247782233 - 1_h7qwngj3 - PID 1851201 Welcome to the real vision daily briefing. It's Tuesday, April 19th, 2020 to I'm Warren pies, founders strategists at 314 research. Today I'm joined by Tom thought, founder of hedge fund telemetry. Tom, first time talking with you, How are you doing today? I'm doing great. Great. Finally, we get to chat. I've been a big fan of your work for many years. As saying to you, It's great opportunity. I think Tony will be back next week for anyone who's wondering, but I think this is going to be another big day. Seems like every Tuesday we do, this ends up being a huge Diana market. So again, markets are fused a, S and P of 1.6%. On the other side of the trade, bonds down rates up to on a tenure at 2.93 a close. So yeah, I think the big question on my mind, when you have a day like this and putting in context of what's happened in the markets this year is, is this from your view, is this the beginning or the early stages of a new bull market or is this a bear market rally? I think that's ultimately the question in my mind. My view, starting the year is that it still continues, is that we'd see this. Your play out more tactically with bear market rallies. And bear market rallies tend to be sharp quick. They come out of nowhere. And most of them are lower high Affairs and you can exploit them. And I think they're great to trade. And I've, and trading, um, like, like a maniac right now. And but I think this is, it's going to be a period of rate, the Fed raising rates. I think earnings are going to start slowing, we're starting to see it. And high commodity prices will probably persist, right? For 314, one of the things we do, we will steal man opposing position. So coming into the year and steel Manny means like, you know, instead of straw manning where you kind of create a crappy version of the opponent's argument. You create the best version of the opposing argument and try to better understand where you could be wrong. So when we came in the year, we were pretty bearish calling for enough market volatility to force the Fed to reverse course at some point in the emerging the under on the rate hikes. Obviously the Russia, Ukraine war changed things. But I think what has got us thinking about and what we're going to write about this week is, what does the bold case that we could be missing as people have been lenient, bearish. And I think that's consensus. And that's where I started with my kind of steel man approach a walk how this could be the beginning of a new bull market. One of the charts we, we are going to start out our report with this week is the number of bowls and the AI survey dropping to a basically a 32-year low, low, as we've seen note and few 15.8% respondents are bullish on the next six months in the market. The other thing we do, and just to set the table, let get your response is we create kind of model versions of portfolios and strategies that might be out there to kind of triangulate positioning. And so one of the things we do is we do a vault targeted strategy where if you're a portfolio manager, you're dialing exposure up or down with a 10 percent of all target. What's your positioning? So another big chart there is where this hypothetical position to be falling to sell off. We saw earlier in the year, we've got this will be the other single clip chart, Brian, if you could. We've seen there the vol targeting hypothetical have all targeting positioning has plummeted to Sub 40%. So this is kind of where you expect to see a short-term bottom, whether you're talking about sentiment in the opinion polls or on the way positioning should shake out. And so these are kind of the starting points for triads for constructing a bull case going forward. Even those is not our position at port that president is worth understanding it. So what do you think of those? The sediment that's out there, do you, do you measure sentiment in any certain way? Interposition. Well, I learn from the best of them like you did at Davis. I was a client client of Ned's and I learned I watch the net Davis sentiment pulls that he had. And I learned. And I basically took out one of your partners for drinks and I said, Okay, tell me the breakdown of how it all works. And one of the components is the daily sentiment index. And that's Jake Bernstein's daily poll of Currencies, stocks, bonds, currencies, and commodities. And that's been really, really helpful. And I chart that on my site. And when you see it go from, you know, it's between 0 to a 100 and What we saw recently at the last low, we saw a 10 percent bowls. And so it's different from the AI, which is a weekly poll. And I'm not necessarily crazy in love with the a, I'm I'm pulling Hadoop three. Yes. Anyway, the problem is they ask are you bullish, bearish, are neutral. And I think sometimes people will use the excuse and say I'm neutral rather than to go full bear and look, it's good at extremes and I think sentiment pulls are very, very good at extremes and that's when you really want to use them. But market sentiment can and will stay over bought or oversold for an extended period of time. And you've seen that