Bear Market Rally, Bull Market Trap >> It's a complicated world out there, and we need to get as many different views on different understandings of markets and economies as possible. I want to reach out to Sven Henrich to understand how he, at NorthmanTrader, sees the structured markets. He's really interesting because he's come from a different background. He's come from real business, understanding the business cycle, but then came into the technical analysis, and his broader understanding of economics in the macro. I want to pick Sven's mind about, what he sees the big picture, where we are now, and where we might go. I think it's going to be fascinating. Sven, great to get you back on Real Vision. It's the first time you and I have sat down and chatted on Real Vision. I just think it would be lovely to hear a bit about your background because it's different than most people. I think it's always interesting to understand how people think because of the different experiences they've had. >> Yeah, I'm maybe a little bit oddball here, in the sense that I'm not from the Wall Street background. I never worked for an investment bank, I've never been in the financial industry, other than in the corporate world. I really grew up in the wireless world, where we were running around building wireless networks in the '90s and early 2000s, really at the time when the local PPT started privatizing. Where you had spectrum offerings in GSM, and there was initially a process of applying for licenses, you had local partners. So it was basically a corporate development effort to win the licenses, understand the business plans, because you had to put together big consortiums. You had to have a sense towards what the valuations would be worth. We ran through the whole cash flow models, discounted cash flow models. These were big opportunities, and of course, it was a greenfield because no one really knew what this was going to be like. Obviously, we now take everything for granted with wireless services and so forth, but at the time it was a new thing. That's where I got my footwork started in valuing companies, understanding companies from the grounds up, and then as we won these licenses, we have these startups, we actually had to build them up. Then the joy was, now you're going to a startup, and build a company from scratch, and actually put your business plans to the test. That was, here's theory, here's reality, and then that got me into operations management, coming out of startups. That was just a wonderful experience for about 15 years. I did that, and I was in Germany at the time, and I started going back into trading, changing from an investment background to just actually looking at charts, and trading options, and futures, and all that good stuff. That's why I joined Twitter. That's where this journey began over the years. Luckily, I met my wife via Twitter, as well. >> Wow. >> Yeah. We had a little excursion via Ireland, and I ended up moving here into the UK, which was never part of my plans, but I loved doing it. Of course, in the process of looking at markets over the years, I obviously realized quickly, it was not only charts, but the macro environment, and that was influencing markets as well. I always had a personal interest in what's going on politically, economically, and basically tried to combine my analytical chops from the corporate world into analyzing the economic, the macro, in addition to obviously, what we do in the technical side in charts, and so here I am. >> That's a **** of a journey. A lot of people get so far along that journey, and it becomes difficult to really grasp the complexities of financial markets. How did you do that? Is it the charts helped you visualize what's going on? How did you combine all of these skill sets together that created what you do now? >> Really, I can't say it's a conscious process. I think first of all, in terms of understanding how companies operate, I think is incredibly important. I've been on the inside on the corporate world. So I've gone through this process in 2000. When you see all a sudden, the consolidation of companies, you see how they operate, right-sizing, if you want to call it, efficiency management. But I've seen it inside out. I've seen it from the planning stage, I've seen it from a operational stage as well, and I've been on both ends of the side, in terms of management, but also I've gone through layoffs. We had a startup that got killed in 2008. These things happen. From that sense, I always had a broad perspective in terms of how the real world works. Maybe that's a gift, but maybe also it's at times a curse. If you live in a period of bubbles, you've seen it in Nasdaq 2000. You see the manias develop, and it's not time for rational people. That's part of it. The charting, this is a skill I developed over the years. A lot of metamorphosis from my wife, she's fantastic swing charter. So I learned a lot of charts from her, and just reading data. Reading data, absorbing it, and watching behavior, and you do that over a number of years, it comes together. >> What do you think is going on right now? I want to dig in to your big pitch macro framework. Then, where you think we are right now. Because it's a very complicated world. From a big picture perspective, how do you see the world right now? >> Well, I think you hit the nail on the head. It is a complicated picture. I think it's probably the most complicated picture any of us have ever seen. I think it's ultimately the result of a journey. Obviously, we tend to look at the day-to-day, what's happening. But I think the long-term journey is probably the most important here. We have transitioned from a crisis mode in 2008-2009, which was initially intended to be just a rescue, when the central banks went in with QE, and low interest rates to help re-grow the economy, that never really happened, because central banks ultimately realized that they cannot take the foot off the pedal. I think that's symptomatic for a lot of underlying issues. The Fed tried to raise rates a little bit in 2016, '17, '18, and they were able to do that. Frankly, on the heels of two factors. One was in 2016, as you recall, we had an earnings recession in 2015-2016. While Janet Yellen, when she did her first interest rate hike, this was in December 2015, and it immediately fell apart. Because we had this slow correction in early 2016, banks fell apart and she stopped. She basically put everything on hold. But in came the BOJ, the ECB, and everybody started printing massively in that period from 2016-2018, it was like $5 trillion in balance sheet expansion. That gave the Fed cover to raise rates, and start the process of reducing their balance sheet a little bit. To me, that