0:05

This is Macro Voices, the

0:07

free weekly financial podcast the

0:09

free weekly financial podcast high

0:11

professional finance, high net worth

0:14

individuals, family offices, and other

0:16

sophisticated investors. Voices is all Voices

0:18

is all about the brightest

0:20

minds in the world of

0:22

finance and macroeconomics telling it

0:24

like it is, bullish or

0:27

bearish, no holds barred. Now, here

0:29

here are your hosts, Eric Townsend

0:31

and Patrick Soresna. Macro

0:35

Voices episode 458 was was produced

0:37

on December 12th, 2024.

0:39

I'm Eric Townsend. research

0:41

Rosenberg research founder David Rosenberg returns

0:43

as this week's feature interview guest.

0:45

We'll discuss a piece he just

0:47

wrote wrote titled of a a Bear, in

0:49

which David shows his true

0:51

professionalism by acknowledging that his past

0:53

his of the stock bull market

0:55

stock bull quite panned out quite panned

0:57

why he's mulling a change in

0:59

his outlook change on AI and

1:01

other factors. factors. And I'm Patrick

1:03

Sorezna with the Macro over week as

1:06

of the close of Wednesday, as of

1:08

close of Wednesday, December 11th, The S The S&P

1:10

500 index basis points trading at trading

1:12

at 6,084. consolidating along all-time highs. highs. a

1:14

We'll take a closer look

1:17

at that chart and the key

1:19

technical levels to watch in

1:21

the post -game segment, post-game index up

1:23

25 basis points points trading at 10662. consolidating

1:26

in a three -week trade

1:28

range along its year

1:30

highs. The January a contract

1:32

up 255 basis points trading at points

1:34

trading at bounced off support. again, the

1:36

off support. to But will the

1:38

bulls be able to turn

1:40

around this bear trend in

1:42

the coming weeks? We'll take

1:44

a look at that chart

1:46

in the post game. The January R.

1:48

Bob up 206 basis points trading 198. The

1:50

the February gold contract contract, up

1:52

299 basis points to to 2756, Attempting

1:55

to break out again a stone throw

1:57

away away from its major highs.

1:59

highs. up 143

2:01

basis points, trading at 420,

2:04

Uranium, down 123 basis points,

2:06

trading at 76 .55, and the

2:08

U .S. 10 -year Treasury yield,

2:10

up 9 basis points, trading

2:12

at 419. Key news to

2:14

watch next week will be

2:16

the European and U .S.

2:19

PMIs, retail sales, the Bank

2:21

of Japan, and the much -anticipated

2:23

FOMC statement. This week's feature

2:25

interview guest is Rosenberg, research

2:27

founder David Rosenberg, Eric and

2:29

David discuss market bubbles, the

2:32

impact of the Republican victory,

2:34

market positioning, sentiment, and more.

2:36

Eric's interview with David Rosenberg

2:38

is coming up as Macrovoices

2:40

continues right here at Macrovoices.com.

2:50

And now with this week's

2:52

special guest, here's your

2:55

host, Eric Townsend. Joining

2:57

me now is Rosenberg, research

2:59

founder David Rosenberg. David, last time

3:01

I had you on the

3:03

show, you and I were both

3:05

very skeptical of this seemingly

3:08

endless stock market rally. You just

3:10

penned a piece called Lament

3:12

of a Bear. Give us a

3:14

summary of what that piece

3:16

is about and what your current

3:18

perspective is on this market.

3:20

Well, thanks for having me on

3:22

the call. Lament of a

3:24

Bear was just doing, I think,

3:26

what any analyst or strategist

3:28

or economist should do at the

3:31

end of a year, where

3:33

for the second year in a

3:35

row, the stock market just

3:37

pulled just a major upside surprise.

3:39

I'm really not alone when

3:41

you think about it that the

3:43

consensus on the S &P 500,

3:45

this time last year for

3:47

the end of this year, was

3:49

4800, and here we are,

3:51

you know, well north of 6000.

3:55

And the point that I

3:57

was making in my piece. And

4:01

it was really really an

4:03

exercise of putting myself myself

4:05

of a bull the shoes. of

4:08

a ball. trying to and understanding

4:10

and trying to appreciate. debate

4:12

is what the other side of the debate is. is

4:15

what the stock market is really

4:17

telling us, because the stock market,

4:19

we could say, well, it's crazy,

4:21

it's stupid, the valuations are insane. are

4:23

insane But I'm not gonna say

4:25

the stock market always gets the

4:27

story right, but. the story it

4:29

is is a broad and

4:31

liquid market. market collective. positioning

4:35

by thousands, if not hundreds

4:37

of if not hundreds of thousands of

4:39

participants and not stupid. stupid.

