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The Week Ahead – 16 May 2022

The number one issue for Americans is inflation. As long as this is a top consideration, the pressure will be on the Fed to bring it down. Sam has been pretty consistent with 3 x 50 rate hikes in May, June, and July. What changed in trading today? Is everyone still bearish? Samuel Rines explains.

Also, what’s next for crypto? Luna fell from $90 last Thursday to $0.00005952 on Friday. Their circulation went from 4 billion yesterday to 6.5 trillion today. Watching the crypto fallout is terrible – lots of people have lost lots of money in this supposedly immutable “currency”. Albert Marko explains what happens next.

Lastly, is China really falling apart? We’ve seen some unsettling posts over the past several weeks out of China. From lockdowns to port closures to gossip that Xi Jinping has been sidelined.

Key themes:

  1. Is everyone a bear now?
  2. What’s next for crypto?
  3. Is China really falling apart?

This is the 18th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon

Listen to this episode on Spotify:

Transcript

TN: Hi and welcome to the Week Ahead. I’m Tony Nash, and as usual, we have our team, Sam Rines and Albert Marko. Tracy, who’s not with us today.

Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us a lot get visibility, and it really helps you get reminded when a new episode is out so you don’t miss anything.

Gosh. Big week for everyone. I wish I had fallen asleep a week ago and just woken up now after Friday’s trading. But it’s been a big week all around for everyone.

Guys, we really have a lot to talk about this week. We’re covering the markets. Is everyone a bear now? That’s one of our big topics that we’ll have Sam lean on. Next is what’s next for crypto? A lot of action on crypto, a lot of scary things happening with crypto and then some news out of China or speculation out of China. We’re asking, is China falling apart?

So Sam, let’s start with you first. I guess one of the most relevant items I’ve seen circulating and it was in your newsletter today is the top issues for Americans on the screen right now.

It’s clearly inflation. As long as that’s a top consideration. The pressure on the Fed to bring inflation down is huge. So you’ve been pretty consistent with three times 50 basis point hikes for May, June and July. What’s really changed in trading today? And is everyone still bearish?

SR: Yeah. I mean, everyone still seems to kind of be floating a little bearish, but I kind of like to go back to the number one concern is inflation. We shot ourselves in the foot and then the second one is getting shot in the head, right. It’s violent crime and crime. You add those two together and it’s even larger portion of inflation. So it’s safety and food. Right.

People like to eat and they want to be able to eat and they want to feel safe. I think it’s that simple. Those should be the top two concerns in this type of environment when you have the data pointing towards continuing higher inflation numbers and continuing crime.

On the is everyone a bear front? I think it’s a little complicated, right.

Because if you look at the flows into and out of indices and into and out of fixed income, and when you look at the flows, it’s easy to kind of say everyone’s a bear. Right. Pouring money into Treasuries, taking money out of indices. But at the same time, underneath the surface, you really want to be careful on what you’re a bear on and what you’re not.

There’s a lot of things that can still make money in this environment, oil, food, etc. can still make money. And there’s a lot of things that are probably still going to get torched. Anything that’s a little high beta is probably not the place you want to be for the whole time. Tradable but unlikely to be a long-term type trade.

TN: Like, I noticed some of the techs coming back today, and that’s great. And I hope people don’t lose more there. But is that something that you would consider kind of be careful if you’re going back in type of trade?

SR: Some of it. Not all of it. There’s a lot of tech that actually looks fairly attractive here, whether it’s from a valuation perspective or whether it’s from a very long term perspective.

A lot of stuff re-rated, re-rated fast, and it looks attractive. And there’s a lot of stuff that looks like it’s probably going bankrupt. Right. I wouldn’t be trying to bottom tick Carvana.

AM: Actually to expand on that, Sam, about who’s a bear and bears or Bulls or whatnot. I kind of think that we have to separate the higher great institutions versus the retail dip buyers that are just looking for that get rich, quick return. Many of the institutions, the ones I’ve talked to, are absolutely still bearish. They don’t see real value in this economy until the market until 3700.

Coincidentally, one of the hedge fund guys told me at 3500, you have an actual financial crisis in the United States just because everything’s leveraged up. So I don’t think that the Fed was even going to want to afford or going down past the 38, 3700, in my opinion.

SR: In 100% of that, Albert. Right. You have to separate those two teams of people. Right. The dip buyers are going to try every single time to get rich quick. Real long term allocators are going to take their time here. They’re not going to rush and, those are very large positions they have to take. And they don’t get to move in and call it for two or three weeks. They have to move in for very long periods of time.

So it’s Albert’s point. I don’t think that should be underrated, period.

AM: You can just look at the valuations of some of these companies that are still out in the stratosphere, like one of the ones I’ve recommended, Mosaic, Tight and Tire. They’re just ten fold of what they were in 2020. How do you buy these things? You can’t buy these things.

TN: Right. We’ve seen a lot of chatter about margin calls over the past week and a half. Obviously, that’s been scary for the first wave of kind of people going in. But when that second wave hits, when does that start to hit that second wave? Once we go 3800 or lower? So is that when things get really scary?

AM: Actually, I think part of the margin calls happened this week, today, actually Friday. I think a lot of guys had a liquidate positions and cover shorts and whatnot. And we got a little bit of a squeeze of a rally. I didn’t really feel like a Fed was pumping just thought like people short covers and people trying to get stuff off the board.

TN: Right.

SR: 100%. That’s where I think. I don’t think you want to be in front of a wave of liquidation for let’s call it sun and Ark, right? You do not want to be in front of either one of those two right now, period.

TN: Yeah, it was nice to have a Green Day, but it didn’t necessarily feel like a strong Green Day.

Okay, guys, let’s move on to crypto. Albert, I think you’re the man here. You’ve talked about crypto for a long time. It’s bad. This week is bad. And we’ve got a chart for Luna.

Luna fell from $90 last Thursday to 5, 10 thousand of a cent today, I think. Their circulation went from 4 billion yesterday to 6.5 trillion today. So it doesn’t sound very immutable to me. So the watching crypto fallout, it’s been pretty terrible. Lots of people have lost lots of money and people are questioning and cynical about words like immutable now.

This is something that I think experienced people have expected. But what happens next? Do we have a clearing out of some of these currencies? Do people just hold at 5, 10 thousand of a cents? Do we see some of these actually become currencies or is it all just going to get regulated and kind of thrown out the window?

AM: Well, are they going to be currencies? No, they’ll never be currencies. The dollar is going to be the currency of the world status for trade for the remainder of our lifetimes, whoever is alive today. That’s just the basic fundamental fact that you have to come to grips with.

This is like part one of the closing call for cryptos in my opinion. They got a good dose of the reality that when things need to get liquidated, you’re not liquidating residential towers in Miami on your portfolio. You’re liquidating some Ponzi scheme cryptos that are in your pocket that your clients really made you get into to begin with.

From the retail side, as much as I want to gloat, because I’ve been saying that this was going to happen for years, it’s really not that funny because you had guys out there pushing these crypto things and saying the dollar is dying, gold is dying, digital future, blah, blah, blah. Look at this chart, look at that chart. But the reality is there are nothing but pump and dump schemes. And people lost a lot of money.

