Will Inflation Give the Fed Room to Pause?

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

1:35Will the inflation data give the Fed room to pause? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Mish Schneider, Chief Strategist at MarketGage.com. Hi, Mish. How are you? I'm great, Maggie. How are you? You're doing great. Fresh off the road, you've been traveling around, right? Yes. Well, it's a time where, first of all, it's spring, so lots of conventions happening. But it's also a very interesting time in the market, and people want to know what to do. where to go. And I'm so happy that people trust that I can provide that information, just like we're going to do today.

2:09Yeah. And of course, you look at everything, which also is really important right now because there's so many cross currents, there's so many things happening. So we didn't see too much action today. Market's relatively quiet, but we have some big inflation data coming out this week. And of course, we're fresh off the Fed meeting and the big jobs number from last week. How are you feeling about the outlook for the U.S. economy now. The Fed seemed more hawkish than people expected. How's that modern family holding up? What are you looking at? Well, let's step back a little bit to the Fed, because it was expected that he would go a quarter percent higher.

2:45And now we have Fed funds rate at the level that they were in 2006 at five and a quarter percent. And also we have a seasonality factor here where yields tend to peak in May. So if you forget about all of the conversations that Powell had with the press and trying to dissect everything that he said, the point is, is that whether or not we go one more quarter percent, it still feels to me like based on history, we are peaking in terms of those yields. And of course, it was the rate of change that made it so exciting for, for what happened with the market in terms of its downward move and the banks.

3:27So I just want to say that junk bonds and high corporate grade bonds have actually held up really well. So last week when we saw the dump, the new dump from the regional banks, they kind of are staying flatline, which brings me to the modern family. We have pockets of great strength and we have pockets of great weakness. And I don't think I've ever seen the economic modern family so disparate in terms of where they are. And that's what is making it interesting and also difficult to trade. That's so interesting. And so I think most of our viewers know by now that Mish sort of looks at the sectors as a sort of gauge to create this basket that she calls the modern family, which is so helpful.

4:12So where do you see strength and what's struggling? Well, you know, in terms of the modern family, I think it's always important to say that even though it was my invention of this one index in key sectors, it turns out that Stanley Druckenmiller had said that the inside sectors of the U.S. economy, the areas where to look to really get the best gauge of what's happening are the Russell 2000, so that's the granddaddy, the retail sector, so that's grandma, XRT, and then the transportation, which is IYT. And even among those three, there is interesting things going on. For example, IWM or the small caps, which really measures the manufacturing, is telling us that we're stagnating, that maybe we've contracted enough.

4:59And if the Fed does really pause here, not even start actually reducing the rates, but just pause, it's possible that contraction actually can begin to grow because we have good things like labor markets strong, right? So I would say that that doesn't mean that I'm calling for the end of contraction and we're going to hold. But I'm saying right now that seems to be the more obvious choice. Same thing with retail and the consumer. What is amazing to me is since I've been traveling, I've never seen stores, restaurants, airports and planes more crowded. I mean, really, like way pre-COVID even crowded because I've been to Vegas many times.

5:41And it was amazing how many people. So what you're reflecting in the actual stocks and in that ETF basket in terms of consumer discretionary, yeah, there are obviously consumers are raising their own debts by borrowing against their credit cards. But at the same token, it's also showing maybe the contraction is over. We don't know yet, but I'm looking at 60 as a key level. And then transportation is just the opposite. It's actually in a bullish phase, showing that demand that is robust, that the goods are moving and people are moving. So, you know, that's that's and I would call those the middle of the modern family.

6:20The strongest one, of course, would be semiconductors and sister semiconductors, as I like to call her, really represents obviously the chip stocks like NVIDIA, which rocketed again, and also represents some of the technology stocks, which have been doing very well. And that's in an expansion. Forget contraction. That's showing an expansion in the two-year business cycle. And then last but not least, but we can talk about biotech later, is obviously regional banks, which I'm amazed at how I had that in my family since 2014. And now basically regional banks prodigal son has headlined and driven everything because I always felt it was the regional banks that would have the most influence ultimately than the big banks.

7:08And here we are. And of course, that's well underperforming. And the big question now is, did it bottom last week? Yeah. And today just got out the Fed's quarterly senior loan officer opinion survey, sleuths, right? Like something very few people watched prior to the banking crisis, but now everybody's fixated on it. And it showed a tightening of lending standards and demand, indicating to some that, listen, this is going to be a break on the economy. And there are a lot of question marks about these regional banks. Most people think there's going to be continued trouble. The question seems to be whether it ever jumps into something systemic.