4:42

So it was an was an

4:44

exercise in really trying

4:46

to more deeply

4:48

understand. the message is and

4:50

is. the and maybe

4:53

tipping the hat to the of

4:55

instead of arguing calling it a

4:57

it a bubble every single

4:59

day in my missives. And it

5:01

may still be a bubble, a bubble, but I

5:03

I think at the margin what changed

5:05

for me changed for me was, well,

5:07

not a bubble. not a bubble.

5:10

by that I I mean, We're

5:13

spending so much time looking at at

5:16

metrics. metrics in

5:18

the classical sense of

5:20

of 12 month trailing, P multiples, 12

5:23

month forward forward multiples, course

5:25

when and of course, when you

5:27

look at the multiples on

5:29

a a one basis of basis 23, 23,

5:31

you know, you're in the top top

5:33

5% valuations of all time. all time.

5:36

but we have to consider that

5:38

the stock market is a

5:40

long duration animal. And

5:42

there are times when

5:44

are times when perhaps the

5:47

one year multiples. or are

5:50

not the most appropriate

5:52

way the most appropriate

5:54

value the market. the

5:56

market. We have to. to.

6:00

come to the conclusion that

6:02

the market is telling us

6:04

that the general of AI

6:06

craze is something that's very

6:08

close to what the internet

6:10

did back in the 1990s.

6:12

And of course you date

6:14

the start of the internet

6:17

media in 1995 when Netscape

6:19

went public. And it went

6:21

from a bull market to

6:23

a raging bull market to

6:25

a mania and then to

6:27

a bubble that inevitably burst

6:29

as all bubbles do. It

6:32

did take five years for

6:34

that to happen. And if

6:36

you were there in 1997

6:38

and 1998 and even in

6:40

a 99 yelling bubble bubble

6:42

bubble bubble bubble doesn't matter.

6:44

The market still ripped in

6:47

your face. Inevitably, there was

6:49

a day of reckoning that

6:51

came down the came down

6:53

the road. I

6:56

think that what's happening this

6:58

time around is very similar

7:00

in the sense that the

7:02

market is taking a longer

7:04

time horizon. If you build

7:07

an assumption that AI is

7:09

a major inflection point in

7:11

the technology curve, that we've

7:13

had a real model shift

7:15

in this sense. And I

7:17

think that you can say

7:19

that, yeah, it's going to

7:21

have a major impact. We

7:23

don't know how it's going

7:26

to be regulated in the

7:28

future. Nobody knows really what

7:30

the total available market is

7:32

going to be. And so

7:34

a lot of assumptions are

7:36

being made. But I think

7:38

we can say that AI

7:40

is a game changer, call

7:42

it internet light. and that

7:44

was a unit costs in

7:47

the business sector and then

7:49

what that means for corporate

7:51

profitability in the future. So

7:53

I think that the reason

7:55

why the stock market through

7:57

thick and thin and through

7:59

good news and bad news

8:01

in the past couple of

8:03

years has continued to march

8:06

higher. is that the stock

8:08

market has taken on a

8:10

much longer time horizon than

8:12

has normally been the case.

8:14

I know that's going to

8:16

sound a lot like, well,

8:18

it's different this time or

8:20

new era thinking. And I'm

8:22

saying, well, no, not really.

8:24

You know, we've seen a

8:27

handful of these technological innovations

8:29

that really causes a big

8:31

shift in the technology curve.

8:33

that then leads to a

8:35

whole bunch of assumptions on

8:37

what the future is going

8:39

to look like in terms

8:41

of what I just mentioned,

8:43

the productivity growth that leads

8:46

into profitability. And what is

8:48

the stock market after all?

8:50

The stock market is always

8:52

operating not on the here

8:54

and now, and it's not

8:56

operating on lagging statistics. The

8:58

stock market by definition is

9:00

filled with assumptions and expectations

9:02

about the future. And only

9:04

in the future do we

9:07

find out the extent to

9:09

which the market overpriced what

9:11

was going to happen. And

9:13

that's ultimately how bubbles burst.

