With Debt Ceiling resolved, what’s next?
Well, FOMC and June monthly AND quarterly expiration for one and potential liquidity crunch from TGA issuance for another.
Let’s unpack the risk/reward. And let’s find out what Craig and Samantha see for opportunities for the remainder of June AND as we move into the 2nd half of 2023. Get their assessment to your questions and profit from their Macro-to-Micro analysis!
Here is the full recording of Samantha & Craig’s bi-weekly Macro-to-Micro Power Hour.
(We have also included the full transcript of their conversation below.)
Transcript
0:03
hey greetings Traders thank you so much for joining our macro to micro Power Hour I’m Samantha Duke founder of
0:08
leducetrading.com joined by Craig Shapiro our macro advisor Edge manager
0:13
and we’re gonna kick this off with a little uh macro overview what’s what’s
0:19
on Craig’s mind most importantly and then obviously uh take questions as it
0:25
relates to uh macro could be all the way down to micro what are you asking on
0:30
sector rotation or uh stuff that you’re looking at in particular and the dollar and yield and all that so basically uh
0:37
Craig why don’t you kind of catch us up now that we’re through debt ceiling drama and I know that you are in micro
0:46
um focused mode on TGA and the rest as a result as it relates to liquidity in the
0:51
market and I’m looking very much at Market structure and how markets continue to grind uh higher sideways to
0:58
higher despite lots of potential negatives so give us a give us a catch
1:03
up on on the macro please yeah well thankfully I can turn off the notifications for various DC Insider
1:10
Twitter reporters who are you know commenting on the debt ceiling because uh that was you know three weeks of my
1:18
life that I think um you know I’d like back uh for sure
1:23
um and and look think not surprisingly they they came to an agreement um to extend the debt ceiling through
1:30
basically the end of 24 entirely part of 25 and with emergency measures it probably could run you know all the way
1:36
through 2025 so this is you know unlikely to be something that we have to deal with uh for a long time which is
1:43
which is great um there will still be issues about funding various programs and whether or
1:48
not the the government is funded at the end of September and there’s a government shutdown you know all sorts of things but as far as Market moving
1:55
implications of what DC has to do uh on a macro level I think there’s really not
2:01
much um you know it’s basically stalemate in DC you know no tax increases no uh big
2:08
spending increases versus what we already know and you know there’ll certainly be some micro things on which
2:13
bills you know get passed from EV to you know inflation stuff you know various
2:18
other things but that’s not gonna move the needle neither here nor there so um the big uh thing which we had been
2:24
talking about was that there was a kind of two-phase process here where we had to deal with the debt ceiling and the
2:30
the potential for default and hedging around that that was phase one and thankfully that’s
2:36
over but phase two which I I kind of felt was the more important uh phase which would be this eventual uh and you
2:44
know refilling of the treasury general account and the amount of Treasury selling uh that needs to get done in
2:50
order to fund the government for the rest of this year and next year and and so that treasury can have an ample
2:57
amount of cash uh to operate with and so um and it’s that act of selling a lot of
3:03
treasury bills and a lot of bonds and a lot of duration over the course of the next uh you know call it seven months of
3:10
the year that is likely to lead to a fairly sizable liquidity drain and that’s going to have uh various
3:16
implications for for financial markets and you can argue that part of the reason that we’ve uh been that we’ve
3:23
seen such a strong Equity Market year to date has been you know sizable liquidity additions uh since the beginning of the
3:30
year I was I was checking earlier from the beginning from the end of 2022 which maybe not you know is a tough place to
3:36
start because the last day of the year that there’s often a lot of um window dressing and so a lot of liquidity gets pulled out but from the
3:42
last day of the year based on my metric there’s been 675 billion dollars of liquidity additions uh into financial
3:50
markets through yesterday so uh that’s not ex that just just from just in the
3:56
U.S so clearly coming into the year that’s not something I would have suggest uh thought was going to happen I don’t think that’s something that the
4:02
FED thought was going to happen uh as they’ve kind of continued to do their QT but the combination of a sizable
4:09
treasury general account drawdown uh and lack of uh treasury selling
4:16
um has has meant a massive amount of liquidity coming into the system so now we’re on the on the other side of that
4:23
which I think has various implications under writing about that uh you know over the course of the last last couple weeks and do think that is important as
4:30
we head into um you know next the next three weeks of June uh with the FED meeting next week uh and and quota and Dynamics so happy
4:38
if you uh you know really kind of drill down into you know into that as needed but look this week
4:44
um is a fairly uh quiet macro week there
4:49
there’s no fed there’s no fed speak there’s the Bank of Canada is tomorrow Australia was last night there was some
4:55
you know but as far as macro is concerned it’s it’s pretty quiet um which you know has meant uh lower Vol
5:04
and higher risk assets and that’s that’s how he that’s how we started the week and uh you know see how that how that
5:10
continues as it is offset by this treasury selling which you know really starts to accelerate um you know
5:17
starting tomorrow and Thursday and then next week with a fair bit of duration selling so uh happy to go into wherever
5:24
you wherever you’d like to go once you get your once you get once you get your camera working I don’t understand I just had a two-hour
5:31
meeting before this is an overheating what the heck is going on because I’m sitting here and then it goes away I
5:36
turn it back on I get it that’s third time is the charm it’s not um coming back on so
5:43
anyway okay so I’m getting advice on this I’ve not had this happen before all right so
5:49
what’s your timing I know you have uh by the way mentioned that 675 billion Matt King has it at uh 1.5 trillion since
5:57
October bottom September October right yeah regardless there’s been a lot and now the estimates are uh this pull out
6:05
of uh liquidity between now and September end of year is going to be basically the same amount in kind
6:12
um do you have any any timing on that because there’s also lots of um you know
6:18
debate about this really being a negative for the market so we got
6:24
through debt ceiling resolution that was expected but this liquidity we really don’t know right so
6:36
here’s what you know you you know um how much Treasury
6:42
is going to sell between let’s say now and the end of the third quarter uh
6:50
because you you know treasury is already basically announced what they they’re gonna sell they get in their treasury
6:56
borrowing advisory committee report the t-back report which they put out uh a month or so ago and they’ll give an
7:02
update on that in uh in the end of July they give you a schedule for how much
7:08
um what they’re going to be selling as far as bonds are concerned and how much cash they expect to have on the uh at
7:14
the treasury’s account at the end of the quarter and they did that for the second quarter and then there for the third quarter so we already we already know
7:19
this and so the question with respect to the second quarter borrowings uh Yellen has said that she would like the
7:26
treasury’s account to be up at 550 billion dollars as of Friday’s close it
7:31
was at 23 billion we added 50 billion yesterday or 48 billion yesterday so we’re up to 71 billion now so already
7:37
there’s you know a bit of uh a bit of a jump there um so maybe maybe she has and get to 550
7:43
but you’ll likely get to at least 600 by um uh some set 30. so what we know is
7:50
that between um the treasury duration selling in that
7:56
happens on the 15th and 30th of June there’s 175 billion of new Nets of I’m
8:02
sorry 125 billion of new net Supply that’s coming that we already know we also know that there’s a corporate tax
8:08
payment that’s going to go from reserves into the TGA that’s likely to be 50 to
8:13
75 billion so call it 200 billion or so right there that doesn’t come out of the
8:19
RRP that is that is money that is coming out of reserves because money from that is in the RRP is not going into duration
8:25
money that’s in the RRP now is earning 5.05 percent potentially going up to 5.3
8:30
percent uh next week if the FED raises rates we can talk about that in a little bit too so that money’s not going out of
8:37
the RRP uh into the TGA so at least 200 billion of liquidity being drained from
