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Welcome to “The Week Ahead” with your host Tony Nash.
1. The Stock Market – Gone. Tony Greer provides insights into the current state of the stock market and where it might go before year-end. He also explores the relative levels of the SPX and the VIX, and shares valuable perspectives on where equity markets might head.
2. Record Oil Demand & Growing Gas Supply. Tracy Shuchart discusses the dichotomy of global oil demand reaching record highs while crude oil prices continue to fall. She discusses the implications of Saudi Arabia’s commitment to supply cuts and the EIA’s projections on LNG export capacity. Why are LNG export facilities concentrated on the Gulf, and what does it mean for global markets?
3. China, US & Geopolitics. Albert Marko reflects on recent diplomatic victories between the US and China, particularly the reassurance from China regarding Taiwan. He shares the dynamics of US-China relations, the risks involved, and China’s change in diplomatic tone. Whare are the potential geopolitical risks on the horizon and the internal and external challenges facing China?
Transcript
Tony Nash
Hi, everyone. We’ve started our Black Friday sale at Complete Intelligence, and you can subscribe to CI Markets for $99 for the whole year. That’s 80% off our normal price of $500. Starts today, and it goes until November 28th only. Go to completeantel.com/blackfriday and subscribe to CI Markets for $99. Thank you.
Tony Nash
Hi, everyone welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Tony Greer, Tracy Shuchart, and Albert Marko. This week, a lot of interesting statements. When I contacted Tony Greer about the show, I said, What do you want to talk about? He said, Four words. He said, The stock market gone. That’s what we’re going to talk about today, the stock market gone. We’re also going to talk about record oil demand. We’re talking about growing gas supply. We’re finally going to end with Albert talking about China, the US, and geopolitics coming out of that meeting in San Francisco. Guys, thank you very much for joining us on this Friday. Tony, like I said at the top, when I contacted you, you said the stock market gone. I really want to understand what that means. That was very concise. Can you walk us into what does that mean? What should we be watching right now? Why are you saying that? I’ve got on the screen just a snapshot of the VIX and SPX just so that we can understand what’s going on in those markets as well.
Tony Greer
I think this week, Ton was… Sorry, I just have an alarm going off for no reason. This week was watershed week for me for observing the stock market. I feel like we have a date that will live in infamy on Tuesday, November 14th. We got CPI data. It was benign. The data wasn’t off by much, but the market clearly, by virtue of its response, responded that inflation is no longer going to be an issue. Right? Bonds rally, stocks rally, both are dramatically oversold. Both have huge, usually negative sentiment. And so they up and take off, right? So what I feel is that the stock market has just gone uncaged because that move broke it out above all major moving averages that day in a major magnitude S&P rally. We had a major magnitude bond rally, huge magnitude bond rallies that day across the curve. New lows in rates. New low closes in rates today. So all of that follow through to me means that the high in Fed funds is in. It means that we are now going to be in a very tight range of Fed funds. And I feel like the market just weathered a very terrible storm.
Tony Greer
And so now the risk has changed where the risk to the stock market was the bond market. If we had hairy inflation data, the bond market was going to collapse and scare the crap out of the stock market, stocks were going to go with it. Now that has all been removed. All been removed, all been removed. Then crude oil went down $15 and further removed the idea that there’s going to be any brand of inflation scare coming across the airwaves. With that all said, technically the breakout is intact. I don’t want to take on too long. Go ahead, Ton.
Tony Nash
No, that’s great. What people have been saying for the past year or so is higher for longer. The er part of higher is you’re saying is gone. It’s going to remain high for a long period of time, but it’s probably not going to go higher. Is that fair?
Tony Greer
Are you talking rates or inflation?
Tony Nash
Rates and inflation.
Tony Greer
Yeah, similarly. Similarly, headline inflation is gone. It’s not going to be back. We’re not going to see any pops in CPI that’s going to scare the market anymore.
Tony Nash
Over ever or, I mean, not ever, but like over the next two years?
Tony Greer
Yeah. Well, give it six months to a year, right? Oil price has been buried, gasoline prices are getting buried. The gas price is going to go down in election year come hell or high water. I just think that that removes an unbelievably huge risk that the stock market was pricing in, right? It priced it in right into the Treasury refunding. It priced it in right into the Middle Eastern conflict. We came out of that. And so with.
Tony Nash
All of that- That all sounds good to me. That all sounds really good to me. Tracy, you know the rules here. Jump in. Don’t raise your hand.
Tracy Shuchart
I’m trying to.
Tony Greer
Sorry, Tracy. Sorry I keep cutting you off. I know.
Tracy Shuchart
What I wanted to ask is, what do you make of that health insurance print? It was negative 34 % and CPI. I mean, we know they changed the metric, but that’s really what brought down the CPI, right? Because it’s actually included in core.