9:16

So I tip my hat

9:18

to the view that the

9:20

market is giving us a

9:22

very important message about what

9:24

it believes and what it

9:26

believes is that the long

9:28

term, not one year, not

9:30

two years, not three years,

9:32

but five years or ten

9:34

years, that AI is going

9:36

to be a fundamental game

9:38

changer as far as what

9:40

it means for the economy,

9:42

and it's all very positive.

9:44

Of course, there'll be winners

9:46

and losers as far as

9:48

our personal lives are concerned,

9:50

but in general, the belief

9:52

that is going to lead

9:54

to a lower corporate cost

9:57

curve is bullish for profits.

9:59

And not just for the

10:01

here and now, but for

10:03

the future. So I think

10:05

that what's happened here is

10:07

that the stock market investor

10:09

at the margin. lengthened his

10:11

or her investment time horizon

10:13

more than it's been the

10:15

case in the past. And

10:17

what I missed in this

10:19

rally, this huge rally, is

10:21

not appreciating the extent to

10:23

which AI was going to

10:25

compel investors to lengthen their

10:27

investment time horizons as much

10:29

as it has. Now on

10:31

top of that, we have

10:33

the Trump victory and Major

10:35

thin majority in the House,

10:37

majority in the Senate, clean

10:40

sweep. I don't really believe

10:42

that Trump is going to

10:44

get his corporate tax cuts

10:46

through because the House is

10:48

just filled with fiscal conservatives

10:50

who want to bring the

10:52

deficit down. But I do

10:54

think that, and really this

10:56

is coming from the lament

10:58

of a bear, we have

11:00

to make the assertion that

11:02

Donald Trump as a standalone

11:04

event is bullish for the

11:06

stock market because his administration

11:08

is clearly going to be

11:10

very business friendly. So you're

11:12

taking a look at what

11:14

my biggest concern was. and

11:16

the lead up to the

11:18

election is shortly thereafter was

11:21

would he boost tariffs 20%

11:23

and everybody but China and

11:25

60% on China and engage

11:27

everybody into a global trade

11:29

and terror for what would

11:31

the Fed's reactions function to

11:33

that be? And that had

11:35

me very concerned for maybe

11:37

a couple of weeks. And

11:39

then he put together his

11:41

economics team, which I would

11:43

have to say he gets

11:45

full grades on. And I

11:47

think especially Scott Bissant as

11:49

his Treasury Secretary, I'm pretty

11:51

confident is going to restrain

11:53

some of Trump's most damaging

11:55

impulses, especially when it comes

11:57

to trade policy. So I

11:59

don't think we're going to

12:02

be getting into a big

12:04

tension. that even as we

12:06

saw already with the threat

12:08

for Canada and Mexico that

12:10

he was using tariffs as

12:12

a weapon for border security

12:14

concerns. It's really being used

12:16

more as a tactic. So

12:18

I'm relieved about that, less

12:20

concerned about there being a

12:22

terror for, and of course

12:24

whatever inflationary effects there would

12:26

be, and we have a

12:28

president who is going to,

12:30

even if he doesn't get

12:32

his tax cuts through, he

12:34

is going to be deregulating

12:36

substantially, obviously very big important

12:38

implications for the financial sector

12:40

and for small business. and

12:43

deregulation epsophacto like AI

12:45

leads to a lower

12:47

corporate cost curve. So

12:50

that's bullish for the stock market

12:52

and there's no doubt about that.

12:55

And on top of that, you

12:57

know, drill, baby, drill, we're going

12:59

to get a lot more energy

13:02

production that will lead to lower

13:04

oil prices and that will be

13:06

beneficial for pretty well every aspect

13:09

of the economy, especially industries that

13:11

are heavy users of energy because

13:13

it means that their profit margins

13:16

are going to improve. I

13:19

still have not acted on what

13:21

I'm talking about because I still

13:23

think there's there's a lot of

13:25

question marks and I'm concerned about

13:27

putting the valuations aside which I

13:30

mentioned we could argue that maybe

13:32

this is not a bubble after

13:34

all if you're taking a look

13:36

at. the stock market valued on

13:38

a long-term basis, so long as

13:40

those assumptions that are being embedded

13:42

as far as AI is concerned,

13:45

proved to be appropriate, but we're

13:47

not going to know that for

13:49

some time yet, and this stock

13:51

market clearly is going to be

13:53

forgiving. But certainly from a public

13:55

policy standpoint, the Trump victory is

13:57

clearly positive for the stock market.