8:43
reserves between now and the end of the um in the end of the quarter we also have
8:48
uh some QT which will further reduce the size of the balance sheet uh and then
8:53
the big question is how do you get from call it 250 to 450 or 550 depending on
8:59
where you see the end of the quarter and that’s through t-bills and so that’s where there’s there could be money that
9:05
moves from the RRP into the treasury’s general accounts basically taking money out of the RP and buying into these
9:12
t-built auctions which are now all growing in size today treasury announced the four-week bill is going to be up by
9:19
25 billion I think in the eight week bill by 15 billion uh 17 week billion by
9:24
2 billion so then every week they’re going to keep raising the sizes of these so um we’re likely to have an additional
9:31
200 billion or so 300 billion or so of Supply over the course of the next three
9:36
weeks and so the question is does all of that money come out of the RRP in which case it’s liquidity neutral or does some
9:43
of that money stay in the RRP in which case in order to buy those Tres those T bills it needs to come out of reserves
9:49
and so for me when reserves fall that is the risk-off potential that is the liquidity draining
9:56
uh situation and so as if the money doesn’t come out of the RRP and it comes out of reserves instead that’s your
10:03
that’s your liquidity drain that’s your risk off that’s your concern point so um yes there’s been various people
10:09
who’ve said this is well known well articulated markets are front running it but the the supply hasn’t hit yet it
10:14
literally is coming so yes you could know how big it’s going to be but you still have to purchase but there you are
10:20
and you still have it still has to be done so um look again this is this is kind of
10:25
minutia there’s been um a a lot of newly found TGA RRP
10:31
experts all over uh the market and Bloomberg and fintuit and everywhere including myself uh certainly a year two
10:38
years ago is not something I focused a heck of a lot of time on but when you look at historical correlations of these
10:44
liquidity metrics with financial asset performance and there’s High correlations but who’s you to know so
10:50
whether or not the FED is adding or subtracting liquidity from financial markets um and and use that as a ballast
10:57
for whether or not you want to be long or short risk and so I think there’s a potential here for a 300 to 400 billion
11:05
dollar liquidity drain over the next three weeks or three and a half weeks
11:11
through the end of this quarter that’s a that’s a massive amount it’s a massive amount it’s a whole it’s
11:17
a hundred billion dollars a week coming out of the markets back end loaded uh the last two weeks of the of the quarter
11:22
you know up to 150 billion dollars if you look at the last eight quarters
11:28
the reserve repo facility typically builds uh on an order of magnitude of
11:33
150 to 200 billion dollars because banks are window dressing they folks are taking down risks so if if the RRP is is
11:42
is building up that means more money needs to come out of reserves in order to fund these treasury bill options
11:48
you know secondarily interest rates on these auctions are rising so if treasury
11:55
has to compete with the free money at the FED at 5.05 all of these auctions
12:01
are getting done at 5.2 5.25 5.3 5.4 percent so we’re raising the global cost
12:08
of borrowing for the US government which then has kind of knock on and follow-on impacts towards any other U.S dollar
12:15
borrower in the world whether it be an Emerging Market borrower an overseas borrower a small cap borrower a cyclical
12:20
borrower cost of capital uh continues to go up so those are the Dynamics in play
12:26
clearly for now the biggest driver has been daily options AI Tech out
12:33
performance um and so um and that that’s and and also there’s
12:39
been a a sizable amount of vix call selling because there’s a lot of fixed
12:45
call buying into the uh debt ceiling issues so I think that’s kind of largely now past us you know certainly after
12:52
today uh again what the vix has done so look the vix is down at you know 13 handle uh markets are basically you know
12:59
many many markets and many um stocks are close to the highs for the year you have a very sizable amount of
13:05
potential liquidity being drained you have you know still an unknown about the June fed hike meeting I think if there’s
13:10
a strong CPI print there’s a you know there’s a reasonable likelihood that the FED will actually raise rates uh this
13:16
month and take up the dots for 2024 which you can get into so to me that’s
13:22
uh you know that’s a that that’s a concerning sign and I think there is a you know shorter term worry here
13:29
um you know for risk as we kind of head into the end of the end of the quarter what about the JP Morgan caller we got
13:35
the 320. yeah so so we’re so 4320 is less than a percent away so we’ve seen
13:43
um that top strike act as a magnet uh but also act as a ceiling you know
13:49
various quarters over the course of the last you know year year plus and so you
13:54
know as we approach that figure dealers are going to be very well uh incentivized to make sure we don’t kind
14:00
of materially you know move above that um and as we get closer to the end of the quarter you know that becomes uh a
14:07
bigger deal so I’m just not sure what’s going to drive us materially above that strike you’re not
14:14
going to get it from a surprise out of the FED because right now we’re only
14:19
pricing in basically a 20 to 25 chance of a hike in June so I don’t really think them not hiking is that much of a
14:27
positive surprise it’s unlikely that you’re going to get the FED that is dovish you may actually get a a one if
14:34
not two hawkish descents to a pause or to a skip um which would suggest that July is
14:41
still a live meeting I don’t necessarily see how you’re going to get an earnings re-acceleration story uh imminently you
14:48
don’t appear to have a global growth inflection positively here out of China
14:54
or out of Europe and so what what is going what do people think is going to
14:59
be the positive Catalyst from here to drive us materially above uh this 4320 level with you know the vix already sub
15:06
14. I struggle with it I’m curious what you know how you think about it but for me that I think we’re we’ve arrived at
15:12
this this destination and now we we have to deal with the next phase which is the liquidity ads which uh liquidity drains
15:19
which I um I expect to happen as everyone is basically you know Max lawn again okay well I have some thoughts on
15:26
this and I apologize I don’t know why the camera keeps dying it might be over heated I I it goes up I crawl under the
15:34
desk when you’re not looking I wiggle a few chords I come back up it’s working again and then it stops working so I’m
15:40
not going to crawl into the desk anymore while we’re talking so this is basically um in a nutshell for me I know I
15:47
retweeted this actually because it was kind of cheeky it was tongue-in-cheek but not really we got mortgage rates at seven percent doesn’t matter 500 basis
15:55
points of fed raid Heights doesn’t matter we’re basically where we were right um a year ago when we had fallen out of
16:02
bed and we’re now pushing higher um especially all you know Apple all-time highs none of that seems to
16:07
matter because we’ve had all this liquidity and lose monetary policy and folks kind of have a hard time I think
16:14
tracking that you do track that so that’s very very helpful I do track that
16:20
um we’ve we have ongoing a quantitative tightening with this liquidity drain potentially is the problem I see if they
16:28
say you know what we’re going to pause and we’re also going to pause QT I think we’re gonna obviously just move very
16:35
um strongly higher otherwise these these fundamental and macro
16:41
um headwinds have not prevented this Market from grinding higher as more
16:48
participants also increase their hedges for fear that we’re going to have some
16:53
big rug pull and that’s actually a market structure that causes the market to grind higher so PMI hasn’t mattered
17:01
ISM hasn’t mattered CPI hasn’t mattered um even the the the the pop-up that we had from unemployment rate you know 3.4
17:09
to 3.7 um it was still taken with you know just this exuberance that we still have a
17:15
very tight labor market and jobless claims are still low if nothing really retail sales forget about it we know the
17:23
consumer is going to be pinched especially student payment restart um in a month this has not affected yet
17:29
a big deal in credit spreads we’ve all we’ve had the yield curve inverted for over a year we’ve had uh
17:37
exceedingly exuberant um uh Mega cap Tech valuation uh s p
17:44
earnings declining nothing one of your favorite tells
17:49
um leading economic indicators is absolutely a recession tell um and nothing yet has triggered and I
17:57