I had a friend that goes to school, his daughter goes to school with my daughter. And he told me months ago I put everything to Litecoin for the College fund. I tried to reason with this guy.

TN: Please don’t do that.

AM: Yeah, well, community college for that kid.

TN: Albert, they’re following the lead of some, analysts are credible. They have a credible history and they’ve really started pushing this stuff. Now they’ve dialed it back. But some people who had previously been credible analysts were pushing this stuff.

AM: They’re liars. They’re all liars.

SR: Had been.

AM: They’re trying to get services sold and people to watch their YouTube channels and get subscriptions up. So of course you’re going to go and sit there and try to pump crypto to the retail crowd because they don’t know any better, right?

SR: And anyone who looked if you really dug into the Luna situation, you could understand very quickly how that could unwind in a way that was dramatic. This wasn’t even constructed as well as a pre 2008 money market fund. At least you knew what the money market fund held behind it and how it was going to actually return money to you.

With Tether, it’s supposed to be a crypto ish money market fund. We still don’t know what that actually holds. The whole thing to me is regrettable to Albert’s point, right. The two of us kind of got picked on when we giggled off paying for oil in crypto earlier this year. But the two of us have been kind of like, “no, not so much.” So while it’s tempting to kind of have that little bit of a cocky grin.

It’s a really sad situation and there’s a lot of money that got shredded very quickly there.

TN: Very quickly in less than a week. It’s insane how much money. If anybody who follows me on Twitter knows that I invest in some Doge last year, stuck with it for a few months, got out I did it because it was a joke of a coin. Everyone knew it was a joke of a coin. I wanted to be on part of the joke, and I made some money at it. And that’s it, right? That’s it. You can’t necessarily think of this stuff as a serious investment because it’s so highly unregulated and people engage in this pump and dump stuff.

AM: Yeah. We can have a conversation on this for hours. This is actually at the heart of the problem of the US economy at the moment. All these gig employee, all these gig employees service industry and jobs and whatnot, they left work got into crypto. Got stimulus checks, sat at home, kept getting unemployment, not going to work, and now we’re stuck with the labor shortage in reality. I don’t care what the Fed says and what Yellen says about the market. The labor market is good. The labor market is absolute trash right now. We have no workers anywhere right now. And because. Yeah, this is part of it.

TN: So that’s a good question. With crypto, kind of at least temporarily, maybe permanently dying, does that help the employment picture? Does that help people come back to market even a little bit?

AM: People had tens of thousands of dollars in a Coinbase account that are now $500. They’re going to have to go back to their jobs. And that’s just the reality of it. If you want me to go even a step further, this is probably the intent of the Fed and the treasury is to start eliminating this excess money, forcing people back to work.

SR: Yeah. Oh, 100%. In one of my notes this week that Tony, I think you saw, I sent out the video from SNL of Jimmy Carter saying, hey, get 8% of your money out of your account and light on fire. Guess what? The Fed just did that for millennials.

TN: Yeah.

SR: It’s that simple. The Fed just lit at least 8% of millennial money on fire, generally. Right. And it’s unlikely to come back that quickly. And I think if it wasn’t a direct policy, it was a side effect that the Fed sitting there going, oh, well, that works.

AM: I guarantee I talk to a lot of people. It was a direct policy. I don’t care. I’ll throw the Fed under the bus. They deserve to be thrown under the bus anyways.

TN: Well, yeah, it is where it is. And I would assume more regulations coming at some point because people will scream, especially with Coinbase.

I think it’s Coinbase or one of the exchanges saying that they’re going to undo a lot of the trades over the last two or three days.

AM: Okay.

TN: There are no regulations at all.

SR: Just call them the LME.

TN: Yeah, exactly. So crypto is the LME now, and it’s insane. So a lot of consumer protections are going to be talked about. A lot of regulations going to come in. I think that party is pretty much over.

AM: Yeah. Once the regulations started coming in from Congress and different governments in the world, they’re going to see how false their idea of decentralization really was.

TN: Yeah. Okay, guys, let’s move on to China. We’ve seen a lot over the past few weeks and really gossipy stuff about China. But today I saw a note from Mike Green on Twitter, which is on screen talking about Xi Jinping and Li Kaqiang, and Xi basically being sidelined on May 4.

I also saw another tweet yesterday, a guy going through Shanghai during the lockdown. If you haven’t seen it, the first of the thread is on the screen now. Check it out. It’s really interesting.

China is empty and it’s really sad.

So we’ve seen these really unsettling posts over the past several weeks out of China, from lockdowns to port closures to gossiping Xi as sidelined. So to you guys, what does that all mean? Is it something you’re taking seriously? Do you think it’s something that will have immediate effects? What does that look like to you?

AM: China. China is a big quagmire in itself. It’s such a large country. You’re going to have all sorts of rumors of Xi being sidelined and unrest in different cities like Shanghai and whatnot. But the Chinese are pretty pragmatic. They know that things are not going really well. So they’re going to have to lift off they’re going to have to lift off some of these just draconian policies with locking down people because it’s going to really hurt their economy. And part of it’s probably because they’re fighting inflation, too. They’re trying to cut down demand until supplies catch up. I mean, they got problems over there with inflationary issues.

TN: Also with the deval, with the port closures, with a lot of other stuff that’s happening there, their economy is already host. Right. They’re definitely not hitting 5.5, which is their target this year. And I think they’ll be lucky to have a zero growth year.

But I think Albert, on the political side, a lot of this kind of theater that we’re seeing play out on Weibo and Twitter and other things. Do you think this is plausible?

AM: Of course it’s plausible. I mean, you have the vultures circuit around Xi right now. They want him out. You have one elite group keeping him in power. But most likely have three or four other elite groups within the CCP that want him out. There’s no question about that. He can’t even go out in public.

TN: That’s an important thing that many people don’t think about is there are parties within the party. The CCP is not a unified party. There are factions within the party. Many Westerners don’t understand that. There are definitely factions within the party, and they’ll stab each other in the back in a second.

AM: There’s factions everywhere you go. People try to, China as a one rule or one party, one system, but even the United States, you have the Tea Party, the Freedom Caucus, the Progressive, so on and so forth. I mean, it’s all fragmented no matter what you do.

TN: Yeah, Sam. So China is second largest economy, ports closed, people in their houses, all of that stuff. So how long can they do this before it affects everybody or has it already started doing?

SR: Oh, it’s already affecting everything. The supply chains are already completely ruined because of it. There’s no question about that. I think the real question is what happens when they reopen, right?

We’ve got oil sitting at $109 and half a China is shut down. That is something that doesn’t, I mean, it’s kind of scary, right? You have a bunch of people that aren’t using as much as they should be right now. You begin to spin that back up. That could be a really interesting scenario overall. I don’t know.

AM: You know, Sam, that actually loops back to what you were talking about the Fed trying to fight inflation. No matter what policy they come up with, there’s still supply chain shortages and labor and everything that no matter what they do, they can’t fix.

SR: Their host. It’s an amazing world where you have half the Chinese, let’s just click through. Half the Chinese economy is shut down. You have the US dollar sitting at 105, 106 somewhere in there, and you have oil sitting at 110. Anybody who’s saying oil prices look a little toppy here might want to look at what happens when the dollar falls and China’s going.

