🚨TODAY ONLY: 12.16 Flash Sale🚨 EXCLUSIVE FOR THE WEEK AHEAD: 80% OFF CI Markets. Subscribe for $99/year: https://completeintel.com/1216flash.
This Dec. 18th episode of The Week Ahead is hosted as usual by Tony Nash, with first-time guest Anthony Crudele, joining Michael Belkin and Tracy Shuchart. In this episode, the panel discuss:
1. Year-End Market Temptations with Anthony: Anthony walks us through the intriguing observation that more traders encounter challenges during the year-end period than at any other time. We dissect the dynamics behind this trend, offering keen insights into market behavior during this crucial period.
2. Rotation Dynamics in the Market with Michael: Michael takes center stage, discussing the ongoing rotation within the market. Starting with the Dollar’s significant post-Fed meeting decline, Michael provides insights into the depth of this fall. We then explore the current sentiment toward the tech sector and potential factors that might redirect investor focus. For those with an eye on gold miners, Michael explores potential advantages amid the declining Dollar, spotlighting $CDE. He articulates the thesis behind this potential opportunity and discusses the factors that make it compelling.
3. COP28 and the Market’s Take on Fossil Fuels with Tracy: Tracy leads a discussion on COP28, shedding light on the market’s interpretation of the climate talks. Despite positive sentiments surrounding the event, Tracy provides an alternative perspective based on the wording of the final resolution. Discover how the markets are responding and the implications for investors.
This episode offers a focused exploration of these three key themes, featuring expert insights and candid discussions. Join us for a deep dive into the forces shaping the weeks ahead. Stay informed and stay ahead of the curve.
Transcript
Tony Nash
Hi. Everyone. For today only, we have an exclusive offer for our week ahead audience. That’s our 12.16 flat sale. It’s 80 % off of a CI Markets Premium subscription. That’s $99 for the whole year. Access AI-powered forecasts for over 1,600 assets across stocks, ETFs, forex, commodities, and economics. Updates every Monday morning with a 94.7 % forecast accuracy, this tool is helping traders and investors like you to make smarter decisions and plan portfolios better. Visit completeintel.com/1216flash to get this deal. That’s 80 % off CI Markets, $99 a year, today only. Thank you.
Tony Nash
Hi, everyone, and welcome to the week ahead. I’m Tony Nash, and today we’re joined by Anthony Crudele, Michael Belkin, and Tracy Shuchart. We’re talking through a number of key themes today. The first is year-end market temptations. Anthony had some really interesting thoughts about things that happen this time of year in market. I want to really dive into that a little bit. Michael Belkin has been telling us for months about a market rotation. I want to talk about that and see is that still on? Then with Tracy, we’ll jump into COP28 and their love of fossil fuels as we found out this week.
Tony Nash
Guys, thanks so much for joining us. I really appreciate the time you take. Anthony, it’s great to have you on. Obviously, I’ve watched you for years. I want to talk about markets with you. But first, you had a great tweet this week where you said more traders blow up during this time of year than any other time. I think that’s super important to be aware of. Can you talk us through that?
Anthony Crudele
It’s the psychology shift. It’s the mindset changes. It’s the I have to do something mindset versus I want to do something. Patients, a lot of times, gets away from traitors during this time of the year. I’m talking specifically, when I talk about traders blowing up, my background, independent traders, I’m talking a lot about the traders out there trying to go out there and make it as an independent trader. Not talking about traitors in their books, just a different world for me. But I think because those traders have that type of pressure on themselves. I remember my first panic attack, anxiety attack was Christmas morning. I woke up and I didn’t have gifts. I was in my early 20s, independent trader, and I didn’t have any gifts for anybody. I just felt this immense amount of pressure come over me. I remember during that month, leading up to that time, I’m trying to make things happen. I think that’s just a consistent theme when you look at independent traders, investors, that they tend to try and do things that maybe they wouldn’t try and do because they try and turn a buck. Everyone feels the pressure.
Anthony Crudele
We have had a year where regardless of what the data may say, inflation is still pretty high out there, I think, for everybody in the mainstream. I think that it’s just important to understand that you don’t have to do anything. I think we put majority of the pressure on ourselves as traders. We’re competitors. We want to go out there. We want to do well. We want to perform well. When you also get into this time of the year and why I think a lot of traders blow up, I think not only because of the psychology, but it’s really a different market. I mean, look at this past week. We had biggest options exploration of the year. You’ve got triple witching. We had an FOMC meeting. We had CPI, PPI. We have all of these cross winds coming in at once. You have end of the year flows, seasonality. That really, a lot of times, is going to cause a lot of either one-directional moves and I think a lot of random volatility, I call it, where all of a sudden bigger players come into the marketplace because they have to do something and they have to do something on a different reason than what I talked about with independent traders having to do something.
Anthony Crudele
They have to move money around. You’ve got, like I said, all the expirations between the futures markets, options markets. That’s why I think that this time of the year is really unique psychologically, and also in terms of just in trading in general.
Tony Nash
Right. It’s interesting you use the word saying that traders are trying to make things happen. I think over the last couple of years, it’s been pretty easy for people to feel like they can make things happen. I’m not sure if that is… I almost feel like we’re at the end of that to some extent. That magic that we had in ’21 and ’22, this year has been a lot harder. As people end this year, I think what you mentioned about having money for gifts or whatever at the end of the year, that’s a real pressure that everyone feels. I think a lot of traders feel like they set their own destiny to some extent. Not really, but I think a little bit of that feeling is there. How do you see people trying to make things happen? What are some of the biggest mistakes people make?
Anthony Crudele
I think people just think too much. I think that’s really what it comes down to. I think the mistake that they make in terms of actually going out and trading is that they’re just thinking too much about all these different things I mentioned that are happening in the marketplace right now, and they don’t really take it down to a level of execution. You’ve got so many financial experts out there talking about what’s happening in the market, macro flows versus options flows. I just did a big podcast on this and just all these different cross winds, like I mentioned. I think that traders get overwhelmed by it. Then when they get to the screen, they have all these hidden underlying biases that get in the way of them just trading what’s in front of them. A lot of people will fight the tape because maybe a move is happening. Look how much we’ve rallied and the Dow and Russell. I know the Nasdaq and S&P have rallied as well, but look at those markets. You easily can see people stepping in trying to fade them if they didn’t catch a move or just trying to go in and trying to make a couple of ticks and get in front of a steam train and they give away a lot more money than they really anticipated to.
