Will the Safe Haven Bid Last? with Thomas Thornton

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0:25Can the safe haven bid last? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Tommy Thornton, founder of Hedge Fund Telemetry. Hey, Tommy. Great to see you. I am good. Wait, hold on. I think I have my YouTube is open somewhere. Okay, sorry. You know why? Because we laugh every time we do the show with Tommy because as you just told me, he madly trades right at the end of the day because that's what the smart money does. And so you're multitasking. That's why your other window is open. Are you good now? I'm good. I'm all free. I just punched the clock. I'm done. Great. So we saw that the US bar market of close, of course, was closed yesterday for a bank holiday here in the US, Columbus Day.

1:07But today, we saw treasuries open and react to the developments over the weekend. Yields moved lower, that sense. Stocks higher. What did you make of the market action today? It was a little dull, actually. Actually, the bond market, okay, I think there's a combined risk-off type move to the bond market because of the events happening in Israel, which are tragic and awful and could escalate. But I think also that the bigger move was that several Fed governors have come out and said that the recent backup and yields have sort of done their job. Instead of them needing to raise another 25 basis points, well, seeing that rates moved higher, that's going to put financial conditions under more strain and so they can take a pause.

2:04So that I think is the real big move in the bond market. I'm not quite sure though, that we haven't seen the highs in rates. I think that's still possible and it's an ongoing situation. But I was pretty clear on my stuff, what I reported, that we were going to see some pullback in rates, a pullback in the dollar. But I think that there's still higher highs on the dollar and rates ahead. So there's still risk. On top of it, I normally come on and I'm always Mr. Bearish, but I've been more neutral in my portfolio. And I bought a bunch of new longs, not in tech, but other things that have been beat down pretty hard.

2:50And I'm renting those for a bounce, which we've gotten a pretty good bounce so far. Not sure how much more we have. We have earnings coming out this week, financials. I have a few financials that I'm long, boring names that are reporting on Friday. So there's a lot in there. I like that you say you're renting them. So that tells me this is a very short-term position for you, you think? Well, look, I think there's real big risk with this Israel situation. I think earnings are still a big risk. A lot of stocks that are down have maybe de-risked some of the earnings softness that could come. You're going to hear better than expected or better than feared type earnings.

3:39I think Pepsi was better than feared, a little better here and there. The dollar up is going to be a bit of a most talked about situation on a lot of our conference calls. So I think that, look, I still think there's risk. I think a lot of people have put too much emphasis on seasonality. And yes, there's a positive seasonal bias. But I think that you can throw that out since we've had very high interest rates. I think you have a strong dollar that still, in my opinion, remains very strong. And I don't necessarily need to be a hero and call the bottom because I didn't get all the things that I like to see for to call a real strong bottom.

4:23So I think that I'm going to get a little technical and wonky on everybody. The first wave down was in August to the 17th of August. We saw a lower high bounce. That's the second wave. and now we've been in the third wave and we did have a lot of demarc by countdown 13s in wave three and now we've qualified wave four which the way i look at it away four is a 13-day high off the lows and it's not necessarily a cell signal in itself because it could go a little bit more but then we're going to make a wave five lower low down the road so that's all very fluid right now for me. But yeah, I'm renting.

5:04If I rent a little longer, we'll see. But I'm just trying to stay opportunistic and look for ideas that possibly could work on long and short side. Yeah. So before we talk a little bit more specifically about that, you just said the situation in Israel in the Middle East could get worse. I was on a call with an executive today who described this as perma crisis, right? And that seems so accurate to me. We just seem to roll from one crisis to another. You're running a fund again. You're actively running money. How do you make investment decisions against this kind of backdrop where it's so hard to know what's going to happen when you wake up in the morning or you go to sleep or you turn away from your screen for a few hours and you have these events happen that are so hard to put against an investment landscape?

5:54How do you manage that? Well, you can also have positive news as well that they can come in and disrupt your shorts. I'm used to it. I've been doing this for a few years. And look, I sleep pretty well. But at four o 'clock in the morning when the pre-market starts to open, I'm looking at my Bloomberg on my phone. And then I get into the office pretty early and decide and see what's happening. These are the type of moments that you could have overnight risk. So a lot of people are, oh, I'm going to get really long right now. I don't think you need to have a lot of conviction either way right now.

6:35I think that's good. Stay flexible. If you're wrong, get out quick. Keep your sizing proportionately small so you don't have some month or quarter ending type event that happens in your portfolio. I think that's just the thing. Just stay very, very nimble, flexible, and try and find ideas. I try to find ideas on both sides. And I'm very, very cognizant of risk. Yeah, risk management matters so much right now. So we have this conversation happening about is the market doing the work for the Fed? And you mentioned maybe we haven't seen the highs yet for bonds, which is interesting because this is the dynamic we've had.