AM: That’s what we’re going to have inflation in the five to 7% range for the next 18 months. I can’t say lower than that.

TN: 18 months, you say?

AM: 18 months. How are they going to get it lowered? China opens and then what? You know what I mean? And then you still have shortages everywhere. I mean, go to some of the stores. They have baby formula shortages.

On any given day, you have small materials you need from the home short. Everywhere. That’s going to create artificial inflation. On top of that, you have wage inflation. How do you get that down?

SR: The only way you get it down is having less employees. Look at Silicon Valley. Silicon Valley has started laying people off, and that’s not getting enough. It’s more than just Carvana.

AM: And then that’s the thing. Later in this year, Democrats and Joe Biden can have a real big problem unemployment numbers, starting to creep up. They can’t hide that forever with the BLS manipulation.

SR: Look at the household number. The household number is already not looking great. And that’s the one that they choose not to hide for a reason. Yeah, sure, the establishment is up, but you look at that household number and it’s printing negative already, guys.

TN: Yeah. One more thing I want to cover is this has to do with China shut down and it has to do with the possibility of political instability in China. So there are two separate issues. The newsletter today talked about reshoring.

So these things seem to provide more instability and a lack of reliability of Chinese sourcing. So what are you seeing to support the reshoring argument?

SR: Oh, lots of things. I mean, you have Hyundai. That’s likely to announce a pretty big factory next week in Georgia. You have everyone from Micron to a bunch of other call it higher tech firms beginning to announce that they’re moving back here. They’re building here and they’re going to manufacture here or they’re going to manufacture in Mexico. One of the other.

If you want to have China like characteristics without supply chain issues, you go to Mexico and that re regionalization trend. That’s the theme of mine. Is beginning to pick up steam and it’s going to pick up much more steam, in my opinion.

North America is going to be basically, in my opinion is going back to being the world’s, not manufacturing hub, but the world’s high end manufacturing hub. If you want something that it’ll be like big Germany.

AM: Yeah, I mean that’s just the most logical thing to do is to start putting your supply chains closer to your luxury consumers and you have to do that. But I’ve been high on the Canadian economy and the North American economy.

I think Europe absolutely they’re in deep trouble at the moment. So is Asia. But Europe especially.

TN: On the reshoring note, guys, if Germany can’t get power, will we start to see some German manufacturing firms potentially moving to the US?

SR: You already make AMGs here. Mercedez Ben’s AMGs.

TN: Yeah.

SR: They’re made in Alabama. But they’re made in Alabama.

AM: Yes. But Tony to your question, actually, I do have a colleague that works for Austrian driven outfit and they have been buying factories in the United States specifically for this reason. It’s the only place that people are going to be buying things or has money at the moment. Their entire export industry in China is dead and they’ve sat there and been lackadaisical and never sat there and tried to put their networks back into Africa where the real emerging market should be focused on Africa. It’s going to be bigger than Asia anyway.

SR: Let’s also be honest, they just got done pulling out of Africa in some ways. A couple of decades ago. They missed that boat.

TN: They did. And so did the Americans. So. Hey guys, thank you very much. Really appreciate this. If you’re watching please like and subscribe have a great weekend and have a great week ahead. Thank you.

AM: Thanks, Tony.

SR: Thanks, Tony.

Categories
Week Ahead

The Week Ahead – 21 Mar 2022

This week, we saw a Fed rate rise, crude came back from the stratosphere, and Chinese equities came to life.

As we said last week:

– Sam said “watch the 5 and 7 year” bonds, where we saw serious action.

– Sam also said “grip it and rip it” with equity markets.

– Tracy said that dramatic spikes in crude markets were priced out of the market for now

– Albert called for a volatile week thru the Fed meeting, although we didn’t see the lows he’d expected.

Sam walked us through the Fed decision and what’s happening in the bond markets. He also explained a bit more about his “grip it and rip it” comment and where the leaves us.

LME is talking about banning Russian copper on the exchange. What does that mean for global copper markets, as explained by Tracy? We’re also coming off the nickel scandal at the LME. Are there bigger problems with at the LME – mixing politics with markets?

We saw China equity markets perk up this week. KWEB, the China tech ETF, is up over 40% since Monday. What happened, what is Albert watching and what’s coming for Chinese equity markets?

Listen on Spotify:

https://open.spotify.com/episode/1yFipmQCs7XNHEXwj20bZf?si=5310245ccd1545d1

This is the 11th episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon
Tracy: https://twitter.com/chigrl

Transcript

TN: Hi, and welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Albert Marko, Sam Rines, and Tracy Shuchart. Before we get started, I’d like to ask you to like and subscribe to our YouTube channel.

So this week it’s been a really interesting week. We saw Fed rate rise. We saw commodities, especially crude, come back from the stratosphere and we saw Chinese equities come back to life. So it’s been kind of a really weird week.

Last Friday, Sam said to watch the five- and seven-year bonds where we saw some serious action. He also said rip it and grip it with reference to equity markets. So let’s dig into that a little bit today.

Tracy said the dramatic spikes in crude markets were probably priced out in the week before, which we saw bear out this week. And Albert called for an active week before the Fed. We didn’t see the low he expected, but I think very much in line with the volatility he expected this week.

So, Sam, to get started, can you walk us through the Fed’s decision and what’s happening in bond markets?

SR: Yeah. So I think the Fed’s decision is pretty simple to understand on a number of levels. It’s inflation, inflation, inflation and everything else is secondary. When asked multiple times what would knock them off of the call it the inflation war, they made it very clear there was very little that would knock them off that path. So you had a lot of action on seven-year, five-year and a little bit on 10? Not as much as I would have expected, really. But the basic reaction was the Feds going the Fed’s going very hard, very fast, probably would have done 50 if it weren’t for Ukraine and may do 50 at a coming meeting or two if the war in Ukraine doesn’t begin to really spiral into an employment issue in the US. It does not matter about a growth issue, matters about employment issue. So I think that’s really critical.

The two-year looks really well priced to me in light of that situation, quantitative tightening, whatever. That will happen in May. We know that.

TN: We’re convinced it’s happening in May.

SR: We’re convinced it’s happening in May. Yeah. The rhetoric from the Fed is pretty clear that they’re going to go early and they’re going to go fast on quantitative tightening. None of that is great for the longer end of the curve, starting at five s and ending at 30s.

If you want to kind of think about it in terms of ideal perspective, in terms of pricing, it’s probably pretty good. 5s, 7s, 10s, 30s have all priced a pretty interesting growth to inflation narrative that if you begin to have the growth narrative breakdown, if you begin to have the long term inflation embedded narrative breakdown, because the very fast, very good Fed, that’s going to change, and that’s going to push those yields down, prices up pretty dramatically, pretty quickly.

TN: Fantastic. So when you talk about QT in May, I think I bounced back and forth over the past, say month or two months where people are talking about QT, then they’re talking about the possibility of QE, then we’re talking about QT.

So the QT aspect of it, if that happens, which when you say I fully expect it to happen, the main point there is to take money out of circulation, is that right? What is the main point of QT?

