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Welcome to “The Week Ahead” with your host Tony Nash. Key themes for this discussion are:

1. Supply Chain Risk: Middle East Conflict

Ross Kennedy leads this segment, diving into the critical issue of supply chain risk amid the current Middle East conflict. He explores the US’s supply chain capabilities in the face of geopolitical risks, including the historical context before WW2 and analyzes US political realities in Washington, D.C., and its intelligence gathering capability.

Ross also examines the US’s share of container shipping, the challenges of distance, and dependence on different shipping carriers and discusses the inhospitable nature of the Suez Canal and Eastern Mediterranean.

Further, Ross assesses the US’s reliance on European “commercial navies” and considers the potential impact on various commodities over the medium term due to ongoing political risks in the Middle East and beyond.

2. Geopolitical Dovishness

Albert Marko takes the lead in discussing geopolitical dovishness. He examine how dovish statements by Fed speakers have unfolded in response to recent geopolitical events, such as those in Israel. Albert also analyzes the elevated PPI and CPI reports and their impact on market dynamics, including fluctuating yields. He also gave insights into the future of the Federal Reserve and Treasury activities, and how we can discern the direction they’re taking.

3. Risk or Recession Back On?

Michael Belkin guides us through this segment and explores the dynamics of the tech trade and the recent resurgence of shares in companies like META. He takes into the intriguing analysis of a potential recession following a series of rate hikes and a 19-month lag.

Understand what he expects as the economy slows. What factors contribute to this scenario regarding the VIX (volatility index) and whether its movement is primarily influenced by recession expectations or other factors.

Transcript

Tony Nash

Hi, everyone, and welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Ross Kennedy, Michael Belkin, and Albert Marco. It’s quite a lot happened this week on the geopolitical side, so we’re going to start there and we’re going to move into markets. The key themes this week, first are supply chain risks, looking at Middle East conflict. We’re also looking at geopolitical or the possibility of that. And then we’re looking at risk or recession, which one is back on.

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Tony Nash

So, Ross, thanks for coming on again. It’s a great week to have you on. I know you’ve probably had a lot of discussion with your clients this week, given the current level of geopolitical risk. So, given that does the US have the supply chain capability to weather the storm of the current geopolitical environment or potentially even more intensive geopolitical environments?

Ross Kennedy

Short answer, yes and no.

Tony Nash

Good.

Ross Kennedy

And it’s really scenario-dependent. Like any good analyst, there’s a wide range of outcomes that you look at and you say, What’s my confidence that one scenario will emerge versus another? As things stand right now, we’re talking about a significant amount of naval traffic and activity happening on water, of course, primarily very close to the Suez Canal. There’s obviously already been a significant amount of disruption to particularly the grains and the energy supply chains coming out of the Black Sea region since the Ukraine-Russian conflict kicked off February last year. So in a sense, you do have a bit of a one-two punch. A lot of it comes down to what happens next. We saw these just really horrific videos and accounts emerge over the weekend seemingly out of nowhere. Depending on the story, Israel was either caught flat-footed in some way or there were some other factors potentially at play. But at the end of the day, the claim that the situation is contained now, this does follow patterns that we’ve seen in the past. Certainly to my criminal mind, if you will, you could easily be seeing a situation where you have a surprise attack.

Ross Kennedy

You suck, allied and other assets into the region with the intention of creating more significant widespread follow on destabilizationment. So in a scenario where Hezbollah begins emptying their pretty substantial arsenal of anti-ship missiles and making it rain in the Eastern Med, now we have a real startling situation. Egypt will do everything they can to avoid the closure of the Suez Canal. They’ve deployed or called up very significant portions of their military to ensure that that scenario doesn’t happen. But the Sinai has not exactly been the most stable either, going back 20 years. It doesn’t get a lot of press here in the US, but that’s certainly been a challenge, if you will. And then given the conflict between ISIS and the Sinai, Hamas, very much at war with one another two on the border region of Gaza and Egypt. It is a powder keg.

Tony Nash

Okay. If we assume that the situation stays as it is right now, Israel and Hamas, West Bank, that thing, and there isn’t a wider conflict. Are there issues with, say, ags and supply chains and other stuff? It stays local. Is that risk fairly contained? I know that’s a big assumption to make, but we see the terrible footage on the news, our heart breaks. But does that impact supply chains, agriculture, energy, that thing?

Ross Kennedy

Not to a great extent. Rude certainly won’t be, I guess in my view, that impacted. Certainly the disruption we’ve already seen to the net gas fields in the Eastern Med is a major challenge. That’s something that other players in the region, whether it’s Turkey, whether it’s Saudi Arabia, Israel, Egypt, all of them have some skin in the game, particularly on the NatGas issue. So we could see some potential disruption there, even if hostilities don’t escalate further. Infrastructure becomes obvious targets in the event of a larger theater-wide escalation. That’s really where we go from zero to 60 on the risk calculation. As it stands right now, not bad.

Tony Nash

Okay, so let’s go to that. We go out concentrically. Now, you don’t have to go too far to have major issues. First is you go north and let’s say, Hizbollah gets involved in the north. What are the issues?

Ross Kennedy

Well, you’re talking about certainly a significant disruption to commercial maritime traffic in the region. All risk and insurance on vessels and war clauses and things like that only go so far. So you’re certainly, I think, going to see a lot of commercial carriers elect away from obviously Port calls in Haifa, Alexandria, Piraeus in Greece. And that’s just as the situation stands now. If we’re talking about a really significant disruption to maritime traffic in the med, you don’t have to blockade the Suez Canal to begin to see a significant portion of freight that moves on water through that corridor, whether it’s grains going south, crude going north, certainly manufactured goods out of the Indian subcontinent, things coming out of Africa that tend to move north. That two-way traffic slows even if you don’t close the canal just by virtue of the risk inherent in the med. Really, the other shoe I’m almost waiting to drop on the premise that a lot of this is sponsored by and organized by Iran.

Tony Nash

Hold on, hold on, hold on. Let’s not go there yet. Let’s not go to Iran yet. Let’s just stay on the north. When you talk about if things escalate north of Israel, that can have significant impact on the med. We saw, for example, say, grains coming out of Ukraine, restricted because of issues with Russia, Ukraine. Turkey really tried to get that trade moving. How much of an impact could Turkey have if things go north and you start to see issues in the, say, the northeastern men?

Ross Kennedy

Turkey gets negatively impacted by the fact that most of their major commercial ports from where they export a significant amount of heavy equipment, minerals, manufactured goods for industrial uses. They do face a risk to their. Turkey benefits, though, opportunistically from the ability to pretty expediently open overland corridors to and from the Black Sea, being able to provide some level of guaranteed safe transport away from the risk of conflict in Lebanon and Syria, and being able to get things on water if they can obviously defend their own waters as it will and provide that safe passage north of Cyprus between Greece. On net, I say Turkey probably has the ability, if they play it smart to benefit more from this than less or be negatively impacted. We’ve seen they’ve been pretty savvy over the last 20-something months and how they’ve managed the Black Sea corridors by using the Montreux Convention.

Tony Nash

Absolutely. It’s really easy to forget the impact that trip can have if things go north, right? But they actually really do have a lot of impact. Now, let’s go southwest. Let’s say things boil over into the Suez nightmare scenario. What happens then?

Ross Kennedy

Well, at that point, you’re talking about anywhere from 10-12 % of everything manufactured in the world transits to Suez Canal. Every year you’re talking about 30-50 vessel passages a day going through there. There’s really two key domains that I’m looking at there from a negative impact standpoint, because oil and that gas have the optionality of pipelines at some level through Saudi Arabia, up in Egypt. TurkStream is always available as well. So from an energy standpoint, it’s probably not as crippling. However, Saudi Arabia does have a pretty significant amount of extraction and refining and transload capacity to bulk carriers on their Western shores, which is inside the Red Sea. At that point, those vessels get redirected, flows begin to redirect as well anything that’s moving north. There’s also the issue of food in Africa in particular. We saw that and have continued to see that be a pressing issue from a food aid standpoint because so much of that traffic moves to the Suez and terminates in the Horn or in the Red Sea. The third challenge is going to be to the Indian subcontinent. The Suez is the major corridor for trade between India and the Middle East, India and Europe, and India and the United States.

Ross Kennedy

We’re talking about Navasheva, one of the largest container ports. It’s right outside of Madras. In all of Southeast Asia or the Indian subcontinent is located there. 90 % of something that’s vessel traffic is going to go that way. It’s going to move northwest into the Suez. So India has some real skin in the game on this issue too, not only because of its connections commercially and from an energy standpoint to Iran and to Russia. Iran is more tenuous. They’re pretty tied at the hip to Russia in a lot of ways. So India’s calculus in this is that right now they lose the Imek for sure, the Indian Middle East economic corridor. That’s a dead letter at this point until things change. But for them, a significant amount of their export trade is with Europe and with the United States. They face a dramatically negative impact because the only alternative options are things like double-trans shipments of containers through Singapore, you go west, you’re talking a 60-day transit now versus about 35, or they have to go around the Cape. You’re talking adding 10-14 days to your vessels there too.

Tony Nash

This part is fascinating. So talk about Turkey’s impact if things go north, talk about India’s impact if things go down to the Suez. India has positive relationship with Iran. They have positive relationship with Israel. They have positive relationship with Russia. They can pull some strings. I think the US in particular needs to stay close to India on this issue, and Turkey, of course, so that all of this stuff can be positively impacted, right?

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Tony Nash

Sticking specifically with the med, can you talk to me a little bit about… I heard you make some comments about the US being dependent on European commercial navies for activities in the med. Can you talk a little bit about how the US doesn’t really have the capability there to move things if needed?

Ross Kennedy

Absolutely. At one time, particularly in the first 20-30 years of PAX Americana, we had the largest commercial fleet in the world. And we were a shipbuilding powerhouse. Liberty Ships taught us how to make vessels that can move fairly fast and carry cargo. Quantity has a quality all its own. We’ve really eroded that advantage with the advent of steamship lines. We begin to optimize more for outsourcing, and so our shipbuilding capacity, our maritime, sea lift capacity, so vehicles, manpower, all of that has eroded not just the commercial fleet, not just the tanker fleet, were a shadow of what we once were. And so the reference to commercial navies is really the big three ocean carriers in the world are MSC, domiciled in Geneva, but owned by an Italian family, the Apontes, and then Maersk, based in Denmark, and CMA CGM based in France. And given that in the case of MSC is really an independent player, but certainly Maersk and CMA are major participants in US maritime trade, significant parts along with Hapag-Lloyd out of Germany, the auxiliary, essentially our ability to call up US flagships with these carriers and press them into service. But to the extent that we have the ability to have the optionality to be able to put our own stuff on ships with our own sailors, we don’t really have that.

Ross Kennedy

Not at any scale that can defend the supply chains in the US from major disruption, particularly in the med.

Tony Nash

Before we get to Iran, because I know that’s a sweet, juicy thing that you and Albert are going to dig into. Hey, Michael, what are you seeing in terms of transport? Does it look like appealing to invest in European transport companies or is there too much risk there?

Michael Belkin

I’m agnostic. I’m not familiar with some of the names that he just mentioned, but in terms of global shipping, Maersk and Hapag-LLoyd are the two big ones listed in Europe. They’re shorts for me, but not very high confidence. But that’s something else. That’s not Middle East. That’s just global trade is not doing well and freight rates are falling and ships are not being booked as heavily. So agnostic, but slightly negative on the only ships I follow.

Tony Nash

Okay, perfect. That’s great to know. Thank you. Okay, so Ross and Albert, given that these aren’t major oil and gas producers, but we also have the US SPR at a very low level, and we have already crude exports that have been accelerating over the past couple of years. Aside from the $6 billion that was announced, I think, earlier today that the US is going to hold back with the Qatari government. Do you think there’s a possibility of seeing new sanctions on Iran? Is that a possibility? And what would have to happen for that to be a possibility?

Albert Marko

I do think new sanctions will most likely be enacted by the US on Iranian oil. Do I think it’s going to matter much? Probably not. They do ship-to-ship transfers all the time by turning off transponder. God knows how much oil they mix in Basrah with Iraqi crude. So sure, we can pay lip service to that, but I don’t think it’s going to make much of a difference.

Ross Kennedy

Yeah, I’d concur with as much as I love a good fight with Albert or anybody else, hey, I’d probably lose. But certainly on both the premise and I think just the factors that are in play here. Do I think sanctions are coming? Yeah, absolutely. It’s an absolute layup for an administration that’s been rightfully dragged through the mud over the fact that they released $6 billion in funds to buy seven Americans back. It’s the obvious go-to move. It’s the last option, not a very creative one, but it’s the last option. But Iran has already demonstrated like Russia, significant capacity to actually move sanctioned material. But more than that, it represents a significant buying opportunity, particularly for China, who does not give a crap about anything that the US State Department or Commerce Department does with regards to sanctions. I think it’s inevitable if we sanction them. All we do is we simply depreciate the price of Iran and crude and increase the amount that we will see moving between Iran and the Pacific Rim.

Tony Nash

I mean, crude is on sale for Asia, right? Most of Iran and crude goes to Asia anyway, right?

Ross Kennedy

Absolutely.

Tony Nash

India, China, other places.

Albert Marko

I’m actually more keen on finding out what Turkey is going to end up doing with Iraq since that oil pipeline has actually been blocked to the Mediterranean for many reasons. They say earthquake. The other ones say a lawsuit, but it’s many reasons. I think that that thing is going to probably be important in negotiations going forward, especially in terms of the crude oil market.

Tony Nash

Interesting. In Iraq, Turkey pipeline?

Albert Marko

Yeah. Well, they already have it, but they shut it down because of lawsuits.

Tony Nash

Okay.

Ross Kennedy

It’s interesting that, Albert, I’ll interject real quick. It’s not quite on script. But there is a real dark horse factor here with the broader Kurdish population that occupies that region. It’s the only population that is spread out at scale in Iran, Iraq, Turkey, and Syria. And yes, there are factions within it and all of that. And yes, to some extent, they’re insulated from the larger conflict to the extent they don’t get sideways with one of the main governments. But the ability of these very substantial Kurdish minorities in all of those countries definitely could impact anything from a logistics and supply chain standpoint. Certainly, that has to transit on rail or transit over land. They sit right in the middle of the new Silk Road corridor that China and others have been cooperating on to connect Chinese trade on land through the Eurasian continent. So that definitely bears watching because depending on how each of these parties responds, the calculus of the Kurdish populations in these countries changes too.

Tony Nash

Interesting.

Albert Marko

A lot of the oil is out of the Kurdish area right now because the pipelines are shut down, it’s trucked back and forth into Turkey and whatnot. But like you said, if the Kurds decide to act up, that’ll get shut down pretty quickly. Those are definitely something to… I wish you didn’t say anything about the curves. It’s a whole Pandora’s box.

Tony Nash

Yeah, we can do a special segment on that.

Albert Marko

I really just…

Ross Kennedy

That’s its own episode.

Albert Marko

I want to allow Michael Belkin to actually talk to me.

Tony Nash

Right, exactly. Guys, let’s get into… Albert, I’ve been wondering, given what we saw the Fed and Treasury say earlier this week within the context of these events, we saw Fed speakers out early making very doveish comments early in their week. But we also saw elevated PPI and CPI reports this week. Yields fell for most of the week, but then came back up later in the week. What’s ahead? Given the geopolitical backdrop and given what we’re seeing with CPI and PPI and other prints, and then we saw some consumption data out today where consumption is down, US consumers, what’s ahead for Fed and Treasury activity? And how do they balance this?

Albert Marko

How do they balance? They haven’t been able to do anything properly in the past, so I don’t know how they’re going to be able to balance this. I mean, the auctions have been absolutely atrocious. They obviously knew what CPI and PPI and the Michigan sentiment was going to be because they had every single person they could throw out into the media say, inflation is over, like Krugman and whatnot, or this is a success. They know what they’ve been doing. They know that they’ve been making mistakes. Yellen, I think two weeks ago, was at a staff meeting, screaming of why isn’t the bond market bondholders paying attention to problem? Why aren’t they listening to me? Well, you got a geopolitical event, and now they’re going to listen to you. The auctions aren’t good. The economy is certainly not good. Inflation is starting to kick back up no matter what they do.

Tony Nash

Sorry, let’s go back. You said the auctions aren’t good. Can you walk us through that?

Albert Marko

Well, there’s no bids in the bond market, especially the long bonds. Nobody wants them at the moment. There’s no bids. The only people that are bidding on it is the government itself.

Tony Nash

Why are there no bids?

Albert Marko

No confidence? No confidence of what’s going on specifically policy-wise in this country? Why would you bid on it?

Tony Nash

Okay.

Albert Marko

From there, it’s just like I don’t see how we get out of this situation without a recession and a pretty sizable recession. I know they talked about soft landing and whatnot, but they’re going to really need a recession and unemployment to tick up to even start denting inflation going forward.

Tony Nash

Okay. In the background, I’ve been seeing headlines of Company X lays off 1,500 people, Company Y lays off 5,000 people, other things. That seems to be happening pretty quietly so far. We’re not really seeing the recession. We’re too much out there. Given where consumption, those consumption numbers that came out today and given the need, I hate to say it, but the need for a recession, do you think that the news of layoffs will be more prominent in headlines so that we start to see the table set for some of these Fed and treasure actions to really be appropriate?

Albert Marko

I really think that a lot of the corporations are trying to slow out these layoffs because they don’t want to catch the IRA of the Biden administration calling them and arguing a wireline of people. But I just think that the margins because of wage inflation just getting out of control is going to take over to the point where companies are going to face either bankruptcy or lay enough workers. And neither one of them are actually neither one of them are a good thing to happen and going into an election year. I don’t know who wins, to be honest with you. Until I see earnings start dropping and unemployments going to go up, I don’t see how the economy is going to be able to get itself right.

Tony Nash

Okay, so if you could architect a recession, when would it happen to be the most politically ideal for a presidential year?

Albert Marko

Right now. Before Christmas.

Tony Nash

Right now.

Albert Marko

Yeah, right now. Going Q4 maybe into Q1 and get it over and done with and try to rally the markets and the economy going into the election. That’s what I would do. If I was an architect.

Tony Nash

Okay. So Q1 recession. Again, we’re not saying this is going to happen.

Albert Marko

No.

Tony Nash

In your ideal plan, Q1, Q2, new stimulus plan, Q3, it gets out there. It’s in everyone’s pockets. Then election, everyone’s happy, right? Yeah. That would be an ideal runway.

Albert Marko

That would be an outline that I would play.

Tony Nash

Okay. What do you think will actually happen?

Albert Marko

I think they’re just going to try to maintain the facade that the economy and the market is doing great and slow walking into a soft landing. I think at some point something’s going to break or it just gets out of control for them. Whether that’s in 2024, I don’t know. But certainly after the election, they’re going to have problems.

Tony Nash

Okay. Great.

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Tony Nash

Speaking of things breaking, Michael, let’s get into some data and whether we’re looking at risk on or recession on. You’ve told us for a while that the technology trade is pretty played out. We saw shares like Meta earlier this week just rise pretty dramatically. There were all-time highs, I think, on Wednesday and Thursday. Why the pop this week? What’s happening there?

Michael Belkin

Okay, good question. Let me just set the stage here. The consensus believes that inflation and higher interest rates are the biggest threat to the stock market. I think that’s over. The downward impact of monetary tightening on the economy is arriving with a 19-month lag. The US money supply, M1, is declining at a 10.5% annual rate. That’s the biggest ever on record and Federal Reserve data. Same thing in Europe. European M1 declining at a -10.4%. That was the chart. We’re probably going to show that.

Tony Nash

Yeah, no, charts up on the screen.

Michael Belkin

Okay. So these M1 money supply declines suggest central banks are driving economies into a depression, not a recession. This is 1930 stuff. And blowback is the unintended consequences of a policy mistake. The 9 % CPI inflation rate and 11 Fed rate hikes are blowback from unnecessary stimulus that they did in 2020, COVID stimulus, way over did it. The blowback we are about to experience is an economic slump caused by monetary and fiscal tightening that they impose to rectify their previous policy error. It’s a doom loop of overreacting to previous policy mistakes. The stock market investors are so far from realizing this, it isn’t funny. Wall Street, Robot, trading machines, and individual investors firmly believe central bank interest rates cuts are bullish for the stock market. Nothing could be further from the truth. In the last two major Federal Reserve rate cut campaigns that was starting in early 2000 after the TMT bubble and then 2007, the credit bubble, the S&P 500 fell by 50 %, more than 50 % from peak to trough while the Fed was cutting interest rates. Why? Because the economy and corporate earnings collapsed in recessions. Tell that to the algorithms, this is how I’m finally getting around to answering your question here, who dominate day to day stock market trading.