Tony Greer
Absolutely.
Tracy Shuchart
What happens if we have a revision or is the market going to care and the market’s not going to care? It’s already-.
Tony Greer
I was going to say, Trace, I’ve matured in my thinking to the belief that the market trades off the data that it’s given and takes it totally on its face. Nobody’s reading into… Yeah, the health insurance was something that the micromanagers of the market follow. The rest of the world, CPI point one, doesn’t care, stocks, bonds, gone. That was the statement. That’s what they said. That’s what I’m going with.
Tony Nash
Can I comment on that, Tracy? Sorry, go ahead, Albert.
Albert Marko
No, it’s right. It’s perception is reality in this market. They don’t care about revisions. They can go back six months from now and say, Oh, yeah, inflation was actually 5%. Nobody’s going to care at that point. It’s done. It’s over and done. These algorithms and trades, they run on the same day. I mean, if you see some decent number, that’s it. It’s gone for the next five business days. It’s just what it is at the moment.
Tony Nash
I’ve actually trademarked to wait for the revision if you guys haven’t paid attention on Twitter. I do pay attention to revisions, but I think I’m the only one. It’s obvious that Tony doesn’t care. But what it also tells me with that healthcare change, Tracy, is that the guys who publish the economic data want those numbers to come down and they will change whatever mechanics they need to make them hit the zone that they want so that guys who just look at the top number, they see what they want to see. That’s part of the statistics game, I think. I think, Tony is right. Take it for what the top-level print is. Digging down is awesome for nerds, but it takes too long for traders. Is that right, Tony?
Tony Greer
A little bit like that, right? It’s like if we’re not going to trade off of the data that comes out officially, then what are we going to trade off of? I feel like the market already done and dusted, decided that a long time ago.
Albert Marko
The only problem I see is whenever they make these ridiculous changes to weighing inflation or employment or whatever data point you want to talk about, just for me, it compounds the looming problem that’s coming with this market. Because they can have clear sailing as long as the geopolitical issues are in check, as long as the data that they can manipulate is in a certain range and so on and so forth. But if something goes wrong and it gets out of their control, that’s when we’re going to have a problem. Do I see that in the next six months? Probably not. I would have to say trade on the data. What else are you going to do?
Tony Nash
Yeah, my health insurance didn’t go down 37%.
Albert Marko
That was a criminal change. They’re using corporate profits as a metric of CPI. It’s just insane for me. But whatever, we can go on that for hours. But it is what it is.
Tony Nash
So slowing inflation is a good thing, but we saw there’s this little company called Walmart. And on their earnings call, their CEO said, We could be facing deflation in a few months. And we also had another CEO come out in their last earnings call saying that we’ve already seen deflation. I’m starting to get the sense that deflation is going to be one of those terms that we’re going to hear a lot in earnings calls for the rest of this quarter and probably next quarter as a justification for shrinking profitability. What do you see with that, Tony? Are you expecting not just inflation to stop or trail off? Are you outright deflation? If that happens, how does that impact markets?
Tony Greer
I try to stay away from economic predictions because I’m not a biologist. But if I had to trade off of what I feel like the bond curve and the yields market are telling us, I feel like the curve had a very violent double bottom down at -100, and everybody was convinced the recession was coming. Then the curve went and rifle all the way back almost to zero, two cents. Now we’re somewhere in the middle at -40 basis points, which means that we’re still going to be navigating some waterfalls in the stock market. They’re just going to be a lot more shallow than anybody can imagine. That’s great. Yeah. And just related back to the inflation deflation thing, I would imagine that the narrative becomes a little bit deflationary, which I think is just going to be more fuel for the bond market to get off the lows and get rates back even another 25 basis points lower. I think that’s going to be even better for Mag 7 and any lowering rates in the end of the curve. I mean, it’s going to be good for home builders. It’s going to be home construction is going to rally.
Tony Greer
Semiconductors are going to rally. Like all of this stuff is just going to start going. Breakouts are really tradable right now and they’re going to continue.
Tony Nash
Interesting. Albert, what do you see?
Albert Marko
What are we at? 4,500, 4,500 and change, whatever it is today?
Tony Greer
Yeah, 4,500 a quarter.
Albert Marko
Where do we go from here? I mean, what are we talking about? 4,800, 5,000 on the S&P? I could see that at the end of the year towards the election. I for sure can see that. But for the next three months, we go to what? 4,500, 4,600? 4,800? Then what? We’re at all time highs for everything across the board at that point.
Tony Greer
Breakout City.
Tony Nash
Yeah.
Tony Greer
Performance chasing, career risk, things. Like that.
Albert Marko
Yeah, listen, I don’t discount it. It makes me vomit inside a little bit, but I don’t discount it.
