219926132 - 1_wste6856 - PID 1851201 Hello and welcome to the real vision daily briefing. It's Friday, January 21st, 2020 to omega0 lake. Here with Jared Dylan, editor of the Daily News Letter. Hi there Jared. Good to see you. Great to be back. Thanks so much for taking the time. Pretty volatile. Week, end of week trade with Russ assets really taken it on the chin, the nasdaq down over 22%. I mean, it's sort of selling off so quickly we have to check where it settles, but it looked about 2.5%. Last I checked well below 4100. Cryptocurrencies also slam lower Bitcoin down 10 percent below 40 K a theorem down 14 percent. It's pretty ugly out there before we dive in with you, real vision co-founder RAU, has been watching the market action in the crypto space and sent this update. Let's have a listen. So little quick update for rooms and dirty briefing. It was a crypto markets going wild today to the downside. I mean, this has been going on for awhile. How I try and put this in perspective is that when you're treading a 70 volatility asset class, you're going to see 50 percent drawdowns yearly, maybe even two times a year. Really, it's been over the last four or five years. It's been every year. We see one of these. It feels like that is a now a normal function. And I also noticed how little people freaked out by it, which I think is a really good thing. I think people are starting to understand not using leverage, not having too much size and understanding the long term time horizon. So we all sing liquidation and a lot of this is based around the thesis that the Fed are going to tighten and therefore risk assets are going to fall. I went back and tested that hypothesis. And really when you go back and look at the 2010 periods, 2016, the Fed kind of stopped q0, the balance sheet ran off for a bit, then had to restart kiwi again because the economy takes a while to get traction. I think that's going to be the case this time around as well. But even when they do hike rates and even when they started tapering, generally what happens is the markets get little unsettled at first, but then resume back to normal. Because basically, if they're tightening, it means the growth is decent and self-growth it's decent equities do fine. And so that's, I think crypto is getting part of that whole risk cycle. I think we're at the juncture where we're going to start to see economic growth and inflation started to slow. I think we're at the transition point if that's upsetting markets as well, because that they're really struggling to try and figure out, okay, what the hell is this all about? What is going on? So my view is that markets continued to be volatile for a bit. The, some more downside to come, if we go back and look at the Nasdaq or Amazon and stuff over that period, we would see these kind of 20th central downs, 15 central downs. And then the market explodes higher again. As you have a central bank starts realizing they can't raise rates as fast and the market does. And then everything stabilizes yet again and things move forward. That's kind of my base hypothesis here. Could we have further downside? Could, would be forming a Head and Shoulders top and the nasdaq, could that not through to Bitcoin? Sure. I've said for a while now the Bitcoin downside is probably 30000. I think we're in the kind of by zone. I'm certainly looking at adding EQ myself here into this pit in this area between twenty eight hundred and twenty six hundred. I'm starting to see demarc weekly counsel on Bitcoin last week, ethereum this week, still missing the daily nine counts. So I liked series, these technical indicators stacking over different time horizons. The daily one would come in maybe on Monday, Tuesday, something like that. So I've got my I really focus on this. It's pretty normal. I think people are, as I said, people are getting used to this. So anyway, good luck. Nothing to freak out about. Interest rate rises almost never negative to the market. What's negative of the market was when the yield curve inverts and we hit recession. That's when markets go down and stay down for an extended period of time, we're nowhere near that yet. The yield curve is however, starting to flatten every day, which is suggesting that the Fed can't really raise rates. Certainly, maybe not passed June. So let's wait and see that the rates market as a pricing in something different in a euro dollars, but the yoke of itself is sharing something different, confusing, but important. So keep an eye on all of this. The yield curve crypto markets, looking for your entry point where you want to add to those positions. Let's have a look at equities, see what happens if equity start falling further. The Fed per, always feels like it's about 15 percent. So maybe 15 to 20 percent. That's the downside. So maybe some more paint to come. And I will see from there, my view is 2022 is a year of weaker growth, low inflation, and that tends to be good for risk assets, particularly growth stocks. So I'm even looking at entry points for things like arc which are falling every day. And we're now two standard deviations over sold versus logarithmic trend. So it's getting really interesting to me, but to always put many triggers. And I just wanted to give