kind of I I don’t want to say tongue-in-cheek but the hedges um that are uh being created really do
18:05
have an impact on the the market making and the flows this Market structure that
18:11
is really kind of left for this very very dark area of the market to
18:19
understand but those are the folks with power so recently uh in other words I’m
18:25
talking about the large positioning that basically creates these Hedges and in
18:31
large part kind of forces these um market makers to buy the underlying
18:37
which lists the market a little bit uh and then a lot so what I’m what I’m getting at is we’re not there yet I also
18:45
as you know kind of study this intermarket very very strongly and yes I can see a sector rotation stalking that
18:51
that value rotation once once growth Peters out which is now and starts to
18:56
pull back a little bit but it still hasn’t even triggered which implies that we’re still going to push higher
19:03
um in other words we’ve already hit that Weekly Gap fill in SPX which specifically from August we gapped Down
19:10
August 2022 and only recently build that Weekly Gap so for technicians
19:17
it’s really powerful um we filled the weekly Gap it happened to be
19:22
4218.70 we’re now above that right so we’ve hit the 4300 that nice
19:27
psychological level um by a few pennies and the same thing with Apple at 185 buy a few pennies and
19:34
we’re still sideways so this grind higher into 4 400 is absolutely
19:40
believable but we just don’t have um the uh the the trigger a macro
19:48
trigger to create a volatility surge even though the selling of volatility
19:55
right now is much more risk than the reward if anything we should result we
20:01
should revert right here right now very very soon for this test of complacency
20:07
and then after we have a little volatility because we are in a 13 handle
20:13
then the most likely scenario is that we continue to grind up to that 4 400. so I
20:19
am still basically bullish um but with every trade I expect to be wrong I am definitely looking at the the
20:26
flow of um the market structure and in
20:31
particular it fascinates me because I had a a post where a tweet and for clients I said hey guess what Goldman
20:39
Sachs actually sees a risk where we’re gonna have
20:45
um uh gamma flipping negative above 43.90 right which is right up to that
20:51
kind of like 4 400 area well that’s new you know you don’t usually have a
20:56
negative flip above a price level it’s usually lower anyway these
21:03
investors right now who are late to the game uh last and first out is well ultimately
21:10
what it’s going to be but these investors are Panic buying out of the money call options they’re above the
21:15
price they want to benefit from this squeeze maybe they missed it from you know the bank bailout in mid-march and
21:22
they’ve seen this take off without them so they continue to buy out of the money
21:27
call options for this squeeze it’s completely altered the gamma profile and
21:33
now instead of the um this we are still in positive gamma but instead of
21:39
negative gamma actually being negative it’s a positive very it’s it’s a it’s
21:47
the first time that’s happened it’s very very rare and I’m probably not explaining it very um sufficiently but if the s p go if SPX
21:54
goes at four percent instead of becoming longer dealers start to become short the
22:02
market which is negative Delta and this is where I think we’re going to get our
22:07
blow off top and then fake breakout fast failure and down hard that’s basically
22:14
what I’m looking for to happen and we haven’t gotten there yet but
22:20
we’re getting a lot closer like a hundred points away kind of closer
22:27
and he thought yeah look I mean I think you’re you’re you know when I listen to
22:34
um you know what how you describe it I would say there are
22:40
um you know a variety of different factors that folks look at and markets look at whether they’re fundamental
22:47
technical momentum flows uh cross asset a variety of different indicators and
22:53
and what I would say is that um for me most of them kind of are
22:58
setting up you know not great and but the one that is the the most
23:04
constructive is is kind of the story that you laid out here which is a market that just literally doesn’t care about
23:09
anything fundamental um and so I don’t know like after
23:15
um you know doing this for a long time when I typically hear those types of things obviously you know it’s
23:21
frustrating but it doesn’t behoove me to you know chase that that fomo you know
23:27
narrative here and if we’re talking about um a situation where
23:34
folks are justifying the continued uh move higher in in U.S in equities
23:42
broadly based on kind of a what sounds like you know so you know what sounds
23:48
almost like Ponzi in a way which is it’s going up because it’s going up I want to sell it to you know before I can get out
23:53
um I look and say well how does that fit into where we are now
23:58
with respect to what is Vol saying and you know you know how does liquidity look and so I just think it’s very
24:06
difficult to embrace a structural shift from growth to Value while
24:15
you know the FED is tightening and treasury is selling a lot of Securities
24:21
and liquidity is being drained if you told me liquidity was going to continue to be added sure but we’re going to have
24:27
you know a very very sizable liquidity drain here with the fix of 13 to me it
24:32
just seems like this is all you know very much priced in um and so we are now at risk of a a
24:40
short-term pullback here because you know we’re justifying um it going up because it’s going up and
24:46
so that that to me is a worrying thing I think if we had a correction uh between now and the end of the quarter we could
24:53
see July kind of start off well and you know folks can get excited again about whether or not the fed’s going to raise
24:58
or not and and the soft Landing narrative um and that could push us higher into you know July and early part of August
25:04
but um I just think from where we are now we we’ve we’ve arrived I mean we’re we’re
25:10
here we’re at the stop strike we’re above 4 300 the vix is 13. like I don’t
25:15
know I mean you know you feel like you’re playing for the last little little bit about performance here
25:21
um and there’s a extraordinary amount of potential downside and what I would also say is that
25:27
it outside of the U.S Equity Market you are starting to see some of these divergences and I think you’re it’s pick
25:32
you’re picking it up the most in currency markets uh the dollar is really starting to strengthen I think in a
25:38
fairly significant way over the course of the last several weeks here um really is starting to outperform all
25:45
DM currencies um and even Emerging Market currencies which we’ve talked about you know dollar
25:50
cnh and and the like so um you know I see that dollar up I see
25:55
yields remaining High particularly in the front um so we could just be in a situation
26:01
where the U.S assets continue to attract Capital um and that leads to this last blow off
26:09
in U.S stocks um but there’s other places where some of this liquidity contraction could
26:15
could show up more whether it’s in Emerging Markets whether it’s a Europe um and so you know I’m not here sitting
26:21
and saying it’s time to you know get back short s PS or NASDAQ but um I am cautious here when I you know
26:28
when I see this amount of liquidity that it potentially could be drained I just you know it’s just not for me I’m just
26:34
not going to be I’m not going to be and that’s wise and reasonable and rational my only point was it’s not necessarily
26:39
the market structure um because it’s clearly fomo calls out
26:46
of the money calls and then lots and lots of Hedges by selling calls up above and look this is important now right
26:51
this is this is something that I think we all need to do more work on and learn more about and figure more now this is the this is a a very big flow
26:58
particularly when there’s no news no fed no you know no nothing it is the most important factor on a day-to-day basis
27:05
correct you know how are we set up how is the market setting up for tomorrow’s you know daily expiry right today
27:12
there’s only daily expiry in NASDAQ and spies and cues tomorrow they add iwm’s
27:17
and then Friday it’s every stock has a daily expert so that this is obviously very important
27:22
um but I think um you know stepping back and trying to think about more from a swing
27:28
perspective where are we you know where are we going would I rather be selling into this or trying to chase it I’d
27:34
rather be selling into it okay well this is just what I wanted to kind of a few charts that have popped up while you
27:39
were talking first is it the dollar a little bit bigger picture not my weekly one but it kind of shows that we
27:45
definitely have um some oversold levels in the dollar that are getting supported on some key
27:51
you know trend lines but this is stuff that we do every single day in the trading room and this is basically that 101 level