event in 2018, when markets dropped 20 percent in Q4 as a result, not only of the tightening, but also the 10-year hitting the 3.2 percent level. That was the 30-year trend line, downward sloping trend line from the 1980s. >> I call it the chart of truth. It's such a brilliant thing. >> That the chart of truth, everything fell apart. To me, that was the most revealing event, because for someone like me, having criticized this entire cheap money game for a long time. The question was always, can they extract themselves out of this? The Fed and everybody else had their dot plots of what they were going to do. But notice this entire period, the ECB couldn't even get themselves to raise rates to zero. They couldn't even do that. So to me, the game was over at that point. That was when the Fed was forced to flip-flop in a big way. That was the sign that A, it was beholden to the market; B, that the experiment had failed, that they could not even get anywhere near the 2007 levels of raising rates or even reducing the balance sheet. The market clearly dictated it was not up for that reduction in liquidity. That came on the heels of this tax cut that we had in 2017. Tax cuts provided this additional liquidity, companies came in massive buyback expansions, that gave cover for the Fed to reduce their balance sheet, but they could only go so far. Then fast forward to 2019, again, we have promises of earnings growth and all these wonderful things, but that didn't happen. We had a flat earnings growth. This business cycle was already basically hitting the wall. You go from cycle to cycle, you get this period of really low unemployment, we've had the Fed trying to raise rates, and then ultimately always fails. We've been on this journey of lower rates, lower rates and lower rates, or lower peaks in the rates each time around in the cycle. Then come to 2019, what we really had was what I call the blow off topic because we had as massive run-up in Q4, not by earnings at all, it was just pure multiple expansion. Again, it was driven by one factor alone, and that was balance sheet expansion by the Fed. They called it not QE obviously, but important to recognize is that this multiple expansion through these massive levels in Q1, Q4, all the while, the bond market did not confirm this move and yields were not moving along, they were saying there was no cap recovery coming. We build this classic technical pattern, new highs on negative divergences with banks and small caps and yields not confirming the move. Then of course, COVID hit, and was this massive risk of trigger that we saw. This is now where we find ourselves in this, I don't know what color define a monetary wars. But obviously, as you know, we've seen balance sheet expansions, interventions like the likes we've never seen before. My worry [inaudible] that they've totally overdone it in the sense that they've purposely not taken the consequences into account. I keep being shocked by J-Pal coming out and saying the Fed itself, their policy do not contribute to the wealth gap that we see in the country. I think that's just blatantly false. You fought for as bad as the financial crisis was in 2007 and 2008, at least everybody got hurt to a certain degree. This time we see a population that has suffered for years in the sense of low-wage growth, weakening participation. Let's face it, we may have had three and a half percent unemployment, but a lot of these jobs were not high-paying jobs, they were low paying jobs. The Fed keeps claiming there's no inflation. Well, guess what? A lot of people have been priced out of housing for years. The concentration on wealth is so dramatic. Tech companies obviously, the top one percent pricing up or bidding up housing prices, it forces people into the suburbs and longer commutes and all that. In the meantime, we have people with virtually no savings rates. We saw that just now, I mean, the entire issue was revealed in this crisis. People have no savings to keep themselves afloat for three months, at the end of a business cycle when things are supposed to be the best. Now we have literally tens of billions of people in dire straits and in hopes that obviously their jobs are coming back, and completely dependent on financial assistance by the government. At the same time, the top of seven billionaires that are adding $170 billion to their wealth in the worst financial or economic crisis in our lifetimes, the wealth gap just blew a wide open. Just to stamp this up here, the larger trends that are in place, continue to be in place. We have ever more debt to finance any type of growth, we have ever lower rates, we have ever wider wealth gap, and we have absolutely no prospect of getting out of this, especially in context of a political structure that's completely fragmented. The divisions, not only in the US, but this is all over Europe. We can talk about how social media and Internet technology and changes filter all into this. But I don't see any structural solutions being implemented anywhere or even being this gusts. We're running cycle to cycle to cycle with ever more intervention, ever more debt creation, and we're hoping that central banks and low rates will keep the system afloat. To me, that's a circle of doom, if you want to call it, because there's no unproven, and so these trends continue. Now we're faced with a situation with a lot of uncertainty, a lot of lack of visibility, and with companies having every incentive in the world to right size and create efficiencies, which to me points to larger structural unemployment for years to come. That's why I'm mad, and so now we're looking at new highs in the Nasdaq. >> Yeah, the problem is these are secular trends you've identified. I throw in the aging population and the baby boomers throwing money into their pension plans is distorting. There's a whole bunch of things going on. My view is, well, if shutting down the global economy doesn't stop this, then nothing's going to. Although, yes, the S&P hasn't taken the high again, but the Nasdaq has, and it's just left many of us with a big macro framework based around the secular cycles, scratching our head thinking, are we wrong? Does none of these matter? Does valuation not matter? Does GDP growth not matter? Does earnings not matter? Does anything matter? This is I think the bit that's got everybody thinking, I don't get this any longer. >> I think this is a fair common. I'm grappling with this myself, but then I'm also going, okay, well, we could have asked maybe some of the same questions in March of 2000. Does anything still matter? We are in a period of the greatest distortion ever. The question is, to the extent that it's sustainable. One stat I keep pointing out is market cap