Tony Greer
Play the game, man.
Tracy Shuchart
You have to think is all these CTA chasers, their model’s just flipped. They’re going long because their models flipped, and they don’t really care what’s happening in the underlying market.
Albert Marko
Yeah. For me, it’s like I look at this in a political script way, and if they want to get the market booming by the election time, I think they’re going to have to fake a crisis in February, whether it be banking or something, just to be able to relaunch it back up again. I just don’t think that they can stay in this 4,6, 4,7 area, 4,600, 4,700 area, and keep it there for nine months.
Tony Nash
But a couple of months ago, we were talking about S&P at 3,600 or something like that. And obviously, we’re not there, right?
Albert Marko
No. They got to lose control first. And they’re in no way of losing control of anything. There’s no China, there’s no Europe. So what’s going to happen?
Tony Nash
We went through the regional banking crisis. We went through inflation. We’ve gone through housing, worries about housing. And now everybody says 60 % of people in their homes or whatever, and it’s not a big deal. And we’ve gone through a lot of these concerns. And Powell, I think, is looking pretty smart right now. I mean, everybody wants to snipe at the guy, but he’s actually looking pretty smart right now in terms of managing things and managing the markets pretty deathly. Am I wrong on that?
Tony Greer
Trying to close the fucking door.
Tony Nash
Right, exactly.
Tony Greer
That was the best line. I’m sorry. That was the best line ever.
Tony Nash
Oh, yeah, exactly. He showed us he’s a real human being. Which is great.
Tony Greer
Yeah. I mean, it was cool as a cucumber for a change. A leader was like, You’re kidding me? Close the fucking door, man.
Tony Nash
Right. As a trainer, Tony, when you see the way Powell has acted and continues to act, is he providing a consistent, confident approach that you’re looking for as you look at markets?
Tony Greer
I feel like he’s a little bit volatile. I feel like sometimes he exudes pretty good confidence and I can listen to him. Other times I’m like, I feel like this guy is a deer in the headlights and has no idea what to say. He gives me mixed feelings.
Tony Nash
Okay. Do you think we’ll look back on him and go, Wow, he was handled things as well as Greenspan, although he didn’t do it as smoothly as Greenspan did, but he handled some tough things and got things back on track.
Tony Greer
I was going to say it would be hard to say that Powell made too many enemies during his tenure. He’s trying to help. He’s helped us out of the SVBI. He stewarded that fairly well, I thought, and doing a way better job containing inflation than I ever would have thought possible. But it’s just further proof that if you control the money supply and the narrative, you really control everything.
Albert Marko
That’s right.
Tony Nash
And puking fiscal doesn’t hurt either. Right. Having a DC that wants to spend a ton of money doesn’t really hurt.
Tony Greer
100%. That’s going to be part of the reason why the stock market is going to go up and keep going.
Tony Nash
Yeah.
Tony Greer
In my opinion. You know what I mean? God forbid the economy gets back on its feet and they still don’t have an inflation impulse to battle. That’s a really bullish cocktail for stocks.
Albert Marko
It’s tough because they still have wage inflation hitting corporations at the moment and they’re starting to leak out jobs here and there. So I don’t know. Man, it’s just hard for me to swallow that this economy is going to get back on track when inflation is still 20% above 2019 levels, and jobs are starting to leak away from the publics. Man, it’s just so hard for me to swallow, Tony. It’s hard.
Tony Greer
No, I hear you. Jobs going down is part of the volatility. We get a weak economic data, we get a weak print and bonds go off on another leg higher. To me, that could be totally part of the trade.
Tony Nash
Yeah, but here’s what I’ve seen. In the recession in ’91, which nobody talks about it anymore, we had huge job cuts. Boom. Everyone fell off in about a month. In 2000, same thing in tech and finance, boom, everything cut off. 2008, across the economy, everything cut off within two, three months. Here we saw Meta, Amazon, Microsoft lay a bunch of people off a year ago. Then over the past couple of months, we’ve seen banks lay a bunch of people off, especially in their mortgage units and their lending units, that thing. What I’m starting to see is clusters of layoffs, not one single economy-wide action. I’m not saying this time is different, but I’m saying a few different things happen by sector over an extended period of time. We could still have that event where a bunch of jobs disappear within a month. But we are seeing big clumps of jobs. We saw this a year ago in tech with a bunch of jobs just disappearing over a week or two.
Tracy Shuchart
The only thing that I’m concerned about is that we raised rates so quickly, like faster than almost any time in history. I feel like maybe markets haven’t completely digested this yet. That’s the still what if question in mind.
Tony Nash
What does that look like? Markets digesting it. What does that look like to you?