SR: What is the main point of QT? Main point of QT is signaling.

TN: Okay.

SR: In my opinion. QE is a pretty big signal to go ahead and buy everything. QT is a pretty good signal that the Fed is serious, right. It’s a seriousness issue. It’s not as dramatic, I think, as it might be interpreted by the financial media in terms of an actual translation to financial conditions or to equity markets, et cetera.

It does tend to knock down multiples, and it probably adds another 25 to 50 basis points worth of tightening this year. But I wouldn’t say it’s a shredding of cash. It’s a shredding of reserves. So reserves never made it in to the market in terms of real usable high power cash. That’s a big difference.

TN: Okay. So when we look at the environment right now versus what you’re expecting for QT in May, are we in kind of an interim opportunistic equity market right now? Are people just kind of trading until the inevitable comes? What’s happening, especially in US equity markets?

SR: What’s happening in US equity markets? That’s a tougher question to answer than you might think. A lot of short covering. That’s the first thing. Second thing is most of the risk seem to be priced as we exited last week. Right.

If you’re going to price the world for World War Three or some sort of big tail risk, that was the time to do it. And you simply didn’t have any of that come to fruition. You had a hawkish Fed, but you didn’t have a Fed that seemed to want to break something really quickly. And it’s pretty obvious that they’re willing to break something at this point, but they didn’t want to break it with a 50 basis point hike or call it three or 3 or 50 basis point hikes. That is one of the reasons why equity markets get a little bit of relief here.

The other side is that the ten year yield dropped. The ten-year yield dropping took some pressure off the Nasdaq for rate increases or interest rate increases that side of things. So Nasdaq outperformed S&P, that’s a pretty important signal. There was some risk on this week.

TN: Great. Okay, Albert, what’s your rate on US equity markets in light of what Sam is talking about with Fed action?

AM: Sam’s right. They want to break something, but they don’t want to be seen as breaking something. I mean, I was dead wrong on the sub 4,000. I completely forgot that Opex was this week. They were not going to pay out $4 trillion and put up just the people. It was just that they probably spent 100 to 150 billion this week to pump this market up and keep it stable up in the stratosphere up here.

I guarantee they spent about at least $100 billion doing that this week. And they just annihilated people. They kept equities up. They are signaling that they’re going to hit inflation hard and fast, just like Sam said. They have to because things are just getting silly at this point.

TN: Okay. And Tracy, in light of what Sam is talking about with QT and more hikes later in the year, do you expect that to have a material impact on commodities over the short to medium term, or do you think they’re still on this strong trajectory that you’ve expected?

TS: Yeah. I think that unfortunately, the Fed cannot subside this with rate hikes because we have, again, real supply demand issues. And so I think the commodities markets, the trajectory is going to continue higher. It doesn’t matter, especially when we’re looking at now we have this Ukraine Russia war, and now we also have 50 million people locked down in China again. And they just closed one of their major ports and manufacturing hubs this week. So supply chains that were sort of beginning to mend, right, after 2020 just got thrown into an entire tail spin once again.

TN: I have a friend in the manufacturing sector who because of the Shenzhen Port close and city close, he got several force majeure letters this week. So that stuff is cascading through industry. We’re not necessarily seeing it in markets yet, but it’s really cascading through industry really quickly. And I think we’re going to start to see that appear in financial statements of companies in the coming months.

AM: That’s important, Tony, because my contention has always been that they’re allowing inflation to run wild because it reduces the amount of rate hikes they actually have to do come May, they might be done with their last rate hikes at that point and start QT just simply on the basis that the supply chains and the economy is struggling.

TN: Right. One thing I want to go back to, Tracy, when you say bullish market and this is my understanding of your statements, but you’re bullish on commodities, you’re not talking about crude going to $140 again next week. This is a medium term play. Is that fair to say?

TS: It’s a medium to longer term play, which I’ve kind of always stated, granted, we had the Russian Ukraine factor come in that push prices to 130 WTI, which was a lot faster than I anticipated. I really liked the fact that we pulled back from that, got some of that geopolitical risk air out of the market, but we’re still on the same trajectory of $150 a barrel over the course of the next year or two.

TN: Right. Okay. Now, while we’re on Russia Ukraine, the LME came out with some news about copper this week and we’re showing that on the screen right now talking about the LME potentially banning Russian copper on the exchange. Can you talk us through that? And what does that mean for global copper markets?

TS: All right, so this is, the LME Commission basically suggested that they ban Russian oil. This has to be presented to the internet. Copper. You said Russian oil.

TN: You meant copper, right?

TS: Copper, yes. Sorry. This has to be presented to the international community for this to actually go through. The problem here is Russia is the 7th largest producer of copper. They account for about 4% of global production. It’s a role on the LME exchange is more significant because they are the third largest exporter of refined copper metal and this is deliverable to the exchange. So this really would send LME markets into chaos. Literally.

TN: Okay, so let’s kind of somehow link that to the LME nickel issues that we saw last week. Okay? Could this, as an exchange, could actions like this impact the credibility of the LME or what does this mean kind of political actions and by “political actions”, I mean there was intervention on behalf of a Chinese entity for the nickel market last week.

There’s potential intervention as a result of geopolitical issues with Russia in the coming weeks. So will we see exchanges get more political and will that impact impact their credibility as an exchange?

TS: Well, that’s the problem, yes. And I do think that it will impact their credibility. The nickel market is essentially broken at the LME rights now, right. They reopened again on Tuesday. They set daily limits at 5%, limit down. They were limited down right away. They raised it to 8% on Thursday, limit down right away, 12% on Friday, limit down right away.

And basically, that’s not because of the fundamentals of the market. That’s because people are running for the hill. They just want out of that contract. Right. And so that is definitely going to be a problem for the LME market going forward.

TN: Are there dangers and we don’t necessarily need to name other markets, but are there dangers of other we’ll say developed market exchanges to kind of make these types? Could we see CBOT or CME or some of these guys start to play these games, too?

TS: I think that’s a difficult question to answer. I do not think that you will see CME do that unless you have some other foreign markets do that first.

TN: Unless a big Chinese state owned entity lose a lot of money.

TS: If we see SHFE do something like that, then I think the United States will. But I do not think you’ll see the CME market actually.

TN: Okay. Yeah. I mean, I’m not sure that some people understand that these exchanges are actually businesses and they have to make business decisions. Right. And some of these business decisions, they’re not completely neutral market participants. Right. In some cases, they get involved in these trades.

TS: They’re there to make money. Right.

TN: They are there to make money. But when politics inserts itself into markets, these exchanges that people think are kind of arms length to the trades, it starts some people wondering about the price. Are they actually getting the right price? Is there really a true market there?

TS: Well, exactly. And that’s exactly what we’re seeing at the LME right now. At the command, so far, we have not seen that at CME yet. But that is to be determined.

TN: Right. Albert, Sam, what do you guys have to say on this?

AM: From my perspective, I can’t really add much to what Tracy said. She’s right on the ball. When it comes to systemic issues, politics gets in the way and protects it. That’s just the way it works. And unfortunately, just seeing what you’re seeing today, which is undermining, it undermines the trust in the entire market overall.