to GDP. 2000-2007 when we had these cleansing of the system, if you will, that market cap to GDP at least moved down to 75 percent to 50 percent. In the '80s it was around 65 percent on average, if you will, and then we had these bubble moves the first one being tech 2000, where we moved to about 140-145 percent, 2007 never even got closer I think it was about 137 percent or something to this effect. In February of this year, on the heels of this old repo and dimension, we got to 157 percent market cap to GDP. It was the widest disconnect from the economy ever. Then we have the 35 percent crash. That was okay, here's a quick balancing, and of course, they immediately jumped in again. To me, the big question to your point is this disconnect from the economy becoming permanent because central banks have proven that they're not willing to pay for more than three or four weeks at the most. We saw it in 2011, we saw it in 2012, we saw it in 2016, they always step in. The system is never allowed to really cleanse itself out, and so here we are. Yesterday we were at 154 percent market cap to GDP, again, inside of a recession. If you believe in a bullish case, then you have to say, okay, well, not only are we staying at the most disconnected levels ever, we have to get to even more disconnected lines. >> It's also telling us by the central banks actions, if then when we allow full weeks as you say, so I'm limited downside. What's it telling us about what they think the actual state of the economy is to take pain? What they're telling us is, there's no ability whatsoever. That the outcome they fear is so bad that they will trade it off against any distortions that they create to keep the thing going. That's an extraordinary admission, right? >> It is the trap. I think like a gambler, they realized longtime ago, that they have to step in all the way. QE was always an experiment. They had never done this before. This suppose all under Bernanke, and then every other central banks started joining in and on the fray. I think they realized longtime ago, they cannot get back to a certain level. The entire debt construct that we have globally now is entirely dependent on cheap money, low rates, negative rates, otherwise it can't sustain it. If any of these central banks would raise rates to just one percent more, everything would collapse. What is it that they fear? Let's go to a world where the central banks, because I have a theory and it's not proven, that the central banks aren't [inaudible]. That in fact that, if you look at Europe and you look at Japan, then in the end the central banks don't manage anything. What they've done is change behavioral expectations, currently, particularly in the United States. Let's say monetary policy suddenly doesn't work because here we've got an economy where you can't really generate jobs in an economy with a virus, right? You've got a structural issue here. What does it look like if the central banks do lose control and they aren't able to hope, to continue with the magic trick of driving expectations higher? What world does that go into? >> I would probably call it the great unwind. One of the challenges I think the Fed has here in particular and all the central banks is typically, you want to be able to build ammunition. I think that was the effort of raising rates in the United States to have the tools to actually incentivize the economy. That was what worked in 2009 to a certain degree, but because they were not able to go very far, going three rate cuts in 2019 and going to zero, they came from the lowest space ever. I actually question the efficacy right now already in terms of what these rate cuts to zero actually bring about in terms of economic balance. What they've managed to do so far still successfully, is again, raise asset prices in the face of fundamental, start supporting these levels. Let's be clear. If the Fed hadn't thrown in three trillion dollars in liquidity and brought rates to zero and jobbed on every step of the way, I think we can all agree on this, the S&P wouldn't be anywhere near where it is now. I think the issue is when does the market loose confidence, and if the market were to lose confidence, I think then ultimately you end up in a situation where indeed you get the historic realignment, 50 percent, 75 percent, but depends with the tradition. >> The issue is and I grapple with this is, let's say Spain is now the chairman of the Federal Reserve. Considering how bad the outcomes are now because the problem was started from Greenspan on-wards, what else could you do that doesn't lead to that? Because if we're saying that if they didn't do anything, the downside is catastrophic now. I mean, game theory would just have to continue. >> Well, that's the problem. I think what the general view is that if the Fed weren't to step in and buying everybody's bonds and high yield debt, we would have massive collapse of companies and that would result in high unemployment for years to come. I think it's a false promise because we're creating all these zombie companies. They're not generating any profits or their debt obligations are higher and so that will force them ultimately to downsize. Anyways, as it were, competition you may argue, is also being stifled by the FAB Five controlling everything. There's no evidence that we've seen that low rates and QE, the Central Bank in dimension game is actually producing sustainable organic growth. This latest cycle that we've had was the lowest gross cycle we've ever had. I feel there's this fear to your point that if they don't do something and they feel obligated to do something, everything will collapse. Maybe that should scare markets a bit more. The fact that Central Banks do not have the confidence to say, "You know what? You guys need to fund for yourselves for a while." That lack of confidence should actually concern everybody because, what is the natural state of the economy? We keep obviously pushing this to the nth degree here, but where's now the game to say, we're going from the situation we're in to some four or five percent growth that was promised several times but it's never happened. The demographic issues obviously are not going away. There's one chat I posted yesterday, which fascinates me, and that is the growth in working age population in America has gone negative for the first time ever. It peaked in 2000 and it's ironic that that peak in the growth rate, it goes low, highs, low, highs and the yields tenure will held us go on and ride along with it. That's telling us something, isn't it? What's the endgame? I don't know. We're coming out of this year with the most indebted economy ever out of this crisis. I hope this COVID goes away in the next 6-12 months. I