Tracy Shuchart
That means that I don’t think it’s really hit the economy yet. We haven’t really seen labor come off. We haven’t… We haven’t really seen those effects, except for maybe, I guess you could call the commercial real estate market, but one could argue that that was already in trouble from COVID and that was just a carry-over and just got worse with rate increases. I just think that I’m just still a little apprehensive or a little skeptical that maybe markets haven’t completely digested this rate increase and that we could be blindsided, well, quote-unquote, blindsided in some respect if things really start to fall apart. I’m just saying it’s just in the back of my mind. I’m not saying it would happen.
Albert Marko
The market keeps chasing this Fed pivot and Fed cuts. Now they’re pricing cuts in May, I think that’s what they’re looking at right now, four cuts for all of 2024. That’s not happening if super core inflation doesn’t trend down. That’s simply not happening. I don’t think the market thinks that’s going to… For sure, the market is not looking at that. They’re not contemplating any more rate hikes. I still think we’re going to get one or two in 2024.
Tony Nash
Q1.
Albert Marko
What’s that? Yeah, I think Q1, Q2, we’re going to get a rate hike, one or two of them.
Tony Nash
I just want to tell you, from my college football perspective, since we’re right in the middle of the season, Tony Greer is our quarterback who just snaps back and forgets the last play, just keeps on plugging. Tracy is our offensive coordinator who has a little wider view, a little bit afraid of the defense coming after. Albert’s the GM who’s just taking everything into view and looking for the long term. It’s great.
Albert Marko
Yeah, well, quarterbacks wins championships.
Tony Nash
That’s right. Yeah, they do.
Tony Greer
I just want to play the game right and make sure that I’m on board if there is a seasonality-driven rally that to me seems like set up a picture perfect scenario for that to take place and in magnitudes that people are not going to want to believe and it’s going to be all that much harder to jump in and get position for. And that’s why I think it’s a lasting thing.
Tony Nash
Hey, Tony, just for reference, when you look at a position, how long do you usually take a position for? Is it a day or a month or weeks?
Tony Greer
I start off with a two day to two week time frame, almost with pretty much everything, Tony. That’s how I address it. And if I live through a two week time frame, then I’m usually just go on cruise control, which is putting in a trailing stop scenario and then let the market take me out. And in those conditions, I’ve been in position for like two years. You just have the trailing stop right up behind you if you get it really right. Okay, great. It doesn’t happen a lot, but it happens sometimes.
Tony Nash
Fantastic. That’s really good context to understand because you’re looking at things right now for a relatively near-term trade turnaround, right? I think Albert’s looking at things longer-term, thinking elections and politics and that thing. That’s really interesting. Not that Albert doesn’t go in and out in a day at times, but I think that’s really interesting.
Albert Marko
Multiple times in the day.
Tony Nash
Exactly.
Tony Greer
Speaking of the election, who knows? But Trump was good for the market, right? And if the market starts pricing him in, that’s a bullish scenario that I didn’t even calculate what that will do to the markets because I don’t know if that’s going to be the case, so I don’t think about it yet. But man, I think that would be a bullish scenario. The guy was good for the economy, good for the stock market, right?
Albert Marko
Well, you would have a double positive. You’d have the Dems trying to push up the market because they want to look good for the election. And then you’d have some people in the market pricing in Trump because they think he’s going to be good for the election.
Tony Greer
I wouldn’t be short stocks if Donald Trump got elected President.
Albert Marko
Oh, God, no. Hell, no.
Tony Nash
Interesting.
Tony Greer
Like, period. Not for a day.
Tracy Shuchart
It would be like all in everything.
Tony Greer
Yeah, right? I’m saying that day that I was talking. About-
Tracy Shuchart
I would triple my energy positions. Right away.
Tony Greer
Yeah. Oh, yeah, forget it. Yeah, totally. But on that day, the reason that day was so insane to me is because there were 17 sectors that I follow that had a two-sigma or more, most of them breaking out through moving average resistance. On any given day like today, there’s one stock with a two-sigma move on the board today. On any given day there’s probably an average of 2.3 two-sigma move, stock movers. That day, 17 sectors all rallied in two-sigma fashion. That is the everything rally. That is like if you’re short, you’re dead.
Tony Nash
Yep. Wow. Interesting. Let’s definitely keep an eye on that as things move. I’m not sure, Albert, it’s too early to take polls at face value, right?
Albert Marko
No, I mean, it’s way too early, and you have all sorts of variables like Democratic and Republican operatives trying to show some narrative in the way they ask questions in the polls, and then you have just voters flat out lying. You have people that are pro-Biden that they want to see Trump get in, so they give Trump extra votes in the polls and vice versa. It’s a mess. Polling is a mess right now.
Tony Nash
Right.
Tracy Shuchart
Well, it’s not. They used to call you on the phone, or they call people on the phone. I mean, who has a phone anymore? Boomers? I mean, like a landline, right?
