Year-end rally, here we go!

0:00People are going to lose their minds. This is a moment in history unlike anything humanity has gone through. It's a very different world for humans to come. Take a step back and see the broad picture, which is the way all these technologies are interlinked. Because this is all about exponentiality, and humans can't think in exponential terms. How consequential do you want to say machine intelligence is? It's almost certainly as consequential as writing. How long did writing take to disseminate through the human population? You know, hundreds, thousands of years. And we're dealing with it now on a scale of months.

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1:09Is this what a year-end rally looks like? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Tony Greer, founder of TG Macro and editor of the Morning Navigator newsletter. Hey there, Tony. Maggie, how are you? I'm doing okay. I think everybody's feeling okay today. We have people in the chat already commenting, what a market today. We got big moves on the back of that softer-than-expected inflation data. Treasury yields dropping the 10-year now below 10-year yield, below 4.5%. Stocks took off, big rally, the dollar moved lower. I know you've probably got a lot to say about this, but I just want to take a minute first, because if we go back to the last time that you were on the daily briefing on Halloween, you had a lot to say, and I'm going to sort of roughly quote you, we were talking, it was just ahead of the Fed meeting.

1:59And you were like, listen, we've seen this before. Everyone was bearish. And you're like, listen, we've seen this before. The S &P, Fed starts talking, S &P starts taking off. Stocks seem to look vulnerable on the upside in the short term. You felt like everybody was short and we'd reached some serious support levels. And you said, if we bounce from oversold, it wouldn't be shocking at all. You totally nailed it because literally the next day we've seen this big move, big shift in the market, not only big moves, but big move in sentiment. So I just wanted to sort of just pause and give you credit for that because it was a really important move.

2:37It was kind of contrary to what people were talking about. And so here we are right now. Today's action really sort of building on that. So I'd love to know how you're thinking about this market given from, you know, what we saw from sort of November 1st on for this month? How are you thinking about things here? Yeah, Maggie, well, first, thank you for noticing that we had a good handle on the markets. And I'm always trying my best here at TG Macro for my clients. So that's something that'll never change. But thank you for the recognition. We did happen to call this pretty much, you know, we had the setup from the beginning.

3:11We saw the heavy selling ahead of the Treasury's most popular refunding of all time that my lovely mother-in-law was very concerned about. It was that popular. And after a 10 % slide in the market, we were just saying, what is Jerome Powell going to come out to do to wreck this S &P further? Then he came out at the FOMC meeting with that sort of dovish presser heard around the world, and that got things started. And today is a watershed moment in the S &P. right like today is unbelievable because today was the first of sort of many benign cpi numbers i think for months to come right we got cpi that was all softish to to you know non-eventish today for october where we had oil at a median price of around 85 and then oil took a big tumble down to 75-80 range.

4:10And I don't think, like I tweeted before, I don't think people understand how bullish that is for the stock market, because now lower energy prices take out that potential sting of having an upside surprise in inflation data, which is then going to derail the bond market, right, and send rates higher. And, you know, we absolutely got a reaction today that is just historic, right, from the data, because the data was benign. And I think that we're going to continue to see that we've got energy in a lower range. So today, you know, stocks and bonds absolutely roofed. I mean, just to look at the magnitude, we had two sigma rally sectors, 17 sectors finishing with two sigma rallies.

4:51You know, on certain days, we sometimes have one to two to five stocks that have a two sigma move in either direction. Today, we had 17 sectors have two sigma rallies or more all at once. And so this is the very same market that everybody was saying. It's only being driven by seven stocks. And if you take the seven stocks out, it goes down and they're all upset. So today we have two Sigma or more rallies in home construction, retail, regional banks, solar stocks, utilities, the equal weighted S &P, transports, gold miners, biotech, consumer discretionary, industrials, financials, basic materials, airlines, social media, cybersecurity, internet stocks.

5:31I mean, fade that at your peril, right? So that's how I'm thinking about it. Okay, that's the quote. That's the t-shirt. We always say, I should just have like a shop right here and print them out right after the show because it's true. And thank you for going over that because the big question, if you just look at the numbers, is what's breath like, right? That's what everybody's complaint has been. And the feeling that this is sort of, even on the days when we had a rally, underneath it has been a really unhealthy market. So do you feel like we're sort of in a new technical or sentiment spot right now?

6:11Oh, yeah. Oh, yeah. What's being created now is symphonic, as we used to say on desk at Jay Aaron. And what's being created now is, you know, first of all, by the magnitude of some of the best performing sectors today, like solar stocks, and then we have home construction, which makes sense. Retail. Well, when you have things like that rallying in enormous magnitudes, that's the short covering wave, right? That's the guys that are just blowing their brains out, right? And why do they have to blow their brains out? Because the S &P today cleared the last of the moving averages, right? We broke a downward sloping trend line from the high of the year, right?