you a cricket hope that helps your whole lot of great stuff to unpack there. I just want to bring everyone up to date in case you're listening to this remotely, you have it. You're not in front of a screen. I just updates or where we stand as we closed year, um, and then we'll dive in crypto as we mentioned, the nasdaq, Stanford, some of the worst declines. Nasdaq. Looks like it's settling around down 2.72%. So a really, really tough, tough ending for the Wii, for Nasdaq. But all the major US equity markets, the indices were down. Interestingly, energies, energy and commodities got pulled down. They had been outperforming. They were kinda pulled lower in this US government bonds, one of the few areas to benefit. We saw the yields on the 10-year back down to 1.751%. Last mentioned, the VIX, which is sort of known as the fear index, the volatility index that really flew higher today up 13 percent creeping mid-day was at 25, creeping right up to the doorstep of 30. So Jarrad, just first of all, tell me what you make of all of that said what half of mine as you look at all and that actually seen yeah, so this this really feels like 2000 all over again. You know, I lived through that. The tech bubble, Do you know the initial.com bubble? And what's one of the things I notice about declines like this is that sentiment gets a little bit extreme. People get beer muscles, they say, You know what? It's, it's free money. I can short the stocks. They never, they always go down and people get limit shorted the bottom, I actually did this. This was like in January of 2 thousand and I was I was a super bear and I shorted like four or five.com stocks and I pick the stupidest ones I could find, right? So I shorted them and they never saw an uptick. They went down and I was feeling pretty smart. I don't remember the exact day in January, but it was the day of the first rake out of the Fed. And the Dow went from being down 500 on the day, the up 500 on the day it was a 10 percent swing yeah. Back and I was a lot. And I got squeezed out of all these shorts. So what we're seeing right now is like if you look at some technical indicators, like for example, ETF volume is now 40% of stock market volume. And if you look at that over time, this is the highest. It's been since March of 2000. So we are actually tweeted before we came on the air. I'm like, I don't want to go out long this weekend, but I also don't want to go out short. Like, I mean, we could open up like four or 5% on Monday. Like we're, we're, we're sort of getting to extreme sentiment levels. And this is really dangerous. Yeah. Yeah. And we've seen some of the some of the moves in what we're market darlings, right? Like we saw the peloton sort or story earlier, Netflix was hammered today down 22 percent. Do you feel like this is just sort of, you know, what's driving it? Is it just that people feel like valuations were extreme? Is it more that they are, are worried about this sort of macro environment and rising interest rates. Is it a combination? What do you feel is driving this? Well, I think a lot of people frame it as a growth versus value debate. Saw Cathy would say yesterday that value stocks, we're in a bubble. It's okay, like valuing stocks are not in a bubble, but she thinks that, but, you know, a lot of this, a lot of, a lot of people say this is growth versus value. But if you look at the stocks that are really getting hit the worst, they weren't the pandemic stocks, they were the work from home stocks like Peloton it zoom and stuff like that. Like those are the stocks that are getting. They're going to do the round trip. I mean, Peloton already has done the round trip. So it's more than just growth versus value. It's more than just the macro stuff. It's, this unwind of the pandemic trade is going to be complete. We are, we are going to complete this unwind of the pandemic train. So does that feel, Does that make you less nervous? Then some broader flight from risk? You know, we're gearing up for some major issues with financial markets. I was glad you said, by the way, two thousand and two thousand eight because that felt a lot different. Both had a lot of pain and them but one was one seems so much more systemic. Yeah. I you know, I just think that I do think that this is less about the absolute level of the market and getting back to growth versus value. You know, I think that this is going to unwind over the course of several years. I mean, if you were to just naively by, by a value ETF and shorter growth ETF and leave this on for five years. I think you'd be pretty happy with the result. And a lot of this is a function of rising rates. You know, when, when real rates go higher, value stocks tend to do better. So one of the things I've been doing is sort of digging around in the value indexes and just looking for big, ugly stops. With single-digit PE is that pay like 6% dividends. And they're out there like there's, there's cheap stocks out there. The other thing, the other thing that's interesting about value is that if you open up the value index, which is 250 stocks, there's, there's a lot of stocks and they're they're not really value. Like I bet you didn't know that PayPal is a value stock. It is. It's in the value index and