Michael Belkin

Those who programmed the Algoes seem to have skipped the stock market history class. The ingredients of a global risk off moving financial assets are falling into place. In the last few weeks, emerging market currencies, EM debt, EM equities, junk bonds, and cyclical stock market sectors have toppled. The Israel attack comes at a vulnerable time. This was already happening before that. Let me be a little more specific here. One of my clients is an Alpha-captured fund. I hate to boast, but it’s a reality check because we have a 100-70, 180 contributors on there. I was number one in last quarter of 19 % market neutral. I’m also number one right now to moving target, up 4%. And what I am is I am short crappy tech stocks. Not so much Meta, but the Shopify, these really overvalued software stocks, Carvana. That has heavy short interest, but the list goes on and on. We don’t have time for the whole list. I don’t want to disclose it. But we have 50 positions on there. And what it tells me… The reason I say that, again, not to boast because boasting comes before a fall. But I can tell what everybody else has on that my competitors in this Alpha Capture Fund, I watched my ranking go up and down according to the market.

Michael Belkin

So earlier this week I was down, I was number 10 or 20 or something and I saw these others. So what I know is it’s a feeling of consensus. Everybody’s still buying the same crappy stocks. The same stocks that blew up Tiger Global. Of course, they’re buying the Magnificent Seven and everything too, and those aren’t going down that much yet. So beneath the surface, these lousy tech stocks are going down and I think they’re shorts. So this is not a quick flip for me. I think I’ve been saying this for a while. These positions are on. I think you should be shorting on balances like we had earlier this week. Sell in short. Don’t get squeezed and say, Oh, God, it’s going up. It’s time to cover my shorts. I need to go long. That’s a trap. I think the market is going down big time. Just to final note on that. I was hired into Solomon Brothers. My background came out of UC Berkeley Business School, Staff Department. I developed… Everything I do is based on this quantitative model algorithm that I developed, which is a forecasting model based on time series analysis. I was hired into Solomon in 1986, right before the ’87 crash.

Michael Belkin

In ’87, what happened is the bonds sold off, Greenspan came in as the new Fed chairman, raised rates. The bond sold off about 24%. The stock market went up all summer, peaked in August, sold off, rallied back in September, and then crashed. We’re following… Nothing’s ever exactly like anything else. I hate overlaying one chart without another chart, expecting the same exact thing. Never works out exactly. But we have something history, rimes. So this year, the TLT, T-bond ETF is down 22 % since I think March. It looks like it may have bottomed last Friday. The thing that would make a crash happen is a major asset allocation shift out of stocks into bonds. When the consensus is super hyped up and bullish on stocks and overloaded, when they get squeezed and then all of a sudden they push the sell button and then bonds start to rally, you get this huge gyration where bonds go up and stocks go down just because of asset allocation flows. I think we have the potential for that. I’m not standing out here saying the market is going to crash. It could potentially happen.

Tony Nash

When could that potentially happen? Tomorrow or April?

Michael Belkin

Soon. So here we are in early Friday the 13th, right before solar eclipse on tomorrow. Not that it has anything to do anything, but I think it’s setting up for that. Basically, it has to do with sentiment. Another one of my clients is a big hedge fund. All they care about is sentiment. When people are too bullish or too bearish, and I just think I don’t get it. A little digression here. So the definition of psychosis is when you think you’re the only smart person and everybody else is crazy. I worry about that because that’s what I think. I think everybody else is out of their minds for after 19 months after the Fed has started tightening, the money supply is shrinking and people can’t get enough stocks to buy? Hello? Have you ever heard the Don’t fight the Fed. I don’t understand where this ebullient, excessive exuberance comes from. I just think it’s misplaced timing, misplaced from the what’s going on underneath the surface of the market. By the way, one other little point here. We went really… In the Alpha Capture Fund and also in the Belkin Report, I’m long defensive sectors, which nobody likes, which have been underperforming until this week.

Tony Nash

They liked them on Monday. They were up 10% on Monday. Are you talking about Fed stocks or defensive sector?

Michael Belkin

No, defensive. I’m talking about utilities. So things that nobody wants to touch with a 10-foot pole. Anybody that’s really bullish on the market, utilities, forget about it. They wouldn’t even think about it. So utilities, up 4% this week with the S&P up one. So 3% alpha. TLT, the T-bond ETF, up 3% this week. So it’s outperformed the index by S&P by 2%. Here’s another one for you, GDX, gold stocks, and gold. So gold is up 5% this week, GDX up 8% this week. That’s up 7% more than the S&P. We’re getting this risk-off move into defensive stuff, GDX, utilities, and bonds and then the VIX you probably want to… We’re going to talk about that in a minute.

Tony Nash

Let’s talk about the VIX. You are expecting a higher move in the VIX or a move higher in the VIX. Is it largely due to recession expectations or what are the factors you expect in that?

Michael Belkin

My model gives direction, position, intensity. It’s a 12-period forward forecast based on my studies of Fourier and Box-Jenkins in the UC Berkeley Statistics Department and the business school. Nobody else was looking at this stuff when I was doing it. I was not happy with what I learned in economic forecasting. It wasn’t very powerful. So I developed my own algorithm. So that says direction up, intensity strong, position just starting. And again, it’s another one of these things where the bubble people, as I call them, whoever they are, whoever they are, love to bomb the VIX. The market goes up, the VIX goes up, out of the woodwork comes huge selling and they knock the VIX down almost every time until that right tail kicks in. All of a sudden, the VIX is not… They can’t do it anymore. And then the VIX goes up in their face and the ball sellers get squeezed out of existence. So I think that’s the potential where the VIX could go up. So when it’s down, by the way, options are cheap. And this is very complicated and I don’t have all the answers. So now there’s these zero-day options, and the institutions are selling those things and retail investors are buying them.

Michael Belkin

So options selling tends to depress the VIX, and option buying tends to increase it. But options are still relatively cheap. I would say put options on the Nasdaq, which I think is like 20, 30 % too high just for starters. I like put options on QQQ, put options. I think they’re cheap. I think it’s a good entry point. I think the index goes down, so the value of the option goes up and the volatility goes up. You get a double kicker. Is it going to happen this afternoon or today, tomorrow or next week? I don’t know, but soon. I think it’s setting up for that in the model forecast.

Tony Nash

Fantastic. Albert?

Albert Marko

I like that. No, I like his idea. I hear people trying to short the two and 10-year, which I think is lame trade, to be honest with you. If you think that 10-year is going to end up going to five and a half to 6%, you might as well just shorten Nasdaq and some of the tech stocks. I mean, you get more juice doing that. Michael’s right. I don’t really see how this market can stay so elevated with so many just policy errors and bad sentiment out there. It’s just crazy to me.

Tony Nash

Given the policy errors, and I know we’ve talked about this a few times in the last couple of months, but it seems to me also that what both Michael, you and Albert are saying is that a lot of these companies, their margins are really compressing. Is that part of the reason you’re seeing this rotation into these other segments?

Albert Marko

Is that me, Tony? The only thing I have about margins and earnings is inflation does inflate earnings, at least with the headline numbers and temporarily. But I just don’t… Like I said before, margins are getting tight and wage inflation is getting out of control. It’s an inevitable thing. Historically, you’re going to see this market retract to something where it’s fair value, whether that’s 3,200 or 3,900, I don’t know. I can’t answer that. I’m out of my league.

Michael Belkin

Okay, so margins are one thing, but top line is another thing. In my scenario, so we’re moving into earnings reporting season and the banks were supposedly good today. But if the economy is going to do what I forecast it will do, then we’re going to see warnings. So basically in the rear view mirror, it shouldn’t be too bad. Q3, right? You can say, Okay, good. That’s okay. Worked out great blah blah. Going forward, I think it’s going to be bad. And the way this works is the companies say we’re downgrading our forward revenue. Our sales are going down. You can see it across the board in retailers, industrial companies, things like that already. It’s not so much tech stocks yet. But if they say, Well, all of a sudden at the end of Q3, beginning of Q4, our orders started to fall. Then you get these Wall Street analysts downgrading the stocks. And then you get this Pi Piper thing where all these long only managers that only listen to Wall Street analysts and consensus earnings forecast all of a sudden say, Oh, you mean Micron, semiconductor sales aren’t going to be that good. Maybe I should sell.

Michael Belkin

So you get this snowball effect, right?

Tony Nash

Sure.

Michael Belkin

The brokers announce the portfolio manager starts selling, and then it turns into the snowball thing. And one final point on that. So today somebody mentioned this in passing, EM consumer sentiment down from 67.3 to 63 in early October. So that’s anecdotal evidence of what’s happening. So when consumer sentiment falls, willingness to spend falls, and if you look at the rate on car loans and and stuff like that, forget about it. I’m also short on home builders. Home builders had enormous rally rolled over a month or two ago. They’re declining. Auto makers, they’re not the greatest short. They’re not up a lot. I would prefer to short something. But anyways, the point is the financing cost for a house and auto sales are off the map. It’s unaffordable for so many people now, particularly subprime lenders. So that feeds into the financials, the banks. So we heard, JP Morgan, the city bank, and Wells Fargo today were okay, earnings are supposedly good. Let’s wait until we hear what’s happening with the regional banks, which are short for me. I think that we’re in for another round where the regional bank start going down liquidation, they start warning of loan losses, deposit outflows, all the same stuff as last time.

Tony Nash

Okay. We have geopolitical risk, rising geopolitical risks. We have rising market sector risks. We have risk with a Fed mistake. Sounds like a lot going on out there. Michael, this has been really enriching, just hearing how to apply this broader stuff within specific market segments. So guys, I really appreciate this. You’ve really helped us sort through a lot of the noise and action this week. So thanks very much for all of this. Thanks, guys. Have a great weekend and have a great weekend. Thank you.

Ross Kennedy

Thank you.

Albert Marko

Thank you.

AI

That’s it for this week’s episode of the week ahead. Please don’t forget to rate us and review on whatever platform you are watching or listening to this. Thank you.

Register for a CI Markets account for FREE! No credit card required: https://completeintel.com/markets.

Welcome to “The Week Ahead” with your host, Tony Nash! In this episode, we engage in thought-provoking discussions on a range of critical topics:

1. Price Disinflation Recession: Our expert panel, featuring Seth Golden, challenges conventional wisdom by analyzing the rise in manufacturing volumes and its implications for the economy. Are we on the cusp of a period where valuation multiples could expand once again?

Also, discover differing perspectives on inflation and disinflation as our panelists share their views on the deceleration of inflation rates and concerns about wage inflation and political policies. Explore the impact of interest rates on the housing market and the potential for lower prices due to disinflation. We also shed light on the critical role of diesel prices in the economy.

2. Crude Tumbling: This discussion, led by Tracy Shuchart, dissects the secondary impacts of rising gas prices and the global dynamics affecting fuel prices. Stability in oil prices becomes a focal point as we examine the intricate interplay of factors like global demand and export policies. Comparisons are drawn between OPEC’s influence on energy markets and the Federal Reserve’s impact on equities.

3. DC Drama & Markets: Albert Marko led this discussion and he doesn’t shy away from discussing the lack of unity within political parties and the need for stable economic and fiscal policies. The panel raises concerns about wealth accumulation among politicians and calls for a reevaluation of the system.

The discussion also touches on the significance of the Speaker of the House in US politics and potential candidates for the role. Learn why an efficient speaker is vital for the productivity of the legislative body as we wrap up our discussions.

Transcript

Tony Nash

First is the Price Disinflation Recession, Crude Tumbling, which has… It dovetails with Price Disinflation, DC drama, and the relevance to markets. So… Hi, welcome, everybody. Welcome to the week ahead. I’m Tony Nash. This week, we are joined by Seth Golden, Tracy Shuchart, and Albert Marko. We’ve got some key themes this week. First is the Price Disinflation Recession, which is a really interesting concept that Seth’s been talking about. I just want to talk about crude tumbling, which dovetails with Price Disinflation. And then we’re going to talk with Albert about DC drama and the relevance to markets.

Tony Nash

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Tony Nash

Seth, thanks for coming on. First time, really appreciate it. It’s great to have you. I’ve been following you for a long time, and I love your Twitter presence. I saw your tweet about the NOPE index and rising PMIs. Your expectation is for a price disinflation recession, which is at odds with what Albert’s baseline hypothesis, I think, but not a volume-based recession, price deflation-based. Can you walk us through that? I’ve got that tweet up on the screen now. If you can walk us through your NOPE index tweet.

Seth Golden

Yeah. The NOPE index was actually developed by the Leuthold Groups, Jim Paulsen, who retired recently. But it essentially tries to strip out the sentiment factor within these soft data. The ISM is a survey-based report. And I think what becomes a greater magnitude in these survey data is what’s happening at the most basic level in price. So what the NOPE index does is it takes the new orders, that’s the NOV part, and then the price, which is the P part, and it basically takes the new orders and subtracts it from the price. Because when you look at the questions within the survey, the ISM, whether it’s the manufacturing survey or the services survey, there’s never any good price. There’s always this underlying bias within the ISM that is lower bound as opposed to above 50 or expansionary. Jim Paulsen created the NOPE index, which just says, hey, focus on this. It’s already soft data. But let’s see what’s really going on in the economy. So if you take the actual new orders and you subtract them from the price, whatever the reading is, if it’s above zero, you actually typically have a better manufacturing situation, then maybe the overall index is implying, the ISM manufacturing index is implying.

Seth Golden

The threshold or line of demarcation, if you will, in the NOPE index is zero. So a reading above zero is typically expansionary, and typically that is good for the S&P 500. The forward S&P 500 returns on an annualized basis when the NOPE index is above zero is about 13%, I believe. It’s a good gage, not only of what’s going on in the economy, but what could possibly foreshadow market performance going forward. I know that we’ve had this seemingly recession in the manufacturing sector, but there’s various data that says not even close. If we look at just the ISM, if we look at the S&P also, their measure of manufacturing, they’re both under 50, which technically is a recession in those particular industries within the economy. But the reality is if you look at, let’s say, the St. Louis Fed, the total manufacturing output in the United States has been booming. We’re out the from 2022 and through this calendar year. But we’re not getting the manufacturing inputs that we usually do get, which are driving this manufacturing expansion. Usually it’s the refining capacity, and usually there’s some various variables of goods production that is taking place, textiles or otherwise that are driving the ISM and S&P manufacturing data.

Seth Golden

But we have this dynamic since ’22 where it’s actually construction manufacturing, as well as electronics manufacturing that is driving this boom in the total manufacturing here stateside. So I’m not necessarily looking for a recession based on this NOPE index or what have you, I’m just trying to define what is actually going on through the NOPE index. Is it a real recession in manufacturing and or services, or is there underlying strength that just isn’t being realized by the ISM or the S&P manufacturing indices?

Tony Nash

Okay, so you’re saying that the manufacturing volumes are continuing to rise?

Seth Golden

Correct. That’s the most important thing about this. The NOPE index is that it strips out the price sentiment, basically. It gives you what’s actually taking place in new orders. Because if you subtract the price and you’re above zero in the NOPE index, you still have an expansion situation in manufacturing. You don’t really have a recession.

Tony Nash

Okay, so let’s take a look at that.

Seth Golden

Let’s take a look at the actual price that is influencing how respondents are actually answering the questions in the survey.

Tony Nash

Okay, so let’s look at this second chart you sent me, and I want to talk about that. I also want to put the price layer on that because I want to make sure that that’s not missed. You sent me this chart, recent rise in US manufacturing construction driven by computer, electronic, and electrical sector. Since these two acts were signed, the CHIPS Act and the IRA signed, we’ve had a spike in computer, electronic, and electrical manufacturing, right? That’s good, right? That’s good for US manufacturing.

Seth Golden

Right. Yeah, you’re getting a lot of transactional volume through that fiscal policy initiative, getting a lot and minimal. I mean, there is some price appreciation in there, but it’s nowhere on the scale of, let’s say, what we see in refining prices through that manufacturing capacity.

Tony Nash

Okay. Where do you pick up the construction or manufacturing?

Seth Golden

Yeah, you’re getting materials. That’s another way that you can validate that this is… Those aspects or industries where we are seeing electronics and computing and construction, we know construction materials and whatnot have actually been disinflating for more than a year now. Whether it’s lumber, sheetrock, concrete, all of those necessary construction inputs are actually disinflating for more than a year, but the transactional volume is basically superseding the price disinflation. Hence, you’re still getting this boom in manufacturing overall.

Tony Nash

Okay. Based on your thesis, so in ’22 and the first half of ’23, we saw manufacturers and services firms able to grow their margins because of the inflationary tailwinds. They could add margin, they had their top line growing, they had their bottom line growing. And they didn’t really care about the volume of transactions in many companies because they were still hitting top and bottom line numbers that were better year on year. Now you’re saying that because of disinflation, that margin is collapsing and those volume of transactions matter as much or more than the price itself.

Seth Golden

Right. Yeah, that’s a great way to summarize it because when you have this volume, you get this a reading in the total manufacturing layout. But it’s in sharp contrast to what we’ve seen in ISE because there’s no price situation that is ever really good for the respondents. Take, for example, we had an inflation boom. We got the ISM up to 60. It was there for what? One month before it collapsed? Because the respondents know this can’t last forever. I can’t push my cost onto the end producer and then the consumer. I’m going to start responding negatively because I know there’s an inevitability in this inflationary boom. Well, okay. Then the reading starts coming down. There wasn’t even in inflation times, that’s only going to live for so long. Then you get into disinflationary situation. Again, will prices keep coming down? Now, my profit margins, as you are alluding to, are also coming down. I’ve got to rely on volume, but how do I increase demand? The number one problem for a CEO, every single morning he’s always thinking about, I wake up every morning, I’ve got to figure out how to increase demand. So these ISM readings, they’re so sentimental and it’s always focused on price.

Seth Golden

One way or the other, price is bad always. So the note model does a great job of distinguishing the true strength and what the trend is in manufacturing, overall.

Tony Nash

Okay. Albert, I want to bring you in here in just a minute, but I have just a couple more things with Seth that I want to put on through. Okay, so we’ve gone from a very low interest rate to a significant interest rate rise over the past year. We’ve gone from very nice margins on marginally lower transaction volume to thinner margins on transaction volumes that may or may not be increasing. When we take those two worlds and we look at the valuations that companies have had, we had really nice valuations in a low interest rate environment with high margins. Now we’re in a higher interest in the environment, and I assume a higher for longer environment where we have lower margins and the transactions may or may not be increasing. What happens to valuations under your hypothesis, what happens to equity valuations in general? Without talking about specific sectors, but what happens in general?

Seth Golden

All right, yeah, if we just use the benchmark S&P 500, the consensus is that valuation should compress level. So far as the margins are concerned, there’s a bit more nuance there because while the actual margins per sale may indeed decline, the total profitability may not follow suit or the earnings per share may not follow suit because we have this dynamic of higher rates where part cash, be it households or corporations, is earning millions upon millions and billions every single month. So you have this free cash flow that also has to work itself way into the valuation model. Again, the consensus belief is that higher rates, higher for longer, should compress the earnings multiple. When in reality, that has been the exact opposite. If we go back to, let’s say, 1960s, 1970s, all the way up to the early 1990s, the S&P 500’s multiple was actually higher over a good 23-year span. I think it was 17.7 times from the late ’70s to the 1990s in that higher rate environment than even where we are today after the Federal Reserves program here. And now we’re at 17.4. But of course, we won’t know where we’ll be going forward.

Seth Golden

But there’s not hard and fast data suggesting that the multiple should compress because we’re not even where we were back in the ’70s or ’80s when it comes to the federal funds rate, let alone, let’s say, the benchmark 10-year Treasury yield. I don’t fall into the camp that aligns with a compressed multiple. If you look at the PE multiple, if you look at the CAPE ratio, they do nothing but expand over time. That’s the history of multiples. They expand over time, mostly because for every dollar that goes toward wages or whatnot, we get that much more productivity, so we have that much more cash flow. With that being said, the common pushback is no multiples don’t look at the peak. We still haven’t made it back to the peak of the dot com period. Okay, so fine, X dot com, that hyperbolic event or parabolic event, multiples indeed expand over time. So who’s to say that we are not in that new period, this post-pandemic period, where we once again jump the shark? Because there’s always this jump the shark moment when it comes to PE expansion. In real time, we shun it, we belittle it, we berate the multiple expansion.

Seth Golden

It’s only in hindsight that we realize, Oh, we just took a leap.

Seth Golden

That’s how I look at it secondarily, I say, if you look at the long term history of yields, they go lower over time. We might be in this vacuum moment where we’re becoming prisoners of the moment given the monetary policy initiatives. But in hindsight, again, we look back and we say, well, of course, the 10-year yield is lower over time. It’s just a matter of when it finds that new lower, low bound territory. So I’m comfortable with saying… And if, in fact, we finish at a 20-time multiple here this calendar year over the trailing five-year period, the S&P 500 forward PE multiple will have averaged 20 times for the first time in history, hence the jump the shark moment.

