The VIX or the “fear gauge” has been trading sideways but what does it indicate about equity market expectation? And US home sales in April fell to their lowest in 9 years, brought down by rising mortgage rates but how adversely will this impact the property and construction sector? Tony Nash, CEO of Complete Intelligence tells us more.
Show Notes
SM: Bfm 89 Nine. Good morning. You are listening to the morning run at on Thursday the 26th May. I’m Shazana Mokhtar with Khoo Hsu Chuang and Tan Chen Li. First, let’s recap how global markets closed overnight in the US.
KHC: Doll up zero 6%. Smp 500 up 1%. Nasdaq up 1.5%. Asian markets. Nikay down .3% Hong Kong’s up 3%. Shanghai Composite up 1.2%. Sti down .5% FBN KLCI up zero 3%.
SM: So for some thoughts on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Tony, good morning. Let’s get some reactions on US markets overnight. They interpreted the latest Fed meetings pretty favorably. It seems the US stocks all inched upwards. What did they find reassuring about the Fed’s policy direction?
TN: I think they were just looking for some direction that things weren’t going to be worse than the guidance that they received previously because commodity prices haven’t stopped rising necessarily. And so I think people were afraid that the Fed might accelerate their plan to stop inflation and just a little bit of a nudge that they probably weren’t going to do that and they were going to remain flexible, probably help things out after hours. You had Nvidia report, which was really disappointing. And so the Nasdaq futures are down pretty far right now. So although we had a good trading today, things are looking a little bit pessimistic for tomorrow based on some earnings.
TCL: Yeah. So the Fed translators have a TLDR conclusion on the Fed minutes yesterday. We have it at three more basis, 50 basis points hikes, and then an indefinite pause. Tony, what do you think about that translation?
TN: So I think what they’re saying is where investors are seeing say for the next six months that things will be pretty stable. They can Bake in the 250 basis point rises, and from there it’s pretty easy to calculate how much tolerance you have. The other factor to think through is how much the Fed will tighten for the next six months. And that’s already baked in how much they’re tightening their balance sheet. And I think that’s $23 billion a month, or 32. I can’t remember the number exactly, but it’s a stable number, and that’s really unlikely to accelerate.
TCL: Tony, does it set the stage for a second half risk rally?
TN: Yeah, it possibly could because it’s campaign season and nobody really wants to be tightening going into a campaign. So it’s possible. There’s a lot of talk about recession, and if there is a recession, we’re already in the middle of it. So there’s no sense kind of worrying about it because it’s already here. If that’s the case, we already had a first quarter contraction in US GDP. If we have a second quarter, we’re already halfway through that anyway, almost so or two thirds of the way through that. So it doesn’t really matter that much. And I think people are starting to look at that in a different light.
KHC: The CTO volatility index or the fear gauge has been moving sideways between 25 and 35 over the last month. What would that trading pattern indicate about equity market expectations?
TN: Yes. So the VIX really is it measures volatility of SMP 500 options over the next 30 days. And so it tells me that there is, I would say heightened sensitivity or elevated volatility expected. But I wouldn’t necessarily say it’s extreme. So it doesn’t appear that people are looking for some sort of extreme, say May or April 2020 type of event. So people are worried about further falls in equities for their pullbacks in equities. But I don’t necessarily based on what we’re seeing in the VIX, not necessarily seeing people expect things to fall off a cliff.
SM: And I think looking at how the rise in interest rates, what kind of impact has been having so far, we may be seeing that in US home sales because in April it fell to their lowest in nine years. But what other headwinds do you see facing the US housing market and how do you think it’s going to impact property and the construction sector moving forward?
TN: Yes. People in the US talked about supply like there’s a short supply on the market or not enough supply. In May, we actually went up to nine months of housing supply on the market. What that means is the number of, say, homes that are on the market, given the current pace of buying, would last for nine months. Of course, there is short supply in some markets, but in general, there seems to be across the US at least ample supply. So people are going to pull in their expectations for price given that interest rates have risen. But if they continue to rise, they’ll want to rush their purchases forward, which is possibly what we’ll see, especially over the next 30 days or so, because people always want to save a little bit more on the interest rate. So I don’t see a lot unless we start seeing mass layoff events or something like that. I’m not sure how much of this you see Malaysia, but we did see a lot of all cash buyers for houses in the US. And what’s been happening there is people will take out a loan, a cash loan against their equity portfolio.
TN: We will definitely see that stop because equities are not as relevant as they were 60, 90 days ago. There have been some calls on those loans and so some of those transactions have had to stop. So I think that’s what’s led part of what’s led to a little bit more supply on the market and may slow down some of the purchase transactions.
TCL: Yeah. Tony is still on properties. I think I read somewhere that the median home price in America across the whole country is somewhere around either 349,000, $391,000 per house, which is the highest it’s ever been in a number of years. Do you see that house inflation continuing to creep upwards, or do you think it’s kind of like peaks off and it’s going to taper off?
TN: I think we do have a lot of new houses under construction, so I don’t necessarily think we’ll see that continue to rise at the rate that we’ve seen. If we do, we’ll continue for a period, maybe six to twelve months or something. But I don’t necessarily see house prices continue to rise, especially with interest rates rising. If we had kept interest rates where they were, then sure, we’d continue to see house prices rise at that rate, but because they’re pulling that lever, I think they’re going to let it sit, of course, as Palo said, for a period of time. But if house prices continue to rise in an uncontrolled way, I think they’ll come back in and intervene with interest rates.
KHC: And with India now restricting sugar exports and Malaysia doing the same with chicken, where is the trend towards food protectionism headed, and are we looking at a global food crisis?
TN: Yeah, I think your last question first. Yeah, I think we are definitely looking at a global food crisis. Well, maybe not global a regional food crisis in certain regions. Of course, there have been protests in Iran, supposedly over food prices. We’ve seen issues in Sri Lanka, of course, places like Egypt, different countries. There are problems. But I think some of this is related to Ukraine’s inability to export Ukraine and Russia’s inability to export some of their goods. And yeah, some of it’s protectionist with sugar in India and other things. But I think the countries that are holding back exports are more focused on providing for their citizens, and I think they’re trying to visually make sure that their citizens see that as a priority. So the citizens aren’t protesting and upset. And if we look at what’s happening in Pakistan right now, so citizens aren’t protesting and upset. So the political leadership is actually seen to be doing something to hold some food back for their clients or their citizens as a hedge against inflation. So I think part of it is political. I know it’s a little bit protectionist, but I think it’s more just being very careful about being prudent for their citizens.
SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, weighing in on some of the trends that he sees moving markets, commenting on, I suppose his outlook for the housing sector in the US, which has taken a different trajectory from Malaysia, which are housing hasn’t really gone anywhere for the past two, three years, six years, actually.
TCL: Yeah. In fact, since 2014. But I just checked some of the data from America, the Fred statistics from the St. Louis Fed prices. The median house price in America is $430,000. Of course, median is the middle number between the top and bottom, $430,000 per house in America. That’s average let’s reach out what 1.8 million ring? That’s a lot of money.
SM: That’s inflation for you 717. In the morning we’re heading into some messages. And after that all you should know about green bonds in the region. Stay tuned to BFM 89.9.
We’ve had a big week in markets. The S&P is up 5 percent. We’re looking at whether this rally has legs, where’s the volatility, and if the recession is canceled? Also, we have a shorter trading week next week due to Memorial Day on Monday in the US. What’s to expect in 4 days?
Key themes:
Does this relief rally have legs?
Where’s the volatility?
Is the recession canceled?
What’s ahead for next week?
This is the 20th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.
0:00 Start 1:10 Does this rally have legs? 1:58 When will the tail end? 2:40 Crypto has no participation in the rally 3:31 Why tech is still weak? 3:52 Why tech is so subdued? 5:00 What to expect in the options market in the next 4 weeks? 6:42 Durable goods chart from Sam’s newsletter. 8:52 Layoffs in tech, will it continue? 11:30 Will investors and analysts become tougher on companies as we normalize? 13:55 Will we have a recalibration of valuation expectation if there is no recession? 14:34 What to watch out in the 4-day trading week?
Listen on Spotify:
Transcript
TN: Hi, everyone, and welcome to The Week Ahead. This is Tony Nash and I’m joined by Sam Rines and Albert Marko today. We’ve had a big week in markets. The S&P is up 5 percent.
So we’re going to look at a few topics today. First, does the relief rally have legs? We’re also going to take a look at volatility and the recession. Is the recession canceled? What’s happening there? We’ve heard a lot of talk about that. And finally, we’re going to look at the week ahead. So what do we expect for the short week ahead in the US? We have a holiday here in the US on Monday. So what do we expect for Tuesday to Friday in US trading?
So let’s go to you with this relief rally. What’s your thought on this? Does this relief rally have legs?
AM: In short? No, not really. The Fed uses many tools to produce rallies. A lot of it is coming. This week was short covering. Previously, what you’ve seen, especially when during a holiday season, holiday hours, whereas like when I was trading, a lot of liquidity out there is they actually serve the market. They did this over Thanksgiving. They did this over Christmas. If you go back and look at the charts, those 4800 prints were done over holiday trading hours. It’s easy for them to do it. Does it have legs? Probably not.
TN: So legs. Does the tail of this last few days next week, or is Friday the last kind of really interesting day we see for a while?
AM: Well, they have a tendency to figure out what the Bull bear line is, and I think it’s at 4250. Don’t be surprised if Tuesday we’re in the 4200 pushing that line. That’s when the put options are absolutely just completely obliterated after today, for sure, by Tuesday. And then people start getting bulled up. Once they get bulled up, they just pulled the rug.
TN: Sam, what do you think?
SR: Well, I think it’s really interesting that you saw this rally and you had basically no participation in crypto. Crypto tends to be tip of the spear type risk. If you really want to put some significant risk on in a portfolio, you go ahead and buy crypto. That’s just what you do.
So I think that’s a fairly telling sign that, yes, there is a rally underway. And if you look at it, oil is ripping right now, particularly some of the smaller producers. So you are getting some of the underlying stuff moving, but you’re really not having that tip of the spear, real risk type move that you would really want to see for some sort of sustained long-term risk-on type rally.
TN: And we saw guys in Nvidia really take a hit this week. Granted, it’s coming back a little bit, but tech is still weak. And so we’re not seeing some of those risk names really come back.