27:57
um the covid you know freak out and it’s pushed basically back into um a key level but it’s definitely
28:03
definitely not rip roaring bullish in any way shape or form we have that Central Bank intervention uh back in
28:10
October and that absolutely put a complete kibosh on the 10-year rally the
28:16
U.S dollar rally and it has come down uh forcefully since and equities have gone
28:22
up forcefully since and that’s all that you know liquidity that we talked about that Matt King summed up at one one and
28:28
a half trillion but the point is it’s having a bounce but it is not at risk in my opinion until it can get back in play
28:34
kind of above that 106. then all bets are off otherwise we could just as easily fail and head down to 98 and I
28:42
got to tell you that’s still my Baseline bet this is just a dollar a little bit um tighter this is a weekly and this is
28:48
the daily and excuse me but just kind of show you that’s the 101 you know here’s a trend line right and the market has
28:55
not really cared the dollar has been digesting gold has been digesting the dollar Yen the dollar Yuan have been
29:01
have been marching higher and the market still is um unaffected as it relates to the macro
29:07
risk in large part because yields are not spiking higher this happens to be t-bon future ZB but you can do this with
29:13
any you can absolutely you know TLT for example but we had a lot of distribution here and it broke down and literally
29:20
Bond bowls defended perfectly on this trend line but that has been pierced
29:26
that has absolutely a risk of breaking lower and if bonds breaking lower yields
29:31
higher that’s towards your view dollar higher I can definitely see a case for a
29:37
little motion higher in in um in the dollar for sure this 105 up to 105.66
29:43
but it’s not risk off big picture for equities in my humble opinion until we
29:48
can really push above that 106 or really push above um 3.9 on the 10 years so those two
29:55
things still haven’t happened and while those things have not happened the market continues to grind higher so Sam
30:02
I think your charts are not are not loading properly here that you’re stuck on a on a NASDAQ chart really yeah it
30:10
was so maybe just try to throw another chart up and see uh if it works let’s see here right yeah
30:16
there you go now I see the dollar what the heck was it showing I’m showing you now it was showing your Nas you’re a
30:21
NASDAQ um okay yeah I don’t know but this is now it shows dollar all right so that
30:29
was basically you didn’t see the big picture one either nope there you go no we didn’t see that one all right that’s
30:35
the big picture one and then I was basically just showing the the up close one and then I was showing bonds and I
30:40
have no idea what the heck I was doing anyway the point or why my camera isn’t working and I’m really paved about both
30:46
but long story short um that’s really helping uh underlying you know macro
30:52
headwinds are at Bay man they’re just not able to go too far
30:57
um and this is that macro not macro excuse me this is that growth rotation rally and I show this all the time for
31:03
clients too which is why I’m getting excited about a value rotation and luckily talked about this in detail last
31:09
Thursday morning and then of course we had a a big pop-up Thursday a big move on Friday it was in fact the largest
31:16
outperformance of small caps over large Tech um in two years so this is one of the
31:22
charts that I use to kind of time it and I’m waiting for this to come down which basically means growth Peters out but I
31:28
also know that this can just as easily pop right back up to this trend line and
31:33
I have to tell you I’m swagging it but that’s probably about 4 400. so it has
31:39
not confirmed a rollover that growth to Value rotation um and I definitely am looking for it
31:45
even if if Bitcoin you know that was that was easy 25 000 we break that we head down to 23. this is the liquid
31:51
detail but it’s so not interesting anymore it’s not as tightly correlated with growth and growth right now is
32:00
um still in Play markets are still grinding higher on some very large Hedges and everything even oil as a
32:08
macro headwind with OPEC coming in and you know threatening Cuts they did and it was a nothing Burger as expected
32:15
they’re losing some of their pricing power so there’s so much although although some say this is a sign of weak
32:21
demand that’s not necessarily necessarily my Baseline bet I’m just not seeing the macro headline a head um uh
32:30
headwind in any of the things that really matter so it kind of goes back to
32:36
and I hate the I don’t have my picture but anyway um it goes back to this Market structure
32:41
they are still um buying this uh AI dream and this Tech
32:48
rotation with companies that are very large and not going out of business with lots of cash and they’re fomoing it and
32:55
they’re buying lots of hedges for the macro funds that aren’t necessarily um so Keen because the fundamentals uh
33:02
do show signs of recession getting pulled forward if employment continues to move higher it has not moved lower so
33:10
the next print will be very important um yeah I think the fomc decision in a
33:17
nutshell uh has I already you know I’m I’m I believe firmly that they’re going
33:23
to pause and I’ve been saying that since the bank bailout they did enough um so that was going to be may it was
33:29
done and then and then pause so I’m still on that bandwagon and I haven’t moved for three months so nothing has
33:35
changed I really think they’re going to pause um come June they’re going to announce it if anything we get a potential you
33:42
know by the rumor of a Fed pause slash pivot sell the news of one so the
33:48
question I have and the only question I have is at what price Target will we be before the fomc meeting on the 15th
33:55
right yeah I just threw up the chart I don’t know if you could see my chart here but this this is
34:00
um you know I think part of my my concern is uh this is net
34:07
liquidity versus s p right and so clearly the orange line here is the s p
34:13
kind of you know busting out to you know nearly the highs we saw back in August and it’s
34:19
increasingly disconnecting from the liquidity indicator you can see how this is liquidity at the end of the year and
34:24
this is liquidity right into the svb issue so we’ve seen how liquidity has
34:31
been added right and what what I notice is that clearly there’s a fairly tight
34:37
correlation here so this is you know I think on you know undoubted um when you have situations where like
34:44
in the middle of August in the middle of early part of February where you have this disconnect between where the s p is
34:51
where the liquidity indicator is and is going into an into an important event so like
34:58
back here if this was into Powell’s Jackson Hole speech obviously we had a market that was on fire as liquidity was
35:04
being drained he comes out he’s super hawkish right this is in February um February uh you know the January fed
35:12
meeting kind of a similar situation he comes out hawkish and then the employment numbers come in and people
35:17
are like oh crap there’s no you know there is no recession and the Market’s correct so here we are again into a
35:23
situation where the market has completely disconnected from the liquidity indicator now the question
35:29
from here is well where is liquidity indicator going so I would contend the this liquidity indicator is likely to
35:36
fall down below 6 trillion uh by the end of the quarter and maybe down towards
35:42
you know 5.9 trillion which would be a 200 to 300 billion dollar drain so if
35:50
we’re talking about a liquidity indicator down here at five you know 5.9 trillion right that means the s p at 4
35:57
300 is 500 handles above where I would expect the June end of quarter liquidity
36:04
to be now you know that’s that’s fairly sizable
36:09
um and that’s that’s incredibly concerning and so now some people would argue and say well you’re you’re wrong
36:15
on your liquidity expectations and I’ve already pushed back on that I think that we’re gonna get more bank reserve drain
36:22
than we are going to get money out of the RRP because of where yields are and because there’s also this dynamic in
36:28
play at quarter end you could see at quarter end right here quarter and let’s just go
36:35
back to 2021 quarter end liquidity drain quarter end liquidity drain quarter end
36:41
liquidity drain again boom December I mean March boom June boom September I
36:47
mean it’s every quarter end because the RRP grows on average
36:53
150 to 200 billion dollars and it’s been as high as 400 billion dollars so here’s the RRP into the end of the quarter
37:00
over the last two years I’ll show you this
37:05
so here we’ll just go back to that’s a gorgeous topping pattern what’s that it’s a gorgeous topic potentially
37:12
look it’s yeah yeah but it might be um September of 20 September of 21.