7:20Everybody runs, we think we get there. and then yields go up again, everything gets killed. We have some real important inflation data coming out this week, PPI, CPI. How do you think those numbers are likely to impact sentiment, or do you think it's more going to be about earnings? Two things. One, with the CPI, well, we have the PPI tomorrow. Excuse me. PPI tomorrow and the CPI on Thursday. I tend to think those are going to come. I look at core mostly, but I think that's going to come right in the middle and right in line with expectations. And they could be a little better maybe because I think rents are a big part and that might be coming down.

8:05So that could be a risk on type of situation. If it's worse and it comes in hotter, then we've got bonds are going Rates are going to spike, and you have a lot of risk around that. I do think that there's risk for the inflation data to get stronger or, excuse me, well, hotter in coming months. I think that's possible, but one step at a time. I'm running that risk right now of what could happen. I'm two-sided in my book, very, very neutral right now. I'll take advantage of either side. Sometimes I like to say it's like planting a garden, a vegetable garden. Sometimes you'll pick some stuff in the beginning of the season, and that's your short book.

8:58You pick those off, and then you have some that are your long book, and you have to take those off at another time. And each one has its own time to take certain, you adjust your portfolio in that regard. So I think there's that. I think, look, earnings are going to come in probably OK for the financials. I don't necessarily forecast any sort of disasters. They've sort of run up a little bit. And I'm along a few of Citi, JP Morgan and Goldman right now. And those, I think, are going to be OK. I think Morgan Stanley has a few risks involved there. And we'll see how that goes. I'm not short that, but I'm going to watch how these first come out.

9:41And look, I think tech also has risk more to the downside because I think the AI monetization is probably a 2024 event. And you probably are not going to see the real benefits of AI so soon as much as the market started to price that in. I think that's a risk. I think Apple's a risk. I don't think their phones are selling as well as hoped. And they've had three quarters of negative growth. So I think that's a risk. and it's the most crowded stock in the world. So we'll see how that does. And that's a barometer right there. So yeah, look, it'll be interesting to see if the market continues higher into tech earnings, it's going to put a higher bar for tech.

10:26Yeah. It's a day-by-day type of situation. But look, I think, again, if this situation in Israel escalates and we have more countries get involved, And I saw some headlines today with Hezbollah, which is Lebanon. That changes the whole dynamic. And if you go back and you look at other periods where there was an attack or a war starting, it takes a lot of time for militaries to build up their plan and their troops and everything before really things get hotter. And it's not like, OK, Israel's shooting missiles back at Gaza and that's happening. But there's a bigger situation that's probably out there that we have to be certainly cognizant of.

11:18And that changes the dynamic right now. And I think people will be – honestly, if you're long the market right now and you've got good gains, which most people do, not me. My portfolio is flat on the year. Year's not over. The situation, the way I look at it is that they might take 10 % off. They might adjust 20 % off out of equities and put it into bonds. And that will matter. That will see a risk off. There's a lot of people that are very short right now. CTAs are very short. So there's the fuel for that as well. So you have this dynamic of fundamentals that possibly are getting worse with technicals that could see more of a bounce.

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13:12Yeah, certainly hard to thread that. When we're talking about earnings, it's going to be interesting. Somebody joked on the program that, I think it was on the daily briefing, it might have been on the platform somewhere, that, okay, well, Walmart said, because everybody, taking Ozempic now that they're buying less food and just sort of called BS on that. Like already you have the numbers. You know, we know companies like to be able to sort of sort of blame certain things for everything. Right. So we have a strong dollar. Certainly that can be an aspect. Are we going to get a real read on what's happening with the economy from these earnings calls?

13:47Or do you think that we're going to have a lot of companies sort of, you know, blaming, you know, blaming one thing, but maybe hiding what are operational problems somewhere else? Well, you know that it's always something they'll blame unless they blew out numbers, and then it's all their credit, you know, so it's like we blew out numbers. Our strategy is working great. But yeah, I think there's a lot of issues that they can blame. The dollar, of course, you could blame. I mean, higher rates, you can blame. There's a lot of things that the companies can blame. And look, I think higher rates are going to be a constraint on the consumer going forward.

14:27A lot of data is out there that's showing the consumer starting to slow a bit. And that's what should happen when you've had higher interest rates. That's the thing that we have to always be cognizant of. There's lag effects. And the lag effects is that the consumer is going to slow. They're not going to borrow as much because interest rates are higher. It's hard to buy a car because interest rates are so high. That's what happens. That's the cycle. Yeah. Speaking of lag effects, by the way, Julian Biddle just released an update on the Q4 business cycle that he's posted before on the site. It's called Identifying the Leads and Lags.