6:49We broke above that downward sloping trend line, and we got above the 100-day moving average to what I call blue sky trading, because above the S &P, the only resistance level left is the last high. We've kind of cleared through all the consolidation levels. So that's super important. And that's why the shorts have to cover. What we're going to run into now is you're going to see seasonality start to blow people's minds, right? Because we are set up for a Santa rally, certainly. But with 17 sectors rallying of large magnitude today, this stuff is in play, right? Like this isn't just a one day, oh, boom, they covered it.

7:26And now we're going to go back to selling. This is not what happened. And this is changing the direction of the market very much because underneath the stock market rally were enormous moves in the macro markets. Right. We had first of all, you nailed it. We have three sigma rally in Treasury markets right across the curve. Right. We have a two sigma rally in junk bonds. Right. All across the entire curve. There's a new low close in the rates right from twos to 30s, new low close for the move. That's kind of confirming that the high in yields is in to me. and that we're starting to sort of tick lower.

8:00And it may not be, I'm not expecting a complete slide, but the highs are in and we're now going to consolidate and tick lower. So we had a two and a half sigma rally in the dollar index today, right? Which is, excuse me, a two and a half sigma slide in the dollar index today. Dollar index sold off aggressively, like a 1 % move in one day. That caused a huge move in Aussie yen higher, which fuels all the commodities, right? We had a four sigma slide in the dollar versus the one, On a three sigma slide versus the Swiss C, the euro and the pound. Pretty clear that the dollar highs are in the rearview mirror and the dollar may start heading lower now.

8:35So with all of this stuff going on, we saw some bounces in the commodity markets. WTI trade up to$80. Iron ore is exploding. It's risk on everywhere. And we're heading towards the end of the year and there's nothing to do but performance chase. So you tell me what's going to happen between now and December, and then we can start to talk about what's going to happen for the first and second quarter of next year when it seems like the Fed is going to be accommodative to whatever the economy has to throw at them. That's what I think it's fair to say. Yeah. I think that last part is going to be what we what we chew over and debate.

9:12So I'm going to I'm going to talk. I'm going to ask a question. I'm going to channel all the bears out there. And we know there are still so many. Right. People probably there are probably plenty of people who hate this rally because they just don't see it. Same people have been sitting on the sideline for tech, they're going to say, what could possibly go wrong? Everything can't be perfect. Everything can't be rallying. Can it? Well, what they're going to start to point to is, well, first of all, we just pointed out by the fact that 17 sectors had two sigma or more breakouts today. It's crazy.

9:43Yeah, it's crazy. It's literally an anomaly sort of day if you watch the tape every day, right? Like we can definitely identify this. So most importantly, the factor is, you know, this is we've come out of what seems clear to me is that the rate hiking cycle is over, right? This CPI data is proof, right, that the Fed is not going to have their hand to the fire anymore, at least not for the next foreseeable several months. And so if that's the case, and, you know, bonds are not going to be, tumbling down into the end of a three-year sell-off, and maybe there's just some consolidation, maybe Fed funds just peaked and now they stay within a 1 % range either way, stock market's going to love that.

10:27Stock market's going to love that. And I could see that being the case now that oil is not going to obviously be going through 100 anytime soon. I could see that being the case for months on end. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on The Real Vision Daily Briefing.

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11:50So what does this do? Let's go back to some of the sentiment, because I think this is what's so powerful about what you did on Halloween when we were talking, because you were looking at, you know, and we have a lot of people, rightly so, that dive into the economic data. What does monetary policy mean? All those macro things that we focus on. But you're always really paying attention to market positioning and sentiment and how kind of people are set up for events. And you rightly really called out the fact that everybody was bearish. The market was really short. Everyone was short. Everyone was sort of exposed going into that.

12:25How do things feel now? We know we had short covering. But does a day like this sort of change that market sentiment? Are people going to be rethinking this now that we saw the breath and some of this confirmation coming through? Would you expect the positioning to get more neutral or people chasing this bull rally now? I think that they're going to have to. You know, I think that there's definitely going to be some element of performance chasing. I mean, the S &P is, you know, up 400 points off the lows. It's broken out technically. It's got tailwinds galore, right? I mean, they're all over the tape today.

13:01Like, it's blinding, right? So, yes, I think that this is a big change in sentiment day. I wrote about it this morning. Today's not a day that I normally publish, but I was jumping out of my skin for the CPI number. And so when I saw the reaction, I was like, you know, when you're expecting something to happen and it happens right before your eyes, it's like, OK, it's time to write to the clients and say, CPI is out. It's benign. Buy stocks. Right. I mean, it was just seemed like something that's like, OK, this is like this is green light go for, you know, something into the first quarter. And I think it's something that, you know, when you put out tweets, Maggie, you get a lot of you get a lot of information back.

