217530272 - 1_a3hssth7 - PID 1851201 Hello, welcome to real vision daily briefing. It's Friday, January 14th, 2020 to I'm Maggie lake here with real vision co-founder. Wow, pow, wow. It's great to see you. And it's been nonstop, right? You've done like what a half a dozen interviews I know is how it's done, how it's Friday should be Wednesday as far as I was there for I Friday, No, it can't be. But now I've got to The Friday afternoon. I'm kinda ready for the weekend. Yeah. I feel like a lot of people are probably saying, thank God, it's Friday because it's been a really sort of volatile feeling beginning of the year, kind of intense market week with a lot of information. This is the first time we're actually doing the daily briefing together this year where we live, we did it live and yeah, it's a good guess. But what what do you make of the market action so far when words your head. So my head is the Mach is still thrashing around with, Oh my god, look at the inflation numbers versus some underlying changes going on. So there's rotations going on which makes everything feel super choppy. There's every bear it shouting all my god, the Fed are going to raise rates, everything's going to crash. Those. That deflation is who I would count myself into that camp saying, Well, the, the, the world won't take high rates. And if you raise the rate of inflation higher, faster than the wages, you're going to see consumption full. So there's this battle going on in the markets right now and in narratives. And obviously the inflation narrative has been, has taken hold. Bars. I'm stumped see forward-looking indicators suggesting that it's not going to stick. And that's contentious in itself. So we want so for a period each other over Twitter or even suggesting that, that, that's happening because that's the world we live in. It's so true that this is a time when there's very little consensus. It's confusing for people. Yes, it is. And that's usually what happens when you are at the end of a particular market regime. So you starting to see the two different narratives fighting for control. And it feels like that's the situation we're in. Doesn't mean that happens overnight. You know, I think market volatility is the outcome for a while longer until people get comfortable with, okay, what is happening? Now? It's pretty straightforward to me is if the bond market, if we look at the yield curve, it's flattening. If that breaks those recent lows, it's telling us the Fed cannot raise significantly more or even the four times that they talking about. So then we will start to see the ten-year bond yields peeking out. That would be at the top of that long-term trend. The charts of truth is I call it, which is the 30-year channel of bond yields. About 2% is the top of that channel. Sometimes at the peak of a cycle, it goes to a little bit through 25 basis points through. So somewhere around then you start to see the reversion. We're starting to see the ISM, ISM new orders, the ECRI, we start to see retail sales today. Mall sorts of indicates the saying, the Atlanta Fed came and revise down growth this morning in their fat now model. So I think that the macro shift that's underway and we've seen it as commodities stops getting up. Really some commodities of rebound, but it's been less clear. The inflation trade is less clear in the markets and longer. And we've got this value growth rotation. The kind of core, kind of tech, super long names. So getting smashed. But soon as the bond markets hands around, they'll turn rented. So, so this is really important and this is why you watch the bond market because you think that that's leading, right? Some of what we're seeing in Earth's rotation is maybe pay more attention. Is the tau paying more attention to, so the lagging. So if you're a bond trader, your entire job is to analyze inflation and GDP growth. That's it. If you're an equity trader, you're trading sentiments, your trading earnings, you're trading, buy back, your trading, all sorts of things. Bond traders do two things. Inflation, GDP growth, which is why they tend to be right, because that's what they get paid to do, is look at two things only. So over time, very rare, but markets rock 1994 was the only time in my entire career the bond markets been really wrong about things. So I always pay attention to the bond market because I call it the biomarker is the truth. The inflation debate is very interesting, isn't it? And I have to say, We, we, we are so fortunate to have so many sort of really smart minds, market watchers, a lot of experience to guess coming through the programs on real vision. And you've noticed a lot of them sort of saying what you're saying that I think it's peaking. I think inflation's peaking. What about the other side of that argument? When people say look at wages and look at things like housing and rent, Those are you lacking for the year and that isn't even started to hit the inflation print. That all lagged the stances because it's the slowest, hardest thing to do. Secondly, look at wage inflation and think is, is net incremental demand in the economy going up? Well, wage inflation is less than inflation. So we got negative real wages. Secondly, there were more people late leaving the labor force than ever before. The labor force participation rate is super low. Many of those are baby boomers who have high incomes, hi, earning power. So you're offsetting millennials, giving them an increase and a lot less than the leaving. So