AM: Yeah. What’s interesting and this goes into the next topic is how are they rallying the market if tech’s not running.
TN: Right. So let’s talk about that. Why is volatility so subdued? I’m not really sure. So we’ve got a chart for the VIX up on the screen. So can you talk us through it’s the lowest point it’s been since Covid. So what’s going on there?
AM: Yeah. So the question is how could it be at a three-year low with such bad news out in the market? Raising rates, Fed sitting there talking Armageddon when it comes to the markets, bad news, bad earnings, everything is going wrong. How possibly could this thing be at the three or low?
Well, they keep it there on purpose to sit there and subdue the VIX. Well, now the VIX is at what, 28? I believe it is right now. But really, they could probably take this to 22 and use that to rally the market rather than tech. But, man, I’ll tell you what, you got to be very careful because the VIX at 22, and if they start rallying the market at that point, 4250 is could be the tip of the iceberg. You know what I mean?
TN: Oh, yeah. I guess my question, Albert, is the VIX measures S&P options for the next 30 days. Right. And so what it’s telling me is that the options over the next four weeks aren’t expecting a dramatic downward move. So are they just playing in that options market to make sure that it looks pretty orderly or what exactly is happening?
AM: Oh, yeah. They’re creating a story. They’re creating a narrative and tell you, hey, it’s time for you guys to get bulled up. Okay. Their objective is to erase excess money out the system and to give us a soft landing. They have said this much to Sam’s point, which he’ll talk about is they said we’re going to raise rates and we’re going to let off when we have to let off. They’re giving you all these signals to get bulled up.
TN: Yeah. I just want to make it clear because I think there’s a misconception out there about the VIX. I think a lot of people believe that the VIX reflects volatility in the market today. And that’s not at all it. I just want to make clear as we talk about it, that we’re looking at the options market over the next 30 days and how the Fed potentially is playing in that options market to make things look like a soft landing. Right?
AM: Yeah. They’ve erased trillions of dollars in the past OPEXes, and they’re just lining everybody up for another one. I mean, I think at one time it was 9 trillion. Another instance was 11 trillion. Just obliterated options.
TN: There’s a lot of opportunity in this. Right. I mean, if you see what’s coming, it can be really interesting.
AM: Well, this is a pattern thing. People do what they know. They’re creatures of habit. Fed is no different.
TN: That’s right. Very good. So on that note, Sam, you had an interesting newsletter out this week looking at kind of the recession. And one of the interesting charts which you have now is looking at durable goods, all durable goods and durable goods, excluding transportation.
Can you talk us through that a little bit and help us understand what that means for kind of the recession that we hear talked about so much over the past few weeks?
SR: Yeah, certainly. It’s pretty straightforward. Right. If you look at a combination of same-store sales across for retailers across all of them and not just a few big ones that made headlines, things were fine. Then you look at durable goods.
Durable goods skyrocketed coming out of COVID. And guess what? They’re continuing to make new COVID highs. Yeah. They just put it on a month-over-month basis. But it’s pretty aggressive to say that while they’re still growing and still ex-autos above anything that you can get back into the 80s. That’s a pretty big figure there.
It’s very hard to say, hey, we’re in the middle of or entering a recession when you have jobless claims sitting at 210, 215 thousand a week and you have durable goods sitting that high, the Red book same-store sales are in the low teens. That is an absolutely stunning figure for any time outside of call it COVID. Right. I mean, normally you’re very pleased with a 5% figure.
So it’s very difficult to get to the whole recession narrative unless you’re looking for something to really break here in a major way. We’ve already seen a housing break. I mean, we called that out a long time ago, but at the end of the day, if you don’t have people defaulting on their homes, which they’re not, and you don’t have a significant number of layoffs in the construction industry, which we haven’t seen, you can have a slowdown in home building and home builders and home buying and not really have it be systemically important to the US economy.
TN: Right. And we’ve had some layouts in Tech, which you talked about a couple of weeks ago, but a lot of those are bodies that people kind of panic bought. Right. They overbought headcount and now they’re shedding that headcount that they overbought.
I don’t know if that’s isolated to Tech or if that’s just happened across a service industry generally, but it seems like we’re starting to see a narrative that there’s a lot of layouts happening and a lot more coming. Do you see much of that, or are you seeing much of that outside of Tech?
SR: No, not really. It’s a San Francisco problem, not a San Diego problem. That’s the way I like to frame it is. Yeah. You overhired a lot of people in tech.
TN: And paid a huge amount of money for them.
SR: And paid a premium. And when you paid a premium and figured out that COVID wasn’t forever and the COVID demand wasn’t forever, if you want to realign your cost structure with your revenue outlook, you’ve got to take some head count down. But to be honest, you’re really not seeing it be something that’s systemic to say the entirety of the labor market by any stretch. West Texas isn’t laying people off on the oil drilling front. They still need.
TN: I’ve two friends who’ve just been hired to go out on rigs in the past two months. I mean, that is still building up.
SR: It’s still building up. And there’s nowhere near enough labor to do it. And you don’t have enough labor and leisure, right?
TN: Yeah.
SR: I really do think that we’re going to see the summer of vacations at any price. And if you look at leisure and hospitality, they are well understaffed. And that’s going to continue to be a problem. This is San Francisco problem, not a San Diego problem.
TN: Okay. So let me ask you guys, and I’ve been running through this, bouncing this off a couple of people over the past couple of weeks. But through the COVID period, banking analysts and investors have been pretty lenient on management teams. Hey, just make it through. Just keep running your business. Yes. We can tolerate a lot of kind of variability. They’re very forgiving on things.
Now that we’re normalizing, and I heard someone say this week something like only 7% of the workforce is actually working from home. I don’t know if that’s accurate or not, but I heard somebody say that maybe it was 17, but I think it was seven.
But now that we’re kind of normalizing, will those investors and analysts become tougher on companies on those management teams? Because it seems like they’ve been very loose, giving them huge birth to do whatever they want just to keep the business together over COVID? Are those expectations tightening down?
AM: I would have to say absolutely. I mean, in the past two years, you’re talking about just companies treading water, navigating the turbulent water of the market. Now you need actual leadership to figure out what’s going on with the supply chains, how to get workers working at a productive rate, getting supply and so on and so forth.
It’s crunch time now because although we can talk about a recession not happening, and I think that’s accurate. Look at the retail numbers that just keep coming out. We even said don’t short retail do that. The piper has got to be paid and management has to step up right now. 100%.
SR: Yeah. And step down. I think that’s a completely relevant one. And a lot of it is concentrated in VC.
TN: Right.
SR: A lot of it is things that you don’t get the AK on. These are private companies that raised at ridiculous multiples during COVID. Those are going to continue to see some downroads here.
TN: Right. But not just in private companies. Do you think that because of the change expectations post COVID, do you think we’ll see some management turnover in some large companies?
SR: Yeah. You’ve already seen Jack Dorsey out, right? You’ve seen that kind of called the Elon effect on that front? Yes. You’re going to see a lot of them.
In particular, I would say you’re probably going to see give it six to nine months when the body is washed up on shore from the downturn in DC, there’s going to be a lot of people that went over their toes there and they’re going to be axed.
AM: Yeah. Not just that, Sam. Not just that being pressured but also there’s going to be a lot of companies out there looking for merges and acquisitions that are going to force these.
TN: So if we don’t have a recession, we’ll still have a recalibration of, say, valuation expectations. Is that fair to say?
AM: I would say so. I mean, talking about recession, it’s a numbers thing. It’s a perception of what numbers is being displayed by the Fed and the Treasury. I mean, they can just fabricate those for however long they have to. So you won’t technically be in recession, but wage inflation, inflation is going out of control.
TN: You kind of rolled your eyes when I said that, but what were you thinking?
SR: I don’t know.
TN: That’s a good answer. What do you expect for next week? We’ve got four trading days next week. What’s going through your mind and what are you thinking about as you go into the holiday weekend?
AM: Bull bear line, 4250. I expect them to at least try to come close to that. But there’s going to be a lot of sellers out there trying to get whatever they can figuring out that OPEX and the Fed minutes are coming out next month with more rate hikes.
TN: Okay, 4250 on the S&P. Sam, what are you thinking?
SR: I’ll be watching the dollar really closely. If you continue to see a lot less pressure underneath the dollar here, oil is going to moon. So I’m watching oil very closely, mostly due to the dollar and some downward pressure on longer term rates. As we continue to see the narrative of the fed go fast then backtrack call it 1994 with 2001 characteristics.
TN: Interesting. It’ll be great to see. It’d be really interesting to see it, guys. Have a great holiday weekend. Thanks very much and have a great week ahead. Thank you.
Millions of Australians decide whether or not to vote back in the Conservatives after nine years under the party’s rule. BBC’s Katie Silver and Australian economist Tim Harcourt tell us more. Rising fuel prices have led food delivery drivers to strike for days in the United Arab Emirates, where industrial action is banned. BBC’s Sameer Hashmi explains their struggle from Dubai. Adi Imsirovic from the Oxford Institute for Energy Studies gives us his views on the former German chancellor Gerhard Schroeder’s recent resignation from the board of directors of Russia’s state-owned oil company, Rosneft. In Korea, president Joe Biden begins his five-day Asia trip with a visit to a Samsung semiconductor plant. We talked to Carolina Milanesi, president of analyst and market research firm Creative Strategies, about this. Vivienne Nunis is joined throughout the programme by guests Tony Nash, Chief Economist at Complete Intelligence in Houston, Texas, and Karen Percy, Senior freelance reporter in Melbourne.
Show Notes
VN: Tony Nash, who’s the chief economist at Complete Intelligence in Houston, Texas, is one of them. Welcome back to the program, Tony.
TN: Hi, Vivian. Thank you.
VN: Thanks for joining us again, Tony Nash. Listening to that. It’s interesting, isn’t it? It doesn’t matter where you are in in the world. The energy crisis triggered by the war in Ukraine is forcing drivers to fill the pinch wherever they are.
TN: Yes. I live in Texas, and we produce a lot of oil here.
VN: What’s the situation there?
TN: Oil is rising pretty quickly. The price of gasoline is rising pretty quickly. So both regard to the UAE. I spent a bit of time in the region, and the prices are always lower. They’re very cheap. But what’s interesting about the delivery business is if the cost of petrol is impacting the delivery business, that could be a real issue for that business model. I think we’ve been in an era of relatively low petrol prices, and if those prices remain high, it could be a real challenge for that business model at some point.