7:46And right now, a lot of the people we have coming on say they don't think so. They don't know. How is that? How is that the regional bank index looking to you? Does it look like it's stabilizing? Well, the interesting thing about the regional banks is right in the beginning of March, I was looking at KRE. That's the symbol, right? And I noticed that it was breaking down before any of the other economic modern families really were. And I thought, is this some kind of a harbinger? And then whammo, three days later, right, was the big news with First Republic and so on. Now, last week, it actually dove down again when we had the more recent news about some of the other banks.

8:27And it gapped lower and then the next day gapped higher. So it's not the strongest island bottom I've ever seen. I've seen much better ones, but it is right now an island bottom. And even though today we saw a decline in KRE in price, it's holding above where it needs to, which would be the intraday high of last Thursday, 3705, in case you wanted to know that number. I happen to have it in my head. But anyway, the point is this. If that actually starts to decline and fills that island bottom gap, I would probably say we've got more bad news on the horizon. If it holds and we can swing back through in that KRE tomorrow, let's say over 38 or 39, then maybe the worst is over.

9:15And that's exactly how dicey it is right now. I mean, if we're looking at one day to the next day to the next day, it kind of tells you just how precarious everything rests on. And particularly when we're talking about those regional banks, Yeah. You know, you mentioned NVIDIA, the strength of NVIDIA. And we've been talking about AI a lot. We get a lot of questions about it. We've been talking about it. Ryle's been obsessively, you know, digging into it. And he had a chance to sit down with Sandy Cowell from Franklin Templeton. And they talked about all of the different ways that this technology will potentially change things.

9:52Let's have a listen to a clip of that, and then we'll talk on the other side. But what I find so fascinating about AI is that it is going to likely be able to not only think about where you are now, but figure out what are the most likely and predictable pathways you're going to take from this current moment in time where you are. And how can we reshape commerce to actually incentivize you to take certain of those pathways over others? So I think that it's going to start to really build individual models of each person and be able to really tailor the delivery of the world to that person in a way that the person may not even realize they have those needs until they start being fed to them.

10:39So I thought that was a really fascinating part of this. And a lot of that is this agentive design. And we're seeing a little bit of that, like with the Nest systems in our homes. But this is going beyond that. This is an AI getting to know Raul and getting to know Sandy and then figuring out almost like our own digital personal assistant that lives with us. What are we going to need and what should it be marshalling in terms of our own resources? So I think that's a fascinating potential where we're going. Hey, everyone, we're going to take a quick break right now to hear a word from our partners.

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12:24And that full interview is available on our website. If you're not a member, just hit the QR code and you can jump on a trial. This topic just fascinates me. But Mish, the excitement around AI, we've seen it fueling a huge rally in the likes of NVIDIA, Microsoft. Does it feel like that can continue? Well, I think if the market continues up, we may see some rotation into other areas that have so underperformed that would offer a little bit of risk reward at this point. But clearly, if everything stays as it is without some really horrible kind of depression at this point, which I doubt, then, yeah, I mean, let's just look at Meta, though.

13:05Meta has had such a spectacular run. And 250 seems to be a wall of resistance. We're trading at 232. NVIDIA just had a spectacular run. I thought if it could get through 275, maybe it can go to 300. Well, it's in the 290s today. So as far as I see, I think we're running into some levels of resistance now. And of course, that doesn't mean we can't pop through. But in terms of the whole tech and AI space, there's been a couple of things in its favor. One is just name recognition and things that we use every day that people know about. Second, of course, is that it's been some kind of a safety play in that people are running into the growth stocks as opposed to the value stocks where they were going before.

13:45And third is that I think there's still a level of complacency as far as we're not going to have chip problems. We're not going to have a war, China, Taiwan. None of this we want to get into now. But there certainly seems to be some level of relief that these things can continue to grow and really hopefully lead the market out of any potential horribleness that could happen. Yeah, it's interesting because, you know, it was with those high rates, everyone was saying, oh, future earnings tech's so vulnerable. We did see that big pullback. But is that behind us now? I mean, did the tech already kind of process any of the bad news?