net-net, you've probably got a fall in total demand and you're seeing it in the numbers already, I believe, which was the retail sales numbers that came partly is Omnicom. Omicron is not clear yet. But my, my view is that we're actually lowering the trend rate of growth that people can't see because we're still dealing with the machinations of that after the pandemic. Yeah. What do you think this means for the Fed then? So my view and has been all year, I've been looking at this whole junctional year because I think it's the bigger trade is I think the Fed are not going to deliver what they say. I looked at every recession going back to 960, 3. And almost every single time there was a growth scare early on because the economy is not fully stabilized yet. So what happens is stimulus comes out of the economy, fiscal stimulus, the Fed start talking about tightening because, because inflations risen, because he only a rate of change and stuff like that this time we got supply issues. And then what happens is the Fed think about raising and before, you know, growth evaporates again, and then the Fed actually end up cutting. So I think we will get a couple of rate rises in potentially maybe only one. That's my view. Why? Because I think by June I think inflation's back down to 3%. And the ISM is probably closer to 52 than it is to 60. So you don't want to tighten into a falling economy going into a election. I know the narrative now is, well, they need to tie it to look like they're fighting inflation. Best thing to do is talk tough, generate high, can maybe two to 25 basis points in there. Let the, let the natural kind of ebbing and flowing of the economy work in your favor. You can say, we've beaten inflation. And then you can get stimulus package through ticket. Take a victory lap when they are bones and before we had to actually do and then stimulate ahead of the election, I mean, that will be that will be perfect for them. So the reason I dropped, my jaw dropped, obviously, we've all seen the headlines, right? You have so many the market pricing in at least four. Not only interest rates heights, but let's talk about quantitative tightening. This massive. Yeah, So here's the fact is, I saw it yesterday and I've been following this for two decades now. Every single year of my entire career, every single investment bank has predicted rates too high. Without question, a 100 percent forecast error. And they do it all the time because they seem to ignore the fact that we're in a secular downtrend driven by demographics with a massive credit, credit bubble. So you can't raise rates. I mean, you can't generate inflation and he can't raise rates. But they ignore every time and every time I remember last time we hit the charts of truth line, which was back in 2018. The last time I was done to the comment about I think this dynamic changing GIF gun likes, like it's breaking the charts of truth. It's going to 6% that the world's going to fall apart. I've heard this every three years of my career and it never happens. Now. Is this time different? There's always a probability, but it's not the highest probability to me. So Robert put a question to the RV site that answered his question. Are they going to raise rate four times? Is this even possible that creating the cratering the economy? Raul, just answer that. We do have. So what does this mean for risk assets? We do have people asking about, what about this cell off we've seen in tech, given that outlook that you don't expect that action from the Fed, does this, does this sort of showing you any indication of long duration assets. Less attractive is not increasing bond yields. It's the inflation that we've had. So you discount it by the inflation. So if the market is wrong in expecting higher inflation for longer than growth, stocks will explode higher again. Because really let's face it, we live in an exponential age. Anybody who thinks that tech stocks, high growth, long duration tech stocks that are capturing exponential rise of technology are not going to go up again. That can't happen just because of network effects of what's going on. We're not talking about IBM here or GE stock or some of these things can trade sideways for decades. But you can't trade sideways for decades. Exponential growth going on. It just, it just can't happen. Now you can have periods of the year, 18 months of sideways down markets, which we've been seeing. But then what happens is they end up looking ludicrously cheap versus what's happening in the moment the inflation story disappears, then everyone pulls into growth again. So that leads us Eric asking a second part of his question from the exchange. What about Crypto? Crypto is similar to growth. It's driven by its own network models and adoption. There's a bunch of other stuff. But similar to that, I said crypto had been trading sideways because wage growth has not kept up with inflation. So marginal Module dollars to invest by retail has been reduced. And I think that it gets partly caught up in the growth story, but there's no correlation really between bonds and crypto, the dollar and crypto they're all passing correlations that come in. And now suddenly the S and P is correlated for a bit, then it's not. So I don't worry about that. I just look at the network effects over time. But if the Fed increase the size of the balance sheet, then it's all correlated because you're lowering the value of the denominator. So that's why when the Fed increase the balance