VN: So you’re saying that fuel prices are already cheaper compared to, say, global averages in the US, and I guess they are in the US as well. They’re heavily subsidized, aren’t they? I guess the question is, should governments be stepping in where they can to ease that pressure on drivers and everyone facing various cost of living pressures?
TN: Well, with UAE, actually, the prices in May for fuel are lower than they were in April. They’re still elevated, but they have come down a small amount, like 2% or something. But I think if the government is to help people, all that will do is I think we’ll only have higher crew prices or higher sorry, fuel prices. So it’s a hard thing to say, but I think more money toward it will only make those prices higher as more people consume kind of at the same levels, but with the subsidies. So it’s a very hard time. And I think it’s something that maybe the companies should help their drivers with, not necessarily the governments. These people are working on behalf of the company. And so perhaps the company should help their drivers a little bit with fuel.
VN: Tony, this story is moving all the time, isn’t it? We’ll get to some of that in a moment. But firstly, it was rather extraordinary, wasn’t it, that Gerhard Schroeder didn’t resign from that position on the board of Rosneft until today?
TN: Yeah. It’s weird that he took up the position in the first place. I remember when it happened 20 or so years ago, and it just seemed like a strange appointment at the time. But it took him 20 years to make the decision. So, yeah, it’s well overdue and it seemed fishy from the start. And I think Germans have been extraordinarily patient in putting their pressure on him to get it done.
VN: Well, we don’t know there was anything fishy, of course. I mean, perhaps the pressure only really came on to him since this invasion by Russia into Ukraine, given that before that, Russia and German energy relations were pretty tight.
TN: Sure. Yeah. But Germany had at some point looked at, say, taking LNG from other parts of the world, Qatar, US, other places, and they chose not to do that and really have Russia as their only source, I believe, largely because of lobbying that Schroeder participated in. So had Schroeder not worked with Gasprom, there’s a feasible scenario that Germany would have multiple sources of natural gas and oil and not really just looking at Russia.
VN: I mean, Tony, I guess what is fairly obvious that it was a very lucrative position there, and that’s probably one of the reasons why he stayed so long.
TN: Sure. And as a former Prime Minister, it is awkward for him to lobby to single source energy from one country. I get it. Of course, it’s lucrative and everybody has to pay the bills somehow. But this was particularly odd.
VN: Okay. Let’s leave it there. Thank you both for your thoughts on that. Tony. It was interesting, wasn’t it, how President Biden almost made a beeline to that Samsung plant straight off the plane after he landed in South Korea, obviously underlining that relationship with South Korea, but also the importance of semiconductors in today’s economy.
TN: Sure. So I live in Texas, and Samsung last year announced a $17 billion chip Fab investment just north of Austin, Texas. And Texas Instruments is also building a new chip Fab in North Texas. So there are three new chip fabs that have been announced or major new chip fabs that have been announced in the US over the past couple of years. And two of them are in Texas. And so that $17 billion of investment that Samsung is making is really the reason for the trip. So that chip Fab that’s in Texas, there’s got to be a lot of thank yous to Samsung for making that investment in the US.
VN: So it’s not a wider move then by the US to really try and encourage that kind of thing in its own shores. We talk about onshoring we’ve seen so many delays in global supply chains throughout the pandemic. We’ve seen shipping crises. Is this an idea to try and prevent any of that from happening in the past and get those made in the country closer to some of those big companies like Apple and intel, for instance.
TN: That has been underway for probably five years. The movement to getting technology firms, particularly semiconductor and defense related technology firms, building more either in the US or in the NAFTA or the North American Trade Agreement area. So that started particularly after the 2016 election, and it’s continued in the Biden administration trying to get more of that technology development and technology manufacturing in the US.
VN: And right where you are in Texas. Well, not exactly where you are, but somewhere in Texas we’re hearing not just about these semiconductor plants, but also, of course, Tesla moving a Gigafactory there as well, out of California and into Texas.
TN: Right. Tesla, Oracle, HP, many firms have decided to relocate to Texas. It’s a great workforce. I’m here. I run an artificial intelligence company here, and people here like to work. And so it’s a really good location for technology companies.
VN: It’s not just the hard work, though, isn’t it? Also about tax rates, if I recall.
TN: It’s about tax rates. It’s about research dollars. So the universities here get a massive amount of research dollars and spend a lot of money on research. And it’s the quality of education that’s here. So all of those things combined, of course, Samsung got subsidies for building its Fab and Taylor, but I think they could probably get subsidies from anybody. They’re kind of really looking at the whole environment that they plant their business in.
VN: It’s interesting because we always think, well, originally we thought about California dominating the tech industry. Now we’re hearing about Texas, as you’ve just mentioned. I spoke to Carolina, who we heard from earlier. She’s actually moved out of California into Atlanta. And she told me that’s a growing tech hub, too, used to be a kind of base for telecoms companies, but now it’s attracting some of those tech firms, too.
TN: Yeah, I think there are a lot of kind of mini tech hubs around the US, and you can find them in different clusters around the US. And so it’s really just a matter of what critical mass can you get and what specialization can you get, and then how do you build around those specializations? So, for example, Tesla moves to Austin, and their vendors are then required to move to Austin as well. Right. And that creates a cluster around what Tesla does. So really getting those bigger fish to move their vendors and build that whole system is pretty critical. And the Texas governor, Greg Abbott, has actually done a really good job of recruiting those firms here because it’s only the last four or five years that a lot of that’s happened.
VN: Okay, well, thank you, Tony, for all of that insight from Texas. Do you take ketchup and mustard on your hot dogs?
TN: You’re supposed to only eat mustard on hot dogs. I’m sorry, but this is the law of the land.
KP: It’s an abomination. I have a Canadian Hudson who does the same thing.
VN: Okay, so just mustard, you said. Okay, Tony asking you in watching along in the US. I mean, Boeing getting into this private space race. Now, Boeing has been in the news for all the wrong reasons over the last few years. Those two very serious fatal crashes. There’s a lot riding on this venture, Tony. Have I still got you there?
TN: Yeah, I’m here. Can you hear me?
VN: Yeah. So just talking about Boeing, they’ve had a pretty rough ride, given those two facial crashes. A lot riding on this venture into space.
TN: Absolutely. And they need some good news stories. And if this is a good news story for for them, that’s great. I hope it ends up well.
VN: Okay. Thank you, Karen Percy in Melbourne and Tony Nash in Texas. You’ve been listening to business matters with me, Vivian Nunes. Thanks for the team in Manchester here as well. Bye for now.
The SPX was down 4%, WTI was up 2.8%, and the 10-year yield was down 2.9%. Intraday vol has been an issue all week. What’s going thru an institutional trader’s mind in this market? Sam Rines explains.
On the commodities market, wheat was down 6% this week. Corn ended this week down about 1%. We’ll help you understand ag and fertilizer markets with Tracy Shuchart.
The dollar (DXY) is down a bit this week, about half a percent. Are global central bankers worried about a rising dollar and is there anything they can do about it? Albert Marko gives his insights on this.
Key themes:
1. How are institutions trading the intraday vol?
2. Ags and fertilizer: Demand Destruction vs Supply Shortages
3. $USD 💪 – 🙂 or ☹️
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This is the 19th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi everyone, and welcome to The Week Ahead. I’m Tony Nash, joined as always by Sam Rines,
Albert Marko, and Tracy Shuchart. Before we get into it, please, please like and subscribe. Please like and subscribe.
Also, we just started our new CI Futures promo. You get your first three months free. Get global markets, currencies commodities economics with CI Futures. Check it out at completeintel.com/2022Promo
So guys, this week S&P was down 4%. So I think some people are relieved it wasn’t down more. WTI was up almost 3% and the 10-year yield was down 2.9%. So I think it was a little more tame, at least by the end of the week than some people thought it might be, which probably not helpful to everybody, but I think it helped people a little bit, just kind of get a grip on things.
So our key themes this week, first, how are institutions trading this market and more specifically kind of Intraday Vol?
For AGS and Fertilizer. Is it demand destruction or supply shortages or both? How are those playing out?
And for the US dollar strength? Are global central banks happy about it or sad about it?
So today for our first segment, Sam, if you can help us understand this. Intraday vol has been an issue all week and for the past couple of weeks. What’s going through an institutional traders mind in this market We’ve got a tweet and there was a great thread from Kris Sidial. I definitely recommend reading it. So can you walk us through that a little bit, Sam, what they’re thinking about and what institutional traders are doing?
SR: Sure. I would say what they’re thinking about is not losing money, particularly after you had the target earnings, Walmart earnings. There were some landmines out there in individual retail land. That brought up some call it concerns about the consumer. It brought volatility into places you hadn’t really seen volatility recently. So staples began to really get a little more volatile. In particular, they were more volatile than the S&P500 for the back half of the week. So you began to see call it the volatility spread on underlying issuer basis, but not necessarily really spiking at the headline index level.
TN: So traders are trying to keep it flat, right?
SR: They’re keeping their risk very tight. There’s quite a bit of blood in the streets, so to speak, particularly those trading rates and individual equity names. So yeah, I would say it didn’t look like it was that volatile, but the intraday vol was incredible and it took a lot of the risk out of the system. It’s worth noting that a lot of the risk managers out there aren’t looking at day to day vol. They’re looking at Intraday Vols, PNLs. So you’re likely to get a shoulder tap Intraday if you’re playing these markets with too much leverage.
TN: You tap out at like 2:00 PM or something because of your positions? Is that what happens?
SR: Or you just have to unwind one that you like. Right. If you put on a S&P future trade early in the morning and you get 100 point move Intraday in the S&P, you’re going to get blown out of that position pretty quickly. Right. You have to have really tight stop loss limits. That’s it.
TN: Albert, what are you seeing?
AM: Well, the Fed has done a marvelous job of erasing excess wealth out there, excess money. Not just from retail. Retail is dead in the water right now. But even institutional wise, a lot of funds just been obliterated for the past month and a half now? The problem becomes liquidity. And where is it? I’m looking at the order book on the e-minis, and it’s just there’s nothing there. There’s nothing on the buy side,
nothing on the… Nothing. So these massive 100 point moves, I mean, of course, we’ve never seen anything like this, but if you look at the problem with liquidity there, it makes perfect sense.