don't want to be running around with a mask the rest of my life either. Assume the best case scenario and everything is well by next spring, we're going to be what? 140 percent, 150 percent debt to GDP? We'll have $30 trillion in debt in the United States, we have corporate debt approaching 100 percent to GDP. You have the brakes on already in everything else that's coming. What this entire growth innovation that's supposed to come from a zombie fighter, highly indebted economy is unclear to me. >> Let's talk about the magic side now. Let's say they have resolved it and the markets are right and growth is going to come back. Sure, not as fast as people expect, but not as bad as some of us fear. They kick the can down the road and the debt cycle keeps growing and it continues. Look Kelvin, everything is possible, but do you think this is probable? Or is this the event? I think just using some rational sense of understanding of history, if you've had a down 40 percent GDP quarter and year on year GDP, I don't know what it will end up being on average this year, but we'll have lost 10 percent or something of entire global output. If that can't trigger a larger events, then what is the next up-cycle look like? Because there'll be no fear ever for anything. >> That's what investors have been trained to believe. Rightfully so so far because no downside ever sticks. It makes me worry a little bit about our human complacency in general. I think all of us have been part of the luckiest generation ever because they've never been any real big disasters that lasts. You have short-term events, but because obviously we've benefited from this fantastic technology revolution, things have gotten better in terms of our lifetimes. There have been no major wars, obviously, we've had events here and there, but they've always been far and remote. 9/11 was a terrible event, but it was over within a day in terms of the actual hit. Hurricane happens, it happens quickly. But now we're going to a phase that we don't really know about in terms of a pandemic. >> Yeah. We've not had long-lasting events that we've had to deal with uncertainty. It's a war. Start Second World War, you have no idea when it's going to end or how big it's going to be and this is the same. We don't really know anything. >> We don't. I don't want to get philosophic on you here, but it's interesting. Humanity took 250,000 years to get to one billion people in terms of population. That happened around 1805/1810, no one can know for sure, but roughly thereabouts. Obviously in the last 200 years, humanity has exploded. We're now lots of seven-and-a-half billion people. We've been lucky. There have been terrible diseases along the way. The plague, we talked about the Spanish flu and what have you, and medicine has improved incredibly, but invariable, unwittingly perhaps, with looking at life on the planet in general, humanity has become the largest potential food source for a virus. We're everywhere and we're more connected than ever. I look at what's going on in Florida now and Texas and California, the virus is having a heyday. It doesn't care about what we think or what our opinions are. Even in the last few decades, you talk about AIDS, you talk about Ebola, there's things that have been starting to prop up. You're always worried about something that migrates, mutates, and does whatever. We can't know. We can hope for the best than we have. >> The more successful humans become the more the risk that is of something else preying on us essentially, and a virus is a classic example of that because we're food source or distribution chain. >> We're used to be in the apex predator. What was that line in Jurassic Park, nature finds a way? It just did. >> Yeah, absolutely. Talk to me about markets now. What do you say? We're at this interesting juncture where we've seen this enormous blow off top in the tech names, really reminiscence of 1999-2000. We've got reminiscence of 1999-2000, whole other parts of the market sectors that are under-performing, banks particularly concerning some of the highly indebted corporations and even the Russell 2000 is under-performing. What structure are you seeing? What do you think it's telling us? >> You mentioned earlier yields being truth. I think you can also say equal weight is truth. If you look at the market in general, The Dow hasn't gone anywhere in two-and-a-half years. January 2018 following the tax cuts to now July 2020, it's flat to down. Small caps are down. Banks are down dramatically, obviously in that period as well, and even this year, S&P got to flat with negative earnings growth. It grew 30 percent last year with flat earnings growth. We see a big wide trading range. Nasdaq aside, obviously, nothing has really done incredibly well. For me, it's a trading range at the moment. We have obviously forces at play that want to see markets maintain this trajectory. I'm not a political person, but let's call a spade a spade. The administration wants markets to stay high into the election. The Fed does not want markets to top hard. If the markets were to drop hard and the Fed loose control, would have negative rates in a New York minute, basic way. I think we're actually ultimately heading into that direction. The VIX is telling me that it still has room to the upside in terms of volatility. With Nasdaq at new all-time highs, S&P flat on the year, we should have seen the VIX drop up, fill its gap around 20. It hasn't done that. It continues to flirt with the 28-32 range. I think there is risk for some more volatility to come in a major way. One of the problems I have with the rally, technically, from the lows, first of all, it made sense. I was out there about this epic rally to come just to technical reconnects. Not unusual. The question was always, is this a bear market rally or is it not? For me to jury is still out because of what I see in the larger sectors, tech aside. Tech itself has just now made new highs on massively weakening internals in the sense that if you look at the bullish percentage index on the Nasdaq, it has been making lower highs. The components above the 50 MA, lower highs. Your narrow wedge play where the leadership is thinning out. Actually, just this last day and a half we just saw Amazon drop 12 percent out of the blue. You see this retail chase that we were lacking, by the way, in February in the run-up. This was always this thing where there's proper mania. Retail was always lacking here in the last couple of years, but retail just joined in a big way. We saw about 40,000 new accounts open up on Robinhood that chased Tesla yesterday as it's heading towards 1,800. This is the circus the Fed has created. My issue is ultimately you would want some