Tony Nash

Very interesting. All very sophisticated. Thank you so much for this. Albert, I know you are not well. I suspect you were not in line with the disinflationary underpinning of Seth’s hypothesis. Can you walk us through that?

Albert Marko

Yeah, Nope.

Seth Golden

I’ve been wrong twice before. No, I’m on you.

Albert Marko

I don’t even want to discuss this inflation until wage inflation is under control, and that is nowhere near getting control at the moment. On top of that, inflation in the last year and a half has only shown that companies can earn more. Put earnings through the roof. Until I see wage inflation actually coming down, I don’t want to talk about this inflation, to be honest with you. I can’t see it. Even the CPI prints have been completely nonsensical. Goods are just still 17%-20% higher than they were pre-COVID. Energy, as much as they want to push it down, energy is just bursting at the seams to go back to 100 on the Brent. I can’t see a pathway for disinflation. But of course, I’m only talking for the next 6-12 months after that. That’s just a different era, in my opinion.

AI

Heads up for a short break.

AI

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AI

Thank you and now back to the show.

Tony Nash

Seth, do you have a timeline on yours? Are you thinking ’24? What are your thoughts on the timeline?

Seth Golden

So far as getting to the Fed’s target?

Tony Nash

No, getting to this disinflationary environment that you’re talking about.

Seth Golden

Philosophically, obviously, Albert and I disagree. I understand where… He’s absolutely right. We have absolute inflation. That’s all we actually ever have. But in terms of what’s being measured by CPI, PCE and PPI, consumer price index and producer price index, they measure rate of change. So it’s the month of the month or year over year. So philosophically, I think we agree on the fact that there’s always inflation, but it’s a matter of what’s being measured is the rate of change of that inflation. So do I see that deceleration continuing? Yeah, I would suggest I see that disinflation or deceleration in the inflation rate continuing through the end of this year and at least for the better part of 2024. And so far as the wage inflation is concerned, we are starting to see an increase in the labor participation rate, which will facilitate some of that, at least to some degree, that deceleration in wages. This morning’s report may be a prime example, or the last two monthly reports, in fact, might be a prime example of an increase in the labor participation rate, working in favor of reducing that overall wage inflation.

Tony Nash

Right.

Albert Marko

Yeah, I just don’t take those numbers at face value. I’m just over the fact that CPI is at whatever, 3.3%. They’ve changed the weighting of it. They use the BLS deflators to manipulate the numbers on unemployment. The revisions come in every 3-6 months later that shows that it was actually worse than they were reporting. Like I said, until wage inflation, in my opinion, gets sorted out and they actually have political policies to address the oil and gas and energy markets, I don’t want to even discuss this inflation in my opinion.

Tony Nash

Interesting. Seth, I do think that your thoughts about the volume of manufacturing will be very interesting. I’m really intrigued by the disinflationary underpinning of it and how that could drive things. I think that’s very, very interesting. Definitely not a consensus view right now.

Albert Marko

If you get disinflation, like he’s saying, six months later, we’re just going to have another inflationary event because people are going to go out and buy everything. I mean, houses, goods.

Seth Golden

Yeah, I agree. One of the caveats or antithesis that I put into my models does center on the resilience of the consumer, the strengthening the labor market being what it is. And just the monthly, and I think it gets just way overlooked in terms of people that have been calling for a session since last year. The Fed is actually stimulating while it’s trying to ease the economic situation by tightening. We’re not as rate-sensitive as we used to be. Probably the least rate-sensitive economy as a whole, households and corporations in history. You have all these people that have fixed rate mortgages at three and four %, so the Fed raises to 550 basis points. What do they care? It’s not really affecting them to any monthly bill payment degree. Now they take that, their savings and they put it into a money market fund for 5 and 6% of monthly income coming. The Fed is tightening while these people are actually seeing the benefits of the tightening cycle. Unless you say, Well, the service industry, that’s where the real inflation is. I would totally agree. You go to any restaurant. You go to even some of the lesser Darden Restaurants like an olive garden, you can’t get a chicken parmigiana for less than $25.

Seth Golden

Your boy likes chicken parmigiana. I’m trying to feed a family of four out at the olive garden for dinner, and you get a bill for 150 bucks and you’re like, Whoa. I’m the consumer spending.

Tracy Shuchart

You also can’t forget what the government is doing, right? Fiscal policy is doing. I mean, the IRA act, which is very inflationary, for me. It’s butting heads. I just don’t see disinflation either at any point soon, except for maybe what the Fed is looking at in their core. But it’s hard for me to get on board with this disinflation theory.

Albert Marko

For me, it’s like a double-edged. Everything that Seth says is most likely correct. But the flip side is there’s double-edged swords everywhere. If you have disinflation, let’s say housing starts coming down or they have rate hikes coming down, mortgage is coming down.

Albert Marko

You have such low inventory of homes in certain states that they get snapped up like this because people are just cash rich at the moment. They sold whatever they did or their stock market. They’ve had calls on NVIDIA, made them 10 million bucks, and they come back and they start buying things cash. So you’re right. They don’t care about rates at all. They don’t care about it.

Tony Nash

I was talking to Morgan’s broker earlier this week, and I said, How is your business doing? Has it slowed down? And they said, Oh, yeah, a lot. It’s slowed down a lot. But they said, Most of the buyers that we’re seeing are cash buyers. So what you’re saying, Albert, is right, is people are not taking out a mortgage. They’re using their cash to buy a home. Has the volume declined? Yeah, it has. But I think that what the Fed has done with interest rates is working because you have these guys with two and three and four Airbnb’s who are not seeing the occupancy that they saw a year or two years ago. Because of the higher mortgage rates, those houses are eventually going to have to come on the market because it can’t service those mortgages. Those will come on at a lower rate. Will they get stopped up for cash? Maybe they will. Maybe they’ll stay on the market for a while longer. But I do think that the game that the Fed is playing is a medium term game, and it’s slow to get to where it’s going. So I don’t want Seth to feel like he’s being hanged up on it. I’m actually –

Seth Golden

Oh, no. No, no. I always do. I’m fine with the constraint.

Albert Marko

It’s good to test your theories on the other side. It’s not important to have that.

Tony Nash

I think one day in ’24, we could wake up, and the disinflationary part of our hypothesis could be very true. It could be or Feb, sorry, April, May, something like that. We got the the boob in this this disinflationary and people are just like, Wow, we’ve got high rates, but we’ve got my olive garden dinner is now 15 bucks instead of 25 bucks. Maybe that happens, right?

Albert Marko

I think that Seth is right. I just don’t know about the timing. I don’t buy it for the next six months for sure. On the next 12 months, 50-50. 18-24 months, absolutely. That’s-

Tony Nash

50-50, so that’s a win. Take the win.

Albert Marko

Because it’s an election year, right? It’s an election year, and political policies always want to be… They’re always inflationary. Food, corn, energy, all that stuff, and then mixing them up.

Seth Golden

No president has been reelected when there’s been a recession.

Tracy Shuchart

A recession, exactly.

Albert Marko

Yeah.

Tracy Shuchart

So they gonna do everything they can to halt that recession.

Tony Nash

Interesting. Tracy, I want to bring you on on this… While on some of this first topic. You had a great tweet about US manufacturing, rebound stretching diesel supplies and pushing up diesel prices. With Cess Hypothesis about the manufacturing volume coming back, which is great, how much of an impact do you think diesel prices will have on overall inflation readings? Is that a big driver of inflation in the US?

Tracy Shuchart

Well, I think that diesel runs the economy, period, end of story. It has everything to do with manufacturing, transportation, with agriculture. It is at the heart of what makes the economy go around, essentially. If you want to move anything anywhere, if you want to produce anything, you’re going to need diesel. Of course, that’s going to make a big impact on inflation. That said, that energy is not part of what the Fed looks at conveniently. That may not figure into their metric when they’re looking at for inflation, so to speak. But does that impact the consumer? Absolutely, that impacts the consumer because those costs are obviously passed on to the consumer.

Tony Nash

Yeah, there are secondary tertiary impacts, of course, that are passed on to consumers or that service industry people need higher wages, gas prices are higher and so on. Last night here in Houston, I noticed our gas prices were under $3 for the first time in a long time.

Seth Golden

Here in Florida, well, north where we are as of last week, $2.99, at one of the local stations.

Tony Nash

Yeah. If you’re on the Coast, I’m sorry, guys, but…

Tracy Shuchart

I’m like, Sir, our gas is not there yet, but it has come down, obviously. But we’re not really having a gasoline issue so much as a distillate issue, and people have to seem to separate those two because it’s it’s not doesn’t run the economy, Distillates.

Tony Nash

You’re right.

AI

Heads up for a short break.

AI

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AI

Thank you. And back to the show.

Tony Nash

Let’s look at those fuel stocks. You sent me a chart from Morgan Stanley and the EIA looking at fuel stocks in the US. They look to be at definitely lows within a a five-year range for ’23. That’s the dark blue line on the chart. Can you talk us through, since we do have low stocks, if we see this rise in the volume of manufacturing in the US, would it be almost this bullwhip-y rise in diesel prices because of that surge in demand?

Tracy Shuchart

Absolutely. Obviously, you’re going to see knock-on effects of that. Even though we’ve seen prices come come back, just had Russia this morning decide they’re going to allow diesel pipeline exports. That’s not all of their diesel prices. Remember, on the 21st, they said that we are stopping all gasoline and diesel exports, which really affects Europe more than anything. But they did come out this morning and say they are going to allow pipeline diesel exports, but still no gasoline gasoline That did alleviate some of the pressure across global markets. You saw some of those fuel prices come down, those diesel fuel prices come down globally. But that said, there’s still a global crunch. If we look at countries that are reporting, reporting, so OPEC countries, for example, because because they’re The US reporting is the best, but they’re next. If we’re looking at what they’re selling, their light sweet barrels will take Nigeria, for example. Their light sweet barrels are not really selling. There’s a lot of pressure on on light right now because all you can make from that is gasoline, essentially. But if you look at their heavier barrels right now in countries that produce crude oil that can be cracked into diesel fuel, those are selling for $8 or $9 above Brett prices right now.

Tony Nash

Russian are the selling you $9 above Brett.

Tracy Shuchart

No, not Russian. Other countries, because Russia obviously has a price cap, et cetera, but they are selling for it about $85 for their heavier crude distillates. But Russia is a totally different story because of the price caps and things of that nature, because they’ve had a very large discount to Brett. But I’m talking about other OPEC countries that are selling. In fact, we just had Saudi Arabia come out this week and they’re selling OSP, which is their official selling price is above above brand. Selling that across Europe and Asia and to the US.

Tony Nash

Yes. That is a perfect segue into our next subject, which is tumbling crude prices. As you were just talking about, as we’ve talked about for several weeks, our most visible discussion about this was crude not hitting $100. That was about a month ago. We’ve seen seen crude fall ten this week, I’ve got the light, sweet futures on the screen. In addition to what you were just saying, can you tell us what’s happening and how far do you expect it to go?

Tracy Shuchart

Well, I think it’s because we had such an initial… Every reaction creates an equal and opposite reaction. We had that that kick to almost $100 on Brent, $95 on WTI. That was just a major… That was a major chase push-up, CTA following people got on the trade, etc, etc, and then it’s a momentum. It’s a Mo-mo trade, right? When you have CTA traders, they tend to jump on any momentum no matter what product that is. That pushed prices to what levels that were where they really probably shouldn’t have have been? I mean, don’t need to be that high. High. That’s terrible. When we saw prices push up to $95, that is terrible for refiners. We saw margins collapse. You knew immediately these prices were too high and that we would have to see oil prices come down again because it was just awful for the industry in general. It’s horrible on emerging markets, especially with the dollar pushing up and you have dollar-denominated debt and then you have the pressure of oil prices being high. It’s a terrible scenario. It’s not surprising that we have seen a pullback. Has this pullback been more exaggerated than it likely should have been?

Tracy Shuchart

Probably. But I think what we really need is stability in oil prices because what happens is when you have this volatility in oil prices, this does not encourage producers to go out and spend money on new wells and new production, etc, where they’re all going to hold up. In the end, then this is going to hurt us in the long term because they’re going to be like, Oil prices are too volatile. We’re not going to invest. We’re not going to invest in new production right now. We just can’t. We don’t know what our oil prices will be tomorrow. In the long run, this adds to the theory that there’s higher oil prices for later because we’re going to see demand increase regardless if we see demand decrease in the we’re still seeing demand increasing in, in, again, emerging markets, Asia in particular. I think right right what we really need is some stability in oil prices. That encourages producers to at least start producing a little more to keep up with with so it’s not becomes crushing later on.

Tony Nash

Okay. How do we go and what is that stability oil price? Because I don’t think those two numbers are the same.

Tracy Shuchart

Well, I think $80, $90 range for right now is great. I think OPEC would be thrilled with that.

Seth Golden

That’s what I’ve been saying, OPEC, I think that’s-.

Tracy Shuchart

Would be thrilled with that. How low does it go right now? I don’t know how long. We’ve seen this drastic sell-off reside over the last couple of days. We’ve seen oil prices here stabilizing a bit today and yesterday, even though we had a little bit more of a a I don’t know. I think if you’re looking at $79, I would be a long-term buyer there for swing higher.

Tony Nash

Higher. I thought it was drilling.

Tracy Shuchart

I’m not saying that it can’t. Here is not a bad level either. I think the way… The oil markets are telling you that because the oil markets have stabilized again over the last couple of days. Yeah, we’re moving sideways over the last couple of days, but that drastic sell-off is over. I think people are done.

Tony Nash

So, OPEC’s happy where we we are mid 80’s. Low to mid 80’s. Dollar is happy where we are, 106. Is the world happy with where the dollar is? No.

Albert Marko

No.

Seth Golden

I mean

Tracy Shuchart

I’ll leave the dollar up to Albert.

Albert Marko

I would love to see oil go back down to 75-77.

Seth Golden

That’s my call. I think if I were a step aside long enough to get it down there.

Albert Marko

Yeah. I just don’t buy into these… I mean, last week we were talking to a couple of guys, and everyone last week was like, 120 coming, 150 coming. I don’t buy into these extreme moves, especially when you have OPEC and the Fed playing all these games. They’re not stupid. Saudis don’t want it over 100. The US doesn’t want it under 65. So you pick a range 75-90, 95. We’ve been talking about that for how long, Tracy? A month. A year almost. That’s such a nice sweet spot for everybody. They can do whatever they want with their CPI prints of crushing it down to 75. They’ll make the Saudis happy at 90, ping-pong back and forth. I just see sitting there for quite a long time, to be honest with you.

Tony Nash

That’s good. We need that. We need some stability, right? Some –

Tracy Shuchart

Absolutely.

Albert Marko

It’s crazy, though, because you look at these 6% drops the other day.

Tracy Shuchart

It’s ridiculous.

Albert Marko

What is that? Bitcoin? Is that what we are now? Oil is the Bitcoin market? Yeah, 6, 7% drop is insane.

Tracy Shuchart

You need stability in the oil market. I think think if you’re looking at oil equities in particular, if you’re trading those, that’s what you need to see. You don’t need to see this this volatility, does not help investors and it does not help producers.

Albert Marko

It doesn’t even help the shipping. By the time you ship something two months later, you can have a drastic swing of like $15. That’s way over my head, but I’ve heard complaints where traders had to hedge because they have ships out to sea.

Tracy Shuchart

Oh, absolutely.

Tony Nash

Yup.

Seth Golden

Think of OPEC just like the Fed. OPEC with these announcements that made more frequently this year than I can recall in the more recent past. It’s helped to create, I should say, volatility in the energy market in the same way that the Fed. With their ongoing, every day of every week post an FOMC meeting, we just get these wild swings in the equity markets. It’s realized volatility in the equity markets, not so much in the VIX, which is implied. But that’s how we’ve had these 6% positive swings include in in and then you get the adverse effect as well, mean reversion. But both of these entities with their press conferences and their press releases here and there and interviews with Saudi members and what have you, it’s helping to sustain the volatility that really does not need to be there and is not productive.

Tony Nash

And not helpful for for consumers, Right. People freak out about oil for a few few or gasoline prices, petrol prices for a few weeks, and then they’re relieved. And then they freak out and then they’re relieved. And it’s just uncertainty at the consumer level. Okay, so good. Thanks, guys. So let’s change the topic to a completely ridiculous one, which is a clown show that we call Washington, D. C. We’re going to talk about DC drama and markets. We’ve seen a lot of drama drama in this week. Us politics just doesn’t seem to make sense to foreigners, really. But Americans are in the middle of this. Government closures, House leadership contests, all this stuff. We care, but we don’t care. I could be wrong on on that, I think with every day, we’re just washed over with this news. I don’t know that it really makes that much emotional sense to us anymore. Can you tell us why the Speaker of the House is such an important role in Congress. Let’s dig into that a little bit. Also, where is the American mind on this? Because we have some people from overseas who watch watch and they’re hearing that this this the first speaker of the House that was let go outside of an election in 150 years or something.

Tony Nash

I don’t know. But I don’t know that most Americans really care all that much because of the drama that’s coming out of DC every day.

Albert Marko

Yeah. I mean, McCarthy was hated from both sides. It took him like two dozen votes to get elected to the speaker the first time around. It was a deal between seven or eight GOP members with McCarthy saying, do this, otherwise we’re going to vacate you. And McCarthy thought, and actually a lot of the congressional members that I talked to thought that he was going to be able to survive this. And last week, I’m a senator for shutdown because I didn’t think think would be that dumb to work with the Democrats and face vacation. And so all his famous tweet, bring it on, they brought it and he’s gone and not going to run again. And this is is worse than a shutdown, in my opinion, because now we have a contentious speakership of between three individuals, Scalise, which is basically McCarthy 2.0, Tom Emer, I’m not a big fan of him and his ridiculous Bitcoin antics. I don’t even know who else would be.

Seth Golden

Jordan.

Albert Marko

Jordan is not going to make it. He’s not going to make it. I would probably say Scalise or Emer are the top two guys.

Tony Nash

You know who is? I pay attention to this stuff.

Albert Marko

Yeah. I would say it’s problematic because the speaker is used as the mechanism to bring floor votes to whip up the majority, find the the and pass bills. We have eight appropriate… Well, seven Appropriations bills that need to get get passed. One has to be reworked all before 40 days comes up and a new shutdown deadline looms. The house is not even in session for another week. Take 10 days of that out of the way. You have 30 days to somehow get get bill that funds the government through. Like I said, this is so much worse than a shutdown at the moment. I would rather have a week’s shutdown and some compromise has been found and then get back to the the table get back to work, rather than now we have a speakership race between three monkeys that really shouldn’t even be there in the speakership saying ridiculous things and throwing out Trump’s name left and right. This is just an absurd clown show that we’re having at the moment.

Tony Nash

Is it feasible that Trump becomes a speaker? Yes or no?

Albert Marko

Absolutely not. I don’t want to even hear that stupid.

Tracy Shuchart

I wanted to add that, Tony.

Tony Nash

Tony. Sorry, sorry.

Seth Golden

I think you are potting, Albert,

Tracy Shuchart

The Twitter for the last two days have been like…

Albert Marko

You guys are just trying to give me a heart attack. That’s the color of that.

Tony Nash

I have a question about it.

Albert Marko

Trump has no chance to be a speaker nor should he even be a speaker. He doesn’t know anything about the mechanism about being a speaker. It would be nothing more than a campaign ad for the next seven months.

Albert Marko

This is a stupid idea put on by stupid griifters that we were trying to get into Trump’s favor for the 2024 election. That’s all it is.

Tony Nash

I was just talking about this yesterday with somebody in Asia. Americans see someone like Dianne Feinstein who made made salary for whatever, 35 years in the Senate, but passed away with $110 million estate. That is, I think, a perfect example of how Americans view people in Congress, House or Senate, and how they go to Congress as relatively normal people and then emerge these multi-multi-millionaires. So the frustration —

Seth Golden

It looks extortionist.

Tony Nash

Exactly.

Albert Marko

Don’t vote him in.

Seth Golden

They’re extortionists. Well, any time —.

Albert Marko

If you have a problem about your congressional member making $10 million every five years, don’t vote vote in. I don’t understand what the people are talking.

Tony Nash

My congressional member is Dan Crenshaw.

Seth Golden

What are we going to do about MTVs rock to vote then?

Tony Nash

Right. My congressional member —.

Albert Marko

Dan Crenshaw is a moron.

Tony Nash

I complain about that.

Albert Marko

Dan Crenshaw is nothing more than a corporate chill. He’s a corporate chill.

Tony Nash

That’s right. I can’t get used to it.

Albert Marko

Don’t vote him in.

Tracy Shuchart

But why do people keep voting these people in? This is what what it all mentions, Nancy.