TN: So, Albert, from a hedge fund world perspective, do you think we’re going to see some hedge funds cleaned out? Obviously, Melvin, we know that story. But are we going to see some issues there with some funds?
AM: Without question, you’ll see a lot of them unwinding by the end of the year. I know a few personally that have closed up shop or in the process of closing up shop. And I can’t imagine there’s at least 25% more that’s out there that are in some serious trouble. I mean, redemptions will start taking off clients that were sold, big tech names in a zero rate economy, they’re gonna be calling every single day what’s
going on for returns, and there’s none to be found right now.
TN: Yeah.It’s tough to get things out right now. Okay, good. Thanks for that. Let’s move on to our second topic.
Tracy, wheat was down 6% this week. Corn ended down about 1%. We got an interesting viewer question from Thomas Sieckmann, who’s a regular viewer. Can you help us understand AG and fertilizer markets. Thomas is saying, “love to hearyour thoughts on AG commodities. Demand destruction versus supply shortages, fertilizer prices and shortages, drought, lots of cross currents.” Can you help us understand kind of those markets a bit better?
TS: Sure. Well, first, I don’t think you’re going to see demand destruction even at higher prices,
because people need to eat. Right.
TN: Eating is good. Yeah, right. We can agree on that.
TS: The thing is what I think we’re going to see a structural shift in the market, whereas you’re going to see different crops being produced over other crops. In other words, if we look at, say, wheat, for example, what’s happening right now is that wheat crops are being produced more because it’s easier to do, less energy intensive, and that’s going to make a problem on the corn market. Not necessarily in the United States. I would single out the United States as it is kind of a different market altogether?
But if we look at the global markets, where I think this is headed. We’re going to see shortages in areas where you didn’t think so. Right.
We’re all scared about wheat because of obviously Ukraine and Russia and then being major producers, et cetera. But that is going to, in turn, affect the corn market, global production and what those crops are, what crops are being produced globally, if that makes sense. I think that’s what we need to be on a lookout for.
And things like rough rice. Rice. Rice is going to, because nobody wants to put wheat and corn into, say, animal food anymore. Right. Rice is much cheaper. So I would look for rice to go much higher because
they’re going to use that to replace something like animal feed.
TN: Interesting. Okay.
So we’ve seen political instability in Sri Lanka, especially over the past couple of weeks, and part of that is just terrible government. Part of that is weak currency and food affordability. How far do you think this goes? Does it get extended to a lot of other countries, or is there a few other countries that this gets exposed to? Both you and maybe Albert, if you guys can both jump in on this.
TS: Yes, I think it extends. We’re already seeing that name around. Right. We’re already seeing protests in Iran, and I think that this is going to continue, especially in emerging markets. Right. So I think this is nothing new. I think we should expect more of this and be reminded of when we saw the Arab Spring. It all started because of food. Right. So that’s something that we need to pay attention to, in my opinion.
AM: Yeah, I agree with Tracy. Some of the emerging markets are going to be the most hardest hit. It’s funny, because four or five months ago when my client and I were sitting there discussing what countries to look at to invest in, and one of the key components is which ones are stable in their food supply.
I mean, the United States. But France is actually quite stable. I think that they can actually make quite a play for the European Union’s leadership over Germany going forward, specifically because they’ve got enough food to sustain themselves.
As for the other countries…
TN: That’s a good point, Albert. I hadn’t thought about that. But that’s a really good point about France.
AM: Yeah. Well, I mean, they got their own food. They have a big agricultural industry, they’re
top in the world, and they’re self sufficient. And they have water from the Alps, too. So they have everything they need for themselves. So they’re pretty isolated from this.
But you look at Spain, they’re in trouble. North Africa, they’re in significant trouble. Sri Lanka won’t be the first looking for at least a dozen more instances of that happening around the world.
TN: So we have a summer of new government.
TS: I’m looking towards Brazil and Argentina, even though everybody kind of hates those markets right now, is if we look at their agriculture? Their agriculture is robust. And so I think that in the end, that will serve them from an investment standpoint if you’re looking to invest in.
AM: But the only problem with Argentina is so I mean, their government is just absolutely atrocious. And then the Brazilian. High risk. And Brazilians have a big election coming up, and that’s going to be extremely contentious. So I would stay away from those two until after those elections happen and whatnot.
But yeah, I mean, Brazil, they have fertilizer, they have fruits, they have sugar cane, a lot
of chicken, a lot of soybeans, a lot of meat.
TN: Okay, perfect. Let’s move on to the next topic. Albert, we got a question from Gary
Haubold, who’s a regular viewer. He’s talking about the dollar and how central banks. There’s gossip that central banks are getting nervous about a strong dollar. So dollars up or down, sorry, a little bit this week, but how worried are global central banks about the dollar?
Of course, you have, say, the North African or Brazilian or other kind of fairly shaky monetary markets. But if you look to, say, European or developed Asia or some of those other markets, how worried are those central bankers about a strong dollar?
AM: Well, I just want to isolate this between just the United States and Europe right now, because that’s only really what matters to the market back in the United States. A strong dollar for the Europeans is not good. It’s just absolutely not good. It would be good if the Euro was falling. They had exports to send to China, but they don’t have that anymore. So now they have dollar liabilities that are getting out of control. And I think that the Europeans, I’ve heard whispers inside the Fed and treasury that they’re worried about a European financial crisis. And it makes perfect sense. If they want to get the markets down, blow up Europe, that’s the best way to do it.
TN: But I thought we’ve had a financial crisis in Europe since about 2012.
AM: Yes, but we have it every five or ten years because Europe is a welfare state. It’s a welfare state that lives on Fed swaps. Right. That’s all it is. And I don’t want to insult the Europeans on here, but let’s just get real here. Without Chinese exports, they’ve got nothing.
TN: Sam, what do you think about that?
SR: Yeah. If China doesn’t open up soon, it is going to be extremely problematic for Europe. That would be the saving grace in a lot of ways to Europe for a strong dollar. Other than that, there’s going to have to be some sort of interesting talk down to the dollar, either from treasury or some hawkish comments coming out of the ECB. And you’d begun to hear the ECB be a little bit more hawkish recently. If they really want the dollar to abate, they’re going to have to get more hawkish.
TN: Yes, for sure. And on your China point, I saw a story this week that the Shanghai Port was at about a 90% capacity at some point this week. Whether that’s true or not, I don’t know. But I saw it in a legitimate newspaper so let’s see how long that lasts.
TS: I was going to ask you, Tony. From a China perspective, how do you look at this opening? Do you think Shanghai is really opening like they say it is or is this hearsay or, can you give us a little bit of insight on kind of the China situation right now because that makes a huge difference in demand for energy and materials?
TN: Sure. Absolutely. So I sure want it to open because I want both China and the rest of the world to thrive but because of a lot of domestic considerations, COVID or monkey pox or whatever it is. I don’t know. They’re just lifting it slowly.
But we talked about this in detail on last week’s show but I really don’t think they’re going to open to any interesting degree until mid summer. Maybe later. I wish they would open tomorrow but they won’t. I think for a lot of reasons they’re kind of getting in their own way and I’ve said this many times China needs to be saved from China. It’s just such terrible management of the country and has been for 50 or more years
and they’re potentially going back into the great famine type of environment which I worry about a lot and that would be detrimental to everybody around the world.
TS: That makes sense.
TN: So on that happy note, thanks so much for taking time for the show, guys. Really appreciate that. Have a great week ahead. Thank you very much.
The number one issue for Americans is inflation. As long as this is a top consideration, the pressure will be on the Fed to bring it down. Sam has been pretty consistent with 3 x 50 rate hikes in May, June, and July. What changed in trading today? Is everyone still bearish? Samuel Rines explains.
Also, what’s next for crypto? Luna fell from $90 last Thursday to $0.00005952 on Friday. Their circulation went from 4 billion yesterday to 6.5 trillion today. Watching the crypto fallout is terrible – lots of people have lost lots of money in this supposedly immutable “currency”. Albert Marko explains what happens next.
Lastly, is China really falling apart? We’ve seen some unsettling posts over the past several weeks out of China. From lockdowns to port closures to gossip that Xi Jinping has been sidelined.
Key themes:
Is everyone a bear now?
What’s next for crypto?
Is China really falling apart?
This is the 18th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi and welcome to the Week Ahead. I’m Tony Nash, and as usual, we have our team, Sam Rines and Albert Marko. Tracy, who’s not with us today.
Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us a lot get visibility, and it really helps you get reminded when a new episode is out so you don’t miss anything.
Gosh. Big week for everyone. I wish I had fallen asleep a week ago and just woken up now after Friday’s trading. But it’s been a big week all around for everyone.
Guys, we really have a lot to talk about this week. We’re covering the markets. Is everyone a bear now? That’s one of our big topics that we’ll have Sam lean on. Next is what’s next for crypto? A lot of action on crypto, a lot of scary things happening with crypto and then some news out of China or speculation out of China. We’re asking, is China falling apart?
So Sam, let’s start with you first. I guess one of the most relevant items I’ve seen circulating and it was in your newsletter today is the top issues for Americans on the screen right now.
It’s clearly inflation. As long as that’s a top consideration. The pressure on the Fed to bring inflation down is huge. So you’ve been pretty consistent with three times 50 basis point hikes for May, June and July. What’s really changed in trading today? And is everyone still bearish?
SR: Yeah. I mean, everyone still seems to kind of be floating a little bearish, but I kind of like to go back to the number one concern is inflation. We shot ourselves in the foot and then the second one is getting shot in the head, right. It’s violent crime and crime. You add those two together and it’s even larger portion of inflation. So it’s safety and food. Right.
People like to eat and they want to be able to eat and they want to feel safe. I think it’s that simple. Those should be the top two concerns in this type of environment when you have the data pointing towards continuing higher inflation numbers and continuing crime.
On the is everyone a bear front? I think it’s a little complicated, right.
Because if you look at the flows into and out of indices and into and out of fixed income, and when you look at the flows, it’s easy to kind of say everyone’s a bear. Right. Pouring money into Treasuries, taking money out of indices. But at the same time, underneath the surface, you really want to be careful on what you’re a bear on and what you’re not.
There’s a lot of things that can still make money in this environment, oil, food, etc. can still make money. And there’s a lot of things that are probably still going to get torched. Anything that’s a little high beta is probably not the place you want to be for the whole time. Tradable but unlikely to be a long-term type trade.