before in different bear markets where it can be under, let's say from 0 to a 100, it stays under 50% for the most part, for a year, year and a half. And that we've seen that for several periods and especially in the great financial crisis. So that's what I'm watching right now. I see the whole point though, as far as people saying, Well maybe positioning is off sides. There's a lot of stocks and sectors that had been beat down really, really hard. That is not in reality with the S and P and nasdaq 100, partly because you have the omega cat names that have the big fusion. And I've hidden a lot of the underlying damage. So my view right now is that there are places to buy. I don't have any any inkling that this is a the bottom. It is perhaps bottom. I'm on my screen right there. I'm watching Netflix get absolutely hammered here. And that's not a good tell for some of the technology stocks that are going to be reporting starting this week and a lot next week. Yeah. So Netflix getting destroyed, you don't doesn't make you feel very comfortable jumping over in that part of the pool. So where, what are the select areas that you're looking at and in wanting to actually put might work. I put money to work last week in bank stocks. And I really did not have a lot of people that said, Hey, this is a great idea. And partly because everyone knew bank earnings, we're going to be absolutely atrocious, terrible. The good news is, with higher rates of that net interest margins are the in the income. And I, and therefore there was a bit of a tail when there. But trading was terrible. Underwriting was, was just terrible year over year. But the stocks were more washed out and I had a lot of demarc by exhaustion signals down there. And this is really different because we've seen the financials go into earnings previous quarters at highs and then they faded. So this is one quarter where the positioning was off sides where you had a lot of people that were more short financials than we've seen in a long time. And a lot of put buying I saw down at the Lowes. Therefore, there was a put squeeze in a little bit of a short squeeze. So I I like financial still. We're going to talk about it, but I'm more cautious on commodities, especially with energy right now in the short-term, I shorted natural gas yesterday, add into a position so I'm now profitable on it. And I added Excel, ie, SOP and OH, as tactical shorts today. And I think that a pause with the energy, sentiment real high and a lot of demarc exhaustion signal. So it's not a giant bear on energy. I just think that we're going to see perhaps five to 10 percent pull-back. Yen. Is that a relative pullback in your mind? And so because one of the, the patterns that we've tracked as a manager goals throughout the year. On our end is just integers. The only sector of the negative correlation, a negative correlation to every single other sector in the market. And so far this year, it'll ever been, there are no other to other sectors with negative correlations within the market. So it's been this odd kind of really actually useful to portfolio diversifiers and managers. Asset that gives you a hedge to some of the biggest tail risks that are, have been out in the market. So to me, if you get energy going down in these relationships holds and you're going to be expect to see the broad market rally. He would get some relief in oil prices. These companies react and that trade we've been watching persist is that you see or you see some kind of break and that is your or your signals given you something else. I think it's just more of a pull back and maybe a pause. And I know there's a lot of commodities that hit new highs and spiky type highs, especially in energy with Ukraine. That's calm down a bit and I will say all bets are off if this goes, this accelerates and become something bigger. One thing I will mention to you, I'm looking at my screen here with the Goldman Sachs. Most shorted baskets. And most sectors have really pretty good performance for the shorts in the last three months. And Last year, I, the only one though is energy. The energy shorts have, whilst there are 57 percent the shorts. So if you've, if you've shorted the heavily shorted baskets, you've done great. And the shorts have absolutely been murdered. And the I think it's the XLE is up 25 percent in the last three months. So there you go. You have this huge move that I think is a lot of short covering. And usually when you see big moves like this, a lot of short covering, the shorts give up. They just say no thanks. And if numbers come out and they're fine. And we saw Halliburton today. It came out, the numbers refine, the stocks sort of faded a bit. It may, maybe partly because of the commodity, but I think they're just a little over done and you're running out of buyers. And I'm sure you see this and I'm sure a lot of people reach out to you because your commodity person, you're, you know, the energy markets. So while, and you have a lot of new people buying into the space and the macro energy tourists, I think our way out there right now it's a bit of people chase what's worked. And that's