Tony Nash

Because every election they vote.

Tony Nash

We were doing our civic duty.

Tony Nash

Every election that he says maybe —.

Seth Golden

Every time we get to the conversation of politics, I always go back to the same thing. When was the last two-party system that has succeeded in perpetuity for its population might drop? Because it should be be after that. We get to a certain tipping point, if you will, where the structure of the system just doesn’t work to the benefit of the average person. The other aspect of, and why, in my opinion, it’s become so contentious in the turn of the century is I think if you go back to the great financial financial crisis, were already in the deficit, but that compounded the deficit. And then you get the pandemic. And there’s no win here for politicians. When you have a deficit that is entrenched, what can you really do? You’re really just just a that guy who appeases that guy. It’s all a chain of appeasement at this point because we’re not paying our bills one way or the other at the end of the the day. Come out of this to what? $31, $32, $33 trillion. So it’s who can I appease best and can I amass a certain population of people where I can get elected?

Seth Golden

But then it’s just still about appeasement. And at some point, it just becomes unsatisfactory to the general population. And we’re at the point where there’s no such thing as as on a real continuum. It just doesn’t work.

Albert Marko

Bipartisanship is dead. It’s dead.

Tony Nash

Okay, Albert, given what Seth said, does whoever the speaker is even matter?

Albert Marko

Not really. Not in this day and age. It’s more about groups within each party that are controlling something. I mean, the democrats-

Seth Golden

It’s It’s too much within the parties.

Albert Marko

Yeah. I mean, the Democrats are more unified than the GOP at the moment because it’s the Trump GOP versus the rest of the GOP. They’re simply not unified, nor are they going to be unified.

Tony Nash

But I’ll argue you even have have I don’t believe we have a two-party system. I believe we have parties within parties. He’s going to be able have the party and all that stuff. You even have people like Marjorie Taylor Greene who are at odds with Matt Gaetz or at odds withand and these are all Trump people. So not necessarily two parties. There are are Bolsheviks Menshevik within each party. Sorry for that.

Seth Golden

You get stalemates. You get Mexican standoffs and and in perpetuity, year after year after year.

Albert Marko

I would gladly take stalemates with this clown Congress. Gladly. Because honestly, if you’re a corporation and you’re trying to do a five-year to 10-year outlook, I would rather have stable stalemates than extreme policies on the left and the right every time a new Congress gets elected in.

Seth Golden

You could just take line items out of the budget. You could just take line like they did with the Department of Weight and Measures. When was the last time you saw the Department of Weight and Measures in the congressional budget line items? It just hasn’t existed since 2014. Why hasn’t it existed since 2014? Because Amazon literally pays fines to equate to their entire budget. Just find other companies that will satisfy that as well.

Tony Nash

I had no idea about that, Seth. That’s amazing.

Tracy Shuchart

Me neither. That’s insane.

Tony Nash

Okay, so Albert, What happens? So is this intractable environment, one that actually creates some stability for, say, the private sector?

Albert Marko

No.

Tony Nash

No.

Albert Marko

No. Only because we don’t have normal, logical, economic, fiscal policies in act right now. We have insane things going on at the Fed and the Treasury and out of the White House. So we don’t have anything normal happening. So why would we… We have no chance to fix it. That’s the problem that I’m seeing going forward. We have dumb EPA rules, we have dumb immigration rules, we have dumb foreign policy, we have dumb economic policy. So until we actually have a decent congressional opposition to the White House, nothing’s going to get fixed, nothing’s going to get resolved.

Tony Nash

Does this change before, say, 2030? Is this a generational thing where we’re waiting for baby boomers to-

Seth Golden

I think we have to lower our expectations.

Albert Marko

No, baby boomers are checked out. They’re checked out. They’re cashing out of this market.

Seth Golden

We’re just still going to –

Tracy Shuchart

We need GenX to step up people.

Albert Marko

Boomers are using these market rallies. Boomers are using these market rallies for exit liquidity on the backs of millennials and Gen Z, where the GenX are going to have to step up and run the show for whatever’s left until the Marxist progressives are coming out of college and run things. That’s just the way it is. It’s a cyclical thing. I’m not even complaining about it. It’s It’s a thing. It happens in every society, every government. You have extreme right, extreme left, and then it falls back in the center a decade or two later.

Tony Nash

Okay, so there will be a speaker, right? It will not be done with someone, but we will have a a speaker.

Albert Marko

For sure. Sure. Two weeks.

Tony Nash

That will happen happen –

Albert Marko

Two weeks.

Tony Nash

-two or something, right?

Albert Marko

Yeah.

Tony Nash

Okay. Okay. And person is just really a tool to serve as a traffic light for things to work in the house. That’s all they do.

Albert Marko

That’s right.

Tony Nash

Okay. So once that is in, we have… I like a legislature that can’t do that much. Much. So does that mean when this person is in? Are they full scheme ahead, making legislation that we all can’t stand? Or is it a minimalist legislative body where there’s so much disagreement that very little gets through?

Albert Marko

It depends on who’s running the show. If it’s Jim Jordan, nothing’s going to happen at all whatsoever. If it’s Scalise, it’ll be status quo for what McCarthy was doing. Yeah, we’ll get some stuff done here and there. If it’s Tom Emer, yeah, I think it’s probably a little bit more efficient from the GOP side.

Tony Nash

Okay. Not who do you want to win, but who do you think would be the best to win for the functioning of that legislative body? Is it Tom Emer?

Albert Marko

No, I think it’d be Scalise. As much as I don’t like it, it’s Scalise.

Tony Nash

Okay.

Seth Golden

It’s status quo.

Tony Nash

It’s status quo. Okay.

Tracy Shuchart

Better the devil you know than the devil you don’t know.

Albert Marko

Well, the thing. That’s always the case. With Russia and Putin, the DOD guys say, Oh, we can get rid of him. Well, who’s coming next? You have no idea. I know what Scalise is going to do. I don’t know what Jim Jordan is going to do. God knows what he’s going to do. Do. So just the reality of it.

Tony Nash

Interesting. Such as American politics. Guys, thank you so much for this week. This is great. I appreciate your thoughts. Have a great weekend. Have a great weekend. Thanks, guys.

Albert Marko

Thanks, guys.

Seth Golden

Take care.

AI

That’s it for this week’s episode of The Week Ahead. Please don’t forget to rate us and review on whatever platform you are watching or listening to this. Thank you.

Register for a CI Markets account for FREE! No credit card required:

Hosted by Tony Nash, this week’s panel of experts includes Dale Pinkert, Tony Greer, and Albert Marko. Together, they discussed critical topics that matter to you:

1. How low will TLT, SPX, and Gold go?

One of the burning questions today is the trajectory of TLT, SPX (S&P 500), and Gold. With the S&P 500 approaching the 4200 mark and bond yields on the rise, the panel discussed the numbers. TLT’s descent to levels not seen since 2006/2007 is interesting. Do these trends present unique opportunities or do lingering uncertainty clouds the horizon?

2. Identifying the Tradeable Bottom

Tony Greer explores the VIX and SPY, examining whether we’ve reached a point where markets are poised for a rebound. Gain insights into the indicators he watches closely to signal a potential tradeable bottom and what lies ahead for the S&P 500.

3. Government Shutdown Implications

With the specter of a government shutdown looming, Albert Marko takes the stage to analyze the potential consequences. Governments’ actions can have a profound impact on financial markets, and understanding these dynamics is crucial for investors. Discover what he foresees in the event of a government shutdown and how it could affect your investments.

Transcript

Tony Nash
Hi, everyone. Welcome to the week ahead on Tony Nash. Today, we’re joined by Dale Pinkert, Tony Greer, and Albert Marko. Guys, thanks for taking the time on this Friday. It really means a lot. Today, we have a number of key themes. We’re going to talk to Dale about TLT. We’re going to talk to Tony Greer about tradable bottoms, and we’re going to talk to Albert Marko about the government shutdown.

Before we get started, I want to let you know about a new free tier we have within CI Markets, our global market forecasting platform. We want to share the power of CI markets with everyone. So we’ve made a few things free. First, economics. We share all of our global economics forecast for the top 50 economies. We also share our major currency forecasts, as well as Nikkei 100 stocks. So you can get a look at what do our stock forecast look like. There is no credit card required. You can just sign up on our website and get started right away. Check it out. CI Market’s free. Look at the link below and get started ASAP. Thank you.

Dale, really glad to have you here today.

Thank you so much for taking the time. It’s your first time, and we’re really glad that you’ve made the time for us.

Dale Pinkert
Great to be here, Tony.

Tony Nash

Thank you very much. We’ve seen the XPX approach 4,200 and bond yield spike and continue to rise, and TLT continues to fall, of course, as yield spike. We’re seeing TLT hit levels we haven’t seen since 2006, 2007. It seems to be one of those times where people are saying, We’re at levels we haven’t seen since X, in a lot of ways. How do you see this going? Is this an opportunity? Is there’s too much uncertainty? Where do you see that debt and equity environment?

Dale Pinkert

Well, on other broadcasts and people have been following me know that I’ve been looking for the October Low in TLT to be taken out. On the weekly chart, it was a confirmed low market to rarely bottom when momentum is confirming price. And all we did was move sideways. Took care of that low a few days ago. We’re not confirming this time. I won’t be pressing the short side of bonds anymore. I think that yields are in a peaking process, and it’s most likely to be a growth scare that generates lower yields, a lower again. And even though the path of living response would be to buy equities, I think equities are part of the weakness that would go along with that.

Tony Nash

So when you say growth scare, what do you mean by that?

Dale Pinkert

Just the employment report that we would have gotten next week, I was looking for that to cement it. As Albert said, the feds can be using different stats to judge it, and we won’t know that number. I expect this to last at least a couple of weeks into the eclipse. Don’t call me a kook, but I’ve seen a lot of astronomical things be turning points in the markets over the years. And eclipses are something that people that do planetary stuff, it can be a time of, like the ancients believed of famine, war, not good omens. And plus we had the—I’ll steal the deal—we had that comment with the Green Tail that hasn’t been around since 1623. I don’t know what we were trading in 1623, but that’s-

Tony Nash

Tulips?

Albert Marko

Tulips.

Dale Pinkert

Yeah. So there are a lot of things, messages in the heavens besides our charts. Price action is king, but I pay attention to things.

Tony Nash

Like that. Dale, I don’t think you’re a cook for mentioning astronomy because have you ever seen a technical trainer? I’m kidding, but so – I.

Tony Greer

Was going to say, Dale, you have an astronomy ticker on Bloomberg that I could start watching.

Tony Nash

Exactly. So, no, seriously –

Dale Pinkert

Hey, you could join me in my pyramid and put on a tinfoil hat anytime, Tony.

Tony Nash

No, look, I love it. People trade based on different things, right? And none of it’s crazy because we can infer causality or whatever from anything we want. So I want to go down that kook trail for a minute because I think that’s really interesting. From the astronomy perspective, tell us about the eclipse and what that means. I know this to people who are watching this may seem a little bit weird, but I’m actually really interested in this.

Dale Pinkert

Okay, well, this is the first time ever, which is a long time, that people are going to be able to see an annular eclipse with the Ring of fire. It’s going to be a long time before another one shows up. So yeah, there’s another sign. I learned about things like this from others. There’s nothing new under the sun. I have to give Chris Carolyn a tip of the hat for tuning me into lunar things and tides and eclipses. And I always had an interest in a vibe from them anyway, and I paid attention to them. I’ve seen a lot of turning points on eclipses. I’ve seen them in the dollar. I’ve seen them in metals. And I just think that the technical set-ups are being confirmed by what’s happening, the other signals that we’re getting that most people are oblivious to.

Tony Nash

Okay, that’s interesting. I have a lot of Indian friends for those of you who know me or people who watch my feed. My son is Indian. I spend a lot of time in Indian culture, that thing. I’ve had several Indian traders tell me that they look at Star Charts as a part of their trading strategies. Again, these things may sound kookie to people, but people look at this stuff. And so in terms of a change, like a turning-

Dale Pinkert

Art Crawford, he was another guy that I used to be interviewed with on CNBC and FNN before it became CNBC. He’s another planetary guy. I’m sorry I interrupted you.

Tony Nash

No, no, that’s great. What is the turning point that you expect? You’re expecting yields to fall a bit? What is that turning point you’re expecting?

Dale Pinkert

Yeah, I’m expecting everyone that was wrong-footed about six months ago looking for the pivot are on the other side of the fence now. I know we can’t show our charts now, but the tenure did what I call is a throw-over, where it trades above a return line and then re-entered it yesterday, and I think that yields are peaking because of market events, not because of the Fed, but because there’s going to be some fear. I know for a long time, the flight to quality trade hasn’t worked, so most people are discouraged from even attempting it. But I think that even if it doesn’t work, the bonds will not be as vulnerable as equities may be. We’re already seeing it in certain markets. Look at silver. From being up to 70 cents to being down 40, you know what that tells me? We have a problem with market structure and liquidity for silver to put in the day it put in today. Because I know Tony’s been trading a long time and Albert, and you, when’s the last time you saw a range like that in silver? Without any news.

Tony Nash

Tony Greer?

Tony Greer

There’s nothing you could tell me that happened in Silver that would shock me. You know what I mean? It is and has always been a rich man’s casino. People make big bets in Silver. They underestimate what one person’s liquidity does to the market, meaning when one participant decides that they’re getting in or getting out, that has a holacious effect on markets nowadays that are largely electronically driven and front-run and all that. So nothing would shock me in terms of what I would see in silver. I mean, that is an anomaly. It doesn’t happen very often, but yeah, silver is a beast of its own.

Tony Nash

So since we’re talking about silver, can you also talk to me about gold as well? Because a couple of months ago, everyone was on the gold bandwagon. Gold was resurgent. Everyone was moving toward gold. And now it’s just can’t get a bit. It’s way down. A lot of problems. Miners are seeing it, everything else. Can you, Tony, Dale, Albert, can you guys talk to us a little bit about what’s happening in gold?

Dale Pinkert

I’ve been looking for 1800 for months. Okay. And I’ve been bullish to dollar that’s been part of it. I think that around 1800 to 1780 and Silver 2040-ish is going to be a place where I’m going to be getting long. And you bring up the miners, Tony, that even gold bugs—and I’ve talked to Tony about this, we talked a week or so ago—that even the gold bugs that were trying to avoid losses and equities by going to the miners lost it in miners. And they’re so disgusted, people are so disgusted with the miners that they’re throwing up their hands and surrendering. I think that’s a multigenerational low coming in here, around ’24-ish in GDX. I’ve promised people I work with, I won’t talk about the short side of gold and silver once we get down there for a couple of years.

Tony Nash

Really? Okay. Albert, what are you thinking about gold?

Albert Marko

There’s not much more I can add to what Dale said. I agree with Dale. I think 1800, I could even see it going to 1700. The gold would be an excellent long position. For me, I was never a fan of the whole narrative of gold is going to replace the dollar and so on and so forth. I’ve always been apprehensive of even touching gold. But Dale is right. That 17, 1800 is probably a very good long position at that point.

Tony Nash

Yeah, we even saw Chinese gold sell off earlier this year.

Albert Marko

Well, everyone needs dollars, Tony, so they’re going to sell everything under the sun.

Tony Nash

Yeah, exactly. Tony Greer, what are you thinking about gold?

Tony Greer

Gold chart looks like crap. I’m out of reasons to be bullish. I mean, it just does. There’s a triple top. That is one of the scariest triple tops I’ve seen. And they say that there’s no such thing as a triple top. We’ll show them this gold chart right now with a triple top at 2100 and a pullback to 1850 right now. But I like Dale’s position where it looks like 1800 is in the cards here. It’s one of those things where people pile into a little bit heavier during inflationary scenarios. And once they’re in, you have the story, the narrative of the central bank buyer versus the producer seller. And what it looks like is maybe some of the central bank buyers got filled and the producers keep selling. And so it’s been a while where gold has been outperforming real rates tremendously, where gold could have pulled back a long time ago. So maybe this is just gold’s pull-back-into-line moment. Quite honestly, I thought that it was going to have a chance to break through that top or we failed again. And now I don’t even know what to say to be bullish.

Tony Nash

Okay. How much-. Go ahead, Dale.

Dale Pinkert

All right. Well, March was a very important time frame. We had a low in the S&Ps at 3,800. We had the gold low at 1,800. We had dollar peaks, which a dollar is now surpassing. I’m looking for a reset in all of these markets to revisit the March lows. I think the S&P will hold above it, around 3,900 after the market makes a stand at 4,200 but fails. I’m thinking that happens into the eclipse.

Tony Nash

Okay, great. Now you mentioned the dollar, and is this gold issue more a function of dollar strength? And where do you expect the dollar? Because it was almost two years ago in, I think, SEPA ’22, where gold was at what, $1,250 or something? No, sorry, the dollar, or DXY was at $1,150 or something like that.

Dale Pinkert

Okay.

Tony Nash

Do we see more dollar strength coming in the next month or so?

Dale Pinkert

It’s a little trickier now because we’re getting to FIBs. We’ve retraced that decline from 114 to 99 and a half. We’re almost at the 50 %. 61, eight is about 109 in the ballpark. And if you want to get real bullish, well, then you drink milk shakes, if you want to be real bullish. But 78, 6, about 111, I’m thinking around 109. And I think Tony could verify this. Gold can rally with the dollar going up, but it’s very difficult to find an example where silver thrived without a bear market and the dollar. So if I’m correct and this is a failing rally in the dollar up towards 109, then I think that’s going to be the sacrificial lamb to bring things back, is the dollar and letting the dollar go. And so that’ll bring back everything, even in nominal terms, will bring back the market.

Albert Marko

It’s fascinating, Tony, because I have almost the exact same levels and set up, as Dale mentioned, but for almost entirely different reasons. Because for me, I look at what the political atmosphere is doing, and then I make assessments talking to my individuals and saying, Okay, well, 109, 110, which I’ve been calling for for quite a long time, and the dollar was most likely our top, and 3,800 is probably where we’re going to have to go back to reset to get another rally into the market, but for entirely different reasons, which is quite fascinating.

Dale Pinkert

Well, I’m going to turn off that camera you have in my office, Albert. Anyway, you know what? That gives me more conviction about what I’m saying here. I really love confluence of… I interview a lot of people, and I get it’s almost like a confirmation. From people who someone may be an elitistician, Tony does pattern recognition, and when people from different disciplines are coming to the same conclusion, I think it’s a higher probability outcome.

Albert Marko

Yeah, and the dollar from my point of view, is like you start going into the 110, 115 area, things are going to break overseas-

Tony Nash

The instruction.

Albert Marko

-systemically destroyed. And the Fed and the Treasury know this, and they’re not stupid enough to keep it up at and have Europe meltdown or have all of Asia meltdown. They’re just not going to do something like that.

Tony Nash

Okay, so dollar 109, 110, right? Then it turns around. S&P at 3,200?

Albert Marko

No, I don’t think it’ll go that far.

Tony Nash

Did you say 3,800? Sorry.

Albert Marko

3,800, I think. 38, 39 is where they want to probably come back to and then reset and relaunch.

Tony Nash

Okay. Does that sound about right, Dale?

Dale Pinkert

I’m looking for to rally back to 4,250 or so because that’s a pivot. 4.2 is a big number, and I think there are tiers under 4.2. Also, when everyone looks for one number, I’ve noticed over the years—you can tell I’ve been trading for about a thousand years. It either never gets to the number, doesn’t achieve it, or the number doesn’t matter and it melts through it. Actually, I think this is going to be more prolonged, and my longer term target is 3k S&P. It’s taking out the October low by the first quarter of next year.

Tony Nash

3k. Okay, interesting. Tony Greer, what do you think about that?

Tony Greer

I have an opposite view. I don’t get too terminally bearish in the S&P. I think it’s going up. I understand that there’s been a real eight % pullback from the highs here that could very well get steeper. I’m not calling like a bottom. Don’t quote me on that at all.

Tony Nash

Right.

Tony Greer

It seems like sell-offs are going to be managed. The economy refuses to dump into a recession, which is why the stock market is going to be able to handle higher yields. Now, I do think that yields are going to work their way higher. I just don’t think that it’s going to necessarily break all of the bull markets that exist within the S&P. And I’m talking about the AI bull market within technology, the home construction market. And I understand that we got some weak housing data and there’s some struggles with mortgages and stuff like that. But people always adjust. And I just feel like I can’t just decide that rates are going higher and jump in and have a consensus view that the stock market is backing off. I just don’t see it that way. Like you said before, like we mentioned, I look to trade bottoms, and I think that we’re getting close to one here. Whether it’s another 200 points from here, I don’t know. It’s going to depend on behavior and whether or not we get a real capitulation, which we haven’t seen even close to, but I’m hoping for. If we get that, then I’ll be putting some chips on the table for a run substantially higher in the next six months back to the S&P highs.