there's, there's a lot of stocks like that in the value index. So that's why like I don't really want to buy like a value ETF. I want to like dig down and find like the really cheap stuff. More individual stocks, individual names. Yeah. You know, Raul said it. A couple of interesting things there that I think we have to talk about. And he brought this up when we did the daily briefing round. I did daily briefing last week. And, you know, especially around interest rates in the fatty he, he's got a very different view of the market is pricing in some pretty aggressive fed action. We have a Fed meeting next week. Where do you stand? What is your outlook for what they can do, what they need to do when it comes to it, increasing interest rates. So it's a very hard question. I do disagree with Raul. I think that I think the market is correctly pricing in the rate hikes. I think I think four is probably the right number. I don't think they're going to stop. And June, having said that, I mean, if if they cause enough pain and the market goes down 30%, they might stop. But the thing that, the fact that is under appreciated is how much political pressure is on the Fed to do something about inflation. Like I've seen several articles about how democratic lawmakers and congressmen, or have approached the Fed and say You guys need to do something about inflation because I'm not going to get re-elected. Because inflation is getting pinned on the democrats rightly or wrongly. And so now it's become a political concern. So I, you know, I think that I think that that's actually a bigger concern. And also, just to get into the personality dynamics of a JPL, Neil, he just got nominated for a second term. So he's pretty much bulletproof at this point. He can't be fired. And I don't think he wants to be the Fed Chairman, where inflation went from 1% to 7 percent while he was fed chair and he didn't do anything about it. So I think that he has a personal stake in this. So, you know, I, I agree with the market, I, I agree with the Eurodollar curve. I think it's, I think it's correctly price. I don't think it's underpriced. I wouldn't I wouldn't place any bets on five or six rate hikes. I think. I don't think you're getting implied odds for that. Yeah. And there was even talk starting to spring up by 50 basis points at the March meeting, which also seems like that would be very aggressive to go from having done nothing for so long till 50 basis points right out of the gate. Well, Bill Ackman wants them to do that. In my guess he's my guess is he's short-term junior or dollars. So these thumbnails, he's talking really loudly. Yeah. Ralin, Julie, and discuss the idea of the Fed not only raising rates, but reducing their balance sheet, right? Sort of unwinding those extraordinary measures they took to support the economy. People refer to it as quantitative tightening instead of quantitative easing. And maybe the risks that this sort of big pivot in policy, not only on the ray from, but also on that front might create, let's have a listen to that clip. And I shed on, on sort of playing with this idea that 2020 series the first will become lost and the loss will become first, right? So it's stuff that's performed up until now. We are now at an inflection point. Inflection point is the fetch type name. I know at this point is how that correction occurs is a nice gradual, as we discussed us, stops performing quite as well. Dollar gradually weakens. Money gradually leaves the US equity market, goes into other equity markets, right? Or does it ultimately definitionally have to turn nasty because the US equity market is so horribly overvalued and so enormous relative to everything else. That's impossible to get that nice, gradual. I take a dollar out of the, of the Nasdaq and I put it in Europe stocks without tipping the whole baby out, throwing the baby out with the balanced with the bathwater? That I am not sure and I'm looking for things is or no, you are looking for things. But I do think this is a period where when the policymakers and this is what you and I talked about last month, make. The policymakers start to remove the accommodation, that things become much more dangerous. This is not a time to be running. Max risk, right? I mean, I've got very, very little risk. I've got HOG sure. Okay, Bye my guys. And I've got basically kind of a risk of lower inflation trade or higher and higher real yield strength. Yeah, but they're not racist. He's us. And I believe at the end of that, just for those listening, Julia was referring to tips, which of course, treasury inflation protected securities and HY G high-yield bond, ETF. I'm journey to that point. Oliver has a question on the exchange which I think is related. Jarred you believe the downside market reaction to the Fed tightening will mirror the same level of craziness we experience to the upside when money was free and stimulus checks were being sent out. During the start of COVID, it seems we live in a world of exaggerated mu's. A curious on your view. I think that's the question that Julian was pondering as well. Yeah. You know, Julie was talking about whether this process would be gradual and I think it is gradual at this point. I mean, he doesn't feel like Nasdaq