sheet, what you find is that everything goes up. Now, does it happen when the Fed decrease the balance sheet? Are they going to shrink the balance sheet? And does that crash the markets? If they do do it, markets will stop going up as much because of the fact that you are increasing the value of the denominator. So it changes that. So, so, yes, we saw it last time around there was a period of time as the Fed, we're reducing the size of the balance sheet. No, they kept the balance sheet. Stable. Stocks were sideways for a while. But then even with a stable balance sheet, stocks took off again because the growth story is still underlying. What the market won't like is raising rates. It took eight times for the market cracked, lost on. That never happens on the first a couple of goes. The mock has a wobble, but then it shakes it off. So it's eight times last time and it took the balance sheet taper and then the markets that are rolling over. So, so you feel like sideways U and Julian Britain had, MIT had just filmed your latest macro insider conversation. And Julian seemed a lot more concerned about the risks around that change in Julian's from the silver market, his modus operandi, everything that his body is about inflation and the Fed is going to take your precious metals away. So to be fair, he nailed the impatient call, the share. I was more sanguine. I didn't really get involved, but he really sorry, coming. So we have that argument because I'm a dyed-in-the-wool deflation is he's a dyed-in-the-wool inflation as well. That's why the conversations are so good and you were very kind to him, entertaining his his concerns about that. But I can't see the issue I have with this is, okay. So we've got inflation. What happens? You raise rates, what happens? Markets eventually slow down, the economy slows down. Eventually the stock market goes down. And eventually the Fed come back in because they can't allow the collateral of the market, the equity market, the bar MC, whatever to fall apart. So then they simulate again. So I'm like, well, it's kind of a never ending cycle of even if it comes off, it stimulates. So I'm not worried by it rarely I guess. And you're not worried that inflation stays high enough that it prevents them from sort of looking after the asset markets. Sometimes they want to take steam out of the asset markets. I don't think they do. I think look, that's the rest of my view is that I'm wrong. And growth itself, let's say later in 2008, back-end of 2022 is stronger than I expect, and inflation persists at 3.5, 4%. Yeah, then I would be wrong. And if that was the case, then we're going to see a more prolonged bear market in these high-growth tech names. Bond yields, I don't think bombed yields would move a lot on that. But we get more of this market rotation in the equity market, stuff like that. We have a question from JB on the exchange. Since we're talking about the potential for all of the tax documents again, to to take off what's your opinion of Arc and Kathy word? So I'm at it staggers me that people get emotional about somebody's else's portfolio. And people get emotional about Kathy, would they don't like it? Why? Because it's all about change. It's all about non traditional evaluation metrics using things like Metcalfe's law. They don't like it. I really respect Cathy's view. And yes, she's dealing with this massive rotation out of the names that she owns. It's normal. I have a local Charles, I have an arc that I use. Look at all the time, a a monthly log chart. It's about two standard deviations oversold in the, in the trend channel. Most likely we're at the lower end of the range. $70 is two standard deviations. We hit 78 today. Does it break it, false break, go higher? Probably. So I am getting very interested in accumulating. I've been talking about this trait for a long time, been waiting for this to sets up, letting the inflation narrative get bigger and bigger and bigger. That people throw the baby out with the bathwater, which is the network growth stocks that you absolutely want to own for the next 10 years. We're going to go. And incredible entry point. I think now I understand people think there's technical difficulties because she ends up selling liquid stocks to funds. The healing but stove. I get that. Let's see how it plays out. I get there's a risk. That's okay. Markets have risks. And we're all adults and we decide what risks will take them, what we're going to take. Our prototype, that risk entry point is really important, isn't it? Because we've seen a lot of concern and a lot of anxiety over the decline. We saw crypto from the November highs. So if you bought at that time it's been incredibly painful and stressful for people. But, but in your note in your, in your gym, I note to your investors your thing piece in January, you kind of reminded everyone what the gains were in, in Bitcoin and Ether last year. I think it's worth reiterating that, right? It depends when you get in. That's right. I mean, last year I had one of the best years of ever had him theorem, which was my biggest bet, was up 450% and becomes a smaller band. I was up and that was up 60% and a whole bunch of stuff was up hundreds of percent. And that's not to boast about me. It was the it was about sticking with the plan that I had and I got the right timing to get in at the right time. So if you remember at the time, I'm a macro guy. I wait for the bus to turn up. I don't try and, you know, I don't try to find every trade. I'm not