14:25Well, this is exactly what we're talking about. Tech was kind of first to really think that maybe we are near the end of rate hikes for sure. and tech, of course, was the thing that everybody wanted to buy into because, I mean, let's face it, you put on the media and that's what everybody is talking about. We have a lot of the stocks in our portfolios because of quant trading. So from a pure math, it's been the smartest thing. But you and I kind of talk always more discretionary so we can talk about other things. But yeah, I mean, that is just spectacular. And at this point, like, look at Apple.

15:00Let's talk about Apple for a second. Apple just defied logic completely. And now looking at it today, after making a new high on Friday, all it did was have an inside day at these highs. When I say new high, I don't mean new all-time highs, but new recent highs. It's sitting there looking poised to go even higher. So at this point, I don't want to say cliche, but the trend is your friend. And right now, those are looking pretty hot. What is interesting is semiconductors had a split. It's very rare to hear an ETF split, two to one split. So now SMH is trading at 125. And actually, it's a little bit under where it was last week when it was at 247 or 246.

15:43But more importantly is if that has anything to tell us, it's telling us that there's more upside if it holds here. Yeah, that's a great point. We don't hear that very often. I think you mentioned Palantir's out and soaring after hours too, right? Did you just see that across your screen? Yes, it was up, last look, 22 % right now. That's a huge move. Well, it's an$8 stock. So, you know, we do have to make everything relative. So, but - Maybe it's finally getting, it's been disappointing for so long. Maybe it's finally starting to get going. Right, and so it's involved with cybersecurity. It's come kind of a defense stock.

16:19It's gotten some government money, obviously in contracts. It was a stock I liked and then sort of gave up on. So it's good to see. We'll see if there's any kind of follow through. It's also probably very heavily shortened. So. Yeah. Yeah. Me too. That was one I used to watch and then, you know, wears you down after a while. So we have, uh, we have so, we have so many questions. I think I want to try to get some of them in because we have so many good ones. Um, and then we'll, and then, you know, we'll, we'll flip back and forth. Uh, and they're all over the place. I was, I mean, they know, I always say it.

16:50Mish can talk about almost anything just in case you're not, you're not, I'm going to throw them all out there, but if there's something that you're not particularly watching, feel free to say so, Mish, because we're doing this live. Okay. Oh my gosh. Wait, I just have to mention a really funny comment from Ralph. KRE said, the reports of my death are greatly exaggerated. Exactly. It's Prodigal Son. That's why I call him that. It's the great Bible story, right? Gets bailed out all the time. Okay. So Robert asking, what does Mish make of, I think it's Cenex pullback, C-E-N-X, aluminum in general?

17:26Well, it's such an interesting question because I just happened to look at that today. Well, that's a good question because I'm glad it's commodity related, right? I was like, oh God, somebody's got to ask me about that. We got a lot of them. Don't worry, man. Right, right. Well, copper did not do what steel and aluminum has done. And that's because they're more basic materials and they were more fear of recession type of activity that's been going on more of a risk off when it came to aluminum and steel. Whereas copper is actually held up pretty well because copper, of course, has more industrial use.

18:04So, you know, there's a difference between basic materials and industrial metals. So I would say the answer to aluminum is, you know, yeah, this was impressive. It was much higher at one point. But that contraction in the economy, as I was talking about before, if we've stopped contracting, even if we don't necessarily grow and we kind of go more baseline stagnation or stagflation, which we've been talking about for a long time, then it's possible that at this level, if you want to hold on to it, it would be the best opportunity to invest, but it could be a decent one. We actually bought CLF, Cleveland Cliffs.

18:42That thing got beaten to a pulp. We bought it around 15, exactly where it's trading right now, figuring unless we go into a deep recession, how much risk do we have? And that would also be a basic material, right? Okay. You know, this one was coming. David S., please ask Mish about sugar. Is it topping or more strength to go? Well, what's interesting is that it got all the way up on Friday to about 26 and a half cents a And now today it's declined. And that's basically going to be the volatility of sugar. It is possible that it's run its course. I'm not going to say that that was the top per se.

19:21But I would say that at this point, I would be watching it in the next couple of days. And if it finds some kind of a stabilization between, say, 2450 and 25, then probably it's just another dip to support. It was another one that had some kind of a key reversal on the charts. And so if you look at the highs and you think, oh, it can have maybe a 10 percent correction, that's where that 24 area would come in. And I think I'm pretty convinced that that would hold at this point because I still think that sugar shortages don't go away overnight. Right. Yeah. In fact, we have a lot of questions about ag commodities.