37:19
Boom 600 500 billion December boom March boom June I mean every quarter end we
37:29
get liquidity drain on the order of magnitude of 150 to 200 billion dollars okay this is going to happen again this
37:36
quarter so what I’m saying is my indicator here of liquidity is likely to Fall by a
37:45
sizable amount into the end of the quarter here and it’s going to be exacerbated that would be in a normal
37:51
situation it’s going to be exacerbated because of how much treasury is going to be selling
37:56
in the next three to four weeks as they look to restock the PGA now you can say well Young’s lying she doesn’t
38:02
care she just cares about the stock market she announces the t-bill auctions every other day we see the numbers we
38:09
know how much he’s issuing so we she’s not lying today she increased the you
38:14
know the four week by 25 million in the eight week by 15 billion you know eventually next week she’ll increase
38:19
both of them again by 10 to 15 billion so every week that goes by look every week that goes by we should be due at
38:26
four week an eight week a 17 week a three month a six month T bill so we’re raising you know gross 200 you know 200
38:34
or so billion dollars a week of key bills now a lot of that goes to pay off old T bills but the net increases are
38:42
gonna wrap ramp up now for the next three to four weeks we also have this 125 billion dollars of duration selling
38:48
which starts next week and then it’s the last week of the quarter we also have QT we also have the tax payment so I’m
38:55
saying that this liquidity indicator here which ended today at 6.18 trillion is going back down below six billion Six
39:02
Trillion by the end of the quarter and you know a 300 or so billion dollar liquidity
39:10
drain is a lot of money in the three week period and it’s very and it comes at the same
39:16
time where we’ve disconnected massively from um this indicator with the vix that’s
39:22
the with the vix already at 13 with folks buying here here’s a chart I’m sure you’ve seen this but I mean this is
39:27
the chart of um well this is I don’t know can you see this thing here I just it this is a
39:34
market year had a good chart about downside protection basically you know it’s kind of been a bit eviscerated
39:42
um there’s another chart of that Friday was the biggest day of call buying that we’ve seen
39:48
um ever right folks are yep folks are getting long and rightfully so I’m not
39:53
going to sit here and say that hasn’t been the right call but um I don’t know a lot of this uh a lot
39:59
of this feels like we’ve arrived people are getting euphoric the fix is euphoric
40:05
and you know if I trust the process of how important liquidity is to the
40:12
underlying markets I I have to be cautious uh you know here as we approach
40:17
a Fed meeting next week and into quarter end um and so yeah no argument I’m simply
40:25
looking at the Hedge the market structure the hedging that still is is
40:30
is pulling us up into that 43.90 4400 area so my point is yes I expected this
40:38
Gap fill 42 1870 with an overshoot to 4 300 we’re there I’m now looking for that
40:44
rollover and it doesn’t I don’t see it except for the cautionary tale that we do have this vix obviously on a 13
40:51
handle so it’s it’s uh it’s due for a nice reversion pop but my point is it
40:58
doesn’t mean that it’s done um you know getting suppressed so no I
41:03
definitely see the same kind of uh chart setup in fact um let me just now that I hopefully and
41:09
let me know if this really does work okay this intermarket that I was kind of
41:14
showing you or tried to before when it wasn’t loading
41:22
okay tell me if you can see this chart yes you can yeah so I’ve shown this before so I’ll show it again because
41:28
it’s you know it’s got some interest um and I get asked for it because I also see this as a as kind of a tool this
41:35
happens to be NASDAQ to SPX on a monthly it’s an intermarket tell and just to kind of catch anyone up who
41:40
doesn’t know I use this back in 2021 along with my net selling indicator that
41:46
a lot of stuff under the surface was coming back down we knew that from February 21 and that it continued and
41:51
then October November we had some very strong selling come in and basically this I just wrote a question mark next
41:58
to this going it looks like a Head and Shoulder which means NASDAQ to SPX 13-year out performance in NASDAQ I made
42:05
the you know the call in January of 2022 that buy would fall 20 this would pull
42:11
back NASDAQ would would be done with its 13 year old performance and that actually worked this was one of the key
42:18
reasons I do inter-market analysis now we came back down here into October that was that Central Bank you know
42:24
coordinated intervention we’re talking Bank Japan China Swiss National Bank U.S
42:29
fed treasury they’re all in cahoots um and now this channel trend line which
42:35
basically represents the outperformance of NASDAQ right and we we all know about the concentration risk that has really
42:42
occurred with the mega cap Tech plays but recently in the past month we’ve had
42:47
Junior Tech come up off the ground because we have been chasing that and it’s been phenomenal for the past five
42:54
weeks so the junior Tech stuff that oversold you know kind of mid-tier cap
42:59
uh Tech plays anyway the long story short is this got inside the channel in
43:04
April so you can’t really tell so perfectly but trust me attract this it was April and it was April
43:11
um when we had this AI exuberance and then we had Nvidia and this is what shot it in here so I don’t know if this is
43:17
going to time and by the way this was you know shared a week ago 531 with clients but the point is I am looking
43:24
for this tag and then a pause um and I don’t know if that’s going to be the 4390 right number but it
43:30
definitely is getting closer and closer and then you know this semi one because we have to watch dummies
43:37
um they’re such a strong from cyclical and Tech play in this world of higher
43:43
market returns of late um we can see where they’ve really taken off and that under performance uh really
43:49
under weighted asset of semis got a huge bid this is October by the way but this
43:56
is you know Nvidia I haven’t checked I’m not this is obviously from a week ago but the point is this is also kind of
44:02
forming this topping but I hear you I mean I did the same thing right for for
44:07
um clients recently which is Tech is definitely overbought and the first the
44:12
last in will be the first out this is that you know spy versus Bank Reserves
44:18
and we’re watching this one like a hawk I actually like to follow the 10-year it
44:24
works inversely as a tell on Bank Reserves so right now spy and and um and
44:30
Bank Reserves are you know pretty tightly correlated but then the 10-year is inversely correlated to Bank Reserves
44:37
big picture like your your chart that you just showed which is was was pure
44:42
liquidity this is actually flows cumulative Equity flows and you can see that they have been topping out for all
44:49
of 2022 and 2023 we’re halfway through it we are still really just plateauing I
44:56
know if Bulls are really really bullish man they better come up off the sideline Sidelines and make this move higher but
45:02
otherwise this just looks like it’s exhausted so anyway long story short I
45:07
agree with you we have the same sentiment which is we are um pushing our luck up here uh but we have not had
45:16
um yet anyway a solid bout of volatility and I do not think we’re gonna go right
45:24
from and I did uh let me just kind of show this as well hold on my my Baseline bet also the same
45:33
time I was sharing this with this is where I kind of dumped this stuff anyway so this weak breadth versus
45:39
sector rotation right same idea same time frame which was basically if you can see this
45:45
um is in uh orange okay is is SPF is spy
45:50
and this particular ratio is RSP to spy
45:55
so you’re kind of showing that um that the anti-momentum plays let’s put it that way this is anti-momentum think
46:01
thanks reflation traits all that stuff it was exceedingly oversold which was
46:07
why I was looking stalking of value rotation that I think will really pick up
46:13
um after we get through June but I don’t think we’re gonna go right from growth into value I think we’re going to go
46:18
from growth to volatility and then into value so you know this is getting into a place
46:25