TN: Like, I noticed some of the techs coming back today, and that’s great. And I hope people don’t lose more there. But is that something that you would consider kind of be careful if you’re going back in type of trade?
SR: Some of it. Not all of it. There’s a lot of tech that actually looks fairly attractive here, whether it’s from a valuation perspective or whether it’s from a very long term perspective.
A lot of stuff re-rated, re-rated fast, and it looks attractive. And there’s a lot of stuff that looks like it’s probably going bankrupt. Right. I wouldn’t be trying to bottom tick Carvana.
AM: Actually to expand on that, Sam, about who’s a bear and bears or Bulls or whatnot. I kind of think that we have to separate the higher great institutions versus the retail dip buyers that are just looking for that get rich, quick return. Many of the institutions, the ones I’ve talked to, are absolutely still bearish. They don’t see real value in this economy until the market until 3700.
Coincidentally, one of the hedge fund guys told me at 3500, you have an actual financial crisis in the United States just because everything’s leveraged up. So I don’t think that the Fed was even going to want to afford or going down past the 38, 3700, in my opinion.
SR: In 100% of that, Albert. Right. You have to separate those two teams of people. Right. The dip buyers are going to try every single time to get rich quick. Real long term allocators are going to take their time here. They’re not going to rush and, those are very large positions they have to take. And they don’t get to move in and call it for two or three weeks. They have to move in for very long periods of time.
So it’s Albert’s point. I don’t think that should be underrated, period.
AM: You can just look at the valuations of some of these companies that are still out in the stratosphere, like one of the ones I’ve recommended, Mosaic, Tight and Tire. They’re just ten fold of what they were in 2020. How do you buy these things? You can’t buy these things.
TN: Right. We’ve seen a lot of chatter about margin calls over the past week and a half. Obviously, that’s been scary for the first wave of kind of people going in. But when that second wave hits, when does that start to hit that second wave? Once we go 3800 or lower? So is that when things get really scary?
AM: Actually, I think part of the margin calls happened this week, today, actually Friday. I think a lot of guys had a liquidate positions and cover shorts and whatnot. And we got a little bit of a squeeze of a rally. I didn’t really feel like a Fed was pumping just thought like people short covers and people trying to get stuff off the board.
TN: Right.
SR: 100%. That’s where I think. I don’t think you want to be in front of a wave of liquidation for let’s call it sun and Ark, right? You do not want to be in front of either one of those two right now, period.
TN: Yeah, it was nice to have a Green Day, but it didn’t necessarily feel like a strong Green Day.
Okay, guys, let’s move on to crypto. Albert, I think you’re the man here. You’ve talked about crypto for a long time. It’s bad. This week is bad. And we’ve got a chart for Luna.
Luna fell from $90 last Thursday to 5, 10 thousand of a cent today, I think. Their circulation went from 4 billion yesterday to 6.5 trillion today. So it doesn’t sound very immutable to me. So the watching crypto fallout, it’s been pretty terrible. Lots of people have lost lots of money and people are questioning and cynical about words like immutable now.
This is something that I think experienced people have expected. But what happens next? Do we have a clearing out of some of these currencies? Do people just hold at 5, 10 thousand of a cents? Do we see some of these actually become currencies or is it all just going to get regulated and kind of thrown out the window?
AM: Well, are they going to be currencies? No, they’ll never be currencies. The dollar is going to be the currency of the world status for trade for the remainder of our lifetimes, whoever is alive today. That’s just the basic fundamental fact that you have to come to grips with.
This is like part one of the closing call for cryptos in my opinion. They got a good dose of the reality that when things need to get liquidated, you’re not liquidating residential towers in Miami on your portfolio. You’re liquidating some Ponzi scheme cryptos that are in your pocket that your clients really made you get into to begin with.
From the retail side, as much as I want to gloat, because I’ve been saying that this was going to happen for years, it’s really not that funny because you had guys out there pushing these crypto things and saying the dollar is dying, gold is dying, digital future, blah, blah, blah. Look at this chart, look at that chart. But the reality is there are nothing but pump and dump schemes. And people lost a lot of money.
I had a friend that goes to school, his daughter goes to school with my daughter. And he told me months ago I put everything to Litecoin for the College fund. I tried to reason with this guy.
TN: Please don’t do that.
AM: Yeah, well, community college for that kid.
TN: Albert, they’re following the lead of some, analysts are credible. They have a credible history and they’ve really started pushing this stuff. Now they’ve dialed it back. But some people who had previously been credible analysts were pushing this stuff.
AM: They’re liars. They’re all liars.
SR: Had been.
AM: They’re trying to get services sold and people to watch their YouTube channels and get subscriptions up. So of course you’re going to go and sit there and try to pump crypto to the retail crowd because they don’t know any better, right?
SR: And anyone who looked if you really dug into the Luna situation, you could understand very quickly how that could unwind in a way that was dramatic. This wasn’t even constructed as well as a pre 2008 money market fund. At least you knew what the money market fund held behind it and how it was going to actually return money to you.
With Tether, it’s supposed to be a crypto ish money market fund. We still don’t know what that actually holds. The whole thing to me is regrettable to Albert’s point, right. The two of us kind of got picked on when we giggled off paying for oil in crypto earlier this year. But the two of us have been kind of like, “no, not so much.” So while it’s tempting to kind of have that little bit of a cocky grin.
It’s a really sad situation and there’s a lot of money that got shredded very quickly there.
TN: Very quickly in less than a week. It’s insane how much money. If anybody who follows me on Twitter knows that I invest in some Doge last year, stuck with it for a few months, got out I did it because it was a joke of a coin. Everyone knew it was a joke of a coin. I wanted to be on part of the joke, and I made some money at it. And that’s it, right? That’s it. You can’t necessarily think of this stuff as a serious investment because it’s so highly unregulated and people engage in this pump and dump stuff.
AM: Yeah. We can have a conversation on this for hours. This is actually at the heart of the problem of the US economy at the moment. All these gig employee, all these gig employees service industry and jobs and whatnot, they left work got into crypto. Got stimulus checks, sat at home, kept getting unemployment, not going to work, and now we’re stuck with the labor shortage in reality. I don’t care what the Fed says and what Yellen says about the market. The labor market is good. The labor market is absolute trash right now. We have no workers anywhere right now. And because. Yeah, this is part of it.
TN: So that’s a good question. With crypto, kind of at least temporarily, maybe permanently dying, does that help the employment picture? Does that help people come back to market even a little bit?
AM: People had tens of thousands of dollars in a Coinbase account that are now $500. They’re going to have to go back to their jobs. And that’s just the reality of it. If you want me to go even a step further, this is probably the intent of the Fed and the treasury is to start eliminating this excess money, forcing people back to work.
SR: Yeah. Oh, 100%. In one of my notes this week that Tony, I think you saw, I sent out the video from SNL of Jimmy Carter saying, hey, get 8% of your money out of your account and light on fire. Guess what? The Fed just did that for millennials.
TN: Yeah.
SR: It’s that simple. The Fed just lit at least 8% of millennial money on fire, generally. Right. And it’s unlikely to come back that quickly. And I think if it wasn’t a direct policy, it was a side effect that the Fed sitting there going, oh, well, that works.
AM: I guarantee I talk to a lot of people. It was a direct policy. I don’t care. I’ll throw the Fed under the bus. They deserve to be thrown under the bus anyways.
TN: Well, yeah, it is where it is. And I would assume more regulations coming at some point because people will scream, especially with Coinbase.
I think it’s Coinbase or one of the exchanges saying that they’re going to undo a lot of the trades over the last two or three days.
AM: Okay.
TN: There are no regulations at all.
SR: Just call them the LME.
TN: Yeah, exactly. So crypto is the LME now, and it’s insane. So a lot of consumer protections are going to be talked about. A lot of regulations going to come in. I think that party is pretty much over.
AM: Yeah. Once the regulations started coming in from Congress and different governments in the world, they’re going to see how false their idea of decentralization really was.
TN: Yeah. Okay, guys, let’s move on to China. We’ve seen a lot over the past few weeks and really gossipy stuff about China. But today I saw a note from Mike Green on Twitter, which is on screen talking about Xi Jinping and Li Kaqiang, and Xi basically being sidelined on May 4.
I also saw another tweet yesterday, a guy going through Shanghai during the lockdown. If you haven’t seen it, the first of the thread is on the screen now. Check it out. It’s really interesting.
China is empty and it’s really sad.
So we’ve seen these really unsettling posts over the past several weeks out of China, from lockdowns to port closures to gossiping Xi as sidelined. So to you guys, what does that all mean? Is it something you’re taking seriously? Do you think it’s something that will have immediate effects? What does that look like to you?
AM: China. China is a big quagmire in itself. It’s such a large country. You’re going to have all sorts of rumors of Xi being sidelined and unrest in different cities like Shanghai and whatnot. But the Chinese are pretty pragmatic. They know that things are not going really well. So they’re going to have to lift off they’re going to have to lift off some of these just draconian policies with locking down people because it’s going to really hurt their economy. And part of it’s probably because they’re fighting inflation, too. They’re trying to cut down demand until supplies catch up. I mean, they got problems over there with inflationary issues.
TN: Also with the deval, with the port closures, with a lot of other stuff that’s happening there, their economy is already host. Right. They’re definitely not hitting 5.5, which is their target this year. And I think they’ll be lucky to have a zero growth year.
But I think Albert, on the political side, a lot of this kind of theater that we’re seeing play out on Weibo and Twitter and other things. Do you think this is plausible?
AM: Of course it’s plausible. I mean, you have the vultures circuit around Xi right now. They want him out. You have one elite group keeping him in power. But most likely have three or four other elite groups within the CCP that want him out. There’s no question about that. He can’t even go out in public.
TN: That’s an important thing that many people don’t think about is there are parties within the party. The CCP is not a unified party. There are factions within the party. Many Westerners don’t understand that. There are definitely factions within the party, and they’ll stab each other in the back in a second.
AM: There’s factions everywhere you go. People try to, China as a one rule or one party, one system, but even the United States, you have the Tea Party, the Freedom Caucus, the Progressive, so on and so forth. I mean, it’s all fragmented no matter what you do.
TN: Yeah, Sam. So China is second largest economy, ports closed, people in their houses, all of that stuff. So how long can they do this before it affects everybody or has it already started doing?
SR: Oh, it’s already affecting everything. The supply chains are already completely ruined because of it. There’s no question about that. I think the real question is what happens when they reopen, right?