TN: Yeah. It just seems like a problem that’s really hard to get over. Right. Like how long will it be broken and when it’s back, will it snap back? I just don’t know. Sam, do you have any thoughts on this?

SR: My only thought is very similar to Albert’s, in terms of I don’t think anybody’s going to actually trust the LME anytime soon. If you’re going to make a significant trade in a metal, I highly doubt you’re going to want to do it through the LME without having some sort of backup to that position.

TN: Okay, great. Let’s move on to Chinese equities. Albert, we saw China equity markets forgot this week, KWEB, for example, which is a China tech ETF, is up over 40% since Monday. So what happened and what are you watching?

AM: Again, the systemic issues that China is facing in the market, I mean, Hong Kong was about 5% away from just absolutely imploding. They had a new problem where it wasn’t just the foreign money that was leaving the system, but actually the mainland mainland Chinese investors were taking money out, which was something new. And it was to the point where the peg might have even broken. So they had to shore it up by liquidity injections. And the Xi had come out and made those comments citing Hong Kong twice. But I was on Twitter and I was saying, this just can’t happen.

China is completely about to fail market wise. So let’s start picking things, pick the best ETF, pick the best companies out of China. And I mentioned KWEB with you guys, GDS, Chindata, you can throw a dart and pick your Chinese name last week and it went up 40% to 80% at some point.

Same thing. Now I’m kind of trimming my position back, but Chinese housing is at that point right now, where the housing sector accounts for 75% of China’s wealth. They can’t just simply let it deteriorate into nothing where the banks are taking it over. That can’t happen. I mean, Xi would be out in his ass. Sorry about the commentary, but Xi would be out within months if that happens. So I’m going to pick top three Chinese housing names and go for it.

TN: It’s a brave call. It’s a really brave call.

AM: All right.

TN: Do you think there’s room to run with some of these Chinese tech companies or even the broader China market, or do you think the opportunity is really limited to real estate?

AM: Well, no, they can run. The problem that we have now is the Biden administration is starting to target China, assisting Russia and whatnot. So then now you have the geopolitical risks come into the equation and you see these things surge 40% one day, you can easily see a 20% retracement the next day or even more. So that’s why I’m just trimming you take your 60% and be happy with it.

TN: Right. So we talked about Chinese fiscal stimulus, Chinese monetary stimulus. We talked about devaluation. Do the events of the last week move up the time clock for the economic planners in China to get this stuff out the door?

AM: Absolutely. I think they have to even in conjunction with the US, because the US has no fiscal coming so the Chinese have to step up to simulate the economy. Otherwise the entire globe is going into a depression. It’s as simple as that.

TN: Yeah. It’s really. I remember over the past ten years, all the talk about coordinated economic stimulus and all this other stuff since 2008, 2009. And right now we’ve got the Fed pulling back and we’ve got China aggressively moving forward. It’s just a little bit strange. Sam, I guess from a macro perspective, can that work?

SR: It can work depending on how much stimulus is actually put into the system and how it is put into the system. The how is very important in terms of how impactful it will be. Not just domestically for China. But also how impactful it will be beyond their borders.

And what you’d be really concerned about from a macro perspective is how far beyond the borders does that stimulus actually get? That’s where I get interested in it, because if it does begin to move beyond the borders, it’s very positive for Europe. That’s very positive for some US companies. But you have to have a stimulus that isn’t just a transfer to businesses.

You have to have it actually hit the Chinese consumer and hit the Chinese consumer quickly.

TN: Okay. So we’re not just talking about a couple of RRR cuts, which is what they do all the time. It’s kind of the go to. This is the reserve requirement, right?

SR: Yeah. I don’t care if they do RRR cut.

TN: I don’t think many people do, although I think they kind of have to phone that in to show that they’re doing something. I would think it’s more aggressive on the fiscal side, on the TSF, the total social finance side, where they just need to churn the cash out to SMEs, SOEs, big multinational companies, that sort of thing to almost get them to the point where they’re exporting deflation again, of manufactured goods. Does that make sense as an approach, Sam?

SR: I mean, it makes a lot of sense as an approach, but at the same time, you’re locking down due to your COVID zero process or policy. So that process would be really interesting and intriguing. But it’s a question of whether or not it would be effective given the health policy on the other side. So, yes, it would be great, but it would be probably great in three to six months.

TN: Okay, so guys, this is a great point. The COVID zero policy, it feels like much of the rest of the world has come out of this. Right. And China has gone back into lockdowns. Do you think there’s a point at which other markets have an uncomfortable call with China and go, guys, you got to open up because you’re killing the rest of us.

SR: I think they had it. I think they had it. If you look at the way they’re handling the current lockdown, they’re busting people to factories.

There’s a closed loop factory policy. While you have a COVID zero policy and “these places are locked down,” they are busing people to the factories. So I think there’s been a little bit of a let’s move on here.

TN: Okay.

AM: And also want to point out is these lockdowns came suspiciously close to the talks with the US, both with Biden and our glorious blink or Sullivan, the genius Sullivan that we have. But I think it might have been a little bit of a negotiation tactics like if you decide to play hardball with us over Russia, we can just shut down and ding our economy. So I think there was a little bit of that also sprinkle in there, right. A little bit of real politics.

TN: Yeah. Okay, guys. So as we come out of this weird week, what do you expect for the week ahead? Tracy, what are you looking at for the week ahead?

TS: So I think in the commodity markets, we’re still at that point where we’re kind of coming down after that initial knee jerk reaction to Russia, Ukraine. So I expect a little bit of consolidation across markets. Depending. It’s kind of what we’re seeing. So I think the market still be volatile, but like less volatile. I think we’re kind of like at that ripple point where the ripples really big and then we kind of get smaller and smaller.

TN: I think you’re Right. I think the consolidation makes sense. Albert, what are you looking For? It seems to me on the geopolitical side, we’re almost going through almost a geopolitical consolidation a little bit. We’ve had so much drama over the past few weeks, but I almost feel like it’s coming down a bit.

AM: It has been coming down and that’s one of the reasons they’re able to sit there and pump the market so high. I think it was overbought, to be honest with you. I think this market even considering going back to 4500, you’re just going to have every fund out there shorting the heck out of it. So I would see them try to test 4470, 4480, 4490, maybe 4500, but after that, it’s probably downside from there.

TN: Okay. Great. Sam, what are you looking at?

SR: I’m looking at the five-year I think it’s a pretty interesting place to be and I think it’s going to be highly volatile. But that’s the one to watch with inflation and growth expectations beginning to be a little wobbly.

TN: Great. Guys, thanks so much. I really appreciate it. Have a great week ahead.

AM, SR, TS: Thanks.

Categories
Week Ahead

The Week Ahead – 14 Mar 2022

This week, we saw commodities skyrocket then drop off. We saw crude oil hit levels not seen since 2008, with gasoline and home heating prices on everyone’s minds. The nickel market broke the LME. Chinese tech and real estate bloodbath. And – despite all of this – Janet Yellen assured us there will be no recession in the US. Quite a week.

As we said last week:

– Tracy called for commodity price volatility – across sectors

– Downside bias in equities with high volatility. Albert predicted 4200-4250 and pretty much nailed it.