15:13I think Brian has a shot of that on the new platform that he can show. So a lot of you have already watched it and commented on it, including Peter, who called it pure gold. So thank you for that, Peter. But a lot of love for that. So right now, especially as Tommy's talking about when we're trying to figure out what is leading and lagging, definitely want to check that out. If you are watching on YouTube or it's locked for you, head to the site or hit your account so you can figure out how to get full access to that. And if you're on YouTube, just go to www.realvision.com. So, Tom, we have some questions coming in.

15:50AJ asking, any views on being short regional banks? Because you mentioned financials are going to be the first out of the gate here with earnings. Well, they've already come down a bit. And I have, OK, so this is a really good, the technical versus fundamental. The technicals are kind of telling you that we're sort of washed out here on the KREs around 40. We had some DeMarc buy countdown 13s on several banks and in the regional bank ETF. I don't want to touch regional banks at all. I'll let them go up if they go up. I don't want to short them here. They're heavily shorted. So that's a negative if you're looking to short something and it's got high short interest.

16:33That's like flag number one for me that I just stay away. But look, I think that I don't necessarily think the fundamentals are getting better. When we had the interest rates hit 4%, back in February, all the regional banks freaked out. Oh, my god, we have capital holes. All those banks still have capital holes at near 5 % now. It's just gotten worse. But I think that you have the Fed and the Treasuries signaling they'll backstop some of this and their mark-to-market type stuff. But I think every single bank, well, I shouldn't say every single bank, but a lot of financials have capital holes because they bought long duration debt and they're down 50 % on that.

17:23So I think they want to raise capital. I think they need to raise capital, but they won't because hedge funds will, and people will short the living daylights out of them. And there'll be possible bank runs and panic and everybody's freaking out. And the people that lend money to those banks, those are the big, some big institutions. They don't want to be the first in. They want to be the last in. They want to be the ones that come in at the bottom rather than be the first ones to lend because then everything, you know, then it still falls. So that's kind of how I see it. I still think there's risk there.

18:02And you have commercial real estate, of course. So that's a 2024 problem, I think. Yeah. Yeah, the commercial real estate. But by the way, Ash has been all over that. And we'll continue to take a look at that from sort of all different kinds of angles as we wait. It's sort of such a slow motion. Everybody knows it's out there. But let me see. I have one and I just lost it. Ralph asking, what's your view on defense stocks? Good question. I am long Lockheed Martin and Raytheon. No, no, Raytheon. No, no, no, no. RTX. I'm sorry, I'm spacing here. But I am long some defense stocks. I was long, actually, before this situation happened.

18:48I got long just like a week or two before because we had, these have been beat down really hard. I'm long Boeing as well. I recently got long Boeing. We had a lot of DeMarc buy countdown 13s. And when I see DeMarc buy or sell countdowns at certain places, let's say if they're on the lows in a group, or if I see them on the highs as a group, kind of gives me more power in numbers that these are all getting pretty exhausted from that particular direction. So I don't like to say, oh, boy, I'm so happy I'm long defense stocks because, you know, there's a war, but they're working. So I'll stay with it.

19:30Uh, Russell asked, yeah, it's funny. Defense stocks, one of those areas that just unloved in this sort of, you know, tech is everything rally. I'm looking for those. I'm looking for those things that are unloved in tech is everything rally. And they're, they're starting to work. Yeah. On that note, I think last time you were on Trillion X is asking, are you still long utilities? I think you mentioned that you like you last time you're on. And in my fund, I just added a little bit. And it was just bond rates going down type of exposure. I'm not long much enough to make any difference. They've been just horrible.

20:09And you also have a dynamic happening that you have a lot of stocks and sectors that have been beat down and made 2023 lows. Utilities, that's one. Biotech also, the IBB made a 2023 low recently. So you have a lot of tax loss selling that's still out there that is punishing a lot of stocks right now. So it's hard to bottom fish in this market when it's still generally an overbought market because you have the magnificent seven that have led the market higher, or the indexes higher, I should say. 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.

20:55Yeah. I just want to bring up a question for someone, I think, who missed what you were saying at the very top. Let's find it. It was about the rally. Okay, Dan, looks like bonds have made the turn. Oil banks, et cetera, looking up. Do you think we're in for a rally to year end equity wise? NASDAQ and S &P seem to be breaking out of their downside channels to the upside. I don't think you necessarily think that's the situation, do you, Tom? No, I don't. And I think there's another leg down. And again, I think this is going to be another lower high bounce, followed by a lower low. And you really didn't see any capitulation on this down move.

21:46And I will tell you, I talked to so many different people, and they vary from our subscribers that are super smart, institutional hedge fund people and all. And then I have a lot of retail people, and I have heard so many people that are just dying to buy. Everybody's just eager to buy. And when you get to a low, nobody wants to buy. They're asking me for short ideas. And to buy TLT over the last six months has been the number one, can I buy TLT? And I've said this on Real Vision as well. I don't think so. Not yet. And maybe this is the magic bottom. But if you bought TLT at the highs, you're down 50%.