We’ve got oil sitting at $109 and half a China is shut down. That is something that doesn’t, I mean, it’s kind of scary, right? You have a bunch of people that aren’t using as much as they should be right now. You begin to spin that back up. That could be a really interesting scenario overall. I don’t know.
AM: You know, Sam, that actually loops back to what you were talking about the Fed trying to fight inflation. No matter what policy they come up with, there’s still supply chain shortages and labor and everything that no matter what they do, they can’t fix.
SR: Their host. It’s an amazing world where you have half the Chinese, let’s just click through. Half the Chinese economy is shut down. You have the US dollar sitting at 105, 106 somewhere in there, and you have oil sitting at 110. Anybody who’s saying oil prices look a little toppy here might want to look at what happens when the dollar falls and China’s going.
AM: That’s what we’re going to have inflation in the five to 7% range for the next 18 months. I can’t say lower than that.
TN: 18 months, you say?
AM: 18 months. How are they going to get it lowered? China opens and then what? You know what I mean? And then you still have shortages everywhere. I mean, go to some of the stores. They have baby formula shortages.
On any given day, you have small materials you need from the home short. Everywhere. That’s going to create artificial inflation. On top of that, you have wage inflation. How do you get that down?
SR: The only way you get it down is having less employees. Look at Silicon Valley. Silicon Valley has started laying people off, and that’s not getting enough. It’s more than just Carvana.
AM: And then that’s the thing. Later in this year, Democrats and Joe Biden can have a real big problem unemployment numbers, starting to creep up. They can’t hide that forever with the BLS manipulation.
SR: Look at the household number. The household number is already not looking great. And that’s the one that they choose not to hide for a reason. Yeah, sure, the establishment is up, but you look at that household number and it’s printing negative already, guys.
TN: Yeah. One more thing I want to cover is this has to do with China shut down and it has to do with the possibility of political instability in China. So there are two separate issues. The newsletter today talked about reshoring.
So these things seem to provide more instability and a lack of reliability of Chinese sourcing. So what are you seeing to support the reshoring argument?
SR: Oh, lots of things. I mean, you have Hyundai. That’s likely to announce a pretty big factory next week in Georgia. You have everyone from Micron to a bunch of other call it higher tech firms beginning to announce that they’re moving back here. They’re building here and they’re going to manufacture here or they’re going to manufacture in Mexico. One of the other.
If you want to have China like characteristics without supply chain issues, you go to Mexico and that re regionalization trend. That’s the theme of mine. Is beginning to pick up steam and it’s going to pick up much more steam, in my opinion.
North America is going to be basically, in my opinion is going back to being the world’s, not manufacturing hub, but the world’s high end manufacturing hub. If you want something that it’ll be like big Germany.
AM: Yeah, I mean that’s just the most logical thing to do is to start putting your supply chains closer to your luxury consumers and you have to do that. But I’ve been high on the Canadian economy and the North American economy.
I think Europe absolutely they’re in deep trouble at the moment. So is Asia. But Europe especially.
TN: On the reshoring note, guys, if Germany can’t get power, will we start to see some German manufacturing firms potentially moving to the US?
SR: You already make AMGs here. Mercedez Ben’s AMGs.
TN: Yeah.
SR: They’re made in Alabama. But they’re made in Alabama.
AM: Yes. But Tony to your question, actually, I do have a colleague that works for Austrian driven outfit and they have been buying factories in the United States specifically for this reason. It’s the only place that people are going to be buying things or has money at the moment. Their entire export industry in China is dead and they’ve sat there and been lackadaisical and never sat there and tried to put their networks back into Africa where the real emerging market should be focused on Africa. It’s going to be bigger than Asia anyway.
SR: Let’s also be honest, they just got done pulling out of Africa in some ways. A couple of decades ago. They missed that boat.
TN: They did. And so did the Americans. So. Hey guys, thank you very much. Really appreciate this. If you’re watching please like and subscribe have a great weekend and have a great week ahead. Thank you.
“What you do makes a difference, and you have to decide what kind of difference you want to make,” said Dr. Jane Goodall.
From high tech waste management solutions to tools that make the making of consumer products more ethical, startups are innovating solutions for a greener future. To empower their sustainable solutions, many tap into the benefits of Oracle for Startups to gain exposure, more customers, and stronger infrastructure.
Startups and enterprises working together can help the business world lead the change toward greater sustainability. While some businesses are naturally greener than others (and not all of them are focused on combating climate change), every company can make adjustments to reduce its carbon footprint or mitigate negative environmental effects.
If everyone makes small changes, they end up making a big difference, or as Sir David Attenborough puts it: “If working apart, we are forces powerful enough to destabilize our planet, surely working together we are powerful enough to save it.”
This Earth Day, we’re celebrating how some of the more eco-focused members of Oracle for Startups help other businesses make a positive impact on the planet.
Waste not, want not
One of the simplest ways to make a positive impact is to waste less. Startups help other businesses minimize waste and maximize efficiency in several ways. Complete Intelligence, for example, uses AI and strong predictive analytics to help companies waste less – whether that’s materials, time, or money. “It might not be as intuitive a sustainability play as, say, building solar panels, but it is important nonetheless,” said analyst Jeremy Cox in a report about the startups bringing sustainability to energy and utilities.
Tracifier created a blockchain-based traceability application to reduce food fraud and, therefore, food waste. “Blockchain allows for an accurate and transparent record of each of several certification processes, making forgery nearly impossible,” said Mina Kordi, CEO and cofounder of the startup, which is based in Hamburg.
Faradai (formerly Reengen) turned rooting out energy waste in stores, offices, and other commercial properties into a global business. Their hardware agnostic IoT platform analyzes sensor data to uncover energy and operational insights. One of our favorite success stories involves the company’s work with a bank that found that ATMs with high energy usage often had outdated exterior lighting. A simple change in lighting reduced the site’s energy consumption by 59%.
Buying better
More consumers are making purchases based on ethics and environmental concerns, and startups are serving up clever tech to the companies selling us greener products from clothes to cars.
Circulor makes it easier for automobile giants and other businesses to spot the weakest links in their supply chains so they can improve them and attract conscientious consumers. The London-based startup specializes in tracking raw materials using blockchain and artificial intelligence. It provides ‘traceability-as-a-service’ to verify responsible sourcing, underpin effective recycling, and improve efficiency, so consumers can buy new products with confidence.
When it comes to the fashion industry, green is the new black.
Fashion houses are keen to embrace the public’s appetite for everything eco-friendly. The blockchain-based supply chain transparency platform offered by retraced gives fashion brands a boost for their inventory efficiency and sustainability credentials. The German startup uses the Oracle Blockchain Platform to create a supply chain management tool, enabling companies to map and verify their data, including certified details about raw materials, textile manufacturers, fabric dyers, designers, craft people, factories, and sewers. As retraced gathers information, two things happen: brands can collect and analyze supply chain data, and a QR code is automatically generated, which consumers can scan to discover information about ethical sourcing and sustainability.
Cleaning up
Startups are playing a vital part of cleaning our planet. Oceanworks is one of them. The startup is intent on banishing plastic from the ocean and is doing its bit by creating an online marketplace for recycled plastic materials and products. It has more than 100 customers and a supply capacity of more than 190,000 tons of ocean plastic a year from collection sites across six continents.
Based in Los Angeles, the cloud startup runs a track-and-trace application to certify that the plastic that manufacturers source really is recycled ocean plastic so their customer base (which includes Fortune 500 companies) can prove their eco credentials.
Calling climate crusaders
If your startup business is on a mission to save the world, Oracle for Startups can help. We offer the technical tools and one-on-one mentoring startups need to make the world a better place. From free cloud credits and access to Oracle Blockchain to introductions to customers, Oracle for Startups offers the support your startup needs to make a real difference.
Analyst Jeremy Cox was watching the United Nations Climate Change Conference news while researching his recent report on startups offering sustainability solutions for the energy and utility sector. The timing was especially fortuitous for another reason: Cox was about to welcome a grandchild.
Sustainability is top of mind when you start thinking about future generations. Cox took notes and quoted environmentalist Sir David Attenborough to lead off the report, “If working apart we are forces powerful enough to destabilize our planet, surely working together we are powerful enough to save it.”
What is more powerful than startups harnessing the cloud and enterprise expertise to bring their novel sustainability ideas to the market?
The idea for Evreka came after the founders noticed empty garbage trucks driving back to the depot. The drivers drove scheduled routes regardless of whether there was garbage to collect, wasting gasoline and staffing. Evreka’s first product was a sensor that attaches to garbage collection carts to show the cart’s position – ready to be emptied or not at the curb. The information helps waste collectors orchestrate efficient pickup schedules.
The founders have since expanded their vision to include tackling inefficiencies in the entire waste management lifecycle, looking to extract materials (other than the obvious recyclables) that could be sold to manufacturers and reused as raw ingredients for different industries. They offer the data as a SaaS solution. The platform runs on Oracle Cloud Infrastructure (OCI), a choice the company made because of “(Oracle’s) global reach, second-generation OCI technology, and expansion of highly secure data centers.”
Why predictive analytics is vital to powering sustainability
Complete Intelligence joined Oracle for Startups because founder Tony Nash looked to the Oracle cloud to help power his machine learning platform designed for smarter revenue, expense, cost, and investment planning decisions.
Being super agile is critical in today’s global business world, including as it relates to understanding, measuring, forecasting for sustainability. “What I discovered from talking with Tony was that strong predictive analytics helps waste less – whether that’s materials, time or money,” Cox says. “It might not be as intuitive a sustainability play as, say, building solar panels, but it is important nonetheless.”
An AI-powered global intelligence platform for strategic and tactical procurement and investment decisions
Watch our interview with founder Tony Nash and check out Cox’s deep dive on Complete Intelligence:
Cloud storage opens many opportunities for enterprises and startups to run more efficiently but sending all that data to the cloud and instantly making it available is an energy hog. Danish startup GroenSky is meeting that challenge with an approach that makes less energy-intensive archived storage just as appealing and easy to access as live storage.
Writes Cox, “GroenSky allows customers to choose how they store their files. Those that are only rarely accessed, typically around 80% or more, can be placed in archived storage that doesn’t consume power except when accessed or moved to regular, live storage. A real-time calculator allows customers to see how much CO2 they can save.”