Albert Marko
Yeah.
Tony Greer
Seriously.
Tony Nash
And cable. Who has a phone and cable?
Tony Nash
Okay, guys. Let’s move on to energy, Tracy. This week you tweeted about global oil demand at season record highs. Since we have crude prices falling, I want to understand what that’s about. We also have Saudi Arabia saying they will continue supply cuts. Why is that? Why is crude falling when we have record demand?
Tracy Shuchart
Well, I think first that data was JODI data, so it lagged too much. That was September data, just to make it clear. But really, if you look at the OPEC monthly report, which just came out last week, they’re still showing demand, very supportive, and that’s only, say, a month lag. But really what we have seen is a lot of length come out of this contract since October to the latest COT report. We’ve seen about 40% of the length come out of that contract. Obviously, it’s going to be more after this week, but we haven’t really seen short positions initiated. For whatever reason, people are jumping out of this contract. Now, my hair, brain theory is that we saw this come out as soon as markets started to rally and we saw the great jump pile in into tech again. That only exacerbated after we had that CPI print. Then after the CPI print, we saw oil go down even more. We saw everybody jumping into that tech trait. I think that’s partially the reason, that narrative where you’re changing from the value to growth scenario. Does that make sense? Because growth stocks, as soon as you hear the Fed wants to pause, that pause narrative that we started hearing right before the last meeting at the very beginning of November, we started hearing a lot of this pause from all of the Fed heads, right?
Tracy Shuchart
That’s when we really saw a jump into growth again because that’s what those markets like to hear, because you don’t want higher interest rates and file into growth. In my opinion, that was part of the… That is part of the exodus and the liquidation and crude stocks. But really, it’s not that anybody’s getting short. It’s not that the fundamentals of this market has changed. The market still remains very tight. In fact, our US distill stocks, which are like diesel, heating oil, jet fuel, et cetera, are ending the fall season at their lowest seasonal level since 1982, and we haven’t hit winter yet. We definitely have a problem with the shortage in diesel, and it’s not just in the US. We’re seeing this in Germany as well, which is unbelievable considering their manufacturing has taken a complete dive. Manufacturing definitely takes more distillate. We’re seeing this distillate problem. I think that’s only going to grow as we hit into the winter seasons. Again, what I’m saying is the market is fundamentally still tight. I know that was a lot.
Tony Nash
It’s still tight, but prices are down because investors have rotated out of energy into tech. Is that, if I understood what you’re saying.
Tracy Shuchart
I believe is slow. I believe so. I think it’s because everybody loves to jump on that growth narrative, the Mag 7. It’s a huge pylon. I’ve been posted a chart on Twitter this week. Basically, 99% of hedge funds are invested after 12% at the beginning of this year. Since then, that rotation into growth pulls a lot out of value stocks. Nobody’s value investing, and it’s not just the energy. We can look at this across all the value sectors.
Tony Nash
I mean, a rug pole in tech would really kill a lot of people, right?
Tracy Shuchart
Yes.
Tony Nash
What’s that?
Albert Marko
And then some.
Tony Nash
Yeah. I’m shocked to see that number of hedge funds that highly invested in tech right now. But I guess it makes sense. If you’re talking about the rotation. We had another guest on about a month or so ago talking about the rotation out of tech, and we started to see a rotation out of tech, but it almost sounds like those guys have gone back in.
Tracy Shuchart
Everybody’s piled in, especially after that CPI print. I mean, it’s a rocket ship.
Tony Nash
Yeah.
Tony Greer
I’m calling something else that you have to consider in crude oil is Cushing inventories just saw a couple of pretty big builds and put them back into the range they were in over the summer rather than right off of their lows.
Tracy Shuchart
Still at historical lows, though.
Tony Greer
Yeah. No, I know, Tracy. I’m just trying to circle the fact that WTI this week was the source of the weakness, right? Wti is a five % gas is off one or two, and I think diesel is almost unchanged. I’m saying it was like a purely WTI slide. It was a pure supply-side issue. I mean, front month spread went from 25 cents back to 25 cents contango, and the front price front month dropped $15. That was the whole thing right there, if you ask me.
Albert Marko
Yeah, this ridiculous drop in this price. I mean, this is like Bitcoin’s time moves from the oil market. It’s just super suspicious, especially with an OPEC meeting coming up where I think they’re probably going to announce deeper and longer cuts.
Tracy Shuchart
For sure.
Albert Marko
Yeah. We’ll see what happens. I’m a long oiler. Right now, I’m a long oiler.
Tony Nash
You’re long. Okay. Interesting. Okay, guys. Then, Tracy, let’s talk about gas for a minute. We saw this street from EIA talking about LNG export activity from North America. Is this a realistic projection? That’s the first question, but also why are all of the US LNG facilities on the Gulf, which I would assume means they’re serving Europe. Why don’t we have any LNG Asia-facing? Because it looks like Canada is the only one that’s really serving Asia.