economic basis to support these valuations, but we just don't have it. So to the extent the Fed remains in control and keeps maintaining this disconnect, fair enough. I'll get another blow off top for all I know. Ultimately, to me that is dangerous because asset bubbles, when they burst, hurt the economy. This is, I think, where the Fed is playing with fire here. Because if they lose control over the asset bubble, they may deepen the downturn that is ultimately coming. Remember what happened in 2000 after the Nasdaq bubble burst. It took two-and-a-half years to get through all that damage and now we're here. Then of course, we have no visibility in terms of where this is going from a regulatory perspective. This is the largest market cap expansion in human history. The top seven, I think, added $3.5 trillion in market cap since early 2019. Apple hasn't had earnings growth in a couple of years and it certainly won't have it this year and the stock keeps exploding higher. At some point you need to have something to back this up. Unless you're just banking on permanent forward multiple expansion, you're running the risk that this all unwinds in a big way. >> But it's not a market you can short yet either. Because you never short a bubble and really you need confirmation. I agree with you. There's a lot beneath the surface, bond deals being one, banks being another, giving us clear sign. There's [inaudible] , there's things like RSI divergence. There's a growing body of evidence that would suggest that this is still a bear market rally. Obviously, in the Nasdaq, it's gone to new high, so it's different. But retail exploded onto the scene within that, that changes the structure. This is something unique, and that's okay because everything looks unique. Each event is not like another. They all have a unique element. But what triggers do you need to see to go from observationally bearish to actually bearish, to say I want to take some risk in this. >> From my perspective, actually, there's a couple of things that have been working well for us in the recent weeks. The S&P, when it hit its June highs. I'm looking through this all through a technical lens, right? >> Yeah. That's what I'm predominantly asking for, because it's easy for it. >> We had major trend breaks in markets in February and March. That came with massive technical damage. I'll send you some charts so you can see what I'm talking about here in context. Because this rally that ended in June for the broader market, while it continued for the Nasdaq, it hit key trend lines on the Wilshire, on the S&P, on the VTI, which is just all market ETF. It's amazing how markets, despite all the interventions, despite all the distortions, still respect key trends. If you get the internals mixed into this, they give you a sense where you may want to start, "Okay, I'm going to test this at least." Sure enough, we had that precise tag of the trend and then rejected. Then following that June high, we had a sizable correction in actually the broader market. Not a tech, but banks dropped 20 percent, small caps dropped 15 percent at one point on futures. By the way, every single time we had any downside off of that June highs, the Feds stepped in with announcements. Going back to our earlier discussion about how nervous are they. Every single time there was downside they came in with, "Oh, we're going to do corporate bond buyings, our facility is ready." Always really well timed. Before you know it, you sound like a conspiracy theorist. But I'm looking at the tape, here's the downside. Here comes [inaudible] with trade vehicle. This is so predictable, it's almost laughable. >> We're about to get the vaccine. That's the other one. >> Every day now. I have a running joke on Twitter, futures must be down. Because that's exactly what happened as in announcements and whatever. They do it every single time. It's hilarious. From that perspective, you can say markets are actively managed, actively watched, and that may just curb any downside for awhile. Corrections will be limited and therefore you have these long trade bounce opportunities as well. But look, even this week, S&P got back to the June highs and stopped precisely there. >> Yeah. Closed the gap on the daily charts and on the cash index. >> Island reversal, it came back up to that and filled that gap and boom, they pulled the plug. Incidentally, the Nasdaq making new highs also hit a key trend line. In fact, on Monday this week, it poked above the trend line. This is where you have to come to Jesus moment, and say, "Okay well, what's going on here?" Are they literally breaking out of that trend for good or is this a fake out? It was a brilliant fake out. Nasdaq had an island bearish, engulfing reversal. That was a big deal. It was up over two percent and all of a sudden dropped hard. That was like four percent in today reversal. We see it in stocks like Apple. Big, shooting star candles, your classic sign of something all of a sudden being shaking up. I think maybe this Monday, we have the first moment of maybe sanity or reality starting to poke in. When that Tesla reversed, everything started reversing. >> I've been observing the same thing. But at back of my mind is, well, one day doesn't make a trend yet. >> No. >> It's a warning sign that flashes. I've been looking at exactly that S&P high. I've been using the Nikkei 1990 which doubled topped, bottomed in March, topped in June, double topped in July. It's almost identical setup to this. So I'm just watching it like you are, saying, "Okay, this is interesting." But we'd need to see some continuation to trigger something. I can't find a quality trade to do with this kind of thing. >> But in the olden days, if you had a break in a pattern, that was your signal to start, for example, shorting. In the new environment, shorting a pattern break is deadly. You're going to get killed. You got to adjust with the times and you got to recognize also, the game's Argos play and where they reside. You always got to have a sense in terms of what triggers them. For me right now, the upside risks clearly is that open gap at 3300 on the S&P that's glaring. That's always the upside risk here in terms of what they may be able to do. For example, with another stimulus package coming out, and then S&P goes fully green on the year with disastrous earnings, growth, and so forth. I mean, if you believe in the perversion continuing, then you have to be cognizant of the fact that could happen. Having said that- >> So the trigger for you would be that break, that 3300. You take out the June high and then you're saying, "Okay, it's going to run for a bit longer. We'll see where it goes." >> You have to see, it could stop at the bottom of the gap, it