– Sam said a Fed rate rise would become boring and talk of QT would disappear.

This episode we talked about mostly the energy commodities with the continuing Russia-Ukraine conflict. Can the US use other alternatives like the West African oil to replace Russian oil? What are the politics around Venezuelan oil and why is it the same as getting Russian oil?How about uranium — and can the US produce it and will the conflict affect rare earths? Is this war the reason for the US’s inflation? How will inflation actually play with voters in this year’s US election? Lastly, what’s happening in Chinese tech and real estate and why there’s a bloodbath and for how long will this continue?

This is the tenth episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

For those who want to listen on Spotify:

https://open.spotify.com/episode/35aHRd7oVfj7zPvgZjyQXg?si=d74bba8f8d094e29

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Albert: https://twitter.com/amlivemon
Tracy: https://twitter.com/chigrl

Transcript

TN: Hi, everyone, and welcome to The Week Ahead. My name is Tony Nash. I’m joined by Tracy Shuchart, Albert Marko, and Sam Rines. Before we get started, I appreciate if you could like and subscribe to our YouTube channel. And also please know that we have a special offer for Week Ahead viewers for CI Futures, which is our market data and forecast platform. CI Futures has about 800 assets across commodities, currencies and equity indices and a couple thousand economic variables. We track our error. We have very low error rates. So we’re offering CI Futures to Week Ahead viewers at a $50 a month promotion. You can see the URL right now. It’s completeintel.com/weekaheadpromo. That’s a 90% off of our usual price. So thanks for that.

So these week, guys, we saw commodities skyrocket and then drop off. We saw crude oil hit levels not seen since 2008. With gasoline and home heating prices really on everyone’s minds. The nickel market broke the LME, Chinese tech and real estate. We saw a blood bath there. And despite all of this, Janet yelling assured of us that there will be no recession in the US. So it was quite a week.

So let’s look at last week. Tracy called for commodity price volatility across sectors. So it wasn’t just an oil call, it was across sectors. And we saw that in spades. We talked about a downside bias in equities and high volatility. Albert predicted a 4242 50 range, and he pretty much nailed that. And then Sam said that a Fed rate rise would become pretty boring and talk of QT would kind of disappear. And we’ve really seen that happen over the past week. So, well done, guys. I think we need to really focus on inflation this week. Inflation and quantity prices are on everyone’s mind. Energy is the first kind of priority, but it’s really come across, like we said, nickel and other things.

So, Tracy, let’s start there. We have a viewer question from At Anton Fernandez, Russian oil, if you don’t mind helping us understand the environment for Russian oil and what’s happening there and some of the alternatives, which we’ve covered a little bit before, but also West Africa. Is West Africa viable within that? So if you don’t mind talking to us a little bit about what’s happening in the crude market and also help us with a little bit of understanding of the context of West Africa.

TS: Yeah. So if we look at the crude market in general, what we have been seeing, we’ve seen sanctions from Canada, which is basically political. They haven’t bought anything since 2019. We also saw Australia sanctioned oil, but they had only bought a million barrels over the last year. It’s nothing. The US only 600,000 bpd. That is nothing. And UK is going to take a year to get off oil because it’s 11% of their imports as opposed to 2% of our imports. That said, what we are seeing in this market is a lot of self sanctioning. Right.

So we’re saying we have nine Afromax Russian oil tankers basically sitting aisle because they can’t get insurance and nobody wants to pick up oil right from them. Actually, what is most surprising right now, I have to say, is that looking at Asian buyers, everybody thought that Asian buyers because it would be offered at such a discount, they would be buying this stuff up like crazy. But there was just an auction for SoKo, which is a very popular grade with South Korea, China, Singapore and Hawaii, and there was literally zero bids.

TN: Really? Wow.

TS: The next auction that we need to be looking for is ESPO, which is the most popular grade for China refiners. But if we see a zero bid there, that would be indicative of saying that we’re taking a lot of brush and barrels.

TN: Chinese we’re not seeing any interest there, at least so far.

TS: Right. Which is quite incredible because the Chinese have always decided to be apolitical. Right. And they don’t recognize Unilateral sanctions and they have stressed that. So whatever sanctions that the west has, China says we don’t care about that. We saw that with Iran as well.

TN: Right.

TS: But it’s pretty incredible to see this particular auction go at zero bid. Right. In regards to looking at West Africa, I’ve been talking about this since 2020. Niama is a very interesting place. There’s been a lot of offshore activity there. And so I think that is a place to be looking for. The problem is that looking at offshore projects, they take it’s a seven to ten year timeline, as opposed to something like Shell, which is six months to 18 months. But yes, there’s definitely opportunity.

TN: So is West African crew substitutional with Russian crude?

TS: No, it is not.

TN: Okay. So is it lighter, that sort of thing?

TS: It’s lighter. It’s lighter crude oil, what we’re looking at right now. And this is exactly why the US went to Venezuela and said, we’ll be willing to lift sanctions with you as long as you only sell us oil.

TN: Right.

TS: And the funny thing is that they have a very good relationship with Russia. The problem with this sort of relationship is that we could inadvertently be buying from Venezuela that is actually Russian oil.

TN: Sure. Exactly. So it’s an interesting point on Venezuela. Albert, what are the politics around that we just pick up the phone. Does Lincoln just have a conversation with Venezuela? We send a deputy sect down there, do a deal. How does that work? And is that palatable?

AM: No, it’s not palatable. It’s an absolute joke. Like Tracy said, the Russians have their tentacles all over Venezuelan oil, that you would be self sanctioning yourself from Russian oil globally, but then buying from Venezuela, which is going to be mixed because everybody in the industry knows that if you want to mix oil, you do it in the Caribbean, especially from sanctioned oil from overseas. So it’s not palatable. It’s a joke. I don’t understand what they’re trying to do. It’s just a Wally world at this point.

TN: I guess the thing that I’m continually astounded by is the diplomatic actions of the US administration from Anchorage through this week with Venezuela. They just seem to be tripping all over themselves. What am I missing? Like they just seem to be eroding credibility by the day. Is that fair to say?

AM: It’s more than fair. They’re throwing spaghetti at the wall and seeing what sticks based only upon their little echo chamber of ideology. And it’s extremely naive ideology when it comes to geopolitics or what they’re doing right now.

You can try to erase Russia and go play and then think that you can go to Iran and cut a deal with Iran, not understanding that Russia is going to sabotage that deal. Right. Like they did just today.

TN: Tight diplomatically. While we’re on this this week, the headline said that the UAE and Saudi declined having talks with Joe Biden this week. Is that true? Is the headline the reality of it? And from the time Biden came into office, he was not friendly to Saudi Arabia. So is this payback from that?

TS: No, I don’t think so. Sorry.

AM: Actually, I think it is that it is payback because you have the Saudis and the UAE that have security concerns with the Houthis and the Iranians. And if you’re sitting there approaching the Iranians playing all nice with them, what do you think MBS is going to do?

TS: I agree with Albert on that respect. I just want to interject that the OPEC + Alliance has mainly tried to stay apolitical. Right. So just because the United States says OPEC produce this much more, Saudi Arabia and UAE, which are both the producers that can produce more than the rest, had come out this week and said no, we’re in this alliance and this is how it is, which is totally understandable.