22:29And there's going to be tax loss selling in this as well. And I don't necessarily like TLT as a bond, the way I would trade bonds. But a lot of people do. And there's a lot of people in the 60-40 portfolio. And they buy the S &P and buy TLT. And that's their 60-40 genius. And if you're down 50 % or 20 % in a bond proxy, it's not very safe. I mean, it's just bad management in there. And look, there's going to be a turn in bonds. And maybe we have seen the top. But I still think that there's risk out there for a capitulation in bonds. And so I'm cautious in bonds. And I'll stay that way until I see a firm trend change.

23:22And that's going to take time. I don't want to just, you know, you know, try and catch a falling knife. And that's what trying to buy TLT has been. Oh, and that has been a butcher knife this year. I mean, that has just been tough. And I love our chat because someone's weighing in very bravely saying, I put my toe in the water on TLT October 4th. Good luck. Yeah, I get it all the time. And you might be right and it might be a trade and you might get, you know, something out of it. But for me, I'd rather be a little bit more late and, you know, see some of the technical stuff I want to see turn.

24:02And that will be great. I, you know, there's really no style points of getting exactly the lows and the highs on things. And I think that if you can trade the middle of these things, you can you can do just fine. And on that point, Russell, Russell's asking, DMARC TLT, it's been brutal. Yeah, it has. And that's actually a really good situation because there are a lot of people, and I could tell you that Paul Teter Jones used to want to know when the DeMarc signals failed, because when you have that on a period of time, that's telling you something important. that means the trend is exceptionally strong.

24:45And we had, you know, in 2021, we had the S &P going up and there were DeMarc signals that saw like two or 3 % drops and then all of a sudden it kept going. And that's kind of important because it told you that the trend was very, very strong. And I follow and adhere to those examples. I just, I haven't been, and I tell people that that I subscribe, this is a really strong trend and you don't want to buy this signal or you don't want to sell this signal. And that's just from using the indicators for 20 years. Yeah. And that experience, I mean, it's very hard to replicate that experience that you have, Tom.

25:28For those of you who do want to know more about that, I see Brian messing around with the platform on another screen I'm watching. We have a whole section from Tom DeMarc himself. They're explaining that. You can walk through it on the Academy. It's been very useful to a lot of people who do want to dig in more and understand a little bit more about what Tommy and some of his peers are talking about and why they rely on these indicators so much. As you know, Raoul is a big fan of them as well. Just go into the Academy section and you can see that. And I was just told that if you don't have access, you can ask Milton.

26:03I know they try to kill off Milton, but Milton's like back. He seems to have the answers to everything. So the myth and the magic continues with Milton. We have a question. You know this question is going to come up. I just want to make sure because we always have to spend a little time on this. But naturally, you know what they're going to ask. Andrew asking, are you still short Tesla? And would you ever look at BYD? Well, BYD is just exploding right now. Their deliveries are really, really strong. I am still short Tesla. My average is around 240. And last year, I made 50 % on it. On the downside, I covered a lot basically near the lows.

26:51And I reshorted it again. My average is around 240. I think there's still risk with Tesla. Their deliveries were terrible. I think their earnings are going to be very weak. and we're, well, here's the thing. Earnings, and I've tweeted this recently, and earnings estimates continue to drop precipitously, and they're going to be down quarter over quarter for the third quarter in a row. And this is a company trading at a very high multiple with a market cap of$800 billion, which is more than all the legacy automakers combined. They've cut prices on average around 28 % for all four models globally year to date.

27:36And that's going to hit margins. And you have this strong legion of buyers out there that are buying the stock, buying calls, anything they possibly can, and more power to them. It's just going to be great until it's not. And I will stay short. I'm hedged in other ways with it. So I'm not necessarily, I'm not, you know, I'm a clown. I'm, you know, I love those people on the, on the comments that say, oh, clowny short Tesla. You know what? I'm very aware of what I'm doing. And look, I also think that, you know, look, Elon Musk has, I mean, how many investigations happening right now? And I think the DOJ and Southern district of New York investigation is really serious and it's a criminal investigation.

28:25So if that happens where he gets indicted, and let's just say his ex-CFO or someone else in the company is testifying against him, it's going to be a very credible case against him. And this is for perks that he might have received from Tesla. And when you're a public company, you can't just get perks for glass houses or for whatever. It has to be in you're in a 8k filed, we're giving our CEO this and it has to be voted on by, by and compensation for, by those shareholders. So if he's doing that and they're also, that may be the Trojan horse where they're going to investigate this glass house.