GroenSky founder Pierre Bennorth Cox he chose Oracle Cloud Infrastructure because of its security features, global data centers, and commitment to power its cloud with 100% renewable energy by 2025.
Combing millions of data points to find the energy wasters
The founders of Faradai (also known as Reengen) have turned rooting out energy waste in stores, offices, and other commercial properties into a global business. Their hardware-agnostic IoT platform analyzes sensor data to uncover energy and operational insights.
One of our favorite success stories involves the company’s work with a bank that found that ATMs with high energy usage often had outdated exterior lighting. A simple change in lighting reduced the site’s energy consumption by 59%.
The company joined Oracle for Startups and told Cox how they’ve reaped the benefits. “Apart from the performance and security advantages of the Oracle Cloud Infrastructure,” Cox writes. “Oracle has been instrumental in opening doors to its large enterprise customers throughout the world. Faradai has also benefitted from further exposure by speaking at Oracle conferences in the Middle East. As (the founder) said, ‘we get great leverage in industrial B2B sales and have had a very positive reception from the Oracle sales teams and now work even closer with them.”
We ask Cox to interview startups because he often finds insights that we haven’t discovered. This project was no different. “Each of the startups highlighted in this report is making a significant difference that benefits customers and society, providing real hope that we can all make a difference collectively.”
Are you building the next great sustainability solution? Join us to save 70% on cloud and scale your business with global connections.
The Fed just announced the 50 basis point hike this week. Albert and Sam explain what this means for markets in the near term. Also, how badly does JPow need media training (he said “a normal economic person probably doesn’t have that much extra to spend”)?
We also discussed what’s happening with TLT? And then, what will the Fed do next? Why is everyone talking about a 75bp move?
Tracy explains what’s happening in natural gas and the crude oil markets. Why does energy seem range-bound?
Key themes:
What the F just happened? (F for Fed)
What the F is next? (F for Fed)
Why does energy seem range-bound?
This is the 17th episode of The Week Ahead in collaboration with Complete Intelligence and Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi. Welcome to The Week Ahead. I’m Tony Nash. Today we’re joined by Tracy Shuchart, Sam Rines and Albert Marco. We’re always joined by those guys. Before we get started, I’d like to ask you to like and subscribe. Really appreciate it if you subscribe to our YouTube channel.
It’s been a very interesting week, guys. We have a few key themes. First of all, what the F just happened F is for Fed. Then we’re looking at what the F is next. So that F also is for Fed. And then we really want to look at some energy stuff. Why does energy seem to be range bound? And I think that’ll be a really interesting discussion.
So Sam and Albert, kind of talk us through what the F just happened? We said this would be the most dovish 50 basis point move in the history of the Fed and it was. And here we are at the end of the week and things don’t look so good. So what happened?
AM: Well, was it a Dovish Fed? Not really. I mean it was pretty hawkish but it was already priced in. Everyone knows it was going to be 50 basis points and everyone knows they were going to talk about all these hawkish words. But then Powell comes out and throws in a little sprinkle of dovishness in there and then the market took off with it. I think it rallied at 3%? Crazy.
However, from what my guys told me, a lot of that was because traders were loading up on spy calls and ES futures and just gamma squeezed it. It was really easy. The market is kind of liquid right now. That actually agitated the Fed because they didn’t want this thing to rally and they came back and just torched everybody the next day. It was like 4% down? Just stunning. Absolutely stunning price action that we’re seeing right now.
It’s just not tradable. I mean you’re in this market and you’re swinging 100 points up and down each way every couple of hours. It’s just not tradable right now.
TS: Albert made a very good point. The thing is these swings that we’re seeing in energy and also in equities, these swings are untradable. Right. So that is very cognizant point that you have brought up.
SR: I mean the interesting thing to me with the whole thing was how quickly you went up, how quickly you went down to follow it up. Not just in ES and S&P, but the dollar got trounced following the Fed and finished flat basically to pre-Fed to finish up the week. You had the two-year absolutely plummet and make a little bit of a comeback. But it generally actually stayed lower following the Fed minutes. But these were huge moves across the board.
It didn’t matter what asset class you were trying to hide in, besides maybe energy. It didn’t matter where you were hiding it. You were just getting whipped. And there was very little tradability across the board in that period.
So it was pretty interesting also to hear several Fed speakers today. I think there were five or six of them come out and were generally hawkish across the board. I mean, you had one non-voter, Barkin, talking about putting 75 back on the table. I mean, it’s ridiculous. Powell just absolutely said no to 75. And then you have beneficials coming back with maybe I haven’t taken 75 off the table. I mean, not that Barkin matters, but he tried to put it back on the table. Their communications are a mess.
TN: The interesting part for me about Wednesday was Yellen came out first saying, “no, it’s all good. Nothing to see here. There’s going to be no recession. Fed is going to be able to manage it.” Everything else. To me, that was the real tell, right, that he was going to be fairly gentle. Of course, it was a 50 basis point hike, but it was a fairly gentle 50 basis point hike. And he was going to stave off the 75 basis point talk.
But then today we see these guys come out being fairly hawkish. So we’ll get into kind of what’s next in a couple of minutes. But I want to ask about a couple of things. Powell, he talks, man. He is not the Greenspan kind of mysterious guy. And his talking seems to get him in trouble.
So one of the things that he said on Wednesday that really caught me, which he said, I’m looking at my notes, he said “a normal economic person probably doesn’t have that much to spend” when he was talking about inflation, that much extra to spend. Sorry, but he actually let the words “normal economic person” pass his lips. And words like that, language like that makes American people feel like it’s the government, this gilded government employee who inflation doesn’t touch versus the American people. What’s wrong with those guys? Why are they using that language?
AM: In my opinion, they want to crush excess money and they’re doing just that. These wild swings in a week that’s meant to just erase money from the system. And Powell is an attorney. He’s not really an economic guy.
TN: An attorney should know words.
AM: Yeah, well, he doesn’t. He’s flustered. He’s flustered. There’s so much stuff going on behind the scenes that he’s flustered. And really, I don’t really even think that Jerome Powell is even in control of things. I think more align on to Auntie Yellen. I think she’s the mastermind behind this dollar rise. I know she is, in fact. I had discussions about it.
She’s the mastermind of pushing this thing past 110. She’s the mastermind of getting capital to force it back into the US equities. She’s the one doing all this.
TN: Right.
AM: Powell might be fighting it, but I’ve talked about this many times. You have this disjointed policy between what the Fed wants to do and Powell and what Yellen is doing. So this is what I see is going on.
TN: Sam?
SR: And to your point. I think their communications generally are a nightmare. They’re not doing a phenomenal job of telling people anything. Right.
It was such a disastrous week. You had quarrels out early in the week talking about how because Biden hadn’t nominated Powell to come back to the Fed. That was one of the reasons why they were behind the curve. Sorry, Randy, but that’s a ridiculous statement. Everybody knew, the betting odds never really broke through 70 that Powell was going to be renominated. Let’s be honest. He was always going to be renominated.
AM: You bring up an interesting point, Sam, and kind of a signal is will Powell actually get confirmed and is Randy and those guys, because Randy deserve this, I believe.
SR: Yes.
AM: So are they trying to defend or trying to upstage Biden and possibly not getting Powell confirmed?
SR: Well, it’s interesting because you would think that Corals would want Powell confirmed because Powell he’s fairly conservative in mindset relative to some of the other people. That could be dominated.
TS: Middle ground, too, I would say.
SR: Yeah, a decent middle ground. And most likely after that, it’s going to be Brainard. Right. I don’t think Corals wants to mastermind getting Brainard in there.
AM: No, I’m saying that Corals are trying to get ahead of the game here, thinking that Powell might be ousted.
SR: Oh, yeah, maybe. I also think that there’s an awful lot of people once they get out of the Fed and they see that they’re part of the decision making that got us to the current inflationary environment and current problems. There’s a little bit of face save when it comes to, hey, look, we wouldn’t actually be here if they had done their job. It wasn’t really us. It was this lack of nomination.
So generally, then you get into the FOMC meeting, the after presser, call it the kerfuffles that he makes constantly during it. Then you get to the Fed speakers after it. The worst part about the FOMC meeting is not the FOMC meeting. It’s just the blackout ends. Let’s be honest. Then we have to listen to them for another three weeks before the blackout comes.
TN: Normal economic people do stuff.
SR: Yeah. Like buy stuff and actually contribute to the economy instead of just blustering about 75 basis points.
TN: Right? Exactly. Okay. Before you get 75 basis points, Sam, can you walk us through what’s happening in the TLT market because it’s falling off a cliff a month ago. Is it like 140. Now, it’s like 118. So what’s happening there? Because I’m hearing a lot of chatter about that.
SR: Yeah. I mean, it’s the tracker for the 20-plus year US Treasury note. When yields rise, the thing is going to get trounced. Right? I mean, that’s pretty easy.
The easiest way to underperform the S&P this year has been to buy TLT. That’s just been that bad. I think it’s down 21% or 22% as of the close today. That’s a pretty devastating bond move right, for portfolios when bonds were supposed to be the safe asset. But generally it’s liquid. Right? You can buy and sell TLT all day long and you can short it. You can do some stuff.
So it’s a fairly easy way for particularly investment advisors and other smaller players that are running separately managed accounts to get in and out of fixed income exposure quickly and be able to move their portfolio duration pretty dramatically, pretty quickly. So it’s a trading tool.
And so when you need liquidity and you’re not going to sell individual bonds, that’s going to be generally fairly liquid and you get some pretty big spreads there. You’re not going to sell those bonds, you’re going to sell TLT instead.
TN: So are TLT markets telling us that they expect tightening to accelerate? Is that what’s being communicated to us?
SR: No, I would actually take the other side of that. And I think it kind of goes to Albert’s point last week is long end yields don’t rise if the markets are expecting a tighter, faster Fed. Right. That would be a recipe for disaster.
Recession being pulled in towards us, not pushed out. So the Fed is expected to do 50 basis point hikes instead of potentially 75. QT was a little bit, QT was basically what was thought even a little slower to phase in. Yields could be telling us a number of things, but one of them is not that the Fed is tightening faster.
TN: Okay.
AM: This is the problem. This is the problem. Right. This is something that nobody’s really talking about is the Fed is trying to create this narrative with long bond and whatnot that? We’re going to tighten. We’re going to tighten, we’re going to tighten. However, the market is still red hot. I mean, even the consumer credit today was outrageous. Did you see that?