the fact. Yeah, you know, I can't disagree with that. I guess, before I get into kinda editorializing what ID so what would your timeframe beyond that? So you got three months to 12 sniper. Look in this in this market. This has been a pretty wild market. So it could be a week, it could be two weeks if crude and everything drops 5% or 10 percent, I'm going to take some profits. And I'm totally willing to be wrong. And that's something in a bear market that people need to recognize and you can be wrong by taking profits too early. And I've done that. And that's okay. You just don't want to be holding onto something. And being real stubborn. This is the market. These cannot be stubborn at all. Yeah, I think that would be if I had to think of why I would be a little bit nervous about holding onto my energy logs here. It would be crowded. It is crowded and it's a similar thing. Dynamics, a little restarting the show with which is AI sentiment. In, like you said, I think there are some issues of Texas. It's what people say versus what how they're positioned. But yeah, there's a kind of long energy is consensus and bearish the market is consensus and nobody really feels very comfortable being right in the middle. The consensus trade anytime, right? But maybe it is sometimes when you get in front of a big move, just to step outside for a minute is you don't want to overthink it. And that's kinda where I'm at on is like, yeah, it could be a five or 10 percent correction energy and that might be healthy. And it seems like every day that goes by, China is increasing the locked out and, you know, so that's ostensibly pretty bearish for oil, the fact that we're above a $100 a barrel, There's signal and that to me, there's huge signal that we've lost somewhere between 22 million barrels a day of demand through the China lock downs. And in the past when I've seen in Chinese trying to lock down their country or even suggest block will the country down? Well as fall apart. Go back to the old Macron scare. Go back to anything during the early days of delta. And the fact that oil has poignant above a 100 because it's a huge signal. So, yeah, I can't disagree that it's a crowded trade and we could have a five or 10 percent crushing. Sure. But over the long term, I see, I think these are huge, huge secular events that are happening this year and it's hard, It's almost difficult to overstate them. So that's kinda the message that I've been given in class. So it's interesting to see different time horizons, how you would fit that together and have different positions. Yeah. I think you're absolutely right. I'm in the same boat thinking longer term and I do all the fundamental reading and I know how you just can't turn on the wells that people wish they could. And that's going to take a long time to get the supply and demand balance worked out. And my view is we got down to 90 on WTI. Be fine trade. I'd be more than happy to take profits. Their natural gas was very, very crowded. I shorted that and I was wrong for a few days and I knew I was going to be wrong. I'm like, look, I'm going to be wrong. I didn't think it was going to go up what it did yesterday, but I'm really happy I did today. It worked out pretty well. And one thing also, a lot of people will want to trade with ETFs and UN G, which is not necessarily a great ETF or an ET n is they? I think it's a futures based trays or an ET and basically there's no borrow. And usually when I see that there's no borrow for something with a lot of the retail brokers. I mean, Fidelity was one that I heard that when given borrow, that sometimes gets to a point where there are kind of looking out for their customers and they don't want to lend out something. And it was tight. So that might have even been the squeeze higher. I'm pausing the huge move that we saw yesterday. Yeah. I mean, natural gas is known as the widow maker for a reason. But if you've been in energy business for any period of time, you've felt at 1 or another like you've had natural gas market dead to rights and it's done something different, whether it's with record warmth and during our winter or something like that. I mean, it's a very notoriously difficult market to trade. Canada dovetailing off of the energy discussion in how we trade it is kind of a policy discussion. Today's clip from Goan Tron and the D key act, his interview with Michael Green. So let's take a look at what they said. The giant He's waking up. That is a huge change in Europe. Germany who for a long time was very careful about military spending, suddenly has done a turnaround, but he's going to invest a 100 billion to catch drop and you're going to go to 2% way earlier than expected. And the German population supports it. I think 90 percent of the German support the decision of the chant, sort of, which is incredible. So that's going to be a major changing the dynamic of Europe. Nuclear power and an orange gas. We would go back to it. I think Europe will wane off. Russian oil and gas. Problem is, Committee keys are much harder to wane off than any other types of financial assets. You need harbors, you need pipelines, you