where I think this rotation that we have also seen
46:31
um the past few days and I really have been stalking this value rotation strongly in every perspective I possibly
46:38
can from option to dark pool to intermarket the whole thing I can see
46:43
that they’re they’re positioning for it they’re absolutely positioning for Value so the question is when but they want to
46:50
be ready so they know that this is not going to last this this momentum for us that we
46:56
have if it is 19.99 then June will be
47:01
uh choppy then we will start to follow that 1999
47:07
after The 4400 so The 4400 to me is a melt up trigger and I have a hard time
47:13
believing we’re going to have it happen when we have the backdrop of your TGA
47:19
you know um analysis of liquidity coming out with QT still happening in
47:26
the background so I’m I’m still looking at that you know that level of 4400 to
47:32
be the the um the timing of the fomc we’re gonna
47:37
pause or quarter end you know that rolling of the JP Morgan caller I just don’t have
47:43
it precise but I think it’s going to be June and then we’re going to have volatility and then we’re going to have the value rotation
47:50
um pretty much through September that’s my Baseline bet yeah yeah it’s look I think again I think
47:55
there’s a there’s an outsized risk
48:01
now because of liquidity drain in June then once we get
48:07
to June 30th there is there is time kind of we reintroduce time into this
48:13
analysis right then threatening because um the duration selling is a little bit
48:19
more back-end loaded for the third quarter uh it’s more like an end of August September event as far as when
48:25
treasurer’s gonna be selling their you know long duration stuff um and then we don’t have a Fed meeting
48:31
until the end of July right so I think there’s this window now here which I
48:37
have been waiting for um as as a window that opens up once the
48:42
debt ceiling is resolved so and now that we’ve resolved the debt ceiling we’ve we’ve reintroduced this Narrative of
48:50
liquidity being drained and I had fought potentially that treasury was going to go slow but the early indications from
48:57
the t-bill auction increases suggests that they are not going slow they are just going and so
49:04
um this is this is happening now it’s not easy to um pre-position for this
49:12
um and so and I think the other important thing that people need to keep in mind is that
49:17
this uh treasury restocking is being done
49:23
with interest rates at five percent right five and five to five and a quarter and potentially five and a
49:28
quarter to five and a half percent we’re not refilling at zero or one or a very
49:33
low cost of capital right so treasury is borrowing at a very high rate and any
49:39
company that needs to that needs access to Capital imminently and maybe there
49:44
aren’t that many but there are some um and as we push through the rest of the year more companies more individuals
49:50
need more money uh that all that’s all going to be getting done at higher and higher interest rates
49:55
and so there is a crowding out effect that’s going to be taking place now
50:00
again apple and Nvidia Microsoft Google they don’t need money as a matter of fact they’re long cash they’re investing
50:07
that cash either in their business buying back stock or they’re investing it basically in Money Market funds that
50:14
are investing in the RRP right so they’re they’re earning extraordinary Returns on their cash balances now at
50:20
four and five percent but they’re that’s the they are the they’re not the uh the rule they’re the exception right there’s
50:26
plenty of companies that run with leverage that are left that have net debt to cash flow net debt to ebitda
50:32
ratios that are elevated that are going to need Capital they’re often smaller companies they’re often cyclical companies Etc and so they’re going to be
50:39
borrowing over the course of the next six months this year at higher and higher rates historically that’s not
50:45
been good for multiples it’s not been good for earnings for those companies so I think that we could continue this this
50:51
bifurcation bifurcated Market where techout perform Tech does well big cap Tech continues to do well and everything
50:57
else does it but you know that’s the story I think for the rest of the year but here and now
51:03
you know that the debt ceiling has been resolved we have this dynamic in play higher and higher treasury issuance at
51:10
higher and higher costs kind of crowds everything out um and that is a you know happening into
51:16
a Fed meeting with the vix at the lows and and one thing I’ve said about the FED is that I think the Fed
51:24
remains in the Vol dampening business and they are the fall dampening business
51:29
really from both perspectives right so when when Vol and I think this is something that folks forget
51:35
um when Vol gets elevated the FED comes in to do something to talk of all down right they you know intonate
51:43
maybe they’re not going to raise as much or they’re going to have liquidity whatever it is we’ve seen this time and time again the fix above 25 about 30
51:50
some magic happens and and they’re able to bring ball down but similarly when Vol gets too low does that is out like
51:58
now the FED has also acted against that Jim Carson I think he refers to it as you know I forget he’s you know selling
52:06
selling calls yeah and and you have to think about it from both perspectives as the Vol is too low since the FED hasn’t
52:15
achieved their objective yet with respect to inflation they want to continue to buy time in order to get
52:21
closer to that that point where they can kind of declare inflation solved and
52:27
they know that they run the risk that they’re too dovish and they allow markets to levitate and continue moving
52:32
higher that they could potentially re-spark animals spirits and inflation
52:38
expectations and that starts to move higher again and then oil moves higher the dollar weakens and then we’re in
52:43
this feedback loop where headline inflation moves up and then they’re going to be you know hiking again later and that’s not something that they want
52:49
to get into either so but it’s a tomorrow problem meaning well I guess for for sure right but we’re into a Fed
52:56
meeting with the with the fix of 13 and that’s not been a good time to you know over the course of the last 18 months to
53:02
say you know fight time to fight the fit so I think we’re setting up for something next week from Powell that
53:09
smells hawkish uh more hawkish than what’s being priced uh there’s a potential for the June hike right now
53:17
we’re the 20 25 Camp I think if the CPI came in very hot not expected but if it did we would immediately move those rate
53:23
hike odds up to 75 and they would probably go um if that number is in line there’s a
53:29
pause there’s a skip but there’s two descents and the 2024 dots have moved up
53:34
materially right now markets pricing in eight Cuts between now and the end of 2024
53:40
I think and the FED itself is pricing in four cuts and it’s uh and it’s not plot I think they’re gonna move those 2024
53:46
dots up materially uh next week to try to force the market out of these this
53:51
belief that they’re going to be imminently cutting rates because there is a defeatism to or you know they’re
53:59
working against their own interests by having an expectation for rate Cuts next year because if
54:06
economic actors believe that the FED is going to be cutting rates next year or
54:12
that it’s just going to be a soft Landing or a very minor recession no
54:17
one’s going to lay anybody off right they’re not gonna we’re not going to see the job losses that are necessary
54:22
in order to break the back of inflation and so part of the problem is that companies have spent years trying to
54:28
fill up their labor rosters um and they don’t want to lose people that you know if we’re just going to
54:35
have a small recession or if the fed’s going to be cutting rates so the FED needs to remind economic participants
54:41
that they’re serious about keeping rates at terminal four a long period of time and I suspect we’re going to hear more
54:47
of that next week and a Fed that tries to price out these cuts for next year so
54:54
that to me is a uh you know is a concern amidst you know a growing liquidity uh
54:59
contraction scenario excellent now what about and I have to I’ve I’ve shared this screen because
55:07
