news is with the curve at minus 100 basis points. And while it looks like there could be a tradable bottom in the curve where it could begin tightening again in this territory, you never know what's going to happen. You know, so we get lulled to sleep with the VIX in this 15 bit at 17 range. I mean, when the VIX is sitting here in the 15 bit at 17 range, I literally hear the theme from Jaws in the back of my head, like throughout the whole entire trading day.

22:46Like at some point, something is going to get bit, you know, and the VIX is going to have that spike and things are going to curl over. But until we see that, we've got to trade a bull market, don't we? TG, that beach is pretty close to you, isn't it? Yeah, Amityville is not too far. It's a little bit of a ways east down the coast, kind of in between here and the Hamptons. But yeah, I've driven past that house. I have a friend that lives in that neighborhood, actually, where the Amityville – oh, no, that's the Amityville Horror. But yes, Amityville is Jaws where that took place. 70s were big in Long Island.

23:16Oh, what a great decade, let me tell you. You should have seen it, Ash. I remember it well. Charles Patton on YouTube, do you think Buffett buying Oxy an American driller is a sign that he believes macroeconomic conditions could deteriorate further and the US has to rely on their own oil production? Yeah, I kind of do think that Warren Buffett buying Oxy is some kind of very sort of picking a one stock way to fade the net zero movement. I really feel like if you pay close enough attention on the internet, the people that are pushing this movement look like bigger and bigger boobs every single day.

23:55And the people that are scientifically proving it wrong look smarter and smarter every day. So we're going to get to a point where the rubber meets the road, and we're going to have to all go student body right towards this electronic battery production, or we're going to have to give up the ghost and we're going to have to drill baby drill again so that we have some more efficient forms of energy so that these economies can get back on their feet. So I got a feeling that Warren Buffett sticking to his guns and inhaling oxy is his expression that the latter is going to happen. Yeah. When ideology and reality collide, which usually wins?

24:33Yeah, it's a good point. Reality and, you know, as, as Doonberg always says physics versus platitudes. Physics is undefeated. Here's a rare question for me. SBD 758 YouTube. Ash ditched his button down shirt for a V-neck t-shirt. What is the world coming to? I did that. I'm taking responsibility. As soon as I came online, mark my words and ask the producer, Ash doffed the collared shirt right on screen for us so we would both be in t-shirts. It was a in Real Vision history behind the scenes. That's absolutely correct. By the way, SPD, what's the world coming to? Nothing good, man. Ralph Humphreys, Real Vision website.

25:13This is just a great question. What are three things affecting markets that people aren't talking enough about? What a great question. That's a really good question. If I would say what people aren't talking enough about,