need bullets, you need a lot of thanks. So it's going to take time, but I think you're about as long as it's less than and hopefully will reduce its always dependence on Russia. Russia away. Surreal. Moving on from energy for a minute. One of the things that you had brought up create previous to the call was the early keeping a close eye on the yen and race and how you think there's really just one big macro tree going on. So while we dig into that for a minute and get your thoughts there, right? Well, think about, I think it was about six weeks ago. The Bank of Japan met and they came out and said they're fine with again dropping. They weren't too concerned and then we're going to stay steady with their monetary policy. And this was really a break from all the others and they just felt really confident. Now, the yen is really dropping hard. And who runs the Bank of Japan is getting very nervous. He's making some comments. And it's always like talking from both sides of them out though it's it's it's okay that it's low, but we're monitoring it. And he has the very concerned thing. And he doesn't normally get real concerned or say real concerning things outwardly. But I've seen this correlation where we have rate's going up. You've got the yen dropping and you've had commodities going up. And the S and P has been trying to, it's been down, but it's trying to hold in here. But my concern is what happens if and when, because it will happen. The yen turns and I think that there is a, that mean look, bonds are very stretched downside right now. And I see the yen very stretch to the downside. I think you're going to see some sort of correlated trade that could catch a lot of people off sites. And if that happens, I've had people say, well that would be good if rates are lower. But if the yen is higher, I think that would be bad for equity. So I don't have the full answer. And a lot of times when I'm looking at things, I'll do a how many percentage of the perfect trade do I have? And I'd say I'm around 60 to 70 percent right here with my thinking of what I'm watching. And that's kind of the big trade ever, but he's piled into the same thing in the macro world. So just to be clear, are you, are you looking now going long the yen or expressing that? How would you best expresses the view that a turning point could happen? It could be violin. We've seen eight months of dollar strength than eight months of dollar bullish sentiment. Well over the 70 percent to a 100 percent level. And yesterday it hit 93%. And I haven't seen today's reading, but I'm sure it's going to be either 93 or maybe even char. That's rare. The yen is in single digits, the euro has been in single digits. Pound sterling has been in single digits, a bullish sentiment. So you have this real wide dispersion between the crosses. I'm not quite ready to go long. The yen, I think that would be a little bit aggressive. I M long a little Sterling and Euro and short against the dollar. And I think that that's something I'm monitoring. It's not a huge position. But it's something I'm watching right now as I'm, I mean, I'm also looking at all the other Yen crosses with all the OSI in Sterling and everything. And those are getting stretched. They're not all there as far as with the mark signals, but they're close. And if this turns, I think it's going to have some real market dynamics. Yeah, no doubt. Gold fit into that mix for you. I mean, it's it's, you know, there should be some place for to fit Golden in there as well. If we get like some kind of dollar weakness against these other currencies, I would imagined gold gets a bit. Yeah, goals gold reached. I mean, gold was a spike on Ukraine and I was long gold at the time and 2050 on gold futures, that was my target. I sold it and it backed off. I actually thought I was making a huge mistake, but it backed off. And now it's sort of a no man's land. I'd like silver a little bit better than gold. I, I just don't have a real push for gold right now. And the other thing is Bitcoin. If Bitcoin and crypto didn't exist, gold would be 3000 convinced of it because that's the de facto inflation trade that people use to do. Now there's alternatives. Yeah, it makes some sense. I think we have a mass of 17 asset allocation model underlying it is ultimately it in ML algorithm that goes through and groups every asset together. And so, you know, it's hard to know. Sometimes it's hard to structure a study to find a relationship when you throw the price action of volatility profiles these various acids together. What I found interesting is that did spit out gold in Bitcoin on its own separate branch from the model. So, you know, if the ma, if our model says those two assets are competing for money within the structure, I'm sure. Yeah. Filling the same role, the competition with each other out in the market. So I mean, it makes sense a big point, stealing some flows from goal. Yeah, that's absolutely true. This market has been, in the last two years, you have a lot of new people that have entered the market and they chase whatever is green, whatever has been working. And that's I think going to