Anthony Crudele
I think the mistake is just overthinking the environments instead of just simplifying and saying, Okay, look, there’s a lot that I don’t understand what’s happening right now, and that’s okay, and come in and just be small and smart. I keep telling our traders and my free Discord, small and smart don’t ruin Christmas.
Tony Nash
Yeah. Tracy, you’re in the trenches on this stuff. Talk to us about how do you feel at this time of year? Do you feel additional pressure?
Tracy Shuchart
I think mainly because my main focus is energy, generally tends to be pretty predictable as far as seasonality is concerned. Usually, we see a low in oil markets, the second to third week in December, and then we see a rally to the end of the year because of tax purposes, because oil companies’ tax assessment date is on the 31st of December. They try to get rid of as many barrels as possible. It also correlates to when refinery maintenance season is over, so they’re able to ramp up refining. That works out. We see big draws generally from the EIA report, which generally leads to a bias to the upside. I think looking at the energy industry, it’s just a very seasonal market. If I were trading equities, I probably, especially in the futures markets, I think it gets more and more difficult. When you start having the notional value increase every year. I mean, we have what, $4.9 trillion of notional value, notional expiring today. It’s true. That number keeps growing. I think that gets more and more difficult to trade. I think that when you get into these passive flows that just keep growing, it gets more and more difficult because you just have computers and buying because that’s what they’re told to do.
Tracy Shuchart
That’s my take on that, mark, on that.
Tony Nash
Once like Michael.
Michael Belkin
Calculating stuff.
Tony Nash
Enabling these computers. Okay, that’s good. Thanks for that. I think obviously be careful, think twice. I like what you say about staying small and all that stuff, Anthony. It’s really good to think about it this time of year. Let’s talk a little about what happened with central banks this week. The Fed, obviously, everyone knows the news about the Fed. The BOJ is obviously a big consideration. The ECB, does whatever they do to enable the hollowing out of European economy. But we saw on Wednesday, Powell presented a very doveish look for it, very doveish. Equities, accept the Nasdaq, equities loved it, small caps loved it, commodities loved it. Is this and all three of you guys, Anthony, let’s start with you, but all three of you guys, is this the end of cuts? Are rates just flat for the next months or whatever? On screen, I have a survey I’ve done looking at when the first rate cut is expected. Half the respondents, more than half the respondents, believe it’ll happen in the second half of ’24 or later. That’s changed. Obviously, shifted a little bit earlier since the Wednesday meeting.
Tony Nash
Is this the end of rate cuts? Are we going to see dramatic doveishness with the Fed? Anthony, let’s start with you.
Anthony Crudele
You think it’s the end of rate hikes, right?
Tony Nash
Sorry, rate hikes. Oh, my gosh. Yes, rate hikes.
Anthony Crudele
I know because our minds are already on cuts, right? To be clear, I’m not a macro trader, but what I look at is an overall theme. This was a shift, bottom line. I mean, the dot plots taking for what they’re worth are showing three next year. I immediately went to CME’s Fedwatch tool and I looked to see what they were going to be pricing in through the Fed Fund futures, and they’re looking at six rate cuts heading into next year, I think starting obviously in Q1. Do I think this is the end of rate hikes? If we take the Fed for their word, I think that’s what we’re looking at. The market took that statement and things changed. Market environment changed. Now they rattled the cage. Yeah, I think that we’re at the end of rate hikes.
Tony Nash
Okay. Michael, what are your thoughts?
Michael Belkin
I remember when I was a kid going to Disneyland, there’s this ride called Mr. Toad’s Wild Ride, where you’re smashing into walls and stuff. To me, that’s like the Fed steering the economy. It’s out of control. It’s blowback. They’re always doing the wrong thing at the wrong time for too long. So if you go back a couple of steps, so we had COVID, they threw an insane amount of stimulus at the economy. Then they said inflation is not a problem, it’s transitory. Then they raised interest rates by 500 or something days of points. And now they say everything’s okay. And maybe asor all of a sudden. Yes, so there was a change, but my work says we’re headed into a recession. And interest rates are going to drop sharply, the economy. So all my economic stuff… I do forecasting, time series analysis, forecast, direction, position, intensity, looking for turning points and things. Industrial production, capacity utilization, retail sales, even though the numbers should look a little bit stronger lately, I think this is a major inflection point and that goes as well for corporate earnings. Basically, I think the Fed is going to be… They’re usually the caboos.
Michael Belkin
They decide to change too late after everything’s changed. I think this is incredibly bearish. If you go back to me, this is a moment like 2000, March 2000, or after that. But nothing is ever exactly like anything else. But this is a major inflection point in the economy, similar to late 2007, early 2008 or 2000, 2001. I think there’s going to be big surprises coming from the private sector. Let me put this in perspective. So the Fed started tightening March 2022. So that’s 21 months or something now. The average lag in monetary policy hitting the economy is like 18 months. It’s not brain surgery, but we get a major downturn. Steve Hank, he’s really great on this. He’s a monetary economist at Johns Hopkins. And I don’t follow him real closely, but I totally agree with everything he’s saying. So I don’t think this is a soft landing. I think we’re headed into something more like a crash landing. Not this afternoon or this week or before the end of the year, but generally things are turning down. Interest rates go down. Right now, the market is perceiving that as bullish. Short term traders, Oh, the Fed’s done hiking.
Michael Belkin
It’s time for me to buy stocks. That’s so ingrained. It’s like one factor model. But you’ve go back and look at 2000 to 2002, 2003 or 2007, 2009, Fed was cutting rates aggressively. The economy crashed in stocks, the S&P went down by 50 %. So I think the psychology in the market is completely wrong. And I’m collecting all these press clips. One of the things I do in the Belkin Report is press clips. It’s all disastrous. Like recession in Germany, recession in Japan, China, nothing’s working. We get these numbers that they always revised down. They look great in the US at first, then they revised them down a couple of months later. Anyways, I think the Fed is going to be cutting rates, but I think the psychology doesn’t yet reflect that that’s bearish. So there’s going to be this, I think, mental change coming for investors, maybe not before the end of the year, but I just have the opposite read on this that the market is getting at the moment.
Anthony Crudele
Can I ask Michael something real quick?
Tony Nash
Absolutely.