could go all the way. But keep in mind that trend line I was talking about that was rejection. That's moving higher and so there would be that moment where you're in the gap and you hit the trend line at the same time, maybe you get these big gaps filled. Confluence factors that say, well, watch out for that. If we get that upside move and obviously we have another Fed meeting at the end of July, we have congress offering another stimulus package and there's market loves to run after stimulus package. So that's my upside risks in area right now. Where I say, that's throwing more liquidity at this, nothing matters and get more multiple expansions, blah, blah, blah. Having said all that, the fact that we just hit that June high again and reject it, and I don't know where this week is going to go. It's OPEX week and they're trying to keep things alive and all that. But there's always a shot at the double top, for example. I think these things are always worth testing from a rejection point of view, there is an interesting analog, and I have no idea if this is going to play out. I've looked at it for a number of weeks and now in context of this move above the 200 MA, because let's face it, in June, we moved above the 200 MA. The collection in June stopped at the 200 MA it was heavily defended along with the weekly 50 MA, it's amazing. I mean, the market's really tear off stuff and there's confidence support daily if you're 100 MA, weekly 50 MA that is now key supports, and its supported for both saying as long as they hold these two lines, which are basically in the same area. As long as they hold out those lines, they can move towards that 3300 gap. But here's the interesting part, that dance going above the 200 MA, retesting it, going above it again, retesting, going above it again, we've seen that dance before. Ironically, on the Nasdaq in 2008, that's exactly what it did. It was the ultimate bold trap. Because you have that optimism is back, the worst is over, blah, blah, blah. If I now look at what's happening with the banks that to me are at high risk of suffering from the change in behavior that we're all seeing. That is staying at home, working from home. Corporations deciding to maybe pull back on the footprint in terms of commercial real estate it does. This is whole other launch of things you mentioned earlier about bankruptcies and so forth, that all still has to filter through the system. So I remain open that this is a bear market rally. It should be from in the context of history, which says that a recession, especially of this magnitude, is not a three, four week event, but it will take years to filter through, which is ironically what even fate speakers are signaling in recent days that this is not over. From that perspective, markets have zero business being up here. In the longer term, damage will still become apparent. Now I know we have Kotler and others coming out and promising 20 percent growth in the second half. Good luck with that. If it happens fantastic, but I don't see it at this point, especially as layoff announcements keep mounting. If you're looking for a trigger of control, I think it's really that area of the daily 200 MA and I made it most people watched, but the 50 weekly MA as well. But of course, is that the area you want to start shorting? Depends I mean, I like it from higher off, and then you place your stocks and then you can see if you can get a larger move, corrective move going. But as long as we remain above, those two bulls are in control, keep it simple. They lose that there's a lot of technical reasons to say why we should drop a lot lower. One of the problems this rally has had is that it's built mostly or largely on overnight gaps. We have so many unfilled gaps. Yes, a gap can stay open for years. But if I look at 78 unfilled gaps on the Nasdaq, on this run here, I really have to question the veracity of the sustainability of this move. >> I mean, nobody's got a crystal ball. We deal with things as they come. We just deal with probabilities not understanding of it. What do you think is the most likely outcome looking forward, six months or a year ahead. In terms of markets? >> That's a loaded question. It is I mean, I don't have a crystal ball. I think to me ultimately comes down to control. We have an election coming up as a lot of uncertainty with it. How much of it would change one way or the other? Unclear to me. People like to make a big deal of you get this party and with it comes all those grandiose change. I really don't see that grandiose change in terms of the structural policies. Would Biden, for example, raise taxes on corporations? Maybe. But he won't be able to do it with all that majority in the senate, that is dead in the water right there. So I can't predict the elections neither character at this point. How much is big tech at risk of regulatory changes? I mean, lets face it, Facebook has a monopoly on eyeballs, Google has a monopoly on advertising, Amazon has a monopoly on everything it's getting ever more powerful and stifling any entry. I mean, if you want to compete with any of these companies, good luck. You just can't, you can't go around them. If you want to advertise, you have to be on these platforms, not choice about it will translate into a regulatory effort to break them up as they would do in the olden days, I can't predict. It seems to me that maybe you are a risk factor, but you need to have parties in congress that agree on something other than spending money, and I don't see that in particular at the moment either. >> Also want to look at these hypotheses I like to say in the share price, so I can see that oil companies are going to get broken up. If I look at the monthly charts of the European oil companies or even the US oil companies, they looked terrible. Like massive head and shoulders, top formations like it's yeah. I can see regulatory change as ESG becomes the thing. I didn't say in the tech names yet. I believe it will come, but I don't see it. So I don't see any evidence of that structural top. I'm a big believer that charts tell you, and I see that the chance of the banks are telling me that insolvency is a much bigger deal than anybody realizes and I also understand that big tech doesn't have any insolvency issues. So you can understand why money can leave the banks and the heavily indebted companies like GE or AT&T or folder General Motors and go into Apple, because in the end, Apple's not going to go bust. So it's very interesting, like you, I look at this and think, this is not a one missile strike. It's not a one discrete event. It's an ongoing events of which we don't know the longevity, but we know it's not going to really probably finish this year. So from a