is down 2.5% of the day, but that's pretty orderly. And there hasn't really been a lot of panic selling. It's it's it's been pretty orderly. I mean, if you want to talk about disorderly than look at March of 2020, I mean, I was a completely different story. So like the question is, will we ever get to that point? And I think, I think that's a function of the PFAD. I think. I mean, just for, just for the sake of example, I think if the Fed did hike 50 in March, then you might see a very severe reaction. I think that's possible. But if, if we if we stick to the market, priced rate, rate hikes, then I think, I think it's going to be pretty, you know, it's going to be ugly, but it's going to be orderly over time. So, and it's an important distinction to make. And as you say in terms of orderly by the way, when we're looking at and several people have been bringing this up today. When you look at the corporate bond market, for example, you're not seeing spreads blow out you are, you're seeing sort of calm action elsewhere. So yes, if you're in Fang stocks felt horrible. But you know, elsewhere there is sort of relative calm. Do you think there's still a Fed put, Jared, we we heard Rawls say that he thought maybe 15 percent, but other people have been saying, listen, with inflation high, the Fed doesn't have the room to have that put anymore, at least if they want to stay. Hang onto any sense of legitimacy. The Fed is totally trapped because if they do nothing about inflation, they don't have legitimacy. And if they do too much about inflation and they don't have legitimacy. I mean, if, if, you know, they're, they're totally trapped. If we get to a point where the market is down 30%. And Mike, by the way, my favorite financial newspaper is the USA Today. Usa Today is the best financial newspaper wall time. If you see headlines in the USA today about how the stocks are crashing and the Fed should do something about it that your buy signal, right? Like so, that's what, I mean. We'll get there over time. Like we'll get there, but it's where just the beginning of this there were still in early stages. And I know you always follow rightly. So sort of what's happening in the real economy, right? Like in people's wallets and what they're talking about. And before there's a lot of the wealth effect. And when we see those numbers on the nightly news than the nasdaq down thought, you know? And it's very alarmist. People tend to feel that things aren't going well. But, but now we've got inflation and we have the same headline screaming the other direction. Guess that the price at the pump food shelves, the grocery bills going up, and what does one outweigh the other when it comes to the US's ability, the economy's ability to grow and consumers ability to support that. Well, the wealth effect is, is, the wealth effect is absolutely real. And you saw it not just in stocks, but also in crypto. And it really fueled the purchase of a lot of big ticket items like houses and expensive cars and stuff like that. If you get if he get Stocks down another 10 percent, you're gonna, you're gonna see you're, you're going to see activity in some of those big ticket consumer items start to drop off. You know. By the way, when you talking about inflation. I, I I'm, I'm sort of I don't know if it's the minority view, but I do think that inflation is going to moderate this year. I think. I think that it could go to the 6 handle, the five handle. I don't think it's going to get to four below that, but I think it's going to moderate slightly. And I, I do think that the feds, they haven't technically tight and yet at all, but even the job boning in how it's affected the shape of the yield curve. I think that is a de facto tightening. So I think that is having an effect on inflation. So I think, you know, over the next couple of months, the CPI PPI, you'll, you'll see it come down a little bit, or at least the rate of change will slow down. The rate of change is slowing down. Yeah, It's interesting, we've been we've been hearing that from our guests on real vision. I think you're right though in the, in the broader universe of financial analyst, it's not clear whether that's the majority view or not. What about growth? We've also the same people who feel like inflation may be peaking. And have also been concerned that maybe growth has two. And they're concerned about what the growth rate is going to be. Well, you know, a lot of our growth is, it has in the past been fueled by debt. And just in the last two years, a lot of our growth has been fueled by transfer payments. You know, we, we basically, we went 3 trillion into that and we handed out the money and everybody spent it. And that caused a great deal of growth. And now so now that process is running in reverse. The child tax credits have gone away. There hasn't been a stimulus check in a long time. So you're, you're going to see growth slow and I'm not predicting recession, but you're going to see growth slow down significantly. We have a question from John on the exchange. Is Jared still happy with his real estate allocation or is he starting to see downside correlations with other markets? Well, I can say that I own real estate in South Carolina and the demographics here