continue. And just people just keep going from the Wayne Gretzky skate to where the puck's going there skating with the puck and chasing everything. And I think that's the real risk here is that people just keep churning themselves and then looking for something that works and they get into things late. Yeah. I think that that's been kind of the theme of the markets since the COVID lockdowns and the resultant stimulus. So be worrying about for sure, we've seen that with high valuation stocks already this year being kinda taking the brunt of the sell-off earlier in the year, which you can also view that as a positive thing for the broad market. So let's look at really quick. There's some questions. A lot of people given you kudos for sticking your neck out there in the NAT Gas trade? One, I think that kind of plays into what you were just talking about. One user wants to know, says Tommy, what's going on with the bond market? The curve got steeper than a cow's face. Is Tina getting dinged for a better day. So I know a lot of kind of country phrases of I don't know that one. So i'll I'll be honest. I've been law I was I've been a bond bear for a while. And I wrongly bought bonds a little premature. I'm still long bonds does not feel very good, but market sentiment is still stretched. Single digits on the bond sentiment. And we're a day away from getting another DMARC exhaustion signal. So it's actually, i'm, I'm, I'm, you know, it's it's it's it's hard when you see something in the short-term to do, but you have a longer-term view that it's the opposite. So I'm, I'm sort of feeling like I've been running a marathon with the rock and my shoe and it just doesn't feel good. Do you do to mark signals across or they kinda fractal so that you do them across different. It's not something I've ever worked with students across like weekly, daily, monthly frequencies of you may work across all different time frequencies, much intraday, things like that. Yeah. I look at intraday, right there. I look at I Tom Newmark created these signals for any timeframe. He created them on paper in the 70s. When he got a computer, he program them. They seem to work, which is a miracle. And I use them. I know when they work real well and when depress and when things don't work, or I see other signals conflicting with. Potential move. I know just from experience. So there it's a subjective indicator. And I do look at daily and weekly and I use the 15 minute for my intraday entries on things. Yeah. And just to reiterate, I had another question on your demarc readings for TLT, which obviously is the long bond ETF. And so I assume that you're, the follow-up is our bonds abides this point, so we're still long. So that's, that's how you see it. Yeah. It's not honestly thought Why don't I better not really proud of it. But i'm, I'm sticking with it because of the process that I use with market sentiment. And there are some demarc signals. And the other demarc signals that have caught some bounces on the TLT or basically the better on the on yields or the bond futures. We've seen short-term bounces on with bonds. And that's what I think can happen. And everybody wants to make a profit, but I'm actually in the trade right now and I wouldn't mind losing less. And I know that's just counter and i've I was on another business channel. They'd probably say, Well, but I'm wrong. And I'd like to get out of that trade. And I'm just going to try and treat myself around this and show myself the door. Yeah. Well, somebody we haven't talked about, but I got a question here which so it's interesting. Maybe as it relates to your view on, on the dollar is on what is your short-term outlook on small caps? And I don't know if you'd look at earnings, but how do you think the rest of burden seasonal effect, the Russell 2000. Well, I think you're going to have a couple of problems with. First of all, the Russell is going, it does these periods of going sideways and I think you're in this sideways pattern right now. And look if you get above, let's say IUWM and it gets above ten, I think you could see a run and it goes through these little spiky periods. But one of the problems you have with earnings in the small caps is they're highly dependent on rates. And if you have higher rates, there are a lot of zombie companies that are going to have a hard time refining their existing debt which they roll over. And so I think that's a potential risk for small caps. And if anything, maybe it's not a short, which I'm not short, small caps. But I just think it might be just treadmill time and it goes pretty much sideways. Nice. Getting close to time limit here. Let me maybe two more questions. One about a lot of them while natural gas for you in we've got we talked about in a bit a one different angle that we haven't talked about is do you use COG data when you're analyzing these commodities? And so commitment traders data is what CLT stands for. Futures positioning to you to use that. I mean, I built models before and using CFTC data and the natural gas market and actually work pretty well. So yeah, I I do And I I publish a commodity weekly on