probabilistic framework, I just don't see how the economic pressure doesn't exert itself on markets. So I would say that balance of probabilities are that the markets overall come lower. >> It's my sense as well, because of the message or equal weight. I think the larger market is telling us something. Bonds are telling us something. That message is, it's not a rapid V at all and to the extent that everybody's hiding in a few stocks that are highly valuable. PEG ratio is, I'm an Amazon PEG of three Apple, PEG of two at $1.6 trillion valuations, that brings about a lot of risk, especially if people think that the Fed can actually bring about growth. I'm very doubtful there. The only thing that's really good at is asset price inflation, congrats. But that's not going to solve the structural issues that are here well. I'm not an expert in diseases or viral diseases, but I read history as much as anybody and we're still grappling with a massive wave 1. There is some hope that obviously we're going to get better treatments and maybe even a miraculous vaccine. But there's also logistical issues of getting that out if we do get that. But fall is rapidly approaching and that's when things typically nasty, obviously every year we get a flu season and this virus seems to thrive on underlying conditions and immune system being weakened. Frankly, basically everything I've read, I don't want to get it, because people have side effects for a long time. It does damage. What bores me just in general, I know a lot of people dismiss this virus for whatever reason, but it's very efficient in terms of how it attacks the human body in many different ways. I'm just keeping an open mind here to say I don't know what we're dealing with here. I hope for the best for everybody, but I also am living in the UK and as of July 24th, we now all have to wear masks going shopping. Well, that's confidence inspiring, isn't it? Then you have the psychology effect on actual behavior. I know a lot of people run out and go into the beaches and that's fine. But now we have these spikes in Florida. Well, it's all fun and giggles in the abstract, but if it hits you, or it hits your family, or hits a friend and you have a fatality there, all of a sudden you go wow. Maybe this is real. Maybe this is serious. Maybe I got to be careful. Maybe I'm going to hold back on my spending. I'm just here in my local environment and we live in a country, so that's fine. But just local town here, it's quiet, it still is very quiet. I don't see people out shopping dramatic ways. >> I think the behavioral effects of this are big. I think the shock of what's happening in America right now are reverberating to many. I fear that Europe made a mistake by reopening for summer holidays and everyone's ****** off to the beach in Spain. You've got a chance of creating another problem there because nobody on the beach town is social distancing or wearing masks. They're on holiday. It sets up for a potentially complicated autumn as you say. Let's see how that plays out. I also think, as you and I talked about, is the structural markets now is getting interesting. There is a potential turning point here, who knows? We'll wait and see if the evidence continues to build on the price actions confirms some of the phase both of you and I are looking at. If there's one thing that people should focus on their screens. So one was the 50 week moving average you talked about, what else should they just keep on their screens to understand has something changed? >> Keep an eye on the VIX. I've gone through this exercise a few times over the years, but I'm going to repeat it. There is a myth saying, "You cannot chart the VIX." My wife has this problem over and over again. She's the VIX queen. No one will believe this, but she had a call out last year. She told our clients, "VIX 90 was coming." Even I didn't believe it. I said, "You're off your head, because VIX was at 11 and 12." She said it and we got to 86, and she also said, "Q1 was crazy." I was like, why didn't I trade this out? I feel like such an idiot. But of course, she couldn't see COVID coming but she looks at structures in the VIX. I've stolen her approach a number of times. I have a little chart out called VIX 46 in January, bang it got right there. There was a gap fill. The VIX tells us something still. The Fed's primary purpose, self stated purpose is to calm markets. That's the goal, always been their goal. Their goal is always been to crush the VIX and with which they've achieved, all these corrections to be momentarily. So far we have a lower high in the spy, we have a lower high in the Dow, We have a lower high in the [inaudible] low or high in the [inaudible] and every index chart. The VIX stays in a 28-32 range. >> Why? >> I think that to me is a key question and I'm looking at structural patterns there and it says it has room to pop higher. To me, if we do gets another sizable correction this year, it's probably going to be a buy at some point maybe we fill some of these key open gaps, and then the question is again, is the Fed able to do if that event happens? Will they go negative rates? Which they're denying, By the way, everything they've denied over the last two years, they've done so far. Just a side comment. I'm absolutely baffled in financial media in particular. Pau and his cohorts keep to saying things, that are absolutely either not true, or that have been proven to be wrong and they never get challenged on these things. Just think of the last couple of years. We're going to raise rates in 2019. They didn't. It's not QE. It was, we're going to auto roll off the balance sheet. Instead they raised it. Repo was going to be temporary. It's gone on for seven months. Now they're saying, "Well, we're not going to do negative rates and we're going to put away out through pass." >> They all say the simple word, I'm sorry, it's all ******. That's what they have to say. But they can't. >> It is the confidence game, emphasis on con. Central banks cannot be appear to be not in control. They have to project confidence and they have to project calm. If the market ever gets the sense that, the Fed is actually losing control, I think that's when we're in, big, big trouble. From my perspective, they've made a major mistake here. I know they have to ended been makes perfect sense. People needed help. I think they again, went overboard. Complete disregard to consequences. Pau last year went out of his way to say the current debt curve that the United States was on was unsustainable. He said that in 2019, 12 months later he goes, "Never mind. Let's not worry about that now." at a point when we're running a $3-4 trillion deficit this year and is expanded the balance sheet. Just the treasury