SR: That was insane.
AM: I was talking to my client today and we’re looking at shorting retail and whatnot? And I said we cannot show retail. And he was why? I just walked into Gucci and it was a velvet rope with a line of 100 people trying to get in there. And none of them make more than $50,000 a year. Just buying stuff left and right. It’s like, well, the Fed is trying to say we’re tightening, but the market is red hot right now.
TN: Fascinating.
SR: I have no push back to that whatsoever. The consumer numbers today were stupid. 50 plus billion. That was a silly number. That was a silly, silly number.
TN: That’s a great segue to what the F is next. Right. What’s the Fed going to do next? Because if consumer credit is still expanding it’s really fast, how do they slow it down? Is 75 basis points are realistic? I know he said no. But then why do we keep hearing about it? Then why are all these geniuses saying 75?
SR: I haven’t seen a single genius.
TS: That doesn’t mean that it’s necessarily going to come to fruition.
TN: Okay.
SR: Yeah, I mean it’s, James Bullard basically planting that seed. Yeah, one fed and then Barkin picked up on it and said I wouldn’t rule it out. I mean, it’s two people that if you still listen to Bullard and Barkin, I’m sorry, but you’re going to lose money.
TN: Bullard was great like ten years ago, right?
AM: Yeah, but they’re trying to sway less than intelligent traders to believe that it’s coming. Maybe sway some money that way.
TN: The only reason I’m saying it is because I want everyone watching to know that.
AM: They are lying to you. Okay? They are lying.
TN: So the expectation is that what the F is next is kind of staying disciplined. 50 basis points in the next meeting and maybe QT accelerates slightly. Is that kind of what we expect to happen next?
SR: Yeah, I would say 50 bps, but I don’t think you even have to accelerate QT. It’s very difficult to accelerate.
TS: This mark is going to scare them. And what is going to happen is they’re going to be another 50 for sure. But they’re going to be even more dovish than they were last time.
TN: Okay.
AM: I actually want to take a train. I think they’re going to do 50 bips for sure, without question. But I think they’re going to have to accelerate tightening just to scare the market a little bit, for God’s sake, because especially if they want to…
TS: Acceleration timeline, I mean, you could barely take a magnifying glass to it. Right. So you’re talking about almost $9 trillion going down to maybe 8.5. I mean, can you really see that?
AM: No, but they’re also going to be using the dollar. They might even take a dollar to 115 or 120. It breaks everything.
TS: Any QT that they have, it has the exact opposite effect. So they’re not stupid. They know that monetary policy that they’re doing right now may break the market, but they’re going to ensure that…
AM: Yeah, but they want to do QE later in the year.
TS: They want to be able to do it.
TN: I saw an interesting discussion on social media this week about what’s the worst central bank to be a part of right now. And I think it was easily the Hong Kong Monetary authority. Right.
With everything terrible happening in China, but they have to match what the US is doing. It’s just a very difficult place to be in. So I think even as we talk about what is the Fed going to do next, there are some central banks out there that are just in a terrible place. And raising the dollar at 110, 115, 120 would absolutely break some of these central banks and put in a very terrible position.
AM: Yeah, but Tony, the Chinese, they’re very pragmatic with that respect. They’re waiting to see what the Fed does and they’ll react. They are for sure going to stimulate their economy.
TS: They’ve already announced so much stimulus. It’s ridiculous. The market hasn’t particularly reacted at this point as far as the commodities sector is concerned. But literally they have so much if you look at what they have said, they have so much stimulus on the line as far as infrastructure. They do not want, they want, they’re determined to have their 5.5% GDP by the end of year ’22. Right.
TN: Yeah. Well, they’ll hit that no matter.
TS: What they are doing is they’ve already announced so much stimulus. Markets not looking at right now. Right. Or the North American market shows looking at it right now, I promise you.
AM: Yeah, but Tracy, also, you got to remember that the SEC started coming out with delisting threats all over the place. They added 80 more companies to the delisting threat. That’s actually toned down.
TS: I’m not saying I would invest in Chinese companies. What I’m saying is I would invest in commodities.
AM: I know. But when you say that the market hasn’t reacted, that’s a lot to do with it. These delisting things have really scared investors away from them.
TN: What China needs is dump truck and helicopter loads of cash on the boon like tomorrow. And I think to hit 5.5, they’re going to have to do that in every major town. They’re going to have to unleash dump truckloads of cash. The infrastructure they’ve announced is close to what they need to hit that. Sorry? And they have a share… t
TS: hey’re made up number. But in order to. Yes. Hit that, you’re completely correct.
TN: Yeah. They’ve got to do it and they’ll end up canceling unofficially. They’ll give dead jubilees, all that kind of stuff. Like they’ll do all of this unofficially. But it’s to let people reload so they can spend more money. They’ll do all of this stuff starting as soon as they rip the Band Aid off of the lockdown.
TS: That’s why we’re seeing a deval in the currency right now.
TN: Right, right. Which we talked about for months and months. And I’m so glad that it happened. Let’s move to energy, guys. And Tracy, we were talking about this a little bit earlier about energy being kind of range bound.
I’ve got Nat Gas and WTI on screen. We’ve seen Nat Gas really come down hard over the past couple of days. Can you tell us what’s going on there? Because it’s performed really well over the past month, except for that little period. So what’s going on with Nat Gas and what’s going on with WTI? Is it really range-bound?
TS: I mean, it is range bound. What we’re seeing is we’re saying although it’s a larger range, right, like we’re seeing $10-15 ranges in WTI. What we are seeing is that if you look at a daily or weekly chart, you’re seeing that range is coming down. Right.
TN: Okay.
TS: And that’s to be expected. One thing that the market did was that they increased margins. Thank you.
TN: Yeah.
TS: They increased margins. That put a lot of retail traders out of the market. That said, if we look at the recent OI? OI has actually increased daily all this week. So it looks like and we can’t tell at this point whether it’s retail traders or institutional traders. But OI has increased this week in that sector across gasoline.
AM: Yes. Speaking of gasoline, I’m looking at diesel and gasoline crack. I think you’re looking at shortages coming in the summertime. Those things look to get explosive.
TS: You know, texted you two months ago and said, get long diesel.
AM: Yeah.
TS: It lies in the EU. Right. And they are going to see shortages. This is going to affect their overall GDP. We’re going to see less transportation we’re going to see less manufacturing. We’re going to see because they can’t handle these prices. That said, if you’re an investor, you’re going to look at the refiners right now that are refining these because the crack spreads are increasing exponentially.
So if you want to invest in this sector, I think you would be looking at refiners right now that specifically are involved in distillates. Interesting.
TN: Great. Perfect. All right, great. So, guys, what are we looking at for the week ahead? What’s on your mind, Albert? Definitely not shorting retail.
AM: Definitely not shorting retail. I just can’t take that out for at least June. But honestly, the Roe versus weighed the political atmosphere right now and how that’s going to affect the congressional races, not so much the House, because the House is set for the GOP, but possibly the Senate. And why I bring that up is because now those economic bills going through Congress, they start getting affected. And investors started calling me to try to figure out what’s the makeup of Congress.
And I think that’s what I’m going to actually start paying attention to because the beginning of next year we’re going to need stimulus the way that this economy is going. So I’m taking a look at what the makeup of the committees are going to be, what possible stimulus packages will be materializing.
The auto sector, for God’s sake, it’s completely trashed. I think that’s on life support and definitely going to need some help. I’m actually looking for auto sector plays for the long term, 24 months out.
TN: Okay, Sam, what’s on your mind?
SR: I’ll be paying pretty close attention to where the dollar heads, particularly based on our earlier conversation on the Renminbi. And in the end, following the Fed this week and then listening to how other central banks begin to form a narrative around their next moves based on the Fed in particular, Latin America is going to be very interesting given some of the inflation pressures down there and the push and pull of someplace like Brazil, where commodities are both good and bad for an economy, or Argentina, good and bad for an economy, export a lot of food, but import a lot of energy, even though you have the black maritime, psychotic, that’s pretty poorly run.
Anyway, that to me is going to be one of the really interesting stories of the next couple of weeks, given the Fed. The Fed moving quickly, beginning to do some quantitative tightening.
Generally, that would be your number one method of affecting markets is through the dollar. So I just want to see what the dollar does and follow the dollar and not fight that tape.
TN: Yeah, very good. Tracy, what’s on your mind for next week?
TS: I’m going to be concentrating actually on the yuan at this strength. I want to see how much are they going to actually devalue their currency, because I think that’s the sign of how desperate they are to bolster the domestic economy. That’s where my main focus is right.
TN: Supposed Fed your eyes on China.
TS: But you have to realize what happens is that people don’t really talk about why does China devalue the currency? They devalue the currency so that exports become cheaper and more competitive. In turn, that makes imports more expensive. Why does that help the domestic economy? That means that people in China are not buying imports. They’d rather buy from domestic businesses which bolsters their economy.
So right now I think that’s one of the most important things to be looking at right now is to see how much are they going like, how desperate are they?
TN: That’s a great observation and something that I watch every day and I’ll tell you, they’re very desperate. I don’t mean to laugh at it. I feel really empathetic for the people in China but they’re very desperate. So I would watch for some moves that are I would say that tried to appear disciplined because they don’t want to look desperate. But in fact, they’re desperate to get their economy moving because of these lockdowns.
So I think the first sign of that would have to be starting to see a lifting of the lockdown like a legitimate lifting of the lockdowns and not moving into more towns like they did in Beijing over the past couple of weeks. But really legitimately taking these lockdowns off and free movement.
Looking at things like the port zone in Shanghai and how many people are allowed to work in those bonded warehouses, those sorts of things to get that port activity moving. As we look at those indicators, we’ll know how serious the Chinese government is about getting back to work. If they don’t do it, they’re not serious. And if they’re not serious, they’re going to have some real trouble.
I’m not a gloom and doom kind of China is going to have a coup or anything type of guy. But I do think that they’re going to have some real trouble. They want everyone to be happy and harmonious going into the national party meeting in November and there’s going to be some runway needed to get everybody happy. And by everybody being happy, I mean all of those CCP guys in Guangzhou and all the different provinces, they have to be happy coming into that Congress because if they’re not, then Xi Jinping has several problems. Serious problems.
Okay, guys? Hey, thanks very much. I really appreciate this. Have a great week ahead and have a great weekend. Thank you.