um I shared it with clients but I want to get your take on this right so I share this in the live trading room yesterday or today
55:13
um value typically performs better when rates get less negative and you can kind of see in uh 2020 the bottom of and then
55:21
again um in uh 2021 we had this really nice energy outperformance
55:28
um for 2022 but now we’re kind of back down into this way oversold area as
55:34
literally uh rates get less negative so value I’m asking a few questions are related to the value rotation and then
55:41
there are others that are related to Gold I thought why don’t we kill two birds with one stone talk a little bit about
55:46
um real rates uh you know growing less negative I want to get your take on that but on this particular chart just to
55:53
kind of highlight we’re literally at the zero Mark right so value typically works better when real rates are positive or
55:58
at least growing less negative um we’ve got big output performance that we’ve seen in the past where this uh
56:05
that’s followed through we’ve obviously been um swamped with uh with mega cap Tech
56:11
concentration risk and out performance for the AI rally but now the junior Tech is starting to come up off the bottom so
56:17
that’s actually been a durable at least swing time frame I don’t know if I trust it beyond that
56:23
um but kind of getting back to this um real rates what’s your what’s your view on where we go moving forward uh I
56:30
personally can see very much from all the other evidence that I’ve kind of shown that we can have an out
56:35
performance on a relative basis for Value but I also think we’re going to get a little volatility rug pull first
56:41
in other words value will fall less um so what’s your what’s your trajectory long story short for real rates
56:47
continuing because this will segue into a gold reception yeah look I think
56:53
um we’re going to continue to see real rates moving higher
56:58
um as the Fed intonates being on hold for longer even
57:03
as inflation is likely to fall so rates up inflation down means rail rates up
57:10
now as far as um this chart is concerned and this shift of value from growth to value
57:18
I need to think about it more I mean there is definitely and at the risk of saying this time is different
57:24
um but there is definitely a dynamic in play here where you have
57:29
these significant U.S government fiscal deficits that continue to grow and you
57:35
have the government that is borrowing at higher and higher rates itself and
57:41
crowding out other economic actors um and companies that are
57:47
um cash poor and so to the extent that we have an increase in borrowing costs
57:53
for cyclical and value areas of the economy and and banks are also typically
57:59
within value and I think what we’ve seen you know here is that as rates have risen
58:06
um banks are having more trouble right because they are now they’re having more of a there’s a there’s a point in time
58:11
where where real rates moving up is good for Value but then we get to a point where it’s actually not good anymore I
58:17
think that we we’re noticing that for various sectors and companies um particularly these Regional banks
58:23
that have to now have a business case right there’s a business issue uh if they cannot compete with the government
58:29
for Capital um if they’re losing deposits because they cannot afford to
58:36
um give deposit rates that compete with money market funds and that can compete with the RRP and so their cost of funds
58:42
is moving higher um clearly an earnings and valuation headwind for banks similarly for levered
58:48
parts of the economy um if we’re not getting cyclical growth re-acceleration
58:54
energy companies material companies commodity prices are not moving higher um then these companies don’t have
59:00
earnings power they don’t have a pricing power and so they don’t have earnings growth and so they don’t have
59:06
um you know the the potential for Equity outperformance I think if you look at the big cap growth stocks though they
59:14
are cash Rich they are benefiting as rates go up now um from an earnings perspective because
59:20
they uh you know their cash is earning higher and higher rates of return and
59:26
their multiples are not you know that they they are getting an earnings bump to offset the multiple hit that comes
59:32
from higher rail rates and higher rates now again at some point the higher and higher rates are going to break the
59:38
consumer and they’re going to break the economy and and no one’s going to buy an iPhone and you know no one’s going to do any online search at Google and
59:44
everyone’s gonna stop shopping at Amazon but you know with with wages and the labor Market’s still robust
59:50
that we’re not we’re just not there yet so um that’s what makes me reluctant to
59:58
get on this growth to Value rotation for anything more than an oversold bounce
1:00:06
um if you throw back that chart you add up on growth of value and now we’re at that potential pause spot here
1:00:12
whereabouts if you go back into the 19 of the 2019 and through covet and 20 you
1:00:17
know that that ratio made you know even more projected lows um and we just kind of kept going and I
1:00:23
think it’s more likely that that is the scenario that we find ourselves in uh moving through the back half of this
1:00:29
year than we are to see a sustained uh outperformance from you know from value
1:00:36
in this economy because I do still think the FED is trying to break the back of inflation I do
1:00:43
think they are comfortable with creating recessionary type scenario that brings the labor
1:00:49
market into weakness that takes the unemployment rate up 80 to 100 basis points from here and causes that kind of
1:00:56
recession that you know snuffs out wage growth and thus core inflation so
1:01:01
I’m still in that camp um I think it’s I think it’d be a mistake for them to pause us from them
1:01:07
to skip and then hike I think they should just go ahead and Hike now in June uh because I think the Market’s not
1:01:13
gonna necessarily believe wholeheartedly that a skip means a pause later but you
1:01:18
know we’ll see you know we’ll see what happens on that front next week um about gold
1:01:23
gold I think look I think gold has way outperformed from a real rate
1:01:30
perspective um typically when rail rates move higher that’s a significant headwind for gold
1:01:36
and so the fact that gold has has held in relatively well despite moves in real
1:01:42
wraiths suggests that something different is happening with respect to how investors are seeing
1:01:47
gold and what I think is happening I know this is you know a little bit thirty
1:01:53
thousand foot and a little bit um you know the stuff of you know uh uh conspiracy but to me the
1:02:02
the growing deficits of the US government are be are being noticed by
1:02:08
Global markets and this debt ceiling nonsense and default risks are waking
1:02:13
people up to how big the U.S deficits are how bad uh it is we are from a debt
1:02:21
to GDP perspective how bad we are from a tax receipts uh perspective I mean we
1:02:26
are currently in a situation where interest expense is growing entitlement spending is growing and together the two
1:02:33
of them are north of a hundred percent of tax receipts so you know historically
1:02:39
that means we are basically um you know almost in kind of Ponzi land I mean we are borrowing now to pay back
1:02:46
interest on the borrowings and so I think the gold market is starting to sniff that out
1:02:52
um I think globally more and more of our enemy countries and maybe some allies as
1:02:58
well are starting to transact away from dollars in commodity purchases and an
1:03:03
alternative system is Gathering momentum it’s not a story for today or tomorrow but it is happening
1:03:10
and I think gold is at the is at the center of that uh as a neutral Reserve asset so I think that’s what we’re
1:03:17
seeing and so to the extent that um gold has been hanging in here and can hold on
1:03:22
as the dollar rallies um I think it’s a real tell and eventually when liquidity in the U.S
1:03:28
gets tight enough and it becomes a real problem for our economy
1:03:34
um and the FED is forced to or it becomes a a problem for the government’s ability to borrow at reasonable rates
1:03:40
and the FED is forced to cut rates or nqt or what have you that will be the
1:03:46
kind of last you know ditch for the dollar and gold will really have its uh really have it today I don’t think it’s