Tracy Shuchart
Well, because California. They are trying to phase out oil and gas, and so they don’t want any more pipelines. They don’t want any more. They want nothing to do with it. Same goes all down the Westcoast, right? If you’re talking water.
Tony Nash
Okay, so we’re not servicing three and a half billion people in LNG.
Tracy Shuchart
Right. Because of-
Tony Nash
We have the second most abundant LNG in the world or something? Or gas, sorry, in the world. We’re not serving three and a half billion people in Asia because-.
Tracy Shuchart
California doesn’t want oil pipelines and they want no oil and gas. Yes, correct. Basically, that is it. They’re trying to phase it out. There’s nothing you can do about it. Environmental groups. There’s too many problems trying to get more capacity through California. It’s just not going to happen. End of story, unfortunately. We do have LNG going to Europe. We do. But right now, the other problem for that is the Panama Canal.
Tony Nash
Tell us about that. What’s the Panama Canal problem?
Tracy Shuchart
Right now, there’s drought, and what they’re doing is there’s not as many ships can go through and not as many heavy ships can go through, so you have to split things. We saw the same thing in Germany last summer with the Ryan River. We’re seeing in the Panama Canal right now, people are paying on… I think the last figure was somebody paid $4.5 million just to jump the line to get their cars to go through.
Tony Nash
Wow.
Tracy Shuchart
In the Panama Canal right now. What that is doing is it’s causing prompt Asia prices to rise over European prices right now. That’s out into summer of 2024.
Tony Nash
Okay, wow. When I look at this map, the rest of the export facilities, there look to be two on the East Coast. Everything else is in the Gulf. Then we have two from Canada. It looks like there’s one from… No, there’s not one in Mexico. Well, there are a couple in Mexico, it looks like.
Tracy Shuchart
Yeah, but they’re not.
Tony Nash
Is there a lot of LNG export from Canada to Asia?
Tracy Shuchart
No, not yet.
Tony Nash
It’s mostly Qatar type of trade.
Tracy Shuchart
Yes. They’re building out their export, but it’s a case with Canada that’s a little bit too little too late because the liberal party or the party in charge there was like, We want nothing to do. We don’t see a base case for LNG until US exports started to-
Tony Nash
Who would want cheap energy? I mean, it’s terrible.
Albert Marko
That’s absurd.
Tony Nash
That’s absurd.
Tracy Shuchart
They do have capacity, and it’s good for them that they’re building out and they have more capacity coming online, so they don’t have to be as dependent on the US, and that’s for oil as well as gas. But ultimately, everything is focused and everything’s been focused really on the Gulf because we can still get it to Asia and we can get it to Europe from there. All the big companies, LNG, CHK, Oxy, they’re all building out big facilities. In fact, by 2022, we became the largest LNG export facility, and we still have a little bit more in the Gulf. We have the largest LNG export capacity in the world right now. We still have a couple more projects coming online out to 2027. The bulk is majorly done with, but it’s a huge area right now.
Tony Nash
Texas is the energy capital of the world and becoming the tech capital of the world. You guys can keep finance on the East Coast, but we’ll take energy and tech.
Albert Marko
Maybe if the Canadians priced things in hockey sticks and maple syrup, they’d see the light, but apparently, they don’t understand that whatever.
Tony Nash
Okay, great. Hey, let’s move on to this big China meeting that we had in San Francisco this week where US and China met, Biden and Xi Jinping met. It was a… Well…
Tracy Shuchart
Brain wreck?
Tony Nash
Sorry.
Tracy Shuchart
Brain wreck.
Tony Nash
It was a train wreck, but I think it’s been portrayed as this amazing shaking of hands and meeting of minds and all this other stuff. But I’m not sure anything material was really decided there. But one thing that was at least lightly committed, and this is where Albert takes his victory lap, is that China has no plans to invade Taiwan. Let’s dig into that first. Albert, on the screen, I have an interview we did with you on February eighth of 2021, where you said, Not going to happen. Taiwan invasion, not going to happen. It’s not going to happen. Since then, you’ve been saying it’s not going to happen. There are all these fear mongers out there, so many of them saying, Oh, China is going to invade Taiwan. It’s that season. It’s October, it’s April. The straits calm, they’re going to invade Taiwan. Now all these boats are lining up. But it hasn’t happened. I just wish that the Taiwan fear mongers would shut up for a little while and realize the dynamics of the China-Taiwan relationship and the US-Taiwan relationship, and I wish they’d listened to you. Take your victory lap, go.