Tony Greer

Then we’ll see from there.

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AI

Thank you and now back to the show.

Tony Nash

Hold on.

Tony Greer

Let’s stop.

Tony Nash

Before we get too far into that. Let’s give a perfect segue to our next topic of tradable bottoms. You and Tracy Shuchart, who’s a regular guest, of course, had a really interesting exchange about VIX and SPY saying we haven’t hit a tradable bottom yet. So can you talk us through what you look for in a tradable bottom?

Tony Greer

Yeah. I literally have an account in my trading account that sits in cash until the VIX trades 30, right? And that’s one of the basic ideas is just when there’s blood in the streets and total panic happening, that’s when you have to keep your head and be able to put money into the markets. And ideally, you get there on a slow burn up towards, say, call it 30 or 30 something, and then all of a sudden, you walk in on a Monday morning, there’s bad news out. The S&P is dangling at a new low. The VIX has bid a new high, and everybody’s like, Oh, my God, what is about to happen? That’s an in hell, stock in-hell, risk moment for me every time.

Dale Pinkert

Thirty-two is a March low too, Tony. I mean, the March high in VIX was 31, 32..

Tony Greer

Yeah, I knew you were talking about that. I think that that’s where you want to see some reach in volatility, which would coincide with a spill in stocks. Now that the S&P is back down here, the 200-day moving average, I get less and less bearish, and I called for a little bit of a move lower. This is something that’s totally manageable to me. But you need one more thing. You need to see the real panic in the VIX. You need to see huge tick index prints on the downside that show that everybody’s hitting bids, consecutive red days in a row. You want to see the fear and greed tip to extreme fear. That’s the stuff that gives you confidence to buy and very little else. That’s why I’m not sure that what we just saw over the last several days was a tradable bottom in the S&P. There was just no heave. That’s my point.

Tony Nash

Okay, so you’re looking to VIX at 30. So just for the people who don’t really understand the technical aspects of the VIX, the VIX is telling you the expectations for the S&P 500 over the next 30 days, the next option, right? And so what it’s telling you is there’s so much capitulation in the market over the next 30 days that it’s time to get in. The VIX doesn’t necessarily reflect the market today. It’s the expectations over the next option role, right? So –

Tony Greer

But the VIX expands when there’s buying in volatility, which is people trying to hedge the downside of their portfolio. Right. And once the last guy comes in to hedge the downside, that’s when the move lower is over.

Tony Nash

Right. And so that’s why some people think the VIX reflects the market right now, and it’s not that. And the reason it’s so important is because it looks over the next month. And so that next month is telling you how broad the capitulation is, right? And so a tradable bottom for you is VIX at 30ish.

Tony Greer

Yeah, you know –

Tony Nash

It’s very simplistic terms.

Tony Greer

It depends on the situation. But yeah, ideally something north of that where it’s gapping to that level and the S&P is gapping to to a new I’m a big fan of trading red to green days. When you see a potential reversal day, that’s always a potential trade for me, depending on the setup. When it’s a big picture S&P setup that includes a reach for volatility, all those negative days in the row, maybe the biggest negative day that gaps open lower, that’s going to be everybody out by the opening. A lot of times that’s when the last of the selling is done and the whole market can recover. I mean, we’ve seen that over and over.

Tony Nash

Okay, so Dale and Albert have made clear that they think S&P is headed to 38. You don’t necessarily think so right now. No. No. Okay. Do you expect that we’ll hit a tradable bottom? Do you have a general idea? Not that you’re saying, saying, it’s going to be November 32nd or whatever. You don’t have an expectation of the timeline. You just know what the signals are.

Tony Greer

Are. Yeah. I’m looking for one now. Now. And we close to putting one in on Wednesday when the S&P traded down below the 200-day moving average and came back and closed that the gun changed on the day, that was close. But would have been a lot better is if it opened below the 200-day moving average and then closed above the previous day’s high, up 3 or 4%. That’s a signal where it’s like, oh, okay, put my money on the table and my stop loss below the recent low and make them come and get me because that’s a high probability bounce of a situation.

Tony Nash

Okay. But just to be clear, you’re not looking for the S&P to go down to 3,800 before you’re looking for a tradable bottom?

Tony Greer

No, I don’t think it goes that. I do see see dipping. I don’t see it dipping that steeply. No, I’m a guy that I think it stays above 4K. Maybe it trades 4,200. Maybe it breaks that briefly. We are within, in my opinion, opinion, 100 or two points of a tradable bottom. I’m looking for that panic to come alongside it. I haven’t seen it yet. So we’ll see what happens.

Tony Nash

Okay, that’s very interesting. Dale, did you have-

Dale Pinkert

Could I ask Tony something? Absolutely, yes, please. All right, Tony, so you pay attention to the VIX. People have made a fortune being short volatility. Even during the bear market, people made more money selling Val than owning Val when we peaked at the end of ’21. Don’t you think that their day is coming from picking up quarters off the sidewalk, that they don’t see a a steam roller coming going to exacerbate the move and fix?

Tony Greer

No, because usually if there’s a real panic and a real, like lockdown type of sell-off, I’m not taking my eyes off the tape for when the Federal Reserve is going to come to the rescue like a white white.

Dale Pinkert

The Bazookas.

Tony Greer

Yeah, pick your choice of exactly what their their might be. Whether they flood the markets with liquidity, whether they start talking about dropping checks, helicopter money, whatever it is, the Fed is that’s where at some point the Fed put is real. So no, I don’t think really that selling volatility gets old. I think the market positioning gets way too lopsided at the wrong time and sometimes heavier than you think. And the reality is that there’s still so much cash on the sidelines. I mean, everybody that I talk to is in some way, shape or form involved in enjoying five % yield in the two year note. Whether they’re a fund manager, a family office, wealth managers, that’s what these guys are parking cash in right now. God forbid we get a steep enough dip, that money is going to come into the stock market at some point because it’s going to be a better option. That’s why I don’t get fatalistic about a curl-over-crash. I think the S&P is fairly well put together to withstand that. The system is put together to withstand that. I see a lot of reasons to be bullish.

Tony Nash

Great. Very interesting. Okay, speaking of helicopters and Bazookas let’s start talking about the government shutdown.

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AI

Thank you and now back to the show.

Tony Nash

Albert, give us the the story. We have had had media about government shutdown for the past two weeks. There’s talk of something happening over the weekend or whatever to rescue it. First of all, is it possible to avert a government shutdown?

Albert Marko

Unlikely. It’s almost a 100% bet that we’ll be shutting down over the weekend. The Senate has a continuing resolution going for funding, but I think it has 70 votes. But the House Republicans are simply not going to accept even looking at or even talking about it. There’s complexities within the the GOP of Gates wants to be leader versus McCarthy and so on and so forth. There’s a little bit of jostling of positions there, but we’re definitely going to be shutting down.

Tony Nash

Okay, so can can for people outside of the US who think that we have a failed government system who like to say things about government shutdown, we didn’t really have government shutdowns before about about 1994, 96 right?

Albert Marko

Yeah, that’s about right.

Tony Nash

And it became a feature of the US system. It’s almost a planned political activity really to polarize the electorate. Is that fair to say?

Albert Marko

Oh, absolutely. This is nothing more than weaponization of narratives for the opposition party versus the one that’s in charge. Simple as that.

Tony Nash

Right. This isn’t necessarily a failure in government. It’s just a victory of partisan politics. That’s all.

Albert Marko

It is. That’s exactly right. But the danger is here and why I think that we’re probably headed down down is because of the way that the Fed and Treasury and the Biden White House like to talk to one another, they’re going to pin the blame right on the Republicans for a shut down whether on the market dropping. They control the 10-year bonds all the way up, and they can sit there and manipulate the market to come down on a sell-off. Then once a funding solution comes in, they’ll relaunch this thing right back up to to 42, 43, 44, 4700 Who knows by the time the election comes around? This is nothing more for me than political optics of like, who is better for the the Is it us or is it them? And there’s only one party right now that has their foot on the gas and happens to be the Democrats in the Biden White House.

Tony Nash

Okay, so Monday comes around, anti-Janet comes out out and says sky is falling and the government is not open. What happens?

Albert Marko

I think there will be a lot of risk off just because of media narratives and algorithm is starting to trade, but nothing more. It’s not some critical everything shuts down and nothing in the government works anymore. People still go to work, the government still works, and they’ll just get their checks two, three weeks later, but they’ll still be working. Now the data, the Fed has this cute little commentary saying, Well, we’re not going to be able to get the normal data that we rely on to make policy decisions, so we’ll have to look at private data.

Tony Nash

From where?

Albert Marko

Larry Fink? What are you guys talking about here? That’s what’s interesting to me. I think a little bit of risk off and then a little bit of hand-wrangling and deals being cut and back to the bull market again.

Tony Nash

Yeah. Does the Fed even trust the preliminary prints of those data? I mean, nobody trusts that stuff, right? You look at it maybe directionally. But nobody cares.

Albert Marko

It’s perception. It’s perception as reality. Whatever the prints say is the reality for that moment. Nobody cares about the revisions, Tony. Those happened months later, and we can say, Aha, we were right but so what?

Tony Nash

Yeah, exactly. Exactly. Going to go to B of A, CPI or something like that, or they’re going to go to Larry Fink, something like that. Right, exactly. What does that mean, though?

Albert Marko

They’ll be able to control the narrative, whatever they say. If they say that the economy is great and the unemployment is great, inflation has been defeated, and that’s what those prints are going to show, and that’s simple as that.

Tony Nash

Okay. I guess, is this an opportunity for the Fed to say they’re relying on private sector data and the private sector data says that they’ve conquered conquered.

Albert Marko

Yeah, I would absolutely assume that that’s going to happen.

Tony Nash

Okay. And so then will they not produce the government data once the government is back from running they’ll just produce it late and nobody will care?

Albert Marko

Yeah, they’ll produce it late and then November, there won’t be a rate hike, and then all of a sudden, December, when inflation is still stuck around, another rate hike comes.

Tony Nash

Okay, so that’s what you think is going to happen with the Fed over the next couple of months. Months.

Dale Pinkert

I think they’re going to have a hard time convincing people that inflation has been beaten, either by the people who pay five bucks for a cup of coffee at Starbucks or anything else that they pay for, or someone who has to pay $1500 to rent a room in the house to keep a roof over their head.

Tony Nash

Right.

Albert Marko

Yeah, everyone knows this at the moment. Even now—I mean, eggs and food is still elevated. It’s still 20% more than what we were paying pre-COVID. It’s just this is nothing more than political optics in the media that’s being talked about inflation is dead. It’s back to 2% or 3%. It’s only slowed down. It hasn’t gone down at all in two years.

Tony Nash

Just to give you guys just a Texas view of inflation, rent a plot for a mobile home in rural Texas is $1500 a month.

Albert Marko

Oh, my God.

Tony Nash

I mean, this is a mobile home plot. This isn’t anything else. You supply the mobile home. It’s $1500 a month in rural Texas. It’s that expensive to find a place to plunk down your mobile mobile home, right? So everyone is feeling it. Albert, I think we talked a few weeks weeks and I asked you, do you think the Fed will really push toward outright deflation to normalize people’s price price Do you think that it’ll come to that?

Albert Marko

No.

Tony Nash

No. Okay.

Albert Marko

No, because it’s giving giving tail –

Tony Nash

So pricing level, it’s going to stay at that pricing level.

Albert Marko

Yeah, because it’s giving tailwinds to earnings for companies and boosting the market. Why would they get rid of it? It? You all they have.

Tony Nash

Okay.

Albert Marko

But I do think that the shutdown is probably somewhere close to a temporary bottom that Tony wants to trade. I think it absolutely is. Whether it’s 4,000, I don’t know. I’m thinking 3,800 because because of I don’t know. Don’t quote me on numbers, but I think…

Tony Nash

You just did.

Albert Marko

I just think these next 2-3 weeks is most likely going to be like some a bottom for a while.

Tony Nash

Okay. So the government shuts down, come back Monday, there’s no government. Half the country is celebrating that there’s no functional government. Half the country is upset about it. So how long does it last? Does everybody panic next week and they rush? And then, I don’t know, Matt Gaetz or somebody is portrayed as the bad guy.

Albert Marko

That’s always the case. I mean.

Tony Nash

Right.

Albert Marko

Always panic. Everyone panics in the beginning, but I think they panic and then settle down unless it goes two, three weeks, which I think it’ll go two weeks at least.

Tony Nash

You think it’ll go two weeks?

Albert Marko

Yeah, I think so.

Tony Nash

Okay. We’ll go until mid-October at least. What’s the downside? We start getting stories about how our military doesn’t function and how people can’t can’t get Social Security checks and all that that Within a week, we’re going to get that stuff.

Albert Marko

Of course.

Tony Nash

What’s the real impact on the government over two weeks? Is there any major impact?

Albert Marko

Not really. Not really. Like I said, they’ll come out with some weird headlines saying the sky is falling, but no real impact.

Dale Pinkert

The impact is for people who look at their draw downs on their IRAs and everything else. At 3,900, they’re going to be calling their conquer and say, Get this over with. You’re ruining my retirement.

Tony Nash

Okay. Does this also provide an opportunity for a dollar depreciation?

Albert Marko

Afterward, yeah, I would assume so.

Tony Nash

Okay. People have less confidence in the Fed through the US government. Dollar falls below a 100, DXY falls below 100, something like that.

Albert Marko

Oh, I don’t know about under 100.

Tony Nash

Okay. So tell me about that.

Albert Marko

I don’t know about 100. I think we definitely like go close to to like 101, but I don’t think we’re going to sub 100 of the rest of the world. This is even worse shape than we are.

Tony Nash

By end of October, we could have Dixie at just over 100.

Albert Marko

Yeah, I can easily say that.

Tony Nash

Tony Greer, what do you think about that?

Tony Greer

About what?

Tony Nash

Dollar. You think we’re near dollar highs? You think by the end of October, we have have a, Dixie that’s 101, 102, something like that?

Tony Greer

Man, it’s hard for me to prognosticate. I had been bearish. The dollar went literally neutral when it went into the moving averages and then then said looks like it can run. I have no idea how far, but we’re still in the middle of that run. And I really just use the dollar as a speedometer for the risk that I have on tone. It’s not like I’m going to place any bets on it. Right. So the way I see it is it still looks like there’s a need for dollars, and it still looks like if US rates are going to go higher, that money is going to flow this way. They just is a tailwind that I see continuing. I can’t really pick where the high is going to be. I’m not an expert.

Tony Nash

Okay. Right. Where else is it going to go?

Albert Marko

And Tony, remember, we’ve always said that… I’ve always said that the dollar is always range-bound here. It’s just stuck in 100-110 range, and it’s just it is what it is.

Tony Nash

Yup. Okay. Now, Albert, since we’re here, I do want to ask you a little bit about crude markets as well, because there’s been some noise over the past couple of days about the Saudi and other people putting more supply on the markets, that thing. How possible or likely is that? And how much of an impact would that have on, say, retail US gasoline prices, that thing?

Albert Marko

Well, retail gasoline prices need to come down. It’s a political problem at the moment. From what I hear from my people is the Saudi storage tanks are full. So yeah, they probably will be dumping oil into the markets relatively soon. And I don’t even know if the the really want want oil $100. It creates problems for them anyways.

Tony Nash

Great. What do you think about that? What do you see happening with crude prices and gasoline prices?

Dale Pinkert

Are you asking me, Tony?

Tony Nash

Yes, sir.

Dale Pinkert

I’m looking at potentially one more high. I have what’s called a three-drive formation. I just want to get back to the dollar for a second. For your viewers, take out your weekly chart of the dollar. They say FX is one of the best technical trending markets. For 12 weeks in a row, we’ve had green in the dollar. I challenge people to find 12 weeks in a row red or green anywhere else. So definition of a trend is what just happened in the dollar. Okay, as far as crude is concerned, find me a bear, I guess, Albert. There are no crude bears out there.

Albert Marko

No.

Dale Pinkert

I think it’s really crowded the long side of crude.

Albert Marko

I don’t like these extremes where people say, Oh, $200 $200 oil or oil, $60. I don’t like these extremes.

Dale Pinkert

People are talking talking super again.

Albert Marko

Yeah, of course. You know what happened last time they talked talked super spikes? Right down to 70,65 dollar from 130 I don’t like this. And I know for a fact that the Fed and even Tony Greer, we talked about this previously, I know that the Fed will act. I know that they use futures options to crush oil for political reasons, and rightly so for the US consumer. I don’t see a super spike happening, and I see probably us drifting back down to the high ’70s, which I would love to get along in the mid ’70s of oil. I’d love to.

Tony Nash

Okay, great. Great. So you think by the end of the the we could be in the mid ’70s?

Albert Marko

I don’t know. I don’t know about the end of the year, but possible. We shot up $20 in a month, so who knows?

Tony Nash

Yeah. Tony Greer?

Tony Greer

No chance. There’s no oil. There’s no oil. There’s been no investment in the sector. Saudi Arabia and Russia have taken a ton of oil off the markets. There’s now cushing is getting drained down to dangerously low levels. The SPR is not at a level where they can sell much more. That was the seller. Albert, I think you had your chance to buy it in the ’70s. I feel like that was it. We spent six months in that range while it was Joe Biden’s SPR versus OPEC saying they’re going to cut. And then we got the output cuts. We got them to say we’re going to cut whatever is necessary. There’s no Biden SPR for sale at all. And now there’s no oil and cushing. And I feel like that’s a really, really toxic cocktail for upside. I think we’re going to break above once we get above 93, then I think the range will be like 95, 105 for a little while. Also that everybody’s betting on a recession happening, and that is also in their mind necessarily, bearish crude oil. And I would would point to probably probably 80 of the last recessions that we lived through where gasoline demand is indented.

Tony Greer

So best where I see that we have a consistent politically structural energy inflation here in our country, and I think that prices are going to work their way way higher.

Tony Nash

Interesting. Okay, that’s great, Tony. Even with the whispers about Saudi putting more supply on the market, you still see things going higher?

Tony Greer

Yeah. I don’t think that they’re going to put enough on the market to tip this rally over. I mean, this is a beautiful technical rally that we’re in the middle of now. It could break down for all different kinds of reasons. Then I’m going to ask you where where are going to get the oil from. Who’s filling up Cushing? How is that going to happen? I need to know.

Tony Nash

Well, if you listen last week, it’s definitely not Venezuela.

Tony Greer

Right.

Tony Greer

Good Point. But But that’s what the bulls have to that’s what the bears have to answer to. We’ve got oil, gasoline and diesel all floating down to the bottom or below their five-year average inventory levels. So where it’s coming from? Unless there’s another lockdown, I have no idea.

Tony Nash

Right. That’s scary.

Albert Marko

Government shutdown lockdown like everybody everybody their homes.

Tony Greer

I’m in emergency lockdowns.

Tony Nash

Yeah, I hope not. Guys, thank you so much. This has been really amazing. We’ve gone everywhere from astronomy to crude markets, and it’s been fantastic. Fantastic. Dale, thanks for joining us. This is really fantastic. Tony, as always, we love it. And Albert, really appreciate appreciate you, as always. So, thanks very much. Have a great weekend and have a great weekend. Thank you.

Tony Greer

Dale, wake us up that there’s a big dipper pattern or something that we really need to know about, please.

Dale Pinkert

I’ll tweet it. I’ll tweet it.

Tony Greer

Thank you.

Dale Pinkert

And don’t be pulling any moons.

Tony Greer

Good point. All right. Take care, guys. Thanks very much, Tony.

Tony Nash

Thank you.

Albert Marko

All right, thanks. Bye.

Tony Greer

Bye.

AI

That’s it for this week’s episode of of the week ahead. Please don’t forget to rate us and review on whatever platform you are watching or listening to this. Thank you.

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Welcome to the Week Ahead with Tony Nash. In this episode, we discussed three crucial topics:

1. Central Banks Unveiled: We’re joined by Arno Venter to unravel the mystery behind central banks’ actions and their impact on trading. Is the European Central Bank lagging in the fight against inflation, and what does it mean for the market?
2. Diesel and Refinery Challenges: Tracy Shuchart enlightens us on the increasing troubles faced by aging refineries in the U.S. With a 53% rise in unplanned mechanical issues, we explore how this contributes to rising gasoline prices. Plus, find out which markets are hit hardest by Russia’s ban on gasoline and diesel exports.
3. Venezuelan Migrants and U.S. Elections: Albert Marko discusses the Biden administration’s decision to extend protection to a significant number of Venezuelan migrants in the U.S. We dissect the motives behind this move, whether it’s election-year politics or a strategy to boost oil supply amid Saudi Arabian cuts.

Join us for a clear and concise analysis of these important topics in plain language you can understand. Stay informed for the week ahead! Don’t forget to like, subscribe, and share for more valuable insights.