Anthony Crudele
I appreciate your thoughts on this. I do agree with you that at some point this is probably something that turns into a bearish situation. I think when you see what happens at the end of a bull market or a big rally, you see this type of news that accelerates it. I think that’s what we’re seeing here. It almost creates a scenario for a blow-off top. Obviously, with seasonality, end of the year going into the beginning of January where it creates this bullishness. I think that this news is just accelerating that flow, which almost is like a capitulation type top. Part of me thinks, Is this inverted yield curve actually starting to come into play where people are starting to see that… Everybody was talking about how this was going to cause a recession. My question to you is, is that playing a role? Do you think that played a role in what the Fed was looking at? Maybe we’ve overtightened, this yield curve inversion is still there and ultimately there is some fear behind this. That’s why you’re thinking that it could be eventually a bearish signal to the market?
Michael Belkin
Yeah, I was actually surprised to see Powell capitulate. I agree. So the market has been saying the yield curve and a lot of this economic data, you can’t read this stuff and not understand that the global economy is headed down. So back to your point about the market making a blow off top. So before each recession, of those major recessions I mentioned in the early 2000s and then 2008 area, the market had made a high right before that. It didn’t make any sense. So it went up and went up for no reason whether news was bad, then it reversed sharply. So I think that’s what we’re setting up for. I think it’s really… So if you’re buying the market here, you believe in buying high. It’s buy high, and I think they’re going to end up selling low. So my model is looking for turning points. I looked for things like buy low, the health maximum, buy low, sell high. So to me, this is a sell high moment. And that’s just for the indexes. But if you look, let me just talk for a second about what’s going on beneath the surface. Okay, so hang on.
Michael Belkin
So my top sectors, I do a lot of. Work on the sectors.
Tony Nash
Hold on, Michael. Can we get into that in just a minute?
Michael Belkin
Okay, in a second.
Tony Nash
I want to do that in the next segment, if you don’t mind.
Michael Belkin
Sure, no problem.
Tony Nash
I do want to continue this Fed discussion, just in terms of things like your process, flexibility and rigidity and your duration. How do those change when we’re in inflection points like this? Tracy, let’s start with you. How does your process change or does it change when you’re in situations like this? Does your duration change when we’re in time frames like this?
Tracy Shuchart
Absolutely. Well, first of all, I wouldn’t go back and say that Powell’s 180 and doveish dance scared me, to be honest, because that made me think, What is the Fed seeing that we’re not seeing in the data? Clearly, there is a deterioration of the data, but not enough to literally do a 180 and start being that dumbish. That frightened me right away. I also have to agree with Michael that I think we do see some blow-off top. To me, this looks like the end of 1999, heading into 2000, and then when we had that huge drop-off, like starting, say, November 1999, it looks like right now where we may see a little bit of pullback, we may see a little bit of volatility, then we see this blow-off top, and then this market has a real problem to say, starting end of Q1, beginning of Q2. That’s what this market feels like to me. I also think we’re going to have a huge problem because if we look at the inflation situation, I think we are in stagflation. I don’t care what anybody says because inflation is still very persistent. I think that this looks like a 1970s scenario.
Tracy Shuchart
What’s going to happen is Powell is going to be faced with a situation where he may have to cut rates, but that’s going to send inflation out the door again, in my opinion. I think that’s what I’m looking at in the market, let’s say, over the next two quarters.
Tony Nash
Okay, great. Does-
Tracy Shuchart
Great. Thanks.
Tony Nash
No, that’s good. I don’t know.
Tracy Shuchart
If that answers your question, but that’s really what I’m looking at.
Tony Nash
No, I think that definitely addresses. Certainly what Michael said, that we’re going from this… Well, first of all, the Fed isn’t telling us what they’re seeing, I think. There’s something that they’re seeing that really has shocked the leadership and they’re conveying that. That’s a weird 180. It’s a great point. That should worry us. As we see interest rate cuts, obviously, that reduces margins that company… The record margins we’ve had over the last couple of years, that reduces margins for companies as well. Earnings are probably going to be scary, especially for some of these retailers or casual dining or even tech as some of these, say, budgets are pulled in, that thing. It could be scary. But I guess just going back to my last question about your process, when you see what you saw on Wednesday with Powell changing his tone dramatically, how does that change your process? Does your duration get shorter? Does your process change? How do you, Tracy, adjust when you see things like this?
Tracy Shuchart
Well, my first thought was this market is going to love this, which it does. My first thought was I need to start buying some protection in February or March because I think that a blow-off top could come. The market’s taking this along the wrong way initially. Atman protection is very cheap right now. That was my first go-to is let’s look at some puts in February, March, and see what’s going on there.
Tony Nash
Great. You’re looking at a two-month horizon for something like this to happen.
Tracy Shuchart
I would say Q1, Q2. I think that’s going to be a pivotal point. I think that we’ll know by the end of Q2. Being that it’s so cheap right now, so I have protection against a long portfolio, I’m fine with that. If I take a loss on that then.
Tony Nash
That’s great. Anthony, how about you? How does your process and duration change, if at all, when something like this happens?
Anthony Crudele
Well, for me, I’m primarily a short-term swing trader, day trader. When it comes to that process, it’s really just understanding what is the current environment. Obviously, that has shifted underlying bid in bonds and treasuries, underlying bid in gold, a favor trading the Russell to the long side more than Nasdaq and S&P because of the impact of interest rates, I think, is going to let the Russell outperform those indexes going forward. You have that shift. I also manage my own longer term portfolio, a portion of it, not all of it, because I don’t want it all in my hands because I could sometimes get a little aggressive. But I think overall, I’ve already been in IWM, so I’ve been long, small caps just because I felt that this whole year was really a bull market. I didn’t know eventually that they would catch up. They’ve now caught up dramatically and I own a bunch of tech stocks. I think for my longer term duration stuff, I use this strength to start taking my risk down. I think if you’ve already been long, I think you start taking risk down. It’s funny, this whole year, nobody wanted to call it a bull market and go back to what Michael said.