19:58But if we broadly look at them, Trillion X asking, is there a new bull market ahead for them? For ags in general? You mean like grains and stuff? I think he means ags in general. We have specific – I mean, there isn't a question that hasn't been asked. We have more specific wheat, soybeans, and corn. But they're asking both broadly and then individually. Okay. So I want to say happily, if we don't get to any kind of a deep answer today, Maggie and I are getting together again on the 19th, and that will be a recorded session. So we can really go deeper into these things. Yeah, it's extended. It's extended.

20:35Yes, exactly. But for brevity's sake and to get to everybody's questions, I will tell you this. DBA, which we've talked about a million times, that looks really good. I mean, it's been sort of trading now between 2050 and 2150. Let's call it that range. And that's very typical. In terms of, so I think that that's still looking great. It's still showing expansion. And of course, wheat, corn, soybeans are in there. A lot of it is going to have to be from China in terms of consumption. This is why oil rallied today, because there was a story that China all of a sudden has had growth and is consuming more oil.

21:15I think the same thing could happen with the grains. Wheat is not looking all that great right here, but it might have bottomed. But here's the most important thing to keep an eye on. I have a friend who's very well informed who actually lives in Thailand. He's from the States, but he lives in Thailand. He told me that so much fertilizer that comes out of the Ukraine, we haven't heard about it in a while, but there could be some real shortages coming up. So I'd say my biggest tip for the grains is watch some of those first stocks like Mosaic, which right now doesn't look like anything, but that can change.

21:49If that changes, that tells you something's happening. That's a great point. We actually, on the issue of oil, we have John asking about XLE. Okay. Well, I haven't really watched energy much because I'm much more interested in the commodity future of oil. And so I did look at Brent. So I hope you don't mind. Yeah, go ahead. Next time I can go deeper into XLE. I mean, we do know that, who was it, Buffett or one of those guys said they weren't, not Buffett, the other dude said that he wasn't going to buy any more Occidental Petroleum. I don't know what that means. But nonetheless, in terms of the actual oil itself, so Brent traded up to$77, just shy of it, today a barrel.

22:28If you look at that chart, as bearish and as recessionary, as everybody's facing that call on oil and energy going down, if that goes up just a little bit more past$80 a barrel, I'm talking Brent, not WTI. WTI was a little cheap around$73. I have to say that all these PCE, CPI, PPI numbers are meaningless because they all exclude food and energy, the two areas I'm still most concerned about. 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.

23:07Yeah, when we meet for our extended, we'll have a little bit more of a sort of broad conversation about that because it is very interesting. There is so much disagreement still about that inflation outlook. I mean, we'll get a little bit of information this week, but it's hard to kind of tease out, especially when you think about the cross currents. And it brings me back to AI. In fact, one of our viewers tweeted out a really funny something of a robot cleaning the floor at the airport and said, I guess this is disinflationary or deflationary. So there are a lot of things I think we have to sort of see how they fall.

23:41Some people having a conversation asking each other what they think about the dollar. I'm curious what you think about the dollar. That's a great question. Well, of course, we know that for years, Maggie, you and I have been talking about the world's reserve currency and its threat. And now that all of a sudden it's on everybody's lips, I'm kind of like, well, all right. Sometimes it's the anticipation of something and not the reality of what happens that gives you the best trade, right? That's really basically what my signature, I think, is. It's trading based on the anticipation before anybody else and then taking your profit on the reality.

24:18And the same is true in terms of the dollar. So right now, I love this 23 month. This is something that you and I are going to cover in much more detail on the 19th, but essentially it's a business cycle within a business cycle. And in that 23 month, which is really two years, the dollar is above of that two-year business cycle. It actually comes in, if you're looking at DXY, at 100.7. It looked like it was going to break it, break it, break it, and it closed stronger today. So that tells me that the dollar and the reality of whatever happens at this point might be getting a pass. I'm very neutral right here.

24:57I wouldn't say I'm bullish, but I'm not as bearish as I was based on the fact that with all of the talk, including Janet Yellen, about its threat as the world's reserve currency, it's hanging pretty tough. Yeah, and many, many people have been looking for that to move lower. I mean, so many people have that call. So it sounds like you're saying it seems like a little bit of a crowded trade right now. Definitely. Okay, Liquid Gems. This just circles back to oil, but I think it asks a question here. And Liquid Gems says, this is the dream team, Maggie and Mish. Oh, thank you, Liquid Gems. What happened to the bull market?