Key themes:

1. Central banks breaking things
2. Diesel & refinery alerts
3. Venezuela migrants & crude supply?

Transcript

Tony Nash

Hi, everyone. Welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Arno Venter from South Africa, Tracy Shuchart and Albert Marko. We had a big Fed meeting. We’ve had some really interesting things happening with POJ this week. And so, of course, we’re going to talk about central banks breaking things today. Arno is going to talk us through that. Tracy is going to walk us through diesel and refineries. There is quite a lot happening there and some things we’ve talked about for a long time, but it’s a good reminder of what’s happening in those markets. And then we had a big announcement in the US about Venezuelan migrants. I want to dig into that a little bit and understand what is happening there. Before we get started, I want to let you know about a new free tier we have within CI Markets, our Global Market Forecasting Platform. We want to share the power of CI Markets with everyone. So we’ve made a few things free. First, economics. We share all of our global economics forecast for the top 50 economies. We also share our major currency forecasts, as well as Nikkei 100 stocks.

Tony Nash

So you can get a look at what do our stock forecast look like. There is no credit card required. You can just sign up on our website and get started right away. So check it out. CI Market’s Free. Look at the link below and get started ASAP. Thank you.

Tony Nash

Guys, thanks so much for taking time out of your week for this. Arno, it’s great to have you on. Thanks for coming. I’ve got a tweet on the screen. You pretty much called how the Fed would move this week and said the reaction would be a nightmare to trade. Can you talk us through that? Why is it a nightmare to trade?

Arno Venter

Well, to be honest, I wish I can take credit for calling the outcome, but the tricky outcome I was actually looking for was a Fed that decided to drop the 2023 dot to show no more hikes for this year and then ramp up the 2024 dots to above 5 %. So that was actually what I was going for. And my thinking with that was that if we got that, it would have been a nightmare for the markets to digest because you would have a doveish outcome on the 2023 dots, because no longer seeing scope for November, but then obviously ramping up to 2024. And I just thought that would be the worst case scenario for markets out there, because you would have so much to a volatility. But I mean, in the end, they actually delivered quite a hawkish message. I expected them to move up that 2024 one, but it was… I didn’t expect them to do 2025. I thought that was quite hawkish. That was quite a strong message from them saying that not only are we going to hike November, but we’re going to follow through with… We only see scope for 50.

Arno Venter

And if you think about it from a timing perspective, the fact that they had 100 priced in for June, that meant that cuts could have potentially happened somewhere, let’s say, quarter two as early as that. If you think of four hikes making room for that within their meetings, the fact that they went 50 probably pushes that all the way back to the second half of next year and then only the first half of 2025. So that was pretty hawkish stuff. Definitely not what I expected on that 2023 dot. For me, it’s like that last hike, does it really matter at this stage in the cycle? I think they could have let that one out and just still gave a signal that listen, hire for longer is here to stay. But that last hike, I just don’t know whether it’s worth it at this stage. We also had Powell kind of alluding to the same thing. They asked saying, Listen, why not just hike then now? Why do it a month later? It doesn’t really matter. He even said, Listen, maybe one more hike doesn’t matter. But anyway, yeah. I wish I could take credit.

Tony Nash

That’s interesting. Why do you think they’re waiting? Do you think they’re spooked? Do you think they’re looking at markets and they’re a little bit worried about things?

Arno Venter

I think what happened is I think they… Their communication, we know they don’t like to surprise when it comes to the rate decision itself. They would often surprise with the statement and the language and the tone, et cetera. What they don’t like to do is spook us on rates. And we had, what was it, four or five or six of the FMC members coming out, basically telling us they feel it’s better to pause in September. So I think the only reason why they pause this time round is because they told us they were going to do it and they don’t want to spook the markets. We went into blackout. They couldn’t really change that view. But I mean, it’s silly to this whole skip thing. If you’re going to hike anyway, just hike. Get it over with, get it up to that level. I know they would say that they don’t have a level in mind, but we know they have a level in mind. Just get to that level and then keep it there. But this flip flopping is just… But it is what it is. I mean, that’s central.

Tony Nash

Getting to six always seemed a little bit extreme, right?

Arno Venter

Yeah. I mean, look, inflation was very scary. I mean, it’s still scary looking at what’s happening now in commodity markets. I think they’re getting a little bit of a wake-up call. It was quite interesting to hear Pal talk about their forecasters saying that they’ve got the best in the business. I’m not sure about that. But anyway, 6% we’re so close to it that I think we were going to get close to six when they started. I didn’t think so. But inflation was just… It’s been on a rampage. So the level makes sense, but doing this whole skip thing for me is just a waste of time.

Tony Nash

Yeah, I used to work for two of the forecasters they rely on, and they’re really good talkers.

Albert Marko

Their problem is simply inflation. They’re trying to sit there and be cute about, Oh, data-driven, so on, so forth. But because of the political policies that are countering any Fed policy, they’re stuck between a rock and a hard place. I’ve always said that they’re going to get to six %. One way or another, they’re going to get there. That’s mainly due to inflation, and it’s not stopping. It’s reaccelerating. Oil has been on a rampage. They can sit there and put out whatever dot plots they want. But I don’t even take those seriously, to be honest with you. I think last year, their dot plot said they’d be down to 1%. I mean, that’s a joke.

Tony Nash

It’s good for sell-side research, right? I mean, it’s good fought for sell-side research.

Albert Marko

Yeah, that’s fine. You want to talk to fundamental guys and data-driven traders? Sure. You’re going to look at all that stuff because it moves the markets in the short term. But if you look over the long term, their political policies have gotten in the way and this is where we are.

Arno Venter

It was quite clear from what he has to say that they’re not really sure of anything right now. They gave us these dots and yes, it was much more hawkish than I thought it would be. But it doesn’t seem like they really know where it’s going. I think when he says we are taking this meeting by meeting, they really mean it this time because they have no clue. Listen, when we get to November, we’ll make a call and see whether that’s the right one type of thing.

Tony Nash

I think- Go ahead, Albert.

Albert Marko

Yeah, there’s no question. Arno is absolutely correct. They’re taking a meeting by meeting. They’re forced to take it meeting by meeting. They’re forced to take a meeting by meeting. Now there is no long-term strategy that the Fed has or policy or tools in the toolbox that they can use to bring inflation down to two % again. That is a pipe dream. It’s not going to happen. And more importantly, you’ve actually seen some Fed research come out recently talking about, Oh, well, maybe 4% should be the standard going forward. They’re already starting this narrative, Tony. They’re already starting it. Now, I don’t think that we’re going to say the Fed say 4% is the target, but don’t be surprised if 2.75 or 2.5 and then three comes along in a year or two and so on and so forth because there’s just no possible way we’re getting back to 2%.

Tony Nash

They’ll work on inflation bands like they work on rate hike bands within 50 basis points or something like that. They’ll be right technically, but will they really be right precisely? Maybe.

Albert Marko

Yeah, that’s right, Tony, because most of the markets… We had 9% inflation here in the United States last year. That means $100 item is 109. 3% this year or 4% this year doesn’t mean that you’re paying 104. It means you’re paying 113 for items. So you’re still 13, 14% up from pre-COVID.

Tony Nash

Do you think that they’re trying to get parts of the economy into a deflationary position, groceries, things like that?

Albert Marko

Yeah, of course. That’s whatever politically advantageous it is for the 2024, that’s what they’re going to target.

Tony Nash

They’re looking for deflation in certain aspects, in certain segments.

Albert Marko

Yeah. I just don’t know how they’re going to do it.

Tony Nash

Okay.

Tracy Shuchart

Have to bring up that I do think that they’re very unsure and don’t really know what’s going on right now. Because even during that presser, some reporter asked, Would you call a soft landing expectation plausible? The first thing out of Powell’s mouth was, no. Then he went off and he backtracked with some garbled words out.

Tony Nash

How to destroy a year and a half of narrative.

Tracy Shuchart

Right. Again, and I just felt the whole time, I had made notes that he was just very contradictory and came off very unsure.

Tony Nash

He did. I felt that same thing, that he was very hawkish, but he wasn’t confidently hawkish. And it tells me that they’re a little worried, I think. And I think the data that comes in in October, we really need to be looking at some things falling over. So here’s just an anecdote that I know about. I have a friend who runs a shop, and they had to hire people over the past year at a certain wage. They’re now offering new people a much lower wage than they paid last year. They’re looking at cycling out those higher wage people with lower wage workers. That is one way to get services wage deflation, I think.

Albert Marko

Yeah, but productivity goes down. There’s a double edged sword here.

Tony Nash

Maybe. It might. I don’t know. But I think the people on the front lines who are managing shops, who are managing landscaping firms, who are managing a lot of this stuff, they’re really looking at how do they bring down their hourly wage because their customers can’t take any more price hikes. And so for these services firms, they’re trying to figure out how to bring that down by 10 %, 20 %, something like that. That so that they don’t have to continue to pass price hikes onto their customer because their customers, they just can’t take it anymore. We’re at that point in the cycle, I believe, where the consumer is fatigued. Now, there are plenty of people on social media who would tell you the consumer isn’t fatigued, all this stuff, but the American consumer, I think, is very fatigued.

Albert Marko

We’re certainly getting there. Certainly getting there. You can even see it in the luxury items market where you go, Just go to a mall, walk into a Gucci store. A year ago, it was filled to the brim with everyone buying $800 juice. Today you go there and there’s maybe two people in it. You can see it on the ground. I don’t need data numbers to look at it.

Tony Nash

Right, exactly. Arno, look… Go ahead.

Tony Nash

No, go ahead to add to that.

Arno Venter

I think the other thing that is also a canary in the coal mine is all of the strikes happening. You don’t see that happen unless people are really getting squeezed. I think that is a very good barometer to show us that, listen, even though spending has held up okay, the consumer is getting squeezed right now, and they won’t be doing all of this strike action if it’s not hurting at this stage.

Tony Nash

That’s right. Exactly. We are at that weird point where there has to be a turn somewhere. I think we’re going to start seeing in the data and we may have a month in the next couple of months that really surprises to the downside conveniently, but it might be true too.

AI

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AI

Thank you and now back to the show.

Tony Nash

Let’s talk about other central banks, Arno. We’ve seen the ECB continue to go into rate hikes. They’re slightly behind the Fed, I think, in terms of hikes. Now, even though the ECB continues to hike, the euro continues to weaken against the dollar. We have a chart here that shows one year, USD against the euro. Is the ECB still… Do you believe the ECB is still behind the US in terms of inflation fighting?

Arno Venter

Absolutely. We’re almost 2% difference on the headline over a percentage difference on the core. The problem that we have in Europe right now in terms of inflation is that they, unlike the US, they don’t produce. So they are in a much tighter situation right now. You can obviously add in China into that mix as well. But sticking to inflation, they’re definitely behind the curve, definitely behind the Fed. But the big difference here is that they don’t have the economic data right now to back up more tightly. If you take a look at US data, even though there is definitely showing up, I mean, Atlanta Fed GDP, I looked at this earlier, we saw a full spot, nine %. I know that’s going to be revised lower, but growth is holding up much better. So growth is okay in the US. There’s been that whole US exceptionalism narrative running around. And I think that’s been the biggest negative driver for the euro right now. But in terms of the ECB, where they are right now is a much bigger rock and a hard place compared to the Fed, because they actually have the growth data that is so dismal.

Arno Venter

I mean, if you take a look at today’s French Flash PMI data that came out, it’s pretty dismal. The German data was better than expected, but we’re still below 40 on manufacturing. So it’s looking bleak. I just don’t think they know they’re behind. Everybody knows they’re behind. But the growth data doesn’t allow them right now to be as hawkish as they should have been. They should have gone much more aggressive earlier, but where they are now, they can’t anymore. They should have done it earlier, but now it’s like a rock and a hard place. And again, if you take a look at what commodities are doing right now, that whole reacceleration and inflation narrative, it’s something… I didn’t think they would even mention it, but I was quite surprised that all of these central bank meetings, all of them mentioned the recent moving commodity prices. You would think they would try and steer away from it, but they actually all said, Listen, this is something we’re watching. It’s a concern. But what can they do? If they continue hiking right now, if Germany is already in a recession, how much worse can it get for them?

Arno Venter

They’re in between a rock and a hard place right now.

Tony Nash

Given the economic data prints, do you think the ECB has overtightened given their performance?

Arno Venter

No, I don’t think so. I think the cycle just caught up to them a little bit earlier. I think the big difference between, I would say, Europe and the US in terms of the hiking cycle is a big component of their problem, I think, was China. Everybody was expecting China to do okay. And I mean, that narrative has just been completely smacked out of the park. So I think for them, the cycle caught up a lot faster because China, that massive exposure to China was a big influence for them. And obviously, they are more exposed right now to all of the other geopolitical concerns going on. In terms of whether they’ve overtightened, I think they could have done more. They should have done more a lot earlier. The one thing that I think is quite interesting, is that even though most of the data is probably made up that we get from China anyway, but if we get data in Q4 that looks slightly better than expected, at some stage you would expect things to start looking okay, even if it’s not real numbers. And I do think that the sentiment when it comes to the Euro or the Eurozone right now has been pretty pessimistic for good reason.

Arno Venter

But if China does start showing some signs of recovery, whether that’s real or not, that could feed into some sentiment for the Eurozone. And if the data starts looking slightly better, maybe there’s a scope for them to potentially hold rates higher for longer as they plan to. If that doesn’t happen in China tanks, we probably looking at the first central bank to cut rates in terms of the ECB. But I do think quarter four could be a little bit of a wild card looking at China right now.

Tony Nash

Okay, interesting. So you don’t think Europe is necessarily done. They’re just in a data-dependent hold pattern, it sounds like.

Arno Venter

I think if growth held up, they wouldn’t have called a pause last week, or at least signaled that they are done. I think if growth looked better, like the Fed, they would have rather opted for maybe one or two more hikes. But we know that from a political perspective, Germany, so Germany is so important for their decision making. When you look at German data, it’s like that’s the elephant in the room. Everybody is looking at Germany when you want to make a policy decision. I think that’s where the problem comes in is they have to talk more garbage for the sake of the growth story. If that wasn’t the case, I think they could have done one or two more. They should have. If you think of what they’re doing.

Tony Nash

I get the sense if we had a German ECB head, they would have hiked earlier and sharper. But because we have a French ECB head, it’s been slower and more moderate. I could be wrong, but that’s the way it seems to me. Can we talk about Japan for a little bit and BOJ and some of the dilemmas they’re facing? We have this BOJ chief who’s relatively new. He’s been in the seat for about six months. We’re standing pat on policy. We’re not necessarily taking action either way. Is that really a function of the Japanese economy? I mean, the PMIs came in pretty weak, even weaker than expected this week. Imports are way down, like double-digit down in the same way it was last quarter when they had that stellar GDP growth, but it was just stellar GDP because of the import adjustment. The BOJ is obviously very important in terms of obviously Asian trade and money markets. So what is the BOJ thinking right now? And do you think they’ll move soon or do you think they’ll just continue to play it safe and sit where they are?

Arno Venter

I think their biggest problem has been history. Time is not on their side. I think that whole deflation narrative that we’ve had in place for what’s a three decades, I just think that that whole thing, they’re not able to shake that off. There’s some positive signs in terms of wages. It does seem like they’re really trying their best, at least from a policy perspective, to try and boost wages and try and get inflation of that way. But I think one of the… Let’s just assume wages do go up decently. Will they be able to change the Japanese consumer’s mind, their whole mentality that’s around spending and not being as frugal? Unless you change that and unless you change the demographics, they’re always going to have this type of tail problem following them. So I don’t know. Everybody got excited a couple of months ago about them potentially moving. And look, inflation, I think they could have taken a shot at it. With inflation where it is, just try something different maybe for a change. You’ve tried this for three decades. It hasn’t worked. You haven’t stimulated the economy at all. So maybe try something else.

Arno Venter

But I think for them it’s really… I don’t think they’re going to move soon. They should have done it already. They had the chance, but I don’t know, this bank, I think, is just stuck in that mentality. It’s going to be difficult to, I think, persuade them otherwise.

Tony Nash

Because they’re so integrated with China, do you think they’re caught given China’s downturn? Do you think they’re caught between, say, the US running a little bit hot and China running pretty cold? Are they caught in the middle, you think?

Arno Venter

I don’t think it’s necessarily a caught in the middle scenario. A couple of months ago, they had a good chance to move away. The markets gave them that leeway as well. If everybody was prepped for them to start moving away, I think they should have taken that chance when they could. And you know what? A couple of quarters later, they could have maybe said, hey, we made a mistake because growth is slowing down. But I mean, growth has been anemic for three decades. They oscillate between no growth and very little growth. So it’s like maybe they should have moved ahead of… But at this time, I think regardless of China or the US, they need to make a decision to move away from this type of policy. And if they don’t take the shot now with inflation at the highest levels in four decades, I’m not sure what’s going to convince them. I mean, growth, I don’t think at this stage, growth should be their driver. I think at this stage, they should look at inflation as you know what, let’s just hike interest rates and see what happens. Obviously, there’s a lot of concerns with the amount of JJBs they’re holding.

Arno Venter

There’s a lot of losses in store for if they move yield. So maybe it’s more a case of the balance sheet. Maybe that’s the concern. Maybe they would… But how can you reverse that? After you’ve bought, I think they’re sitting on what, 51 or 52 % of all JJBs in circulation.

Tony Nash

And the to the apps, right?

Arno Venter

You have to either stop and then start getting rid of that, unless I don’t know. I don’t know what they can do. They’ve dug a big hole for themselves.

Tony Nash

Albert, what do you think about BOJ? Do you think they should move a little bit more hawkish?

Albert Marko

I think they should to head off inflation. I think they do have a wage inflation problem on coming. I think because of China’s slowdown and their manufacturing has been increasing slightly, I think that they are going to have a problem with inflation. I think they should move right now, but who knows what they’re thinking behind the scenes, and who knows what Yellen and the Treasury are asking them to do on the back end. I agree with Arno, they should move, but they’re probably not going to.

Tony Nash

Tracy, with Japan’s import data down so dramatically, are they importing less energy? Is that a part of a component of it?

Tracy Shuchart

They were at one time. They are the largest importer of natural gas in the world. They were just surpassed by China. We did see a little bit of slowdown, but we also have seen some projects with Russia that are new in the Arctic to secure supply. That dynamic’s changed a little bit, so they’re now a partial owner of that. But we are seeing what’s really interesting in the energy sector that we’re seeing in Japan is them reigniting their nuclear capacity and opening up and extending nuclear facilities. That’s been very good for the uranium market.

Tony Nash

Great. I noticed you said partnering with Russia. Let’s just hold that for a minute. Okay, Tracy, let’s move on to energy. You put out a brilliant tweet earlier this week about aging refineries in the US. We’ve talked about this many times before, so this should not be news to any regular week ahead watchers. You said unplanned mechanical issues are up 53% from last year. How much has this stuff contributed to higher gasoline prices in the US?

Tracy Shuchart

Well, certainly it does add a problem because when you have demand that is still high and increasing into the year, we have a demand for gas is 6.8% higher than it was this time last year. We have increasing demand and obviously we have a shrinking or stagnant refining capacity in that in itself is obviously going to be a problem. Now you add on more downtime for these refiners due to mechanical problems and that just exacerbates the situation.

Tony Nash

When you said 6.8%, is that the price or the volume? Sorry, I missed that.

Tracy Shuchart

6.8% demand, higher demand than we were at this time last year.

Tony Nash

Okay, great. Can you help me understand? You also posted about Russia’s ban on gasoline and diesel exports. What markets would that impact the most? Turkey or the EU or India? I’m not really sure.

Tracy Shuchart

It’s going to impact… Well, Turkey obviously is their largest buyer, and therefore the EU. The EU purchase a lot of diesel from Russia, even with the sanctions, because there’s loopholes, obviously, if it goes through Turkey, that’s fine, or if it’s by ship, that’s fine as well. That’s going to really impact the EU, and that’s why we saw… What day was that? That was just yesterday. Oh, my God. I’m losing track of-

Tony Nash

Long week.

Tracy Shuchart

But I know. Oh, my God. Anyway, yesterday, if you saw, what happened was we saw diesel refiners in the US spike. That was the only bright spot in oil and oil equities all day. But that’s because US refiners should likely benefit from the EU seeks alternatives. We still have a lot of refining capacity. They already do buy from us. We already do buy from them as well. I think it’ll be good for diesel refiner, certainly with all of that off the market. That’s just globally because they export a lot of diesel globally.

Tony Nash

Okay, But if we have refinery downtime and capacity impaired, how are we going to do… How is the US going to do that?