AM: Yeah, but Tracy, but the problem is OPEC saying that is one thing but not taking his call.

TS: No, I agree with you. I agree with you that we have burned bridges. I’m not disagreeing with you here whatsoever. I’m just taking a different kind of look at this.

TN: Sam, what’s your view on that? I’m not hearing you.

SR: Can you hear me now?

TN: Yes, sir.

SR: I would say the naivety of believing that you’re going to have a JCPOA deal or you’re going to be able to have some sort of comeback in terms of Venezuela. So you add the two of those together and who cares relative to what you need to replace Richmond Oil? I mean, it would be great and fine, whatever, but it’s nowhere near enough simply. Right. But it’s also a political naivety to believe that you’re going to have that type of dialogue and you’re going to have it quickly.

TN: Right.

SR: On the front of Saudi and UAE, I would say it is both an OPEC Plus. We’re not going to blow this up before it blows up on its own from the call it the allies of OPEC. Plus.

It’s also the UAE and Saudi is saying, remember, you want to be friends with us, US.

TN: Yeah.

SR: Don’t pretend you don’t want to be.

TN: Right.

SR: So I would say it’s politics in the best possible way on that front. And on Iran, JCPOA, and Venezuela, it was wishful thinking to think that the Russians were going to say no on both fronts.

TN: Well, and the Chinese. Right. I think there are a number of Venezuela has relationships with both Russia and China.

TS: That’s all I was saying is that OPEC is not going to give up that plus alliance. They’re going to try to stay apolitical. Right. Whatsoever. Do I think that the United States is pushing OPEC to Russia and China? Absolutely. Do you see the huge deal that Saudi Arabia made today? Absolutely. Right.

So they’re looking at investing further into China because they are being pushed away from the United States. So agree on that aspect. But I’m just trying to say that they do try to stay apolitical. If you look at the history of OPEC, Iran and Saudi Arabia have been able to subsist cohesively in the OPEC alliance, regardless of the years of them being enemies and having proxy wars against each other. That’s all I’m saying.

TN: Okay. Let’s move on to the next thing. There are a couple of questions about commodities, Tracy, and let’s just cover these really quickly. We have a question about uranium from @JSchwarz91. Will the US ban or will Russia restrict its uranium and could the US actually start producing uranium on its own? Is that a possibility?

TS: The US won’t restrict uranium. It hasn’t restricted uranium because we actually buy a significant amount of uranium from them. It’s easy to say we can skip 600 barrels per day of oil, but not as easy to do with uranium. We’ve stayed away from that.

Will Russia decide to not sell to us? Again, it’s about money, so probably not unless we really push a button in there. Can we produce that amount of uranium in the United States? Absolutely not.

TN: Interesting. Okay. Let’s also move on to rare Earth. So we have a question from @snyderkr0822. He’s asking about the impact of Russia and Ukraine on the availability of rare earths. Is that a factor or is rare Earth more of a China thing?

TS: That’s more of a China thing. We all have to watch to see if China sides with Russia and see how that market ends up. But really, they’re the largest producer in the world, and that’s who we are largely dependent on for rare earths.

TN: Okay, great. Thanks for that.

Now let’s move on to kind of this war driven inflation narrative that we’ve seen over the past a couple of weeks. We had February inflation come out today, and I feel almost as if we’re being tested as a trial balloon for an inflation narrative that inflation is kind of Russia’s fault.

So, Sam, can you talk us through some of the economics of this? Is inflation a new thing like did it just happened two weeks ago?

SR: No. So the inflation narrative going forward, there’s some validity to Russia being the reasoning behind an increase over a base case. Whatever you want to decide that base case is. But in February, January. December and November, those are not in any way related to Russia generally.

What’s interesting to me is how many people are kind of forgetting that, we kind of had a little bit of a log jam breakup in supply chains beginning to occur. It looks like we were going to get a little bit of respite from that narrative. But now if you looked at what’s going on in the neon market, if you look kind of six to twelve to 18 months down the road, it looks a lot less like we’re going to have that log jam broken up and a lot more like we’re going to have somewhat persistent inflation that there is no way for the Fed to solve. There’s no way for the ECB to solve BOJ, et cetera. You’re just going to have to continue to have this hawkish language to try to tamp down those longer term expectations.

TN: Demand destruction.

SR: Demand destruction. But it’s really hard to destroy demand for semiconductors when they’re in everything from my daughter’s doll to my laptop. It is very difficult to destroy that much demand and create an inflationary environment that is less toxic to the Fed or to the ECB without breaking something.

So if the Fed isn’t willing to break something in the next call it six months. They’re not going to break inflation. And if you print out six months from now, you’re breaking something into a midterm election.

TN: Right.

SR: So I’m so much skeptical on the Fed’s ability to do anything at this point.

TN: Right. That’s a great transition to Albert. So how is inflation playing with voters?

AM: Oh, it’s absolutely nuclear football. Allowing inflation to go this high is just going to be devastating to the Democratic Party and Joe Biden. But I want to go back because I have a couple of contentious things to say. Right.

TN: Please do.

SR: Oh, God! Right.

AM: So everyone is pricing in five, six, seven hikes at the moment. Right. But inflation at the moment has probably taken three of them out of the equation because the money’s gone. It’s erasing money left and right at the moment, from the federal point of view, it’s like, why really get rid of it all? That why really attack it when it’s doing our job for us where we only now have to hike three times. Right.

And on top of that, something even more contentious is everyone knows that once the VIX gets to a certain price, somebody sells it off. Right. Somebody industry. Right. But everybody knows that. And when everyone knows that, the house casino usually moves to a different area. What about oil? What if somebody with a big account has bought oil futures and every time it gets to the 120s or 130s, they just crush it for $1015 and the market rallies again.

So this artificial inflation that obviously we have real inflation just because of wage inflation and supply chain. But there’s a little bit of artificial, artificial aspect to it that I think the Fed has been using. Politically, it’s going to be extremely damaging. But for their point of view is if they can get over it and then get the rate hikes out of the way and then maybe probably start QE later in the summer, They could suck their voters at the beginning of the economy back on track again. I don’t think it’s going to work.

TN: Let’s say a month or so ago there was suspicion that we would be doing QT in say June, July. That’s off the table now because of the money that inflation is taken out of the market, right?

AM: Absolutely.

TN: But we’ll do rate hikes and have QE potentially?

AM: That’s right. That’s my point.

TN: You’re in an insane phase of economic history.

AM: It’s just look around, Tony. What’s not insane at the moment?

TN: Undoing this.

TS: That’s 100% fact.

TN: Undoing this is going to be insane. Okay, speaking of undoing crazy stuff, the Chinese techs and real estate stocks really have some problems this week.

So Albert, Sam, can you guys talk a little bit about that? And we have a tweet showing some stocks from Tencent, Alibaba, JD, other ones down 50, 60, 80%. So what’s happening with the tech blood bath in China?

SR: I’ll just do a quick start. Did you see the numbers coming out of JD? They were horrible. I mean, they were absolutely atrocious. So, yeah, you’re going to get a sell off in tech broadly across the board in China. When your numbers are horrible, then you’re going to have additional pressure put on the potential for delisting in the US and the general call it risk off move in markets. So you’ve got the trifecta of horrible for Chinese tech in a nutshell.