13:37Right. And by by the feedback that you get. And I put out a tweet saying a very popular tweet that got tons of engagement saying that I don't think people realize how big of a deal it is that, you know, energy market came off and the Fed just had a dovish press conference. Right. Like sounds like a pivot or whatever I said. And people just started throwing rocks at me from an economic perspective. And I'm like, so what? Aren't you afraid of this household debt? So what? What about credit? I'm like, those are Loch Ness monsters. They've always been around, right? And they're just enormous numbers.

14:13And that doesn't mean that people see that number and say, OK, you know what? Bail out of my stock portfolio. Other people are borrowing money. Nobody does that. So I think that people are going to have to say, yeah, I understand. We've got some towering deficits over here. We've got a trillion dollars in credit card debt over here. And that's going to be the case. Yeah. Yeah, it is hard for some people to do that. And also, there's that tension. There's been this tension between the economics and some of the economic models that people have always followed, and then some of the trading activity that we've seen.

14:47That's been hard to line up, whether it's from a timing point of view or whatever. In fact, so we just had a question come in. And it sort of speaks to this. I think it was Andreas posted something earlier. I've obviously been out of pocket. I was at an RV event out of the country, so I haven't had a chance to catch up on our own content. But AJ asking, do you have any thoughts on what Andreas said about how this rally makes a December rate hike more likely? So I think this is the economic conversation about, is the market now undoing what the Fed wanted? Part of why they were able to pause is because yields had done a lot of the work for them.

15:24There's that economic argument, but then you're really focused on what's happening in the market, the actual market action that's taking place. How do you figure out how to balance those two, Tony? You know, it's definitely something that has to be considered for sure. You know, you have to balance, you know, the bullishness of the technical tailwinds, of the seasonal tailwinds, of the bearish sentiment bubble that we were just in again. And, you know, you have to figure out how long it's going to take to work that all off. Right. And how long it's going to take, you know, for things to shift back where the pendulum swings too far, too fast in the bull to the bull camp or things like that.

16:03You know, I'm anxious to see how the street report responds to this. Right. And if the pencil pushers on the street aren't sitting up in their chair and coming out salivating like after today's price action, then they should just go back to sleep. and you should stop talking to them because today's action is something that like, you know, it has to have you on the edge of your seat for the next couple of months of trading. You know what I mean? Like you just don't see reactions like that in the markets all the time. And it came at the perfect time where, you know, the seasonality hadn't kicked in because the market was still hysterically reacting to the violence in the Middle East and the refunding and the bear market and treasuries.

16:46And then, you know, once sentiment gets too far, you know, swung in the wrong direction, you don't even know what's going to happen next, but something happens next that makes the markets agree with it. You know, so it's like one of those fascinating, fascinating phenomenons and why markets are so amazing, right? Because there's no, you don't need a Hofstra degree to be able to, you know, understand that stuff. That's just from studying what's going on out there. So that's where I feel like we're in a position of strength and the market is too. So yeah, really fascinating stuff. So I just want to take a step back.

17:20And I think this is, again, it speaks a little bit about the sort of sentiment setup that you've been so on, Tony. Jason asking, I need a simple education here. Why is a month on month miss of one tenth of a percent on CPI read such a big story? It doesn't seem like a huge difference. I think this is exactly the point, isn't it, Tony? That is a great question. And a question that I would, you know, that's a sort of mature question to ask. And even if it sounds like, you know, a beginner looking for a lesson, that's a very mature question to ask. Like, how the hell does a, you know, how does that little of a data difference matter?

17:56What it does is, more importantly than, forget about the magnitude, right? The scary thing for the markets has been inflation, right? We just saw the oil price dump$10,$15. Energy gasoline dumped before that. Energy prices got cheaper. Gold price backed off the highs, the whole thing. And so the market now is just looking for a chance to say, how are we going to work off this oversold, overshorted condition? And then once the market lets it in on the fact that says there's probably not going to be an atom bomb on the downside if there's no inflation coming in the next month. So what are you going to try to do?

18:41Stay short until the next inflation number? Right. Like, forget it. It's time to trade. Right. Right. And so the market sends a signal that you have to put the magnitude aside. But when it opens up the floodgates like this and changes the entire world from the from the currency markets to the bond market, to the equity market up at the goddamn real estate market traded today like hotcakes. And I'm just saying you have to pay attention to watershed days like this. And if you're not in there with your sleeves rolled up trading, either getting the hell out of your short or adding to your longs or putting new positions on, you're playing a different game.