Sundays. It's a stand-alone thing and I haven't seen anything that just jumps out at me with natural gas. I think people had been short. It's just not a, it doesn't stand out like crude has where you can really see a defined pattern there. And sometimes COT data, it can get wonky, uncertain commodities and indices and, and bonds as well. But the main thing is I just some market sentiment on natural gas at pegged at 92 percent for the last four days. And the 20 day moving average, I look at moving averages on the actual sentiment hit 90 or excuse me, 87 percent. And historically, anything above 85 percent is getting into your stretched and you could see the sea, you don't come back, come back down. Again. Sentiment can stay high for a long time. I used the mark signals and I had 13 exhaustion signals yesterday or actually the countdown 13 to mark exhaustion signal yesterday. And that's that was something I was anticipating. That's what it what I did. Interesting. A lot of questions. Do you have a view on uranium? A lot of questions about uranium kinda for both of us here in specifically about some two posed to me whether uranium She gets swapped out for your energy exposure as kinda like because we've been, I've been recommending energy as a way to hedge your broader portfolio mix against some of the tail risks in the market through that, that negative correlation we've talked about. So do you have a view on uranium that we've been looking at? The stocks or the commodity there? Yeah. Several of the stocks and they've done really well as long you as long as the ETF, the URI, and sold it a little early, profitable, but early. I liked the space a lot. And I was just that the real vision, macro experience. And uranium was a very, very hot. And people, all they wanted to do was talk about uranium and your delay and talked about it to any Greer talked about it. I looked at it in a sense of saying you got a lot of new people that are really coming into this. So it's good. It's probably gonna go higher. Mark Ritchie knows the space gray and they're super bullish on it. Yeah. I think it'll move short-term. I really haven't examined in enough, but I think it's probably the future. Yeah, I think that it makes sense conceptually, that would be my answer in that it's going to have to be part of our energy mix moving forward. And so, you know, that's just like a really broad statement though, in so far as you're going to use it tactically in today's markets to substitute in for your energy mix, your broad energy mix. I would not do that. You know, these these are I wouldn't know the correlation between uranium stocks and you're traditional energy stocks. But my guess is it's not tight, is tight as you might assume, just having the fact that they're kinda part of this energy or solar energy problem that we've created for ourselves here. Just like, just like the energy supply problem. Finally, you can build a nuclear reactor in the next year, or it takes 10 years and probably in the US, at least take 10 years to build something. And there's so much great technology that today versus way back when. And so that gives me a lot of optimism. But I think you're right. It's like you're buying uranium now for something that could happen and probably will happen the years from now. And I think that might be something about positioning. Yeah, and I think one of the things, if you ever kind of old school energy house has been through this entire cycle like myself. You know that you've heard a lot of pitches that involve similar topics that are kind of getting brought up kind of to your point about the energy space and now it's a little exhausted makers. There are a lot of new bowls. And if you run into him online or on social media, they're going to beat their chest and explain why they're wide long alleles is such a no-brainer. And we've had some huge unpredictable events that have conspired to create what I think is actually a very bullish backdrop for oil. But you have to have humble near me. You may have had humility and be humble about how you make these calls. And there's always a lot of luck that goes and all this stuff. Uranium is one of those things. I've been hearing about it for the last 10 years. People are kind of like in a cold type of way about him. So, you know, I'm glad, I'm glad there are true believers. I'm glad that they're going to push there, but I want to wait until you can kind of get more liquidity and see the whites of their eyes. And maybe I've missed some of this trade because of it, but it's, it's, it doesn't play the strategic thing. You roll in my portfolio that I want out of the energy stocks that I'm recommending right now for for clients. So no, it's not a it's not one I'm not in that can't be it. Personal make sense. Makes total sense. Great. I think that about covers it for today. Tom, thank you for for sitting down and talking with me. I hope we get to do it again. Yeah. Sounds good. Yeah. Tomorrow may see who was coming onto Mars would be dairies deal with Western. So going to be a good show tomorrow. Hope everybody tunes and thanks for watching this day is the daily briefing.