Anthony Crudele
It’s like people are buying high and that’s what happens at the end of big rallies of bull markets. It’s funny, those that have not participated are now in a rush to participate. I always look at that from a long term investor, the stuff that I’ve been in, and like I said, I own a bunch of tech stocks, I own the small caps. I’m going to start peeling that stuff off into the next quarter and just reduce my risk. Because it’s my long term portfolio, I probably won’t be out of everything. But then we’ll wait and see and I’ll let price dictate that. I don’t know when this all of a sudden shifts, but it just feels like right now the momentum is so strong technically. We can argue whether or not fundamentally it makes sense to be buying stocks now because interest rates are coming down. That’s what the market thinks. As a trader, as an investor, I look at it and go, Maybe I ride this tail a little bit, but there will start to be signs when you start to see things start to soften up, and then I adjust from there.
Tracy Shuchart
Yeah. We had this article this morning that everybody’s been talking about, there’s a $6 trillion cash word that could fuel more stock gain as the Fed pivots. We’re talking basically they’re saying, buy the high. When you get into this, this reminds me of the mania. Eventually, that mania always reversed the mean, in my opinion.
Anthony Crudele
When has that ever worked? When everyone told you it’s now time to buy because all the paths are clear and we’re at all time highs, right? Yeah, it’s going to work for a period of time, most likely, but that period of time, as fast as we come up in price, as fast as we come.
Tracy Shuchart
Wise spends.
Tony Nash
It’s like twice as fast. Right. That’s why duration is important, right? Anyway, we’re in the middle of a Santa Claus rally, so it’s just let’s-
Tracy Shuchart
Yay!
Anthony Crudele
I would not be fading it now.
Tracy Shuchart
I definitely wouldn’t step in front of this market.
Tony Nash
Yeah. Let’s move to Michael. Michael, you’ve talked about rotation for quite some time, and you’ve talked about getting out of tech, getting into things like financials. With the Fed devishness, I’d like to look at a few different things. I’d like to really start looking at the dollar. We saw the dollar start to pull back pretty dramatically on Wednesday, and we’ve got a chartup showing your dollar direction. Can you talk to us about that? Where and why do you expect the dollar to move and over what duration do you expect the dollar to pull back?
Michael Belkin
Okay. So this backward segue into what you’re talking about a second ago, how did the Fed pivot change my feelings or my forecast? So not really too much. So the Belkin report have been saying short the dollar, be long bonds for months. Okay, so that’s been working. And believe me, I’ve been wrong on other stuff, so I’m not boasting here by any stretch of the imagination.
Tony Nash
It’s a bit of boast.
Michael Belkin
To me, it was like, Oh, hello, where have you been? If you look at the sentiment stuff, so people were buying the dollar against the Yen. They were shorting the Yen like crazy right before this whole thing happened. And then the Yen all of a sudden rallies like crazy. And same thing with bonds. So bonds are up enormously now from the bottom. So the bond market bottom on October 19th. It’s just a couple of months ago, November, December. Right now it’s almost a two-month anniversary, and it’s up enormously. And if I could just go over a couple of what’s happened this week. So let’s just forget about what the indexes are doing, but a lot of what I do is focused on sector rotation.
Michael Belkin
So the bank’s KBE ETF is up 8% this week. So the S&P is up a little over 2% at the moment. Gold stocks, GDX, up 5.1%. TLT, that’s the T-bond, is up 5%. So bonds are up twice as much as the S&P. To me, that’s really a key, super critical thing here. Another comparison I’d like to make is from 1987. I’ve been hired into Solomon in 1986. Solomon Brothers, I was in market analysis. I ended up in proprietary trading, being the quantitative strategist for a man unit running the house account on the equity side. I remember in the summer of ’87, seeing the market go up, up, up, up, up, up, up. Greenspan had come in and was raising interest rates and the market went up for no good reason except for algorithmic buying portfolio insurance in those days. Then it peaked in August, sold off in September, came back, rolled over again. And the critical issue there was bonds relative to stocks. So that’s one of the… What I do is I do relative value trade. So ratio things. So long TLT, short S&P 500. So in ETFs that’s TLT SPY. That has outperformed by two % this week.
Michael Belkin
And that might not sound to an individual investor, but if you’re a big pension fund or something… So what happened to tie this back into what happened in ’87, we had a huge pension fund, General Motors pension fund, dumped all its stocks going into the ’87 crash and shifted to bonds. A lot of other institutions were shifting their bonds. So the shift by asset allocators out of stocks, which look overvalued into bonds, which look undervalued, that’s happening in slow motion. But just to flesh this out a little bit further. So again, the Belkin model looks to buy low and sell high. And that’s not just in absolute terms, but relative terms. So one of the biggest advances this week is solar stocks. Tam is the ETF. And some of these stocks are up enormously. So these are down… This ties into what Nathan was saying about the Russell 2000. Smaller stocks, some of those have been really depressed and left behind by the market. Those are going up way more than tech. So the biggest declining sector this week is communication services. That’s fang. That’s bag seven. That’s Google and Meta. That’s underperformed the index by almost two % this week.
Tony Nash
Let’s talk about that for a minute. Sorry, just to pause there because you have a good chart on that showing basically that you think we’ve hit… We’re pushing down there. I want to put that chart on screen as you’re talking through it. Can you talk through Mag Seven a little bit and where that’s going?
Michael Belkin
Yeah. Sentiment and positioning is critically important. What I do is time series analysis, but I look very closely at sentiment. Some of my hedge fund clients, that’s the biggest thing, they want to know where people are positioned. They’re overly positioned. So they’ll run to the one side of the boat, the boat’s tipping over, and they run to the other side. Mag Seven is obviously the most over-owned thing out there. Everybody and his brother, they’re allowing these things. It looks bulletproof. All the stock analysts, Oh, they’re so great. The earnings are good. So you’ve got to own them. So that’s what everybody owns. And if you look at the top Goldman Sachs, the top longs of hedge funds versus their top shorts, are getting crucified this week. So their top longs are underperforming the market, all these Mag Seven stocks, and their shorts are going up. So there’s this huge squeeze going on beneath the surface. I also like to talk about gold. Is that okay?
Tony Nash
Yeah. You have this gold CDE versus 200 average. Can we talk through that as well?