holdings of the Fed are going to be larger than the entire balance sheet was during the peak of following the 2008 crisis. It's going to be at four and half trillion dollars in the next few weeks. It's insane. I think we're all getting numb to the numbers, the sheer enormity of what is being put out there and we're told it's all consequence free. If you want to believe that, fine. I just don't see it happening. >> Yeah, but it's not going to stop them doing more. I think the key point of all of this is if the markets believe that this does not have an effect on the underlying economy, and it doesn't have an effect overall on markets, that it's purely psychological. >> Well then there's a big problem. I don't know where that tipping point is or if that tipping point ever arrives. But that's the big one, is that belief in the Wizard of Oz, and suddenly you open the curtain you realize there's nothing really there. >> Do you remember capitalism? When you didn't have a central planning committee deciding everybody's action. It's hilarious how, you saw it with junk bonds. They make an announcement, everybody jumps into junk bonds. They make an announcement they're going to do this and everybody, that's all it is these days. I don't even see any Wall Street analysts coming out, even making a bullish case without basically just citing the Fed. That's what our industry has been reduced to. >> Yeah, I just get the feeling, just to finish off, is that capitalism wasn't allowed to run its usual course. You couldn't have created destruction. So they concentrated all focus on trying to maintain that, for the good of society, because it would have hurt society a lot. That was the big fear in 2008. It feels potentially that the pendulum is going to shift to politics that protects society, because markets can't be protected any longer. I'm a big fan of Neil House The Fourth Turning, the book, and it just feels that we're at potentially one of those monumental shifts. Where what we understand let's the US society to be, changes structurally for a whole period of time. Because as you say, we feel like we're at the end game of this, of the monetary, protecting people by protecting the economy. Or maybe they're just going to move to universal basic income, universal health care, protect people, because that protects not the one percent but the 99, and then eventually you can walk away from protecting the economy, and then you get to rebuild it properly again, in a way that functions for everybody. It's interesting because nobody's going to like change, regardless. >> Well, it seems, and this is probably where you get a lot of the MMT arguments for. I think we're at the point where there are no apparent solution, there does not appear to be any leadership, cohesive leadership in the globe to even want to address the issues. I think no one likes a message of pain, and I completely get that and no politician can run on a platform, "We're going to fix this, but it's going to really suck." No, that just doesn't work. Central banks, I think, have filled this policy void. Because politicians, and this by the way, is a circle jerk in a way. Because central banks bail out at every step of the way, politicians go, "Hey, I don't need to worry about this recession. I don't need to implement structural solutions. I don't need to make things better, because there is always that magic fairy in the background that's going to fix all our issues. So why worry about it?" That to me is a problem because the structural issues are not going away. They keep getting worse, they keep being unaddressed, I should say. So they keep melting and that's where you get to a point. If we can maintain, and this is a great human experiment that we've never seen before. If we can maintain unlimited amounts of debt without any consequences, then fine. But we have an ever wider swath of society that is not partaking in the economy, and I hate to say this, but I think what we're seeing in our politics is a reflection of that. The anger that we see. The push to ever more extremes, be it on the left, be it in the right. This is not a United States of America in a real sense at all. People cannot agree on the basic reality. That to me is frightening. Maybe the virus is a good example. People behave differently depending on what their political beliefs or allegiances are. That's dangerous stuff. When you address an enemy that attacks us all, strength is unity, in a situation like this. It has no unity whatsoever. How do you govern a society? How do you make a society better, when society has drifted that far apart, when socioeconomic angst has brought it to, at least as a contributing factor, to that point? That worries me the most in the long term and so with solutions unaddressed, with central banks being the lender of last op, going through lender of last resort to lender of all resort, of the entire resort. We've crossed the red lines, as Mr. Powell himself said. I don't think anyone has an understanding or crystal ball, as you said, in terms of how this could possibly play out, I think we're in uncharted territory here and I think there's a lot of hope that everything that has mattered in the past no longer matters. You're literally counting on it being different this time, the old adage. I don't know that it is, but it's a challenging time for anyone that's trying to keep all right. >> Sven, well, thanks for coming along and sharing some of your thoughts in this extremely confusing world. We'll just see how the structure of markets plays out over time and see whether it gives us signals. It's a really weird world because the stock market is telling you one thing and you have to tell your friends, who are asking you, what do you think is going on with the economy, something different. It's a very different world but let's see how it plays out from here. It's going to be, I think, a potentially interesting few weeks from here. >> You think? I mean, Jesus. The next few months, holy ****, I think it'll be wild, 2020 has got a track record. >> Well said. All right, my friend. Good to speak to you and we'll talk very soon. >> That was great. Thanks, Raoul. Appreciated. Have a good one. >> Yeah, and you. >> Hey there. Since you got to the end, I'm guessing you liked the video. That's probably because we don't just turn on a camera and film, we work really hard on getting the narrative flow just right. That's why many finance companies are actually now hiring Real Vision to make videos for them. One of our recent client videos just hit 100,000 organic views on YouTube, and there were no kittens in sight. So if you want to find out how Real Vision can make a video for your company, just email us at customvideo@realvision.com.