19:18Yeah. And Jason, I think that we often I have had people for many years tell me it's never one number, but it's a trend. Right. So we've been seeing sort of evidence coming in, moving in this direction, sort of feeding into that narrative. And sometimes it's just the last sort of piece on the Jenga pile that convinces everybody that it's disinflationary now. Maggie, exactly. So the Jenga pile was just the whole world looking at inflation data and saying, is that it? Is it really going to curl over? Like, really? And then today we just said 3.0%, 0 % market, and the whole freaking thing collapsed.

20:00And everybody was like, yeah, you know what? it is not going to be a threat right now. I have to fix my my portfolio. That's all right. We you know, we we recognize that that that is one of our sort of charms and vices, our ability to speak freely here on Real Vision. Yes, for sure. Yeah. But but that's true. So it did it did feel like that. So great question coming in from D.D. Tony, are hedge funds still missing out on this rally and what's their game plan going forward and how you know how does that impact the market because talk about playing catch-up I got to think some people are talking about underperformance they get paid to perform they can't underperform oh this is this I mean there had to be a lot of broken windows and broken keyboards today because I'm sure that a lot of people that were short were not able to get out of everything that they're short I don't know if you notice, Maggie, but there are little sort of blurbs floating around out there in the markets like there is a record short position in Exxon Mobil.

21:03Right. And so I get that. It's fair. You know, they think gas demand is going to back off. The recession bros think that all the energy stocks are going down. Like I get that. But that's just an indication of what traders are not afraid to do in this in this economy, in this market, in this scenario. Right. And so I'm not saying that like Exxon is definitely a stock that's going to rally. Like I have no idea. But my point is like, if there's a record short in Exxon, then there's a lot of big short positions out there in companies that are just not going to go down now. Right. And so all of this has got to get worked off before people get a chance to catch their breath.

21:39Like the portfolios are still upside down for what is going to happen. And so it's, they're not going to be able to get right ship, get the right to ship in a day. And so that's why we're going to see some volatility. And man, that's where the opportunity is going to be. 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.

22:04I also noticed on, I think it was CNBC's website, a headline that Michael Burry reveals a new bet against chip stocks after closing out a different short. So you're right. There are people who are making bets still in this environment. And so this kind of move maybe creates some issues for some folks. I want to go back to some of the questions in a second, but just wanted to flag as well. So we've got retail sales coming out. We've got some more economic data. So we'll see. It'll be perhaps a test of what's happening because it seems to be like you can get economic strength as long as you don't have inflation.

22:40That's a great scenario for stocks specifically. So a lot of people betting that maybe retail won't, even if it's strong, won't spook everyone because you've got the inflation part. We also have on the geopolitical front, tech executives are going to be keeping a close eye on a scheduled meeting between President Biden and Chinese President Xi. That's happening in San Francisco on the sidelines of the APEX summit. Andreas and George Manus sat down to discuss the outlook for China's economy. Here's a clip from that. I'm not really very optimistic that the government is going to announce the kind of changes to the structure of China's economy that we would necessarily think are appropriate.

23:22And I say that not just kind of with a Western economist hat on, which of course I wear by definition, but also there are many Chinese economists who actually are saying, we have to do more about consumption. We have to do more about opening up. We have to reform our service-producing industries. But these are not things that come naturally to Leninists, and it certainly doesn't fit very well with the overall ambition and goals that the party has, in which it believes that the party leads everything, quote-unquote, which is everything from the economy and commerce to society and social intercourse and so on and so forth.

24:04So what can they do? Well, Xi Jinping obviously lays a lot of belief and stresses all the time something that he calls new productive forces, which are really the industries and the sectors that are at the cutting edge of science and technology. So electric vehicles, batteries, climate change mitigation, green economy, artificial artificial intelligence, quantum computing, semiconductors, for heaven's sake, is something which the Chinese are absolutely desperate to be able to do on their own without having to rely on, you know, Korea, Japan, the United States, Netherlands, and so on. So, yeah, that's the goal.

24:46It was a really timely conversation. You can see the whole interview on our website. To join and get access, hit the link in the chat, scan the QR code, or you can go to app.realvision.com. That's where the RV 2.0 is living right now. Tony, I know it's mostly a geopolitical event. It is a big deal. Are you going to be watching that? I mean, I don't know that's going to have any market impact. I don't even have enough time to take my eyes off the U.S. stock market, Maggie, right now. There's so many opportunities that were opened up by today's price action that I'm going to just stick to my knitting.

25:19Yeah. But you bring up a good point because a lot of people, there had been a narrative, in addition to all the bearishness, that the best opportunities are outside the U.S., that this is going to be the moment to, you know, and now all of a sudden everything's back to the races. So I'm guessing that's another sort of narrative of repositioning, at least into your end, that maybe people are going to be taking a hard look at. Not to say that they can't go up too. You know, sometimes a rising U.S. can have a halo effect. But I want to get to this question. It is a great one. Joseph asking Tony, but it speaks to sentiment maybe.