Michael Belkin
Okay, yeah. So gold is the flip side of the dollar. Okay, dollar goes down, gold goes up. So Belkin Report has been saying, Sell the dollar, buy gold. And gold has been in the doldrums. Nobody wanted to touch it with a 10-foot pole. Went from the penthouse to the shithouse, pardon my French. So all of a sudden it’s starting to come back and it’s really depressed. So I do a retail gold stock report which covers every investable gold stock, not Moose Pasture, not Vancouver, but Hope in a dream stocks, but stocks that have revenues, production reserves. And my number one pick this week and number two in previous weeks was core mining, CDE. That stocks up 20 % this week. So that’s the number one stock recommendation in the Belkin report. And again, I’m not boasting because the market is going up and I’m fighting it. So the things that are going beneath the service of the market is not what you’d think. So bonds outperforming, GDX up five % versus S&P two %. TAN, solar stocks up 12 %. What’s that? Five times as much as the S&P. Bank stocks up 8 %. That’s three times as much as the S&P.
Michael Belkin
And then things that are underperforming… Oh, by the way, real estate. So here’s another… I didn’t really mention that, but real estate is up six %, this XLRE ETF. That’s the REIT ETF. It’s up almost three times as much as the S&P this week. So things that are really depressed I think people are rotating out of… And again, back to the idea of asset allocators rotating out of stocks into bonds, I think that’s just starting. And that can be really convulsive. As we witnessed in ’87, our trading floor at Solomon Brothers was convulsed. We didn’t know in going into the ’87 crash, it was the days of paper tickets, order tickets that wasn’t or anything. It wasn’t digital anything. And it was just frozen. Nobody knew that it was… Nobody knew that we were getting filled or what. The whole thing was in a state of suspended animation. I’m not saying we’re going into a… The market is going to go down 20 % in a day or something. But I disagree with the other panelists here saying looking for a top, further out end of first quarter or something. I think we’re in a reversal zone here and the tech stuff…
Michael Belkin
You got to remember these Mag Seven stocks are about 30 % of the S&P 500 and about 50 % of the Nasdaq 100. And if these things start going down, this other stuff could go up. But you get this great rotation. But if you’re an index player, forget about it. The indexes are going to be heavy if people rotate out of these big name, high cap tech stocks and they start going down and this other stuff starts going up. So this gets back to like 2,000 rotation. Back when the tech bubble peaked, there was a wonderful rotation into financials and utilities, real estate, consumer staples, defensive high yielding stocks. While tech went down, the Nasdaq went down almost 90 % or something over the next couple of years, and all this other stuff went up for a year or two. I think there’s a great opportunity in rotation, but not in the stuff… It’s the exact opposite of what people have been doing for the last few months, just reflexively buying Magseven stocks over and over and over every morning.
Tony Nash
They haven’t lost on it, so it’s not terrible. They haven’t lost on it yet. But Michael, let’s talk. You mentioned financial sector, so let’s talk a little bit about that. You have a chart on the financial sector to the S&P 500 ratio. Keep in mind, the charts that people are seeing, they came out on Monday, I think. The Fed meeting happened on Wednesday. What you’re putting out, pretty prescient given the things that the Fed said.
Michael Belkin
Right. So the financial XLF is up three and a half % that so far this week, it’s one % more than the S&P. That doesn’t sound like a lot. So what my model is time series analysis gives direction, position, intensity. I’m looking at a 12-period forward forecast. Right now we’re only in about the first, second inning of financials outperforming the S&P. And if you get the sentiment, people don’t want banks, the banks are failing, regional banks and so on. They got such big losses on their bonds. But now the bonds are rallying. So that’s mitigating the things. I’m not saying buy the world’s worst banks, but generally -.
Tony Nash
Helps that duration risk a little bit, right?
Michael Belkin
Yeah. But again, the the the bank ETF, up up 8 this this Hello? Am I the only one to even notice that? My clients are big asset asset for the most part. Some huge, almost trillion dollar companies, some of them. And these guys, they have to be fully invested or maybe they can raise a certain amount of cash. So I talk to them and they say, Well, if I’m going to sell something, what do I buy? If I have to buy, I always think they’re So what do I sell or what do I buy? That’s what the Belkin Report tries to do. I’ve been telling them get out of this Mag Seven stuff, rotate into things that are down in relative terms, which is the XLRE, real estate, banks, XLF, KBE, gold stocks, GDX, and also utilities and and staples. Nobody likes.
Tony Nash
Great. Okay. It sounds interesting. It sounds like we’re definitely moving away from where we’ve been since, say, 2021, which it’s about time, right? I think a little bit of this stuff is a little bit tired. Glad to see that. What do you guys think about this rotation at the Etrace here? Do you see the same? Maybe not exactly, but we seem to be at the cusp of a rotation. Is that fair to say?
Tracy Shuchart
Yeah, I think it’s very interesting. We’re seeing value bid over, say, tech, which I call the pep loves dog bid. Everybody, every time there’s a dip, somebody wants to buy tech. But I think it’s very interesting that we are seeing depressed value stocks to get a bid, coincided with the dubbish fed. What are money money What are these big guys really saying? How will I have them spooked? I don’t don’t know. The money. When you see these rallies in particularly the hard assets, obviously that’s my area of focus. But when you see them in industrial metals, precious metals, energy sector, things of that nature, that generally tells me that there is being a shift and that people with a lot more money than we we do forcing something that the Fed is doing or saying that they’re uncomfortable with at this stage. It also tells me a lot about inflation because what that says says to to is that with these six rate cuts factored into the market from the the CME, that tool, I know that the dot plot’s at three, I think. By the way, what this says to me is inflation is not done done by stretch of the imagination and people are buying into inflationary tending assets such as energy, metals, and whatnot.
Tracy Shuchart
Because I think what I fear is that you’ll have rate cuts and it’s too early, it’s too soon, and then we have inflation inflation back like the 1970s.
Tony Nash
Yep. Anthony, in terms of are you in terms of rotation? Are you.
Anthony Crudele
On board? Well, when I look at tech, like like I said, my longer term portfolio stuff, I own a few of the Magnificent Seven. I’m very heavily weighted right now on Russell, and I just think that the rotation has already begun. You’re seeing everybody rotating into small caps. I thought it was interesting that Michael talked about the solar. I might follow up a question with him on that because I’m curious about it. But I also look at it from a seasonality time of year. I look at where the markets are from a technical basis. Tracy talked about how much on the sidelines sidelines could come in, in, Tracy. You say six trillion, something like that?
Tracy Shuchart
Ridiculous. Yes.