interested. Now, I'm not short-term guy. So I wait and wait and wait, and I waited for that creates opportunity. I'd been saying for maybe two years, three years that crypto MACRA, That's a meat and it's going to meet at the next recession, the Fed are going to have to print massively, and this is the time to buy. And I went all in. And I've been talking about the exponential age rate, extended period of time now saying Listen, this is the big trade, the big equity trade here is the exponential age, which all of these network adoption models of modern technology. So here we are setting up exactly the right trade, which is stuff like OK or Scottish mortgage. All of these things, they're all coming for the entry point. You get the entry point right at the maximum point of fear when everybody says, This is terrible, That's the point. You can drive extraordinary returns if you're a long-term holder. I'm not trade us. I don't really care about the next three months. If I buy out, if I'm expecting to hold it for five to ten years. And if I get it right, it'll go up Tenex. That's what I'm thinking. Yeah, I think that's so important because there had been a lot of existential questions in this decline by skeptics, who will say this is proof, it's not working and there has to be a more nuanced conversation. I want to, I want to circle back to crypto in a minute, but I want to talk about another trade as people are looking for opportunity because in volatile markets, right? You also want to find the opportunity. We've had a lot of questions about that. Can you talk to us a little bit about carbon because that was one of your big winners last year and you just did an interview again. In fact, let's, let's play a clip before we talk about it, Let's play a clip from your conversation with loss and Steel, who is one of the, one of the folks that you talk to last year about this trait. Let's have a little snippet of that one then we'll pick it up on the other side. The whole market, the demand supply balance is not a story about demand. Demand is moving plus or minus a little bit, but nothing too exciting. There's supply. So when you got your demand of around 8900 million or so, you get a supply reductions of three to 350 million per annum for the next four years. It is huge, right? That's just the automatic trigger. Unless that's what this market as well. And that step change happens in September and it looks back kind of like a 2-year average, give or take and and adjusts accordingly. So so that so so really you've got the 30th of April compliance and you got September, which is your adjustments. But underneath all that, you've just got this massive imbalance and the price going up, which is forcing people to wake up and understand what's going on. And that just increases and makes people behave logically by buying more permits. And that full interview is available on all tiers on real vision. So this is something interesting and, and while I don't think that's on everyone's radar, I love this trade. I love everything about it, and I love it because it came from real vision community. So it was this time last year, somebody hit me up with a Bloomberg message that said, I know, I didn't know the guy from a big bank. And he said, I know you love chart. Take a look at this. I'm like, Wow, is this big wedge pan. I'm like, What the **** is this? Because it's carbon. I might tell me about it. What do you do? He was a carbon trader and electricity trader. So I got on the phone. He told me threat, he explain the dynamics, which is that the e, essentially limiting the amount of carbon. Availability of credits. And so what happens is they're forcing the polluters to bi-modal while reducing the supply. I'm like, This looks like a cryptocurrency, right? Way. You've got to reduce supply. And you've got, so they're burning the tokens. And he, you've got government mandated demand. I'm like, this is incredible. Who should I speak to? So then second, I guess you need to speak to our analysts thing or analyst team. I pick up the phone to this guy. He goes, Hey, well, you know me, I said, How do I know you? Because I'm a real vision guy who won a competition fluids to see you and had dinner with you in New York. So he and the Citibank team talks us through the trade. So I put the unreal vision. Then. Then I said who also I speak too. They said, Well the best independent analysts is Lawson. So I get Lawson on he goes, Well, you need to speak to PR and around. So Pierre up there anyway, he's the world's most famous oil trader. He also happens to be the biggest crater of carbon. So then he came on rails and explain the whole thing. So that's a story of religion, the power of the network in the hive mind and who's there. I put the trade on. It was best-performing commodity last year. So I wanted to get lost on say, well, what do we do from here? It's got a 100 percent. And so loss and explains the trade, how average people can get into it and where it thinks it goes. And the, the punchline, the story is a lot higher still to come. Which is incredible given the gains, what was it? 91% you run unless you're somewhat close to a 100 percent last year and it's and you know, his via my view, is over the next 18 months could do the same again. So if we if we take that, you know, it had that began, he's saying go higher if we, if we, if we flip back to crypto for a minute, how are you thinking about this now and talk to me about the other coins as well. Because if if if if you