probably the best in the entire country. And Myrtle Beach area is the number one fastest growing metropolitan area in the entire country. And regardless of what happens with the economy, that's going to continue to be true because people are leaving the Northeast in California for reasons that have nothing to do with the economy. So it's about taxes and regulation and stuff like that. So I think I think real estate where I live is going to continue to be pretty well supported. So I'm not, you know, let me look at me. I'm warmest hosts like is I like where I live, it's how hits, it's fine. I mean, it real estate might get affected in other areas. So it's a local, it's a local a local bat. Yeah. Have you been watching the commodity market, is that, you know, where do you fall in terms of diversification? Right now? If, if we are at risk to see continued selling and equities and what's your view on commodities? Is that something you have exposure to? Yeah. I mean, you know, high-inflation environment basically you want to own is commodities and gold and crypto and you want to be short bonds. And that's worked out. Okay? Gold, gold had a big day on, I guess it was Thursday or Wednesday. But I, I actually am, you know, after, after that day where gold rallied about 30 or 40 bucks and then held the gains. And it was off a little bit today. But I'm very bullish on gold going forward in terms of commodities. You know, I've, I've own gold pretty much continuously for the last 16 years. Sometimes a bit excited about it, sometimes I'm not. Now I happen to be really excited about it. I think it's, it's great. And what do you think is going to be the impetus driving that? Because the famous thing, everyone, when we, when we talked to commodity folks who were already talked to be strategists. They're like, if I keep waiting for gold rally and then it perennially disappoints like it's just so frustrating and some of them are completely given up because they're just tired of it not working out. What's different this time. Well, I don't, I don't really, I stop analyzing golden terms of macro factors. Like, why do people say, Well rates go down, so gold goes up or it doesn't. Gold really has a mind of its own. It trades very technically. I can tell you that the price action has changed. You know what? One of the things they used to make jokes about on Twitter is? I'd come in the morning and, uh, 830 in the morning, they'd smash gold like 15 bucks like every single day. Like why does this not get arbitrage away? Like why don't people sell before 850 and then by after 850, but every day you would get this gold smash. Well now that's not happening and it's actually, the opposite is happening at 830. So the whole price action has changed. I mean, I'm a I'm a trader like this is what I look at. Yeah. Where were we have a question from Mark on the exchange. Do you still think hedge funds will add to risk trades in January, we're kinda getting close to the end of the month. But if crypto continues to go down, which I believe it will, do you think there will be a point when some famous holders, including Michael Sailor, I'm saying famous holders, but Michael seller will be forced to close their positions. What would be your downside target for Bitcoin or are you viewing it like that or do you have a different perspective? Well, I don't I don't know. Michael Saylor personally seems like a nice guy, but he's, he's the, the biggest, most leverage dumb player in the crypto market. And it kind of seems, I think is average cost now is about 30 or 31, 1000 or something like that. Kinda seems like we're going to get we're going to get there. I don't really know what happens if we do. But, you know, he gosh, How much does he own now, like 2.5 billion or something worth of Bitcoin. Like that's, that's going to be a big story if that happens. But, but you are, you are, you have a little a position in it, but you have a longer term view on it, right? This is not are you actively trading it or do you just sort of habit as part a part of your portfolio for diversification reasons. Now, it's about 1% of my portfolio, maybe 1.5. And I, my timing wasn't very good, but I have it and when I put it on, I said I was going to hold it for 10 years. It's part of what I said earlier that in an inflationary environment you want to hold commodities, gold and crypto, and you want to be sure bonds. That's the, that's the playbook for this environment. Are there, are there areas that you are seeing opportunity? I think the big question everyone is asking stays at time to get it in by any of this you did mentioned before you're looking at value stocks that have really been neglected with high dividends and low peas. But is there any other part of the market that you're watching amid this volatility that you see opportunity in. Well, I can tell you that. I guess it was about a month ago, maybe six weeks ago. First of all, I've screwed this whole thing up. Like I've totally got it wrong. Like a literally I got limit short tech two weeks before the top. I got squeezed out. I got squeezed out literally on the top. And so now it's playing out and I'm not involved. But what I did do was I bought some, I think one or 1.5 year S and P puts. I think