Anthony Crudele
Yeah. I look at that and go momentum is on the side of the bulls right now. I think that rotation is beginning, but but just don’t see a fallout in these major tech stocks right now. I think that it’s going to take take time, I think that that’s why I’m looking at it more as we rally. I’ll be peeling off risk, not adding adding risk, I’m talking about my longer term stuff over the next quarter just because I think momentum carries through because of time of year and because of just like I said, that money that comes in now because we go back to where we started.
Anthony Crudele
This is a sentiment shift, right? Everybody’s fighting that this is a bear market. Not everybody, but a lot of people, a lot of the year. It’s now a bull market. It’s now in the headlines. You’ve now got a lot of retail money coming in. Just in my experience as we’re making highs, highs, all-time highs some of the indexes, it’s hard to see a rotation right now. I’m still in the camp that we will see some blow-off-top, capitulation-isk type move just because the flows are so one-dimensional right now. I I think that don’t see a reason to change my mind, but the tape will prove me right or wrong, nonetheless. I think it’s a time thing is more of the way I look at it.
Tony Nash
That’s why we have markets because we have differences of opinion. It’s great. I love that.
Anthony Crudele
Can I ask Michael a question real quick about the solar? I’m just curious about it because I think it’s interesting. Michael, from your research when it comes to why the solar stocks are doing well right right I mean, it’s not like oil is is and I know that we’re in an election year, so I’m not necessarily sure how much that plays into the solar as well. But is it really just because maybe interest rates are coming coming because a lot of these solar companies are borrowing from banks banks and that’s just a lower interest rate? Is that what’s triggering it? I’m just curious why that maybe that solar space is something that’s doing so well right now.
Michael Belkin
Possibly that’s one influence. I suspect it’s caught up in shorts. It might be a short squeeze because they’re not the greatest companies, right?
Anthony Crudele
That’s why. Yeah.
Michael Belkin
Yeah. I’m saying buy solar stocks, hold your nose. But these things are up enormously this week. They’re in the Belkin Report. Report. So SPWR, SEDGRUNNOVA, HASI, things like this. I used to be part of this short selling group that would get together every year. I’m still invited, but I haven’t been able to go in the last few years. But these are the companies that stock analysts probably hate. Even though Biden has been throwing enormous amounts of money, solar energy subsidies. So I think maybe that it’s just a a sell-high thing. Things that hedge funds hate that they’ve been selling and shorting that have been been By the way, this is a new position for me, goes back about two or three weeks. These were on my sell and shortlist. The Belkin report is not a broken clock. These were previously sell and underperform recommendations in the Belkin report until a month or so ago. Now they’re working as longs. I think it’s more just like a buy-low, sell-high rotation. It’s looking for things things that down. That’s a normal end of the year thing. So if you’re looking for a fundamental reason, might be hard to find, but it’s just order flow, sentiment, positioning, direction, position, intensity.
Michael Belkin
That’s what I do.
Anthony Crudele
Yeah. Sorry, Tony. It’s interesting to me because I’m thinking about this. If this is happening overall in the market, I’m just curious what Michael and Tracy think, isn’t that a bullish thing? That’s why it’s hard for me to be bearish up here at all, really, really, because it’s a rotation where I’m seeing the weak stuff getting bought bought up. My experience in bull markets, I’ve seen that be a very bullish signal, at least in the short to medium term. That’s part of why I’m looking at it it This could carry that momentum into what we consider a blow-off type top-ish scenario. I’m not projecting that’s what will happen, but I just think that the action I’m seeing is bullish.
Tony Nash
Anthony, you said a lot like Tony Greer right now, and I mean that’s a compliment.
Tracy Shuchart
A Well, it’s the everything big, right now.
Anthony Crudele
My guy.
Tracy Shuchart
Everything’s big right right now. If you look relatively speaking, we are seeing value start to outperform, at least this week, outperform traditional tech tech I think that is just a shift in investor sentiment or money manager manager or a big player sentiment.
Michael Belkin
Can I hop in there?
Tony Nash
Absolutely.
Michael Belkin
With the Magseven being 50 % of the Nasdaq, I think that’s negative for the market. To me, I said this before, but I’ll just repeat, I don’t know if you were around in 2000, but the rotation then was… The S&P held in 2000 after the tech bubble top, but it was all held up by these defensive stocks, the big portfolio manager’s role while tech was crashing. So the Nasdaq was going down while the held held the Nasdaq underperformed. I hate overlaying one chart over another chart, expecting things to happen. That doesn’t usually work out. But you get similarities. There’s things rhyme. I think we’re more in a situation like that where you do not want to be in the the Nasdaq also the the VIX. Talked a little bit about it, but the VIX is insane right now. It’s so ridiculously low. It’s depressed by are funds that sell options. There are a lot of ETFs now that sell options for income. That’s part of it. I don’t know who all the different participants participants are selling volatility. To me, the VIX is a screaming buy. Buy. So means puts are cheap, even calls it.
Michael Belkin
But if the SKU is not there, it’s not then the distant ones aren’t so cheap. But basically, when the VIX starts going up, the market starts going down and you get wildish swings. I would say say temporary I’m not telling you what to do, but just in general, the forecast is for the Nasdaq to underperform. So the stuff that everybody’s been buying, I could see the Nasdaq going down while these other things, the Russell, the things you’re talking talking about. Of these other things go up for a month or two, not hugely. It’s not like a massive bull market breakout, but more of a rotation. But definitely I’m not bullish on the Nasdaq. I think it’s really overdone, over-owned. I know these hedge funds are feeling pressure because these stocks are underperforming. If you’re you’re 30 of your portfolio is in these things and you’re getting negative alpha, people are tapping on your shoulder. Your boss is saying, Well, what are we doing? What are we doing with Meta?
Michael Belkin
What are we doing with with Google?
Michael Belkin
What are we doing Alphabet? What are we doing with Microsoft? I think it’s negative for the Nasdaq.
Tony Nash
Okay, since Anthony asked about solar, we just had the COP28 meetings earlier this week, and maybe that’s why everyone’s excited about solar. Who knows? But message we got out of… We had a lot of gushing analysis of COP28 in the UAE this past past week. Seems like every climate warrior was super happy about it. But based on the wording of the final resolution, Tracy, Tracy, it like you don’t necessarily think that there’s a lot of reason for those guys to celebrate. Can you tell us what you’ve observed? I’ve got a tweet of yours on the screen. Okay. I’m sorry. Observed and how markets seem to be reading into the news.