Tracy Shuchart

Well, but this is a global problem. We have Pyrenees and the Netherlands has gone down three times already this year. They have aging refining problems in the EU as well, and that’s the largest diesel refiner in all of Europe. We have a global refining capacity problem is really what it boils down to. Nobody wants to put money into refining capacity when you have governments telling you we want you disappeared by 2030.

Tony Nash

Right. We’re all going to be driving electric cars by.

Tracy Shuchart

2030, right? Right, exactly. This is really a global problem. It’s been a global problem, and it’s not going away anytime soon.

Tony Nash

Yeah. Okay, so you had some subtle points there, and I’m seeing a trend here. Japan is doing projects with Russia on the gas side. Europe is dependent on Russia for diesel still, as long as it goes through Turkey. Are these sanctions doing anything? It feels like this is just really a stupid fig leaf.

Tracy Shuchart

Well, if you look at it from the perspective of has Russia suffered from oil and gas sanctions as far as how much money they make? No, absolutely not. Price cap’s been exceeded? Yes. Has their economy been hurt in other ways? One could argue a little bit because if you look at all the stimulus measures they’ve put in place this year, which is very different for them, for their people to stimulate the economy as far as we’re going to give you money for kids, the more kids you have, we’re going to give you. There’s a lot of stimulus measures that did out there. But really, if we’re just looking at oil and gas sanctions and perspective of has it hurt them financially? No.

Tony Nash

Tracy, they don’t have McDonald’s anymore.

Tracy Shuchart

I know. Or Starbucks.

Tony Nash

Or Starbucks, right. They must be suffering. Okay. In terms of supply, I want to turn to Albert and talk about this Venezuela migrant issue and work that into potential supply angles. Albert, this week, the Biden administration extended protection for 472,000 Venezuelan migrants in the US. This is about the same size as the entire city of Raleigh, North Carolina, or Atlanta, Georgia. Imagine adding another one of those cities in one signature. It’s a significant number of people on the screen. I’ve got cities in the US that are about that size. 38th to 40th size of city is what the Biden administration just accepted into the US. I want to ask first on the political side. Why are they doing this? Is it election your politics? What is the American electorate feel about these types of immigration, illegal immigration issues?

Albert Marko

Well, obviously, immigration has become a hot topic ever since the sanctuary city issues in New York City is faced by, I think it’s only 100,000 migrants. Specifically with the Venezuelan move by the Biden administration, of course, is political. I think they’re miscalculating the political aspect of it because the Hispanic community in America is not unified. This is a fundamental flaw in their thinking for so long. You have Venezuelans, Puerto Ricans, Cubans, Mexicans, so on and so forth. They don’t like each other, first of all. For whatever reason they have against each other, they don’t even like each other. The Venezuelan move is, in my opinion, it was probably three-fold in their minds. One would be the political aspect of appeasing the Hispanic and immigration, the pro-immigration lobby. Two, Curry favor with the Venezuelans to probably get a little better deal on the Chevron or other waivers that they have for oil-producing contracts. The other issue is labor market. Accepting these amount of people probably helps the labor market fill in some of the gaps from the boomers leaving the market, from leaving the workforce. I think that’s what their calculations were. I don’t think any of them are going to work.

Albert Marko

I think it’s a complete miscalculation in that front.

Tony Nash

Let’s tackle the labor market first. What segment of the US population does that hit? Are those new workers going to take down the rate that white-collar consultants and finance people can charge? Of course. They’re largely going to hit lower wage, hourly workers who are already having trouble making ends meet, right?

Albert Marko

That’s correct.

Tony Nash

I don’t understand if that is the traditional Democrat voter, then how is this helping their base?

Albert Marko

In the blue-collar… Listen.

Albert Marko

The Democrats have a problem with blue-collar workers leaving the party. There’s no question about that. Ever since Trump came in, he’s siphoned off numerous votes from that party. They have a problem with that. They’re trying to offset it with the Latino votes in certain areas of the country, mainly urban areas like DC, Philadelphia, Houston, so on and so forth. Like I said, this is a miscalculation on their part. This is probably going to anger a lot more blue-collar families that are most likely going to lose jobs or at least get their wages cut down.

Albert Marko

Yeah. Of course. Right now, plumbers are making unbelievable amounts of money. But as these lower-wage workers enter the workforce, I’m not saying maybe in a year, but four or five years, entrepreneurial Venezuelans will start hitting those markets, hitting the plumbing, electricians, and so on and so forth, and it’s going to be a problem.

Tony Nash

Arno, from your side of the world, I don’t know how much US immigration hits the news there. I know you don’t speak on behalf of entire nation, but what does it look like from outside of the US when you hear about US immigration issues?

Arno Venter

Well, I think for me, the biggest… How can I put this? I think the funniest thing is where it comes from. I think the country that it has to deal with, I think often you don’t have to be in the US to know when it’s purely politically motivated. So when you have Venezuela and stuff like that, you immediately know it’s going to be all about oil. So I think what’s interesting is the motives around it. It seems like every single thing is, and of course it is, but it seems like everything is just it’s a means to an end. But it does seem like from the outside, it seems like very little people that you talk to is happy with these decisions. Even those from the Democratic Party, it seems like everybody you talk to is just not happy with the way that these things are going. So it seems like it feels like they are doing their best to anger everybody on either side of the aisle. But yeah, it just looks all motivated from this side.

Tony Nash

Okay, interesting. Okay, Tracey, so if this is energy related, how much capacity does… First of all, why Venezuela? The grade of oil works well in US refineries, right?

Tracy Shuchart

Well, yes. But the-

Tony Nash

Okay, then if the grade of oil works well in US refineries, then is their crude capacity to come to the US?

Tracy Shuchart

No, that’s therein lies the problem is this government seems to think or this administration has this idea in their head that they can… Venezuela has the largest oil reserves in the world. They used to produce 4.5 million barrels a day. They’re at 700,000 per day from 4.5 million, let’s just put it that way. What they’ve had is years and years of mismanagement and degradation of their facilities. If the US really wants oil from Venezuela, they need to pour billions and billions and billions into infrastructure because it’s just not possible to get blood from a turnip, so to speak.

Tony Nash

Okay.

Tracy Shuchart

Think they’re completely delusional if they think that they can get any real capacity from venezuela at this point.

Tony Nash

We do have Jennifer Granholm as our energy secretary. That probably.

Tony Nash

Is the reason for the flawed thinking.

Albert Marko

A lot of trust in that one. But the other thing that I’ve always found hypothetical about the United States’s stance with Venezuela and the oil industry is there’s such huge climate warriors here in the United States, but they completely ignore that Lake Maracaibo has more oil in it than they’re probably exporting. That goes to what Tracy was saying about the infrastructure being so dilapidated there that it needs to get addressed. This is ridiculous. To work with a country that has oil directly spilled into Lake Maracaibo is unbelievable. I’m not a climate war and I’m not some hardcore climate, so on and so forth. But there’s certain things that you can’t sit there and dictate to the world and then completely ignore when it suits your interests.

Tony Nash

But it’s not here.

Albert Marko

I understand that.

Tony Nash

Is it feasible, Albert and Tracy, that the US could end up spending billions and billions of dollars on Venezuelan upstream infrastructure in order to export more to US refineries as a counterweight to Saudi Arabia and OPEC?

Albert Marko

No, that would fall to… I’ll let Tracy go on more, but it’ll fall on Chevron and Exxon and others.

Tony Nash

Okay, so those guys would spend the money?

Albert Marko

Yeah, and what the United States backfills them later, who knows?

Tony Nash

But that’s going to take 10 years, right? It’s not.

Tony Nash

Something they can whip up.

Tracy Shuchart

Oh, no. Yeah, this is not going to come online at all. You need to completely rebuild these facilities. You need to rebuild their refines. You need to rebuild everything in that country. You’re not going to get away. The problem is it’s a black hole. You can pour all this money in this country and it’s all going to bribes and it’s all going to corruption and the government is still going to steal from the oil companies. It’s filling a black hole.

Albert Marko

What about the brain drain, Tracy? What about the brain drain of all the engineers that were qualified that most likely left to Iran or Iraq or something?

Tracy Shuchart

Oh, yeah, absolutely.

Tony Nash

Yeah. I was once working with a certain Asian government who was spending a trillion dollars on infrastructure. I was trying to encourage them to have transparent tendering. I asked them the question, How much are you willing to fall off the table to corruption? 10%, 20%, 30%, 40%. They wouldn’t answer the question. I don’t think particularly Americans understand how much socialist… I mean, of course, it happens in the West too, right? But how much money falls off the table to corruption in these centrally planned economies. If the US were to spend $50, $100 billion on the upstream in Venezuela, we could write 50% of that off, and it would not be focused on the upstream at all. It would be focused on going into different pockets. 30% is a small amount to siphon off to corruption.

Arno Venter

They should come and visit us here in South Africa to see what happens to all of those funds, all of these amazing projects.

Tony Nash

Tell us about it, Arno. Where does it go?

Arno Venter

Well, if you take a look at our biggest success story in terms of trying to sort out the electricity mess that we’re in, they are going on 10 years now, something that they should have spent, I think they should have spent two or three years on it. We’re going on 10 years now. It’s still broken. It’s still down. There’s still load shedding. Every single time that Western governments pour money into South Africa or economies like South Africa, it’s a fairy tale to think those things are going to go to those projects. Like you said, the correct wording is it’s a black hole. You are just going to keep on feeding money and it’s not going to give you the result you need.

Tony Nash

Okay, so we can conclude that a rational person may decide that the Venezuela move is not about upstream infrastructure, and it’s not about crude capacity coming to the US. It’s not about a counter to OPEC and Saudi Arabia, right? It has to be about labor cost, right?

Albert Marko

It has to be. There’s no other reasoning. I would say two-thirds labor cost, one-third appeasing the Hispanic vote. If I was supposed to give odds, that’s what I would say.

Tony Nash

Okay, interesting. It’s not just the Fed fighting inflation, it’s also the executive branch through immigration policy.

Albert Marko

Yeah, it’s coordinated. I mean, inflation has been a top issue for the past two years now. It’s not going away, it’s just getting worse. Of course, we’re going to have to try to address it one way or another.

Tony Nash

But it’s hurting the very lowest-end earners in the US economy. That’s the tragedy in this, is that, yes, it’s alleviating some stress, but it’s hurting the lowest-income earners in the US economy. Does that help services wages? Like in what time frame? Does it help in three months, six months, a year?

Albert Marko

Year.

Tony Nash

A year.

Albert Marko

Okay. Yeah, about a year.

Tony Nash

Okay. It’s going to take some time still.

Albert Marko

Especially in the hospitality sectors, I would definitely look at that come June, July, August of next year and could see it come down.

Tony Nash

Okay. All right. Well, we’ll wait a little bit right in the middle of election season. We’ll start just-

Albert Marko

Yeah, imagine that.

Tony Nash

What timing? -imagine that. Really interesting timing. Perfect. On that note, guys, thank you so much for your time. I really appreciate it. This has been really insightful. Thanks so much. Have a great weekend and have a great week ahead.

Albert Marko

Great day. Thank you.

Tracy Shuchart

Thank you.

Arno Venter

Thanks, guys.

AI

That’s it for this week’s episode of the Week Ahead.

AI

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Register for a CI Markets account for FREE! No credit card required: https://completeintel.com/markets

Welcome to “The Week Ahead” with your host, Tony Nash https://twitter.com/tonynashnerd. In this episode, we’re joined by a panel of seasoned experts:

🔵 Markets & Mayhem – https://twitter.com/Mayhem4Markets
🔵 Tracy Shuchart – https://twitter.com/chigrl
🔵 Albert Marko – https://twitter.com/amlivemon

Join us as we dig deep into three important topics in markets:

1. Reacceleration of Inflation & Its Impacts: Mayhem takes the lead in discussing the resurgence of inflation, impacting sectors, and the broader economy. With retail sales surging and job openings dwindling, what lies ahead? Are we missing critical signals from the bond market?
2. Peak Oil by 2030? LOL 🤣: Tracy Shuchart tackles the eyebrow-raising prediction that fossil fuel demand will peak by 2030, as stated in the recent IEA report. Amidst rising crude consumption, OPEC’s response, and soaring energy prices, we scrutinize the report’s assumptions and the history of peak oil predictions.
3. Beneficiaries of US Election Year Largesse: Albert Marko explores the intriguing dynamics of election-year spending. From corn to other sectors, we discuss which industries may benefit from politicians’ efforts to woo voters with taxpayer dollars.

Join us for an engaging and insightful discussion that simplifies complex economic topics for everyone to understand.

Key themes:

1. Reacceleration of inflation & its impacts
2. Peak oil by 2030? LOL
3. Election year investments

Transcript

Tony Nash

Hi, everybody. Welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Markets & Mayhem, Tracy Shuchart, and Albert Marko, guys, thanks so much for joining us. We’ve got a lot to talk about today. The first is the reacceleration of inflation we saw at CPI, and we want to talk about that reacceleration and the impacts on markets and other things. We’ll talk about that with Mayhem. Next, we want to talk about peak oil. There’s a note out this week about peak oil by 2030. We want to talk with Tracy about that and how realistic that is. Then finally, we want to talk with about investments that you need to keep an eye on going into an election here. Albert’s obviously well-versed in both elections and in markets, and it’ll be important to have that discussion with him. So before we get started, I want to let you know about a new free tier we have within CI Markets, our global market forecasting platform. We want to share the power of CI markets with everyone. So we’ve made a few things free. First, economics. We share all of our global economics forecasts for the top 50 economies.

Tony Nash

We also share our major currency forecasts as well as Nikkei 100 stocks. So you can get a look at what do our stock forecast look like. There is no credit card required. You can just sign up on our website and get started right away. Check it out. CI Market’s Free. Look at the link below and get started ASAP. Thank you.

Tony Nash

Guys, thanks everyone for joining us. Mayhem, I want to talk with you first. We’ve talked about the reacceleration of inflation in Q3 for a long time on this show, and we’ve started to see it again, most acutely with energy prices, of course. Retail sales came in stronger than expected. CPI came in line. At the same time, we’re seeing Jolt’s say down below nine million, which it’s still eight and a half something, still pretty good. We’re seeing pressure on things like residential real estate. We all know about the pain in commercial real estate. So a few questions for you. First, how do you expect the reacceleration of inflation to impact the sector rotation? You tweeted a chart out about this. So can you talk us through that?

Markets & Mayhem

Yeah, sure. I mean, we’re in the early stages of what might be a reacceleration of inflation. We’re seeing a little bit of that. Of course, commodity prices are leading the way, but the PPI print we got yesterday, the biggest contributor was energy, and the biggest contributor from energy was diesel fuel. Diesel is used to move everything everywhere, so it’s a pretty big deal. When that price starts to go up, it has secondary impacts that can boost prices elsewhere. I think that’s something to keep an eye on. We got import prices today. They came up 0.5% month over month, which was greater than the 0.3% expected and much higher than last month at a 10th of a %. You annualize that, that would be a 6% run rate, which would be unacceptable for import cost rising. This is all in the back of a rising dollar. It’d be interesting to see what that looks like if that wasn’t the case. Nevertheless, I think that in terms of the rotation that it could spark, I think that old economy companies come back into favor, particularly energy stocks. We’ve had a really robust run in crude.

Markets & Mayhem

I want to say it’s up above, it’s at 52 week highs or close to 52 week highs. It’s certainly at 2023 highs yesterday with the pricing that we saw. I think that we’re starting to see some areas where supply in elasticity is becoming a bigger problem because demand is starting to creep up. I think for energy stocks who had a pretty bad quarter two in terms of their earnings, we’re seeing the exact opposite backdrop this quarter, where prices of energy are rising. So margins for these companies should be rising and I think that presents an attractive opportunity for some of the better run companies, for investors to look at the ones that have better margins, clean balance sheets as an opportunity here moving forward.

Tony Nash

Great. It’s interesting. I think this is the third week in a row where people have talked about the rotation into energy. Of course, Tracy and Albert have been saying this for a long time that we’d see prices reaccelerating Q Three and that we’d see energy rise into the end of the year. This is really, it’s really consistent and it’s what we’re seeing out there. I want to understand your expectation of, say, a recession. Tracy put a tweet out about this earlier this week around bonds. Is a recession your baseline view? How would that impact some of the credit risks we see out there, meaning real estate and other things? Can we talk through this with respect to say, the 10-year and then around recession. Then what are your expectations around credit risks?

Markets & Mayhem

Sure. In terms of the 10-year, there’s a pretty decent positive correlation between the 10-year note yield and the price of oil. I think as long as the price of oil is moving higher and people are becoming more concerned about forward risks for inflation, there is some upward pressure on rates that can still exist and still push these rates higher from where they are right now. Now, if that view starts to shift to one where people are more concerned about a recession, about a looming economic slowdown, and they are about the rate of inflation, then we can start to see a bit of a different dynamic there. We also have some big unknowns. We have a huge basis trade with the largest amount of net short exposure to treasuries, which could add some fireworks into the mix. Now, granted, these folks are all long fixed income, but they have some positions that could work against them, that could add some volume, and the Fed and Treasury are looking at this with a little bit of concern. Now, moving into the idea of a recession, I think it’s something that becomes more likely. It’s like a it’s for stalled, but not canceled scenario.

Markets & Mayhem

I don’t believe that the soft landing is the most likely outcome for how this credit cycle resolves. I still think we’re still in that older credit cycle that the Fed and other central banks are doing what they can to end. I don’t think that we can get rid of the inflation bogeyman without some of that pain. I think central bankers are motivated. I don’t know that we’re going to see a hike next week, but I think November, December is likely. In terms of what that looks like, I’m going to have to look at really first quarter next year, where I think we start to see more evidence of that becoming a scenario that plays out. I think we’ll see some tell-tale signs in the fourth quarter leading into that. What that looks like to me is actually a slowdown in the economy that amplifies credit risks. I don’t think it’s going to be the other way around. I think it’s going to be that the economic slowing that we’re seeing is going to boost up delinquency and default rates across a variety of different instruments. That’s going to increase pressure, and that’s where you’re going to start to see some of those problems percolate.

Markets & Mayhem

If we look at, for example, the bank term funding program, we can see that it’s now surging again, that borrowing by banks is on the rise because longer duration has lost value. We’ve seen bond yields creep up to the highest levels this year, and in some cases, the highest level in decades. There’s a lot of pain on regional balance sheets, and they’re going to that window again, telling the Fed, Look, we need 100 cents on the dollar because we’re in a situation where we might have a bit of a liquidity crunch. But on the other side of it, the terms of borrowing from that window are actually somewhat favorable in an environment where they can lend out at 7 % mortgage or 10 % auto loan or credit cards or otherwise on even higher interest rates. So we do see bank lending actually coming back in an environment where the bottom 50 % of consumers don’t even have a thousand dollars or even 400 dollars in a rainy day fund. So if things slow down more, I think that’s where you start to see that domino effect that can hit credit markets. But I think it’s going to be more of the unemployment rate rising, the jobless claims rising, and the services industry breaking that really leads us down that path.

Markets & Mayhem

So my roadmap is I’m looking for jobless claims at 300K a week. I’m looking for unemployment to rise meaningfully above 4%, and I’m looking for the services industry to go into some multi-month contraction. We don’t have any of those things in play yet. That’s why I’m looking forward towards the first quarter of next year with some eye on whether this path has manifested or not to qualify the probabilities of that playing out. But if you look at the yield curve inversion, if you look at leading economic indicators and other things that have been pretty accurate in forecasting prior recessions, all of them still say game on.

Tony Nash

Right. Tracy, that was your tweet. Do you think about that in terms of Mayhem’s order of events?

Tracy Shuchart

As far as what? The yield curve inversion? I know that everybody’s looking at that. What I think that we should at least keep in mind here is that this time may be different because the last… I mean, it’s forecasted pretty much every recession to 2008, but the 2008, right after that is really when we put the pedal to the metal as far as quantitative easing and printing all of this money. We’ve never had a balance sheet this large and dealing with the yield curve inversion at the same time. This really is not my forte, to be honest with you, but I’m just thinking maybe that’s why it’s been prolonged for over 200 days or what it is the longest in history. Or perhaps maybe this time it is different and we do get a soft landing. We’ll have to see.

Albert Marko

Yeah, Tony, the one piece of data that I actually looked at today, this morning and just smirked was the import prices increasing. Because the entire argument for some people criticizing our re-inflation argument for months now has been, Oh, well, we’ll just import deflation. Well, that’s just certainly how not happening at the moment. Prices across the world are increasing. Price of oil across the globe is increasing, demand is increasing everywhere. The notion that we’re going to be able to import deflation for the next two years is absolutely ludicrous and completely wrong.

Tony Nash

Right. I think- Go ahead, Tracey. I also.