got in November very painful, if if you saw gains like you experience, we get a lot of questions. Should I continue? Should I hold, should I take profits? Do I buy more? Do I buy this Deb? How are you thinking about that space? Everything comes down to time horizon. Firstly, don't put too much money in that you can't afford to write. Developer cells have told everybody this for two years now, expect 50 percent drawdowns as normal course of business and not calling it a bear market, just calling a correction. So that's what we need to deal with. And everybody's make their own decision. It's also time horizon. If you think it goes up. Yeah, 2030 x over the next five, 10, whatever your number is, within a 50 percent drawdown is just small noise on the chart. If you're training for a three month time horizon, it falls 50% on you. Well, you've got a dead wrong because your time horizon is different. So I am looking to, to add more my positions into this kind of market because I don't think anything's changed. Nothing's changed. The network adoption network slowed down a bit for the reasons we talked about before. So over time, we see in institutions coming. I'm talk to them every day. I launched a crypto funder funds. We've already put the first $100 billion to work that goes straight into the markets by the hedge funds. Yeah, that ongoing allocation of assets is, is happening. So it doesn't stop. So trade sideways for yet, That's great, tends to mean periods of suppress volatility lead to hyper volatility. Periods of hyper volatility tends to lead periods of suppressible SLC. We basically had a sideways market where volatiles has been falling for since. Okay. So that's how I think about it in terms of the allocation of Tolkien's. The answer is, I don't know. It's complicated. We had a big move in the layer. One's a VAX terror and and Selena, usually chasing the previous theme is a way to lose money for the reasons you said before is you're not taking advantage of weakness. What you're trying to do is follow the momentum in a market where people just rotating, That's usually bad. You can add some momentum trades when the whole markets in momentum, no one is rotating. So where could the rotation? That's the question you should be asking. Well, some of these defy one's had a big run in 2020, haven't done anything of fallen 70%. Maybe it's defined. Maybe it's the interoperability, the ones that allow you to move things from one chain to another. They haven't had really had a big run. Maybe it's those mets of us have had a run. And if he's had a ROM, layer ones of how to run a theorems had a rhombic once had a run. So that's, you need to be thinking, Okay, what hasn't had the run yet? And again, I wouldn't try and look for one particular single token. Because your probability of success, unless you really know it, is super low, build a basket of stuff. Equally weighted. Don't take too much risk. Wait and see. I think this is why it's so important to our other content on our crypto channel is available for free once you register. And then we've also created now pro crypto, the institutional. You can't just look at this as, as one chart rates getting more nuance in that you have to have more education and understanding around what yeah, even idiot like make her get Bitcoin and Ethereum right now it's complicated, right? You need to know what you're doing. And, you know, and that's what we did the crypto Pro because even I would reaching out to the Delphi guys all time. Say what do you think of when you think of that? Because it's beyond anybody's ability. Now they're a big team of 70 people who've just do this all day, look at different stuff. So yes, it is more complicated. Or the other way of solving for it is choosing one focus area that you become the expert on. That's the other way. There's no way you'll be an expert in all of this. You might be okay with some broad as allocations by using the kind of structures I'm talking about. But we're still a bit hit or miss. I mean, I don't really know. So that I'm I'm guessing too. Yeah. I think the one thing though is that clearly between whether we're talking about carbon or we're talking about from the crypto currencies. There's a lot of opportunity. It feels volatile that started this year, but it seems like there's a lot of opportunity to be had. I think there is we talked about there's some macro inside of the rubbish and pro tear. Julian and I is the opportunity maybe not be here now. The opportunity now in markets like this is to do your homework on what you actually want to do. So we talked about growth stocks. We talked about carbon that's been kind of shopping around a bit in the last few weeks. We've talked about that, we've talked about is an opportunity in the bond market and the long side, maybe there's other trades to be done. So it's the time to do your homework. It's the time to focus on what is my macro view? What am I looking for? What am I signals? What are the chart? When should I get in? Choppy markets are not the time to have high conviction. Fantastic stuff, so many good questions we need to leave it there, unfortunately is never enough time but route. Thank you so much and thanks to all of you for watching the daily briefing is observing the Martin Luther King holiday Monday, but I will be back Tuesday with Andreas steno Larson. And as always, the conversation continues on the exchange. Have a good weekend, everyone have a great weekend and have a great weekend. Mega banks.