one year S and P puts. And I made, I made that a pretty big position. So as the big C said, was above 25, 30, you know, as if, if continues and those posts are going to explode in value. So, you know, at the time and my newsletter, I was, I was really pounding the table. I was like, hedge when you can't not when you have to. Yeah, you want but you want to buy these puts when they're 18 ball, not when they're 33 ball. And I think I made the point to my subscribers. But now, you know, the, the horses are out of the barn and people are trying to hedge belatedly and it's just a mass. So yeah. I mean, there's always a less than and all of this, right? Nobody has a crystal ball, so it pays to take out a little insurance, I suppose. Is, is there a narrative that you think is underappreciated right now? There just seems to be so little conviction when it comes to growth. I mean, I've heard people saying we're about to have an industrial recession. The manufacturing data has been very conflicting, right? Empire terrible. From New York, the manufacturing read, Philly, not bad. Home sales were down but supply short. You know, you can kind of, everyone can find a little something in this economic data. Is there something that you're looking at that you think is under appreciated right now. Well, this doesn't really have anything to do with anything, but, you know, I've I've made a lot of noise in the last few years about everybody is complaining about inequality. Well, the best way to fight inequality is to raise rates. You know, like that's, that's an inequality fighting machine. I mean, your seat, you're seeing some of the wealthiest people in the country taking, taking a huge draw it down right now. And on the low end, people who have no exposure to financial assets at all, they're doing just fine. You know? So like from a social standpoint, I think I think that's a really big deal. Yeah. Yeah. You're absolutely right. I mean, we we don't talk about that aspect at all. We got we got a few more questions coming in. And what we're almost out of time, are you going to get to one more from Fernandez, from the RV site, many investors have taken out loans against their own securities. Mentality and loaning against securities trigger their market crisis when massive liquidations occur, occur through margin calls. And this was something that I know that people were getting concerned about and worried about earlier this fall when they saw some of the big run up. So what is your thought on that? Would we have seen that already if that was going to happen? I mean, in a bear market, There's always margin calls for sure. Like the most leverage player always gets taken out. I like what Raul said when he was talking about crypto, about how not to trade with leverage. Like you should never trade crypto with leverage. You shouldn't really trade stocks with leverage either. I mean, it's generally a bad idea. You know, it's funny because my broker has offered me loans against my portfolio and I've considered it because I'm building a house. It's it's, it's a cheap source of financing and that seems pretty low risk. But I'm like, crap like I, I don't think I really want to do that. That's just seems like a bad idea. So now, but you will see like that happens, that's not unique to this correction or any bear market like you always see margin calls and these sorts of situations. Yeah, I wonder if, if the idea that there may be more retail participation now, whether that creates a bigger risk. Well, I have heard that in the meme stocks, especially AMC, I've heard that those people are not doing so good. So they're, they're really hurting. A lot of them were trading options, trading on margin. And they're going to lose everything. And that'll be a very valuable lesson. It will be, but one that hopefully they can recover from, because we certainly have seen that as well. Everyone's who's who's treated for a long time, Jared, as you rightly pointed out before, has made errors and and pay for it. But you do get some valuable, valuable lessons from that. I'm so great to have you want to see end of what has been a really volatile week. Thank you so much for sharing your thoughts with us. We appreciate it. It's always great day. Thanks. Thanks. Great. And, um, I just want to acknowledge that Gary bill on the exchange and, and some others, we got some pretty specific crypto questions. And, you know, as usual on the team is going to be all over that on our crypto channel platform, which as you know is free, but also real vision pro crypto is now officially live as well. For those who are looking for more in-depth analysis in that space, it's the first ever crypto research membership that real vision is doing in partnership with Delphi digital. The launch offer is, I believe, only available for the next week. So if you want to check it out good. A real vision.com, backslash membership, backslash pro crypto. You'll get immediate access to the January chart book, first deep dive report, and an invite to the discord community. So for those of you, if we didn't get to those questions, you might want to consider that. In the meantime, the conversation continues as always, on the exchange. Have a great weekend, everyone. Thanks, Jared.