Albert Marko
Well, first of all, you had it right with their forging slip, but they don’t have planes. They don’t have planes or plans to attack Taiwan anytime in their future. They don’t have the military to be able to… They can bomb the hell out of Taiwan if they wanted to, but they have financial repercussions, both by closing ports down. They also have investments in Taiwan and the semiconductor industry. The CCP elite, they have shadow money in those factories over there. So to make this assumption that China is going to just scroll in there and just burn everything down and take it over and install a new government and so on and so forth. It’s a tired argument, really. I’ve been going at this for, I don’t know, I think it’s like 2013. I love my NATSEC guys. The Pentagon guys are great and all, but they do have to justify budgets and their existence. But until there’s some shift in that area where the Chinese are extremely confident that they can win quickly in Taiwan, I don’t see any plausible way that it materializes. And even Xi comes over here now for this meeting. And initially it started off as him coming here as throwing an olive branch to let’s work together economically and so on and so forth.
Albert Marko
But then Biden says ridiculous things. The meeting was rushed and I don’t think really had some real agenda besides just shaking hands and taking pictures and pushing them out to the US and global media. Other than that, I don’t want to see what the purpose is of this meeting at all.
Tony Nash
California will have a glass of wine.
Albert Marko
It was like… Well, Yeah. Okay, well, sure.
Tony Nash
I’ve done work for and with the Taiwan government and the Chinese government. When you talk to people in Taiwan, there really is not a worry about China invading. I know that sounds anti everything you hear in America, panic social media, but the Taiwanese are not sitting on the edge of their seat waiting for the Chinese to invade because they have dealt with it for so long, and the chronic, continual, fear mongering out of certain voices in the US is just tiresome.
Albert Marko
Yeah, it is what it is. I mean, you have these World War III type guys coming out there. Even Friedmann at one point said the US is going to attack North Korea in two weeks. Things don’t materialize this quickly. I mean, for China to have serious intentions of invading Taiwan, there needs to be a lot of prerequisites in place economically, politically, militarily that just don’t exist right now. They just don’t.
Tony Nash
Right. If they materialize that quickly, if they do materialize that quickly, it’s usually a mistake. Somebody’s made a mistake somewhere and something’s happened.
Albert Marko
Oh, absolutely. Something’s happened or it’s either desperation or a mistake’s been made.
Tony Nash
Yeah. China does not want a war with the US. Regardless of the rhetoric that mid-level people say, China is not one war with the US. The US does not want a war with China. Regardless of what people say, the US does not want a war with China. And the leadership on both sides knows that.
Albert Marko
Yeah, of course not. We’re in this weird symbiotic relationship. China does their thing and they’re the world. The United States does everything else everywhere else in the world at the moment. There’s no reason to change that status quo. Simply there isn’t any.
Tony Nash
Okay, let’s talk a little more broadly about the US-China relationship. What do you see as the key risks? And, Tracy, Tony, jump in here too. What do you guys see as the key risks between the US and China right now?
Albert Marko
Oh, man. That’s tough. Besides the whole espionage and corporate espionage and that thing, I don’t really see too much risk out there because I don’t really think that China can do anything that would upset the status quo of the relationship at the moment.
Tony Nash
Okay, let me throw something out. What about supply chains out of China? China was very inept in handling supply chains through COVID. I get it, global emergency, all that stuff. But the ineptness out of China was shocking. When we had 6, 9, 12-month backlogs for things, this was just shocking. Do you think supply chains out of China are still a risk?
Albert Marko
Not really. I don’t think so. I think they’ve learned their lesson and they’re going to learn even more important lesson where Europe is no real economy at the moment. And the emerging markets where they can dump their cheap Chinese stuff is drying up. The only place they’re going to have to look to is the United States and the Middle East. Those are the only two areas.
Tony Nash
Okay. So supply chain is off the table as a risk right now from China.
Tony Greer
In hindsight, I feel like that was madly, madly hyped up in order to blame inflation on it and to pair that up to be able to say, Oh, look at the supply chain issue. Well, that’s why prices are higher. Don’t say anything about doubling the Fed balance sheet or anything like that or spiking money supply. I mean, look at this. The biggest canal over here is jammed up, and that’s why prices are through the roof on everything. In hindsight, it seems like that was really, really part of the deal.
Tony Nash
Okay.
Tracy Shuchart
And realistically speaking, I’m just going to say if we’re looking at, say, these transition metals, battery metals, China still has not only are they the largest producer of a lot of these, but they’re the largest processor of a lot of these. They mine this stuff in Africa, they process it in China, then they send it out. Right now, we’re two decades behind. We’re talking about wanting to bring mining to Europe and to the US, but our permitting process is 10 years. Europe’s not that far behind. We’re really 10, 20 years behind China at this point. We’re going to have to realistically rely on them because we just can’t bring the supply online domestically, either in Europe or in the United States to be able to-
Albert Marko
No, we have EPA and environmental restrictions that prevent us even making basic things like active pharmaceutical ingredients. It’s a dirty business. That’s why the Indians and the Chinese do it. That’s why we outsource it over there. That’s not going to change.