Tracy Shuchart

Think we need to pay close attention as far as the inflation scenario goes right now is this United Auto Workers strike, because really, depending on how long that lasts, that puts 24,000 cars at risk of production a day. We all know what happened in 2020 when we had the COVID shutdowns that led to automobile shortages, which led to run up in prices. I would just be keeping an eye on that to see how long this actually lasts. A week, fine, but if this goes into some prolonged strike, that also could be automobiles could be another inflation factor.

Albert Marko

That’s also assuming that they make cars that don’t get recalled every month.

Markets & Mayhem

But that’s a good point on cars too, because cars have become unaffordable for a lot of people where they are at current pricing because people don’t look at cars by price. They look at cars by monthly payment. Monthly payments have never been this high. So most people are already priced out of this market. You add in that scarcity that Tracy is talking about from a supply disruption, and that gets a lot worse and it definitely passes through to inflation as well.

Albert Marko

It’s interesting because I paid less for my G-Wagon than I know that some people pay for a Hyundai Sonata, which is absurd. Absolutely absurd.

Tony Nash

Yeah, if you’ve got a loan- You’ve got a great deal.

Albert Marko

-if you’ve got a loan within the last year, I think you’re paying closer or slightly above what I pay for my payments.

Tony Nash

Mayhem, you made an interesting comment about cars. You said people are priced out of the market. I’m hearing that more and more that people are priced out of the market. But then we see things like retail sales and consumption numbers that are higher. Are those numbers really just coming in based on nominal price increases? Or is it really a volume of transactions? Because at these levels, I really do get worried about a lot of people being priced out of markets.

Markets & Mayhem

Yeah, I think that’s a great question. I think we have a pretty staggering chasm between the bottom 50 % and the top 20 %. And I think that accounts for some of what we’re seeing. You’ve got some folks who have never been doing better and they have no constraints on their consumption. They’re the minority. But then you have the majority and they’re priced out of housing, and they’re priced out of automobiles, and they’re priced out of the lifestyle they used to enjoy. I think that that’s the dichotomy, the K-shaped, if you can even call it recovery, at least outcome, is playing a big role here. I think that’s something that we have to keep an eye on because that bottom half, that’s where the risk is and that’s where the risk continues to be amplified. You see it in auto dealers. They’re continuing to make concessions to sell cars. They continue to cut prices. They continue to do whatever they can. They’ll also buy your car at a higher price, just whatever they can do to massage the numbers to keep cash flow coming in. And the same thing is happening with home builders. They’re making massive concessions.

Tony Nash

So if you’re the Fed and you’re seeing that the bottom 50 % are being kept out of market, what can you do?

Markets & Mayhem

I mean, Powell has spoke to this repeatedly saying that the Fed’s price stability mandate compels them to keep rates high for a long period of time to try to ameliorate that pressure. I think that there is some truth to the fact that you’re not going to be able to quell inflation by just destroying demand, but you can temporarily subduit. So the Fed can sit there with the limited set of tools they have, and they can try to induce below trend economic growth, which is a polite way of we’re running a higher risk of a recession to try to get the monetary policy outcome that we want to happen. On the other side of that, though, longer term, they don’t have any tools to fix this. Once we get into inevitably a new credit cycle and structural inelasticity is still out there, as demand firms up, prices too will firm up and from probably a higher baseline. I think that that sets us up for a bit of a vicious cycle of the Fed having to come in earlier and tighter, but also not ease as much into the next credit cycle full well being aware of those dynamics, unless and until we have some, and good luck with this, but legislative and executive sanity on the matter of supply.

Tony Nash

I’m sorry to laugh.

Markets & Mayhem

About that. No, we have to laugh or we’re going to cry.

Tony Nash

Right, that’s true. Zerp is dead in our lifetimes.

Markets & Mayhem

I don’t know that it’s dead in our lifetimes, but I think it’s dead for the next five or ten years unless things go really abysmally wrong.

Tony Nash

Okay. Albert, do you think the Fed is out of tools?

Albert Marko

No. Do I think they’re out of tools? No. Are they running out of runway? Yeah, I do think they’re running out of runway.

Tony Nash

When you say running out of runway, what do you mean?

Albert Marko

Well, the tools that they can use are diminishing at the moment. For instance, oil, I know that they use futures options, SPR releases to manipulate the price of oil to bring down CPI numbers. Obviously, the SPR is being drained over and over again. They come up with a 2.9 million-barrel purchase, and then a week later, the Biden administration says, Oh, well, we might release some more SPR. They’re running out of runway at the moment. This is mainly because they’ve misjudged pretty much everything from day one. The accumulation of wealth, specifically from the boomers in terms of housing and whatnot, just runs ruin for all Fed policy. They can’t account for it.

Markets & Mayhem

That’s actually an interesting point, too, in terms of labor scarcity because the boomers have been the biggest component of the labor workforce. Just during COVID, they said, I’m not going to go to work anymore, and many never went back. The whole tightness in the labor supply, it’s not really that tight. If those folks came off the bench and really, sadly, there have to be some wealth destruction to encourage them to do that, the labor force scarcity issue would be largely ameliorated for at least three to five years.

Tony Nash

Okay, interesting. Albert, are you also looking for a session that’s going to come? Are you also looking at, say, Q1 of ’24?

Albert Marko

I would say the latest of Q1 of ’24, and It don’t think it’s… I do actually think it’s going to be a soft landing in terms of just the data alone. I don’t know about the reality of the situation, but in terms of data, I think it’ll be a soft landing and pretty brief going into an election year.

AI

Heads up for a short break.

AI

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AI

Thank you and now back to the show.

Tony Nash

Interesting. Okay, great. Let’s move on to crude markets. Tracy, you put a tweet out about peak oil or peak fossil fuel demand by 2030. We had an IA report recently saying that the world would hit peak fossil fuel demand by 2030. It’s hard, given the demand that we’re seeing, it’s hard to say that with a straight face, but they actually published it. We’ve got crude growth consumption, we’ve got OPEC supply cuts, we’ve got high crude and petrol prices. OPEC responded this week. It wasn’t pretty. It included words like, quote, such narratives only set the global energy system up to fail spectacularly, which is, as you say, shots fired. Can you walk us through this? Are there realistic assumptions underlying the IA assertion that fossil fuels will peak by 2030?

Tracy Shuchart

No, absolutely not. They’ve been wildly wrong for the last 10 years.

Tony Nash

What assumptions are they using? Let’s figure.

Tracy Shuchart

That out. They’ve been wildly wrong about demand numbers for literally the last 10 years and supply numbers for even longer than that. They’ve always had supply way higher than it’s ever been, and they’ve always misjudged demand numbers. Now, this really came into play during the Paris Accords when the IEA decoupled itself from being an independent actual energy agency and latched itself onto the bureaucrats that run Europe and the United States essentially. That was at the Paris Accords. Then became an affiliate or allied with the WEF in 2016. Since then, obviously, their demeanor has been towards Green Energy Clush. A lot of their reports of, I think they said EVs would be 50% of global consumption by now, back in 2016.

Tony Nash

By now?

Tracy Shuchart

Yeah, which was wildly often. They go back and they make revisions, but you never hear about the revisions because they quietly make their revisions. Right now, I think they’re not credible right now. I think they have an agenda and they’re pushing that agenda. I think, unfortunately, even OPEC last year basically kicked them out of being a secondary source of information, demand information in their monthly reports and said, You’re just not a credible agency anymore. We can’t have you as a secondary source.

Tony Nash

OPEC doesn’t trust the IAEA anymore.

Tracy Shuchart

Correct. 100%.

Tracy Shuchart

If you look at this last report where they said, We’re going to hit peak demand, basically their assumption was global oil demand is only going to grow by three million barrels per day out to, I think it was 2028 or 2030 is when they said that we were going to hit the peak demand. However, if you look at the historical norms, oil demand has been growing at over 6 million barrels a day. To suggest that from here on out, we’re going to be at half of that in global growth is a little bit unbelievable. Because you’re just cutting oil demand in half for no real reason, especially when we look at emerging markets and where we’re still seeing demand growing. In fact, as a whole, if we look at emerging markets, it’s starting to surpass developing nations.

Tony Nash

If 2030 really was peak oil, what would we be seeing by now?

Tracy Shuchart

Well, you would have to see not a breakdown in green energy technology that we’re having right now. You just had a bunch of wind companies say, This is not feasible, economically feasible for us to do, or said in the United States to big wind farms. They said, We can’t do this unless we raise our prices by 63%, which obviously goes to the consumer. They also said they’re willing to walk away from that project. No problem. It can’t be some solution. That solution, i. E, would be a bunch of government subsidies, i. E, your tax dollars. You have that. Then you just have Germany come out and say that over 15% of their solar panels are in severe degradation. That’s quicker than they initially thought it was going to be. We’re seeing these problems, and this is what I’ve been talking about this whole time. You can’t frog leap technology. You can’t just make a leap to technology that’s just not there yet. We’re finding out now that this technology is more expensive than we thought, and it’s in degradation a lot sooner than we thought. We’re going to have to need to see a huge technology shift or fusion to come into light, really to be able to change this narrative at this point.

Tracy Shuchart

Because it’s just we’re not there yet. They’re trying to push something and it’s just not there yet.

Tony Nash

We talked last week about NatGas in Asia and how that’s becoming a preferred feedstock in Asia. We saw this week about how in Niger, the government there is changing the basis price of selling uranium to France. It’s going to be up, I don’t know, 300 times or something because France was getting just a heck of a deal. Some of these things, the demand is increasing rapidly, say, for NatGas, and the basis price for some of the nuclear because of this Niger development could be changing for some of these countries. Does that help us get beyond peak oil or does that prolong it because we already have the installed base for peak oil.

Tracy Shuchart

Yeah, I know. I think in peak oil, they include NatGas in that. They include NatGas in that. They take fossil fuels as a whole. So yeah, nuclear would be fantastic. We are seeing more nuclear projects come online. We’re seeing a lot of muffled, particularly in Japan, a lot of muffled facilities come back online. That’s great news. Except for if you’re talking about new projects, you’re talking about giga projects, major nuclear projects, those take years. You’re not really going to see those in the West where you already have projects that started years ago coming into use case within over this next decade, particularly in Asia, there’s a lot of buzz about the new SMRs. That technology is great. They’re faster to build. That’s excellent. It’s really-

Tony Nash

Sorry, what’s an SMR?

Tracy Shuchart

The small nuclear reactors. Okay. A small modular reactor.

Tony Nash

Okay.

Tracy Shuchart

Actually the acronym. That’s great, but still those projects still take time to come online. You’re still not getting away from fossil fuels, particularly as you’re trying to win a lot of these emerging markets off a pole. You’re going to go to NatGas, you’re going to go to… Because again, you can’t leapfrog to technology. Yeah, they want to build wind and solar, but they’re going to run into the same problems that the west is coming and so on.

Tony Nash

Can’t subsidize as much. What does that mean for markets? We’ve talked for a long time about how there’s under-investment in the upstream. We really haven’t had upstream investment since what, 2014 or something? I can’t remember the year that you’ve told us. Do predictions like this just serve as justification for upstream companies to delay investment in the upstream?

Tracy Shuchart

I don’t think that it serves as an incentive to delay. But again, you’re facing these problems that you’re having governments tell them, We don’t want you to be around in five years. Why are you going to invest all of this capital in something that the government keeps telling you we want to get rid of? There’s a ton of obstacles that the Biden administration and the EU Commission has set on fossil fuels in Europe and in the US. It’s just becoming more and more difficult. These companies want to keep investors. How do you keep investors? Dividends, stock buybacks. And things of that nature. They want to keep investors around. There’s just not a lot of incentive right now to vote for CaPEx.

Tony Nash

Okay. Short term impact or shorter term impact. Short to medium term impact on, say, energy companies or energy prices. Do you think this IAA prediction has any impact in, say, the short to medium term, meaning one month to, say, three years. Will this have any impact over the next one month to three years on crude prices, net gas prices, the value of XLE or something like that?

Tracy Shuchart

No, absolutely not.

Tony Nash

Okay. Albert, what do you think?

Albert Marko

I don’t really have much more to add, so Tracy pretty much nailed that one. For me, it’s just like the notion that we’re going to be in some peak oil demand is just silly. I don’t think it’s.

Tony Nash

Yeah, we have to talk about these things, though, right? Because this is what’s out there in markets and we have to… Is this real or is this. Just a desirable-

Albert Marko

But, I mean, like Tracy says, a lot of it’s political nonsense that they just spit out there because they have a narrative to tell. But saying that peak oil is going to be 2030 is just… I mean, that’s years and years away. We don’t know what’s going to happen after the US election. A lot of it has to deal with how policy gets implemented from here on out. If we have a conservative government in the United States, things change drastically. At that point.

Tony Nash

Having been in forecasting businesses for almost 30 years, if you’re going to make a forecast or prediction that’s that far off of reality, you typically want to make it 15-20 years out so nobody remembers it when it happens. They’re saying 2030, which everyone’s going to remember, and in 2030, they’re going to point back and go, Oh, those guys were crazy.

Albert Marko

It’s silly. We have no idea who’s going to won the US elections. The policy can change on a dime.

Tony Nash

Right, Mayhem. What do you think about this? Kind of these long or well, not even longer term, peak oil by 2030. Are you seeing any reflection of this in markets?

Markets & Mayhem

I think it’s a fantasy. I think the peak oil we have to be concerned about is supply, not demand. I think that the biggest problem that we’re confronting here is that policymakers are leading with fantasy and not reality. We want a green revolution. That’s great. Let’s see how we can make that happen without enough oil. Every single part of everything they’re talking about involves using hydrocarbons. I mean, even solar panels, they need quartz mined out of the earth. They need coal mined out of the earth. You’ve got to combine these in really hot furnaces just to make that silicon surface. Everything. I mean, the components of the wind turbines, the magnets, the metals, the sheer magnitude of this stuff. There’s so much hydrocarbons involved with building any of this so-called bridge to a renewable future that it’s pure fantasy to say that we’re going to be seeing peak oil within the next decade or two, in my opinion.

Tony Nash

Okay, so I’ve had this belief for a while, but I want you guys to tell me if I’m wrong. Seems to me that a lot of these fantasy visions of the green future are largely driven by zero interest rate policy and negative interest rate policy. When there’s no cost of money, we have subsidies and we have investments going into things that don’t have a near-term payout. If we continue to have an interest rate environment like we have now, do you think that these green energy plans will continue? Or is my thesis completely wrong?

Tracy Shuchart

No.

Albert Marko

No, It’s not wrong. They pile up debt for research, development and implementation. Anything from wind to solar to name your green technology is just laden with debt, and they can’t take that on if we have interest rates this high.

Markets & Mayhem

I think it’s an interesting burden when we’re looking at solar technology that takes less than a quarter of the photonic energy that is exposed to and converts it into electricity. That right there is a huge problem that we’re not more efficient because we can’t hope to power anything from solar, given how intermittent it is, how far the storage technology has to go, and how we’d have to build really a modular grid. You can’t really have centralized solar power at any conceivable scale that you’re not going to start dealing with impedance issues for the amount that… Because then you start saying, Okay, we’re getting less than 25 %. Well, by the time you get to the end user, maybe you’re getting 12 % of that photonic energy into electricity.

Tracy Shuchart

Maybe.

Albert Marko

That’s exactly- I used to run a solar cell research firm out of the Republic of Georgia years and years ago, and opened my eyes to a lot of the nonsense that comes out there. We have not made any headway and solar technology. We still use silicon cells, which are 22% theoretical max. Once you put on the filters and all the degradation, you’re at anywhere between 10 and 15% at max when it comes to commercialized products. The stuff that you see that come out and say, Oh, well, we got 44% in the lab. Yeah, that’s for two milliseconds under 300 suns before the thing gets blown up. You know what I mean? It’s just complete nonsense. If we really want to get into the whole solar thing, we really need to put in a lot of money and a lot of subsidies, which I don’t think is feasible at the moment.

Tony Nash

It’s just not affordable anymore, right? No. It’s real money. Money costs money now. Money used to not cost money, and now money costs money. Okay, great. Thanks, guys. Let’s move on to the beneficiaries of election year, Larges. Albert, you are the man to talk to you about this.

Albert Marko

My favorite topic, Tony.

Tony Nash

That’s right. Of course, we’ve got election coming up here in the US. I’ve been told that maybe, just maybe some US politicians like to use legislation to give money to key voting blocks, allegedly.

Tony Nash

As we head into an election year, what sectors can we expect to benefit from legislators spending the American taxpayers money to get re-elected?

Albert Marko

Well, this is interesting because it only happens really in the set circumstances when there is a majority of senators in a certain area being up for re-election like we have in 2024, like we had in 2020 at the same time, actually, we had sorry, 2018 in the midterms. But in the Rust Belt, pretty much actually all the way from Montana to Pennsylvania, up north, there’s a lot of senators that are up for re-election. And in those areas, if you want to win a Senate seat, you have to address the rural vote. To address the rural vote, you need votes from the oil sector, and you need votes from the agricultural sector. And Corn, I’ve been on here before, and I’ve mentioned, Corn is one of my favorite plays, is if you want to get the rural vote, you better make sure that those corn fields are profitable at the moment. They’ve done a good job of suppressing corn, but going into 2024, you’ll start seeing a lot of legislation with a lot of subsidies, perhaps ethanol waivers, which is one of the favorite, which boosts up corn prices. That’ll get done probably in March, April, May of next year.

Albert Marko

At least they’ll start talking about it. That’s one of my favorite trades in an election years. Wait till corn gets absolutely crushed in early February, March of 2024, and put a play on a position for a long position going into September, October, November.

Tony Nash

Interesting. Okay, so Corn is number one. What else are you looking at?

Albert Marko

Honestly, probably the auto industry at the moment because it’s such a big headline and there’s a lot of demographic voters in those areas. I think that they’ll get some subsidies going forward into next year. I don’t like playing the actual manufacturers. What I do like to play is the logistics. As long as the parts have to get delivered to get the cars made, I think ParkOhio is one of my favorite little companies that does that. I think that’s where I would position myself in.

Tony Nash

Great. Okay. We’ll revisit this from time to time. Mayhem, do you have any thoughts on favorite investments or favorite sectors that politicians are going to goose going into the election?

Markets & Mayhem

I don’t. I haven’t spent a lot of time thinking about this, but if I had one area that I think may be a potential beneficiary, it might be digital advertisers that will see a surge in demand during that period of time.

Tony Nash

Okay, that’s really interesting. Okay. And, Tracy, I would assume, I could be wrong, that there’s going to be a lot of political pressure to reduce energy prices, especially gasoline prices here in the US before the election. First of all, is my assumption true? And second of all, could that harm some of these refiners?

Tracy Shuchart

Obviously, they’re going to try. Now, the thing is that the Republicans have no incentive to really help them in that situation. They love to see high gas prices going into an election, so they obviously can say. I think it’s going to be really difficult. Again, what Albert was talking about is they’re running out of runway. There’s really not a lot that they can do right now. You’re really going to have to suppress oil prices, which actually is better for refiners. That’s actually better. They are able to… Because if you reduce oil prices, that’s less that they have to pay, and then they’ll charge you more. I just think it’s nice and all for Biden to come out last night and say, I will reduce gasoline prices. Okay, well, give me a solid plan for that, because there’s just not a lot of options out there. I think going through this election, I think oil companies are still going to remain… I think oil companies are going to remain strong because, again, like I said, there’s just no incentive from the opposite, from the other side of the aisle to really help on that.

Albert Marko

Yeah, I think their best chance for getting oil prices down back into the mid-70s is for recession fares to start popping up, and that’s not until Q1 really.

Tracy Shuchart

And that doesn’t help them either, right?

Markets & Mayhem

And it’s funny too, because with all this draining of the SPR to levels we haven’t seen since 1985, the price of gasoline for the average American consumer is up over a buck and a half during the Biden presidency, from just about two bucks to over 350.

Albert Marko

This is mainly due to policy problems. They sit there and cut off pipelines. They agitate domestic production. They push and they scream and yell narratives against the oil industry. I don’t know what they expected.

Markets & Mayhem

They tell the oil industry, We don’t want you anymore, but we need your fuel.

Tracy Shuchart

I know, right? Yeah.

Tony Nash

Well, so the one thing we can guarantee is that politicians will spend the American people’s money to get reelected.

Markets & Mayhem

Absolutely, yes. 100%.

Albert Marko

I guess they will.

Markets & Mayhem

If there is a way to bet on that, we’d all be millionaires for sure. Right?

Tracy Shuchart

I don’t know. Maybe predicted, I’ll have it.

Albert Marko

Yeah, corn. Corn. You want to do it? Play corn.

Tony Nash

Perfect, guys. Thank you so much for this. This has been an excellent show. Thank you so much. Thanks for your time. And guys, have a great weekend and have a great week ahead. Thank you. Thanks, guys. Thank you.

Markets & Mayhem

Thanks, everyone. Take care.

AI

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