Tracy Shuchart
Well, I think… Okay, when we have to start, and I just clipped in that that tweet. Just a clip of that specific energy section of it. It’s 28, 29, and 30. I think what you have to read in this market is this whole time, so let’s put it this this way, missed two of the lines to come to a resolution. They went over time into a third before they came to a resolution. The big-
Tony Nash
Does that usually happen? Does it usually take that much for these-
Tracy Shuchart
Well, no, actually, last COP28, it did over coal, and they decided to leave coal out of it.
Tracy Shuchart
It’s happened, but but not like is rare that it’s twice. My argument is everybody was thrilled about this because they mentioned transitioning from fossil fuels. Now, here’s my argument about this whole thing, and that was, I think, think, 28 if you look on that chart, transitioning from fossil fuels. What everybody really wanted in that, what the environmentalists environmentalists wanted that was the words phasing out—so really the oil and gas industry won on that point, even though they all cheered. There are a lot of renditions of that statement, but but it came out something much more watered down than, let’s say, the the environmentalists really wanted. Then we have to look at coal, and that was 28 B. Now, that initial wording started at, we’re going to rapidly, rapidly phasing down. What ended up was, we’re going to accelerate our efforts towards a phase down. I mean, all this language has been very much watered down. What is also really interesting is that if you look at 29, 29 recognizes that transitional fuels can play a role in facilitating energy transition. That means natural gas. Now, natural gas was a big point of contention last year, and they didn’t want that involved at all.
Tracy Shuchart
To me, this says, Oh, my God. Well, maybe people are realizing we just can’t jump from fossil fuels to nothing to solar. Sorry, my last points I just have to make is 28E, which is a big win for the the nuclear because it’s been shunned from COP throughout its history, finally got a mention as a fuel. I think that’s exciting for the new era industry.
Tony Nash
Yeah, and they talk about the low…
Tony Nash
No, it’s a great breakdown. In In they talk about low carbon hydrogen production, which again, is a nod to natural gas. It’s interesting that Anthony mentioned with the solar… His solar question to Michael, he talked about interest rates potentially falling to help out these solar firms. Do you think—and we talked about this a couple of weeks ago on the show—if we do have this 180 pivot from the Fed, well, given where interest rates are, do you think that it was an acknowledgment from COP28 that it’s tougher to transition to these green power generation approaches with interest rates, even at the level they are now, much less whether they either arise or fall, depending on where we are in a year. Do you think this is a nod to how expensive it is to deploy those technologies?
Tracy Shuchart
I think it’s a nod to how expensive it is to deploy any technology or any source of energy at interest rates that’s high, which we have to know. This has been a major theme throughout this entire year, starting from the the invasion. India decided we’re still buying Russian oil, we get it cheap. China, we’re still… But everybody was energy security is our focus. We don’t really care what the United States says, what the West says. I think what was a notable shift in this COP28 is they gave with interest rates this high because all of these energy projects are very capital intensive. They require a ton of capital at borrowing rates that are skyrocketing. And so I-
Tony Nash
And those countries are running out of fiscal power.
Tracy Shuchart
Exactly. You have emerging markets right now defaulting on debt payments. We just saw this with Ethiopia. We’ve seen this in multiple countries in Africa. This is a very tough time, skyrocketing rates, especially for emerging markets that are looking for energy security. In my opinion, this is a long way around of of saying In my opinion, when we look at COP28 this year, I think it’s very interesting that I think that they say they got what they wanted, but I would say this was a big win for the oil and gas in the nuclear industry over any other technology, to be honest with you.
Tony Nash
Okay. I also want to ask you about coal. Obviously, China and India and other places continue to build coal plants because people need cheap energy. Are emerging markets. They need need low energy and all this stuff to power their electric cars. If we look at 28 B, and it talks about the phase down of unabated coal power. What is unabated coal power?
Tracy Shuchart
What they’re saying is that we don’t want you to keep adding coal plants and using this as your backup plan, which we know China has. China hasn’t stopped building coal coal even though they have built nuclear, they have built out hydro, they have built out all these other technology, solar, wind, etc, etc, they still haven’t scaled down any sort of coal production and or coal energy, electric source of electricity, in other words.
Tony Nash
They need the coal to power the EVs.
Tracy Shuchart
Yes. I know I caught that that the first time. Yes. I just wanted to. Absolutely, I know. Know. You the same thing with India. You have growing populations. They want exactly what they see the West has. They need cheap energy. They have growing growing This makes perfect sense for them, economically speaking. Of course, they’re not going to stop, and they don’t really care what the West says. To be honest.
Tony Nash
It’s really cynical of the West to force this stuff down the emergency markets throughout when the West used this cheap energy to build build our infrastructure infrastructure our our Why are we now forcing these other places to spend huge money on green energy when a coal plant or natural gas plant or whatever is-
Tracy Shuchart
They’re using it as a carrot for we’ll give you money for this project if we can shove this renewable project down your throat.
Tony Nash
Right. Exactly.
Tracy Shuchart
This is where we’re seeing a lot of conflict in Africa right now. I I digress. That’s a whole other subject for another day, but that’s what we just saw in Niger. There’s a lot of conflict going on against the West, a lot of military military happening against Western Western nations. Throwing their views down their throats, so to speak.
Tony Nash
I want to ask you one more very specific question. I don’t want to get Anthony and Michael to come in. In 20 and H, they talk about phasing out of inefficient fossil fuel subsidies that do not address energy poverty or just transitions as soon as possible. They’re interested in phasing out fossil fuel subsidies, but there’s no mention of subsidies for, say, green fuels and EVs and all this stuff. They’re happy to continue to subsidize those fuel sources, but you can’t subsidize fossil fuels.
Tracy Shuchart
Yes. To be honest, I think that language is also pretty watery. I wouldn’t be surprised surprised to that kicked down. You have to realize this is a bunch of, pardon my language, but a bunch of blowhards that come together to decide the fate of the world. Many of these goals cannot be reached, but they all walk away, pat themselves on the back, say, Oh, we did a good job.
Tony Nash
Oh, yeah.
Tracy Shuchart
You’re saving them money.
Tony Nash
They went to a great hotel in Dubai and had some great meals.
Tracy Shuchart
Exactly. At the end of the day, I wouldn’t take any of of these from any COP28 as law. This is how it’s going to be. I expect every year it’s going to rapidly change. Again, this year, the biggest rapid change that we saw was a nod to nuclear and a nod to natural gas, which is a huge 180 from literally the last decade.