Tony Nash
Yeah, that’s the APIs are… I think APIs are a huge risk for pharma and for the American health care system. That is a massive risk that people talk about it every so often, but then we forget. I think API is a massive risk for us. What about real estate in China and the real estate markets? Could that impact the global economy or do you think that’s pretty isolated in China?
Albert Marko
I think it’s isolated and it’s priced in at this point. I mean, we’ve already had Evergrande and other companies go belly up, essentially. What’s it done? It hasn’t really done anything at the moment.
Tony Nash
Okay. Then what do you think about China’s relationships in Southeast Asia? For example, the US and Indonesia just came to an agreement this past week about trading nickel and some metals. The US and Vietnam came to a very tight security agreement last month. Do you think the US getting more directly involved in some of, say, the Southeast Asian countries is troublesome and worrying for China and could be destabilizing for the status quo?
Albert Marko
Not really. I view China’s actions twofold in the Indian Ocean, and South China sees one is security, obviously, but other one is illegal fishing. They love their illegal fish. They have to. They have to pump out all that fish and feed their population grow. That’s a necessity.
Tony Nash
Right. Okay. Although I don’t think a whole lot necessarily happens substantially in the event itself. But I think what it’s allowed people to do is take a deep breath and just go, Okay, let’s just carry on here and try to figure out how we can have a normal relationship. If nothing else was achieved, do you think that was achieved and people will look at China a little less hyperventatively or whatever or like a little less-
Albert Marko
Oh, yeah. There’s no question that the US and both Beijing and Washington need some economic partnership or trade deal or something in the next 12-24 months. There’s no question about that. And that’s what I think they’re probably leading up to.
Tony Nash
Okay. Do you think that that could be part of the reason markets have calmed a little bit this week as well? Meaning, hey, this China thing is going to be okay. There’s not going to be a war. We take a little inhale, exhale. Do you think market that could add to a little bit of… Well, take a little bit of risk away from market activity?
Albert Marko
I don’t think so. I don’t think that’s really… I don’t think you can correlate to at the moment only because a lot of… If China starts rallying that actually takes money out of the US and goes into Asia. I don’t really think that’s much. I don’t think it’s a factor, to be honest with you. I think everything is the US market rallying is what Tony was talking about earlier.
Tony Nash
Yeah. That’s part of my question, is the rally partly because the risks and fear of China is off the table at the moment?
Albert Marko
I don’t think anybody was seriously considering China war as a risk for the markets, especially the –
Tony Greer
The gold market and the treasury market would definitely not pricing in imminent conflict with China. I think that’s fair to say.
Tony Nash
Then on the energy side, Tracy, China pretty stalked up with energy. It’s not like there’s no war over energy or worry about energy or anything with China.
Tracy Shuchart
No, they’re demand is still high. We even saw their teapot refineries just asked for extra export quotas for the end of the year. They’re doing well. Their demand, despite the property implosion, which leads me to believe it’s a controlled demolition, but that’s a whole other tongue.
Tony Nash
Of course, it is.
Tracy Shuchart
A whole other story. But we’re still seeing demand very high from them. Again, we have the teapots to ask for additional quotas. They’re using it, they’re selling it. Obviously, we have a diesel problem. That’s one of the reasons why they ask for export quotas because they can’t… The demand was higher than what they could export.
Tony Nash
Great. Very good, guys. That’s great. It’s the end of a great week. I think things have ended really well. Tony, I’m really glad to hear your optimism. I think that offsets a little bit of Albert’s wariness from time to time, so it’s great to have you on.
Albert Marko
It’s one of those things where I can be wary and we could dip a little bit, and then Tony’s thesis comes into play, and you absolutely have to jump on it. My my negative sentiment is something of an opportunity for Tony’s-
Tony Nash
Oh, yeah. This is why we all love markets, Albert. It’s a battle of ideas. It’s a battle of data. I’m not saying you guys are necessarily polar opposites all the time. I just think one day Tony wins, another day you win, another day Tracy wins. I think that’s great, right? Because it’s that battle of ideas.
Tracy Shuchart
Yeah. Well, that’s why we have a discussion, right?
Tony Nash
That’s right.
Tracy Shuchart
There’s a lot of… And so, yeah, you can pick each other’s brains.
Tony Nash
So guys, thank you so much.
Tony Nash
Thank you. Have a great weekend. Have a great week ahead. Thank you.
Tony Greer
Thanks, Ton.
Albert Marko
Thanks.
AI
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