14:00

is that sentiment is wildly positive

14:02

and market positioning is showing that

14:04

this is a very crowded trade

14:06

right now to be all in

14:08

on the S&P 500. So I

14:10

have other issues, you know, when

14:12

I take a look and I

14:15

see that portfolio managers in the

14:17

industry on the equity side have

14:19

barely more than 1% cash ratios.

14:21

you know, I get a little

14:23

unnerved, you know, that what if

14:25

something happens that upsets the apple

14:27

cart, portfolio managers, institutional portfolio managers

14:30

don't not have the liquidity. So

14:32

there could be foreselling. So from

14:34

a fun flow standpoint, market positioning

14:36

standpoint, sentiment, every sentiment measure is

14:38

just off the charts, and I

14:40

tend to be a contrarian. So

14:42

even though I was willing to

14:45

acquiesce and talk about how perhaps

14:47

the structure of the market's thinking

14:49

has changed because of AI and

14:51

the reasons why you could be

14:53

more bullish because of the Trump

14:55

victory. There's other things, nagging concerns

14:57

I have right now, which is

14:59

why I've written about these things,

15:02

and I've also said, by the

15:04

way, you do what you want

15:06

to do, I haven't really adjusted

15:08

my portfolio just yet. Let's

15:11

talk a little bit more

15:13

about President Trump being re-elected.

15:15

It seems to me that

15:17

although there's lots of reasons

15:19

to think that his stated

15:21

intentions might be bullish for

15:23

the economy and the stock

15:25

market, there's going to be

15:27

immense opposition to some of

15:29

his bolder things, particularly Elon

15:31

Musk and Vivique Romiswami's doge

15:33

effort. They want to fire

15:35

half of the government. Is

15:37

that something that potentially has

15:39

the risk of derailing other

15:41

policies of the administration and

15:43

maybe taking some of the

15:45

shine off of the bullish

15:47

interpretation of his election? Well,

15:49

I don't really think that

15:51

Elon Musk is going to

15:53

be able to find two

15:55

trillion dollars of savings unless

15:57

he fires the entire civil

15:59

service. just not enough

16:01

discretionary spending after you account

16:03

for Medicare, veterans benefits, Social

16:05

Security, defense. There's the cupboards

16:07

almost bear after that. So

16:09

personally, I think a lot

16:11

of that is show, and

16:13

I don't think that we're

16:15

going to be seeing broad

16:17

spending cutbacks. At the same

16:19

time, I don't think that

16:21

Trump is going to get

16:23

his corporate tax cuts through.

16:27

So I think that the deficit

16:29

is going to remain elevated. I

16:31

don't think it's going to be

16:34

going up. And I think that

16:36

it probably will only go down

16:38

if the supply side measures that

16:40

he's going to adopt, and especially

16:43

on the deregulation side. produces enough

16:45

economic growth that we can get

16:47

the revenue base up and at

16:49

least get the deficit GDP ratio

16:52

down on a more sustainable basis.

16:54

That would be my broad expectation.

16:56

But I don't think that we're

16:58

going to be getting broad spending

17:01

cuts. And there's just not enough

17:03

there. I didn't even talk about

17:05

the fact they have a trillion

17:07

dollars annually of interest expense now.

17:10

How are you going to get

17:12

out of that? So I think

17:14

a lot of that was for

17:16

show. I think that like the

17:19

tariffs. Although he imposed tariffs in

17:21

his first term, not nearly as

17:23

much as he said he was

17:25

going to when he was running

17:28

the campaign against Hillary Clinton. So

17:30

I think sometimes with Donald Trump

17:32

we have to try and separate

17:34

out, you know, what is for

17:37

show and what is actually likely

17:39

to happen. And it's going to

17:41

be very difficult certainly to get

17:44

anything through the house. The

17:46

house is very fractious. It's

17:48

a razor-thin majority, just a

17:50

couple of seats. And so

17:52

I think the legislative agenda

17:54

is going to be questionable

17:56

in terms of what he

17:58

can get done. And

18:01

there's not the same appetite for

18:03

corporate tax cuts this time around

18:05

as there were last time. I

18:07

think that most Republicans are quite

18:09

happy at 21% from 35%. About

18:11

your question about that Donald Trump

18:13

would implement fiscal drag to the

18:15

point that it would generate a

18:17

recession, I don't think I'm there.