1:03:52
today but I think it’s happening um at a more rapid Pace than folks realize okay so that’s that’s the big
1:03:58
picture view on gold on the smaller time frame
1:04:03
um I have been reckon amending for the past few weeks which I think has turned into I think more than that
1:04:11
um a pullback in Gold Silver and precious metals and it’s not done it needs to base
1:04:16
um before I get constructive on Long gold again for swing long as a trend it
1:04:22
already triggered in oh gosh November December you were so early in saying oh
1:04:27
this is it um and you are absolutely right and it took me a few months before it actually
1:04:33
confirmed and that’s not like in a live trading room when I’m doing chases and swings I can I can spot all kinds of
1:04:39
rotation underneath but gold is tougher for me to really really see accumulation because there’s so much false data out
1:04:45
there but as it related to my intermarket triggering as a trend long it confirmed in December January and it
1:04:52
has been it’s obviously pulled back since the last fomc but not very much so
1:04:57
it has it has been inversely trading with the dollar Yen and um that’s one of the reasons why I think it has pulled
1:05:03
back as a dollar Yen has moved higher and basically um I think there will be a big dump of
1:05:09
gold and precious metals if the dollar Yen gets above 140.80 that is my Baseline bet
1:05:16
um so I’m sticking with it um otherwise it’s just been digesting along with yields along with dollar none
1:05:23
of the none of the three are really um fashioning a risk off posture
1:05:30
so we need a little volatility to reprice equities um and if a value is going to get a a
1:05:36
follow through I know you’re suspect on the whole thing but I like my my rotation
1:05:42
um uh forecasting so far um it is still very productive but it is
1:05:51
absolutely as you said a shorter term kind of Bounce right so I still see
1:05:56
reflation trades like the energy oil and gas plays right that was a fabulous short I don’t think they’re done so it’s
1:06:04
very hard for me to get excited about a solid rotation in Jan in in June absolutely not into value but um I keep
1:06:11
looking for it and thinking we will have more evidence in July um are there any questions in chat that
1:06:18
I that we didn’t cover because we’re over our hour [Music] looking here someone asked about student
1:06:25
loan payments restarting I mean I think that is you know if you’re so fine and
1:06:30
that’s a head I mean that’s a headwind for a consumer I think that’s you know that’ll help kind of stock the TGA also
1:06:37
so um that comes out that’ll come out at reserves but um I’ve seen the economic impact is not
1:06:42
you know overly material from a GDP perspective but yeah clearly that’s uh you know that’s that’s going to be
1:06:48
that’s gonna be a bit of a headwind um and I think it’s kind of some people are
1:06:54
asking about the elections um you know I don’t I think we’re I think we’re too far out to be thinking
1:07:00
about um 2024 at this point um
1:07:06
so I’m not really I’m not really too concerned uh you know in either direction there I think there’s a lot of
1:07:12
a lot of things that could happen between now and and you know let’s say nine nine months from now when the election election starts to become in
1:07:18
more top of mind got it all right and then as far as assumptions um
1:07:23
Dimitri about if they’re wrong in other words if and if the index continues um
1:07:29
climbing climbing higher into your end so I’m not against that
1:07:34
um that premise I know it’s a working thesis for many right they’re they’re
1:07:40
extremely um bullish because the economy is still withstanding a lot of these
1:07:46
um you know rate hikes and bad things haven’t happened and liquidity is still in the market and you know loose
1:07:53
monetary policy is still very supportive right they come in um at the whiff of Crisis and that’s
1:08:00
basically climbing that wall of worry that we’ve had and the overhead Hedges
1:08:06
that actually drive this um Market structure to support the market so vix
1:08:15
right now is in a dangerously you know um low area for potential reversal and a
1:08:21
shake and bake which would basically just kind of free up a lot of folks by
1:08:26
the way who would like to put on more Hedges right I say literally I think the
1:08:32
market will get bought because um any downdraft of short duration is
1:08:38
only going to make it cheaper to put Hedges on so anyway as it relates to um 4400 yeah it’s only two and a half
1:08:44
percent move higher very doable um and then we’ll see right um I have those you know inter-market
1:08:50
tells which basically kind of tell me if I’m um like way off if we get above a
1:08:57
particular level like that channel I showed you earlier we got inside that and we continued to spike very strongly
1:09:02
from April after the bank bailout um through May um because of AI and now we’ve got
1:09:09
Junior Tech kind of picking up and now we’ve got the broadening of the rally meaning value meaning oversold Russell
1:09:16
um but long story short I’ll know it when I see it right now I don’t see a
1:09:22
reversal I see what you know Craig is warning about that this is um a bit of fomo that has the strong
1:09:30
potential for a rug a rug pull but more importantly a liquidity crunch that that
1:09:36
really forces a negative gamma environment which would absolutely
1:09:42
Propel selling and I don’t think we have seen selling we have not been in a strongly negative gamma
1:09:50
um uh Market structure for many moons right we were in one into the October
1:09:55
September October low um and we were about rated in cliff dive if Bulls did not defend there and
1:10:02
exactly when that happened that’s when this entire treasury fed Bank of Japan everybody came together and put it put
1:10:10
it put an absolute stop to the um the the the equity fall so they infused
1:10:15
literally Global markets of liquidity now Craig’s point is they’re taking it out so we have to be cautious we cannot
1:10:22
be complacent I agree with that um okay so with that um anything else uh
1:10:28
to answer or comment as far as macro event risk I think you’ve already mentioned it fomc is next week CPI is
1:10:36
before that um the jobless claims on Thursday something near and dear to my heart I
1:10:43
think we’re going to get volatility when we Pierce above 267 000 in jobless
1:10:48
claims so we haven’t had it yet um but again even when we do get the
1:10:54
volatility I am not convinced that it will not get bought
1:11:00
so any other final comments before closing and then we’ll do it again on
1:11:05
after fomc right or yeah yeah yeah okay
1:11:11
anything else nope we’re done yeah well yeah I think that I think so I mean you
1:11:16
only hold out so long apparently it’s got some kind of heat stroke no I think you enjoy the enjoy the quiet
1:11:23
week and then next week um you know I’m gonna get back in the seats and you know CPI and uh the fed and you know the
1:11:32
liquidity and you know I think the last three you know three weeks of June are going to be uh are gonna be interesting
1:11:38
so yeah all right well guess what I want to just thank everyone for coming again out for macro to micro
1:11:45
um Power hour and I am Samantha Duke founder of legitictrading.com with Craig Shapiro our macro advisor Edge manager
1:11:52
we have live trading rooms we’ve got three products Craig obviously uh manages the more macro focused one
1:12:00
um and I am uh facing swinging Trend trading anything that uh comes up in my
1:12:06
kind of inter-market um analysis and Technical um assessment and using macro as a
1:12:12
backdrop but we also have a Discord Community which is fabulous for those who really like momentum technical uh
1:12:20
analysis uh focused and a community of mentors and Traders that are uh purely
1:12:26
trading um momentum and Chase time frames so anyway we’ve got the the three products
1:12:31
we invite you to check it out any of them um again thank you so much Craig for kind of making heads or tails out of
1:12:37
this backdrop of uh Bank Reserves and uh how it will impact market returns will
1:12:45
look very much the fomc statement and then um Powell’s presser next week uh
1:12:50
getting into quarter end and then what other fireworks we have we’ll come right back in about two weeks and do this
1:12:56
again sounds good all right take care everyone thank you bye