Tony Nash
Okay. Last question for for then I’ll turn over to these guys. How much of the stance on this statement had to with the fact that it was in the the Do you think because it was in the Middle East, they were more amenable to being friendly to Natgas?
Tracy Shuchart
Don’t think so. There’s been 28 COPs. We’ve had 13 of them in oil producing nations.
Tracy Shuchart
Some of them more than once. Next year is going to be in Azerbaijan, in Baku. To say that oil and gas gas got a nod just because it was in an oil-producing I would say is I think that’s what they liked. I think that’s the narrative they like to push. But in all reality, 13 other major oil-producing nations had posted this meeting before.
Tony Nash
Before. Michael, I got a couple nods out of you as I was asking some questions. What are your thoughts on this?
Michael Belkin
Okay, well, let me preface what I I saying I live on a rural island outside of Seattle, and I’m a mountain biker. I almost every day, even in the winter, or mud, rain, snow, whatever, light snow. On my way to the forest, I have to drive up the road. Luckily, a lot of people have Teslas and Rivians and stuff like that around around here. There’s still a lot of diesel trucks. So I have to breathe this stuff when I’m riding. So I’m not like a hard nose energy person. But I have to say that there’s almost a religious cult, pseudoscience about climate. I’ll just have one thing to say about it. There’s a story today that came out. Now, scientists say breathing is bad for the environment.
Tracy Shuchart
I posted that today.
Michael Belkin
The gasses we exhale contribute to what? 0.1% of the UK’s greenhouse gas emissions.
Tracy Shuchart
They want you to stop breathing now. Seriously.
Michael Belkin
These pseudoscientists, mostly hard left, they sit in Ivory Towers, and they come up with these models. I’m I’m a I’m a statistical modeler. And I was at Berkeley. I came out of the UC Berkeley Business School and Staff Department, and I was in classes with some of these people that were premed, they were taking stat classes. And so they basically know the conclusion that they want, and they come up with this data, this absurd data to support these crazy things. So I’m glad to say that’s all I have to say about it. I’m glad to see that this was watered down. And believe me, I’m not in favor of having smoked coal floured, coal fired utility plants and all that stuff. We obviously have to do something about that. But the religious pseudoscience, coal science from the hard left on this, it’s really… It’s almost… Sadly, it resembles what happened in the the pandemic where a lot of these people were modeling all these things saying hundreds of millions of people were going to die or something. So we have to lock everything down. So it’s dangerous to the economy and to the markets markets to have that have no idea what they’re talking about, they’re on some Ivy Tower academic pulpit coming out of these BS studies.
Tony Nash
I mean, for those of you who aren’t quants and aren’t modelers, both Michael and I build models. If we wanted to show Apple at a $10 stock price or a $10,000 stock price, if we went into that exercise with that final conclusion in mind, we could build that model. Very easy. And so, we have things like like breathing is bad for the the environment, can build that model and you can say that. If that’s what your preconceived outcome is, very easy to build that model. I think most of the people who watch this this that. But just to bring it back to financial markets, we can build any model we want if we know the outcome, the intended outcome. Anthony, what’s your thoughts on COP28 and energy?
Anthony Crudele
It is not my world, Tony. It is just… It was great to hear what Michael and Tracy had to say, but I know so little about it, it wouldn’t even be worth me commenting. I know to stay in my lane.
Tony Nash
Good for you. Thank you. All right, Tracy, what’s the outlook on energy prices, specifically, oil coming out of COP28? Do you believe that once this is digested, we’re going to see some upward pressure on, say, gas prices, oil prices as a result of this longer term, I would say, say, of the hard commitment on green green.
Tracy Shuchart
Yeah, absolutely. I think that definitely will and it has been ever since the decision. We have seen oil prices prices about $2. We’ve seen oil prices rather depressed considering the geopolitical issues that are going on in the Middle East right now. I think that definitely has relieved some pressure. I also think that not only fundamentally, but I look at at this market, market was very oversold. You have positioning. People are not short, they’re just not long whatsoever. Any news that is good, then you start that hop on train and then that gets the ball rolling. I look at positioning as well. If you look at the CFTC, commitment of traders, there was no interest in this market whatsoever. We were at the lows, not as low as 2020, but generally low historically for this market. Positioning is right right now. I’m not saying we can’t go lower by any means, but we had good news coming out of COP28 for the oil industry. We had positioning where it was. We have no interest in this this market. Not very surprising. Plus, if you see that, oil tends to do really well in inflationary environments. There are actually six rate cuts coming, which I don’t think that there are, but the market is pricing that in.
Tracy Shuchart
That’s very positive for the oil industry because the oil looks at it as in, I think inflation is-
Tony Nash
Interesting. Okay, last thing. Michael, what are your models telling us about energy and oil and gas?
Michael Belkin
Okay, I’m slightly different than Tracy there. This was my number one long call. I think maybe earlier when you had me me earlier in the the I was long energy, long energy stocks. That’s completely changed. I’m short. So I have them as underperformers, energy producers, energy service in in particular, it like a lot of not so great companies. So So tactically direction intensity is what I do in the model. We’re like maybe in the third inning or so in relative and absolute decline for energy and oil, also physical. Now, the only thing that scares me, I was a little bit late on putting this on because obviously in the Middle East, we’ve got missiles in the Red Sea every day, two more today, and we don’t know what’s going to come out of the blue over there. So I’m vulnerable to something stemming from the Israeli-Palestinian conflict, messing up oil supplies. But one other thought on that. So when the economy goes down, energy prices go down. Unless it’s like 1970s and oil supply is completely shut off. I’m bullish on some commodities, mainly metals. Do you see palladium yesterday? It was 10 or 12 % out of nowhere.
Michael Belkin
So I like the metals. I like gold, silver, platinum, gold stocks, silver stocks, these things. There’s hardly any of them out there and nobody even knows what they are. But energy stocks, not so great at the moment. As tactical short, under-performed, not included in the number, like in other words, stocks that went down a lot that are now bouncing. They’re not in that category in my models forecast.
Tony Nash
Great. I love it when we have disagreement on this show, guys. This is perfect. So, Anthony, thank you so much for your time. Michael, Tracy, thank you so much for your time. We really appreciate it. Have a great weekend and have a great week ahead. Thanks a lot.