But the JD numbers were absolutely atrocious on a revenue growth line. And there’s no way to save Chinese tech if you’re going to have numbers like that. If you continue to have numbers like that, guess what? Look out, because the bottom is not in.

On the Chinese real estate front, I think Albert has a much better view on this than I do. But I would say if you’re going to have a risk off in tech, good luck having a risk on in real estate.

TN: Sorry. Let me stop you before I move on to real estate. So the tech story, what I’m pulling away from there is that it’s potentially disposable income story at the retail level, at the consumer level, and tells me that China is way overdue with its stimulus. Is that fair to say?

SR: That’s harder to say.

TN: Okay.

SR: I would be very careful in saying that the Chinese consumer is not there. China is coming with stimulus. If you’re trying to hit 5.5 by the end of this year and you’re going into a plum, guess what? You got to hit the pedal.

TN: Well, they better hurry up.

SR: They’ve got time, but they’re going to hit the pedal. And the question is how do they hit the pedal? And it’s got to be the consumer because they’re not going to hit it on real estate.

TN: No, they’re not. Going through some of the real estate.

AM: Yeah, well, I have a couple of points to make on. I have a couple of points about the tech. China tech. What was interesting is Sam is right. JD numbers were horrible. Right. This SEC Delisting thing pointed out five companies. Right. Just five. And the big ones. Gamble is a big one. And whatnot. But why only five? It happened to be the only five that actually did their accounting and submitted their accounting numbers. Right. And would that actually let a snowball effect out to say, Holy crap, they will take down every single Chinese number, Chinese company in the market. That’s why a lot of this actually sold off harder than you think it would sell off.

Going to the real estate market. I mean, 75% of China’s fault is real estate. So unless Xi wants pitchforks and torches coming after him, he’s going to have to stimulate the economy, something to support the real estate market.

TN: Yeah. It seems like it’s going to have to come hard and fast. I could be wrong. But, you know, with.

AM: I think by June. I think by June he’s got to do something. He has to.

SR: Hit through the middle.

AM: Absolutely.

TN: Good. And do you guys have any ideas on what exact forms that’s going to take? I mean, of course they’re new triple R, of course, taking a new infrastructure spending. They do the stuff. They announce it every other year. Are there other forms that you have in mind that will take that?

AM: I don’t, to be honest with you, that is $64 million question. To be honest. That’s a big question. That’s very complex.

SR: Yeah. And if I had the answer to that question, I probably wouldn’t be on this call.

TN: Come on, Sam. We know you would.

SR: I would be on a yacht somewhere.

TN: Yeah, that’s right.

TS: It’s interesting about that. If you look at the energy perspective, they just had a meeting and they totally decided that they’re going back to coal other than anything else. So that to me that signifies we have stress in other markets. Right. We cannot spend the money in other places. So we’re going to go back to what we do best, what we know best. And they also offered, if you look at internal documents that are offering huge discounts for going back into the coal industry or whatever. I just like to.

TN: So there’s still 73% coal for their power generation, something like that?

TS: Yes. So for them, they backtracked on COP. They need the money right now, in other words.

TN: Right. So the whole Paris agreement is a convenient agreement, is that what you’re saying?

TS: Correct.

TN: Okay, very good. It’s good to know that we’re all committed to the future. Okay. So guys, speaking of the future, finally, what do you view for the week ahead? Albert, let’s start with you. Maybe with China. Do you think there’s more to come with the blood bath in China?

AM: I think there’s another week or two to come with China blood bath. And I think that’s going to obviously lean on our equities going into Fed week.

TN: Right.

AM: So yeah, I think we’ll be another down week.

TN: Okay. And guys, what about US equities? Are we on a steady decline down to some number 4300 whatever it is, or are we kind of about there? What do you feel is going to happen over the next week?

AM: I think we’ll be sub 4000 by the end of the week at some point.

TN: Okay.

SR: Yeah. I wouldn’t be anything other than market neutral until immediately following the Fed meeting and then you just rip it to the upside.

TN: Okay.

AM: Yeah. The only thing that I have a concern about is we still have this Ukraine war going on which is giving outrageous headlines and then if the Fed hikes 25 basis points and then extremely hawkish tones while Putin is shelling Kiev.

TN: Right.

AM: It’s hard to rip until after that’s all settled.

TN: So sorry, Sam, in your scenario, are you saying the first half up until say Wednesday we have a pretty quiet market, then Thursday and Friday, things are pretty active to the?

SR: Oh no, I am not saying that you have a quiet market until the Fed. I’m saying you don’t want to take a position period until the Fed and then you either want to grip it or rip it one or the other.

AM: I agree with that one wholeheartedly.

TS: These markets will continue to be volatile until we have some resolution with this Ukraine Russia situation just because of all every day we’re seeing new sanctions against Russia and against commodities within Russia, at least for the commodity sector. I think we’ll continue to see volatility, but over the long term I’m still very bullish commodity.

TN: Okay. So Tracy, Sunday night, futures open, crude traded very high. Do you think there’s a possibility of us seeing another dramatic spike like that in the next week or two?

TS: I think that mostly been priced out of the market. I think that was priced in right. We saw a lot of that risk premium come out of the market, which I was very glad to see. I would personally be happy if we saw it traded in the 90s again before going into high demand season because I do think that we will trade higher on fundamentals. But it scares me when we have these big kick ups due to headlines and geopolitical risk.

So for me right now I would like to see this market come down a little bit. I’d like to see it pull back some and hopefully things will resolve quicker than sooner with this situation. But still going forward, I’m still very bullish this market.

TN: Okay. We didn’t talk at all about nickel and metal’s markets, but we saw the LME close today because of a nickel trade supposedly. Will we see those markets reopen and will we see nickel trade? Is it scheduled to trade again on Monday and is there the potential for commodity specific disruption and markets closing over the next week or two because of the volatility.

TS: There’s been a very high contention discussion right now, especially within the commodities industry. I would just say that it was kind of unprecedented what we saw there and the fact that they canceled all the trades. I would say that hedge funds are kind of backing away from that market right now because they’re skeptical of that market right now. But again, it’s not like I don’t want to say this is going to be the norm or anything like that.

TN: Okay.

TS: I think this was a one off crazy thing. It happened in the aluminum market years ago and you can even look it up on Wikipedia, right.

TN: Okay. Last thing week ahead with bonds. Sam, what are you thinking about bonds? We’ve seen the ten year go back up to about two. Are we going to see that continue to take up?

SR: I don’t know. I think the ten year is a little less interesting than the five year and the seven year.

TN: Okay.

SR: The five year and the seven year are really what you want to watch because if the fed goes 25 and goes really hawkish, it’s the five and the seven that you’re going to get the juice from and the ten and the 30 you’re going to get a little less so watch the five and seven. I think the five and seven are really interesting here. If you want to take a bet on a really hawkish Fed.

TN: Fantastic. Okay, guys. Thanks very much. Really appreciated. Have a great week ahead. Thank you very much.

AM: Okay. Bye.

SR: Thank you. Bye.