18:19

I don't think that he would

18:21

be doing that. I think that

18:23

the big thrust will actually be,

18:25

and of course we can also

18:27

talk about is immigration policy, but

18:30

I don't think we're going to

18:32

have 20 million people, you know,

18:34

exported it over the country. I

18:36

mean, a lot of this is

18:38

just talk. It's probably not going

18:40

to happen. People tend to forget

18:42

that the president that oversaw the

18:44

biggest immigration outflow deportation was Barack

18:46

Obama. I don't think that Trump

18:48

is going to be going, you

18:50

know, overboard on that. But of

18:52

course, you know, immigrants that are

18:54

criminals, they'll be the first to

18:57

go. But I think that the

18:59

view that he's going to constrict

19:01

the economy and restrict the labor

19:03

supply, people talked about that when

19:05

he got elected in 2016, and

19:07

he did tighten up immigration and

19:09

the unemployment rate did get down

19:11

to three and a half percent,

19:13

but we never did get the

19:15

big wage and price inflation out

19:17

of that. To me, the really

19:19

big thing is going to be

19:21

is energy policy and his deregulation

19:23

policy and what he can achieve

19:26

politically from his tariff policy without

19:28

engaging in a global trade war.

19:30

So I think those are the

19:32

major things. And I think as

19:34

tariffs are really aimed at trying

19:36

to entice companies and foreign countries

19:38

to set up shop in the

19:40

US. So, you know, you'd say

19:42

to me, well, okay, what if

19:44

Elon Musk does actually take the

19:46

knife out and is able to

19:48

slice government spending? And of course,

19:50

that would have a, and a

19:52

lot of people in our industry

19:55

would applaud that, but it would

19:57

have a negative. impact on aggregate

19:59

demand because government is part of

20:01

aggregate demand, which is GDP. But

20:03

then there's a huge offset if

20:05

it's tariff policy, which you're first

20:07

to as an industrial policy, which

20:09

is an enticement for direct investment

20:11

to come in the United States,

20:13

that would be a very big

20:15

offset to anything that Elon Musk

20:17

would do on the spending front,

20:19

terms of government spending cutbacks. Let's

20:22

go back to your comments about AI.

20:24

I definitely agree that AI is going

20:27

to be really big. But at the

20:29

same time, I really feel there's a

20:31

strong parallel here to the late 90s

20:33

and the dot-com boom before it turned

20:35

into a bust. And I was a

20:37

software entrepreneur at the time. I sold

20:39

by software company in 98. And I

20:42

know that the way I felt was

20:44

very much the way that most software

20:46

entrepreneurs felt at the time, which is

20:48

the Wall Street guys are exactly right

20:50

that the internet is going to be

20:52

a really, really big deal, and they

20:54

also have absolutely no clue what they're

20:57

buying. It was crazy just to see

20:59

the Wall Street guys show up in

21:01

Silicon Valley. Anything that has.com and its

21:03

name, they want to buy it without,

21:05

you know, buy first, ask diligence questions

21:07

later, was the attitude. worked out very

21:09

well for a lot of people that

21:12

were pushing companies that really didn't have

21:14

any substance behind them, but it didn't

21:16

work out so well in the end

21:18

once we got to 2000 for investors.

21:20

Do you think there's a parallel there?

21:22

Is there an AI bubble that will

21:24

burst at some point? And I'm not

21:27

suggesting that AI isn't a big deal.

21:29

I'm just suggesting maybe there's malinvestment in

21:31

the wrong things because the people doing

21:33

the investing don't fully understand AI yet.

21:35

I think there's a lot of truth

21:37

to that. You know, my point in

21:40

lament of a bear was to explain

21:42

what the market has been doing and

21:44

the market has been lengthening its investment

21:46

horizon. And it always does that after

21:48

a major shift in the technology curve.

21:50

This is nothing that is really new.

21:52

I really wish I was more on

21:55

top of this a year ago, but

21:57

two years a row of this

21:59

sort of stock

22:01

market, you know. a splash of

22:03

a splash of cold water in the face. you

22:05

can And do you can sit there and

22:07

say, bubble, bubble, and and trouble, which which I've

22:10

been doing, and there's still part of me

22:12

that's doing that. And then at some point

22:14

some to say, you've got to say, okay, it to your,

22:16

to your clients and and people listen

22:18

to you to explain what is going

22:20

on and them make the decisions as to

22:22

as they want to do to do.

22:24

I I provided the explanation, I haven't

22:26

really done anything, although done more sensitive. although

22:28

I'm more to the bullish case the was

22:31

before. Let's just say I'm more more

22:33

sensitive to. more that case. that case

22:35

and and less resistant than I was before. It

22:37

doesn't mean that I'm jumping into the market.

22:39

I haven't done that, at least not yet. I

22:41

think that we will get a correction. I think that

22:43

And then I got to decide whether, And you

22:45

know, this will be another one of those you

22:47

know, this will be that you want to buy. those depths

22:49

that you terms of, In know, of,

22:51

you know, the bubble the bubble

22:54

bursting. bursting. You

22:56

know these things are These things

22:58

are very difficult to time. I was I

23:00

was saying this was a

23:02

bubble back in and 99, then it until

23:04

the winter of 2000 that things

23:06

rolled over. that things rolled over.

23:09

So you ought to play a bit of a

23:11

waiting game and be extremely patient. be

23:13

extremely point I would make

23:15

is this two things this, two things.

23:17

If we're going to build If we're

23:19

going to build that that the

23:21

market is taken on a longer

23:23

time horizon. horizon, Which then tells

23:25

me that let's not waste our time

23:27

right now looking at one -year multiples. looking at

23:29

one year even if you look on

23:31

a five -year basis. look on a And

23:34

you look at what the earnings

23:36

growth is per annum that's embedded

23:38

in the that's right now. in the And

23:40

we went back. right now And we

23:42

worth of data. century's the

23:44

market has laid down a bet that

23:46

we're going to be seeing in

23:48

the next half to be profits. the next half

23:50

decade percent profits

23:52

Roughly 17% year. which

23:56

I don't think anybody can say is

23:58

impossible. is impossible, but it would. be. the

24:00

norm. I mean that would

24:03

be double the historical norm

24:05

over a five-year period or

24:07

five-year period historically profits grow

24:09

through the peaks and valleys

24:11

an average of 8% and

24:13

now we're talking 17% so

24:15

if you're gonna buy the

24:17

market now then you have

24:19

to have that view that

24:21

the AI wave and it's

24:23

permeating every aspect of the

24:25

economy and You're

24:28

seeing that in aspects of

24:30

the data, which Jay Powell's

24:32

talked about, R&D spending in

24:34

the United States is surging.

24:36

It's the strongest component of

24:39

the economy. We always talk

24:41

about the consumer. R&D spending

24:43

is surging and has been

24:45

a major contributor to the

24:47

GDP numbers that we've seen.

24:50

But You got to

24:52

have 17% you don't have 30% you

24:54

don't have 25% but 17% that's a

24:56

that's a big nut and a big

24:59

threshold to cross. But if you have

25:01

that belief that I think that the

25:03

market will deliver earnings because of AI

25:06

that's and because of AI maybe because

25:08

of what Trump's going to be doing

25:10

to lower business costs, if you think

25:13

we're going to be growing 70% per

25:15

year for the next half decade, then

25:17

you'd be very comfortable buying the market.

25:20

I'm not there. I'm not there yet,

25:22

but we've done the work to try

25:24

and explain what is going on. There

25:26

are people that actually do believe that.

25:29

Yes, I actually believe we're going to

25:31

be having perennial double-digit growth as far

25:33

as the eye can see. Well, that's

25:36

the assumption, and let's face it, the

25:38

stock market, like most markets that have

25:40

discounted cash flows to Underpin

25:43

valuations, they're all built on

25:45

assumptions and expectations and speculation.

25:48

The stock market is a

25:50

speculative asset class and so

25:52

that's where the bed is.

25:54

The other point is look

25:56

at the equity risk premium.

25:59

Look where the risk for

26:01

is and look at any

26:03

evaluation metric and you've got

26:05

the equity risk premium when

26:07

it's at zero, it's sending

26:10

a message. It's sending a

26:12

message that investors are not

26:14

going to be selling their

26:16

stocks. There'll be no sellers.

26:18

When the ERP is zero,

26:21

the implication is that you

26:23

will never sell your stock.

26:26

And again, I have a bit

26:29

of a problem with that because

26:31

history suggests otherwise because the markets

26:33

are driven by the extreme primal

26:35

emotions of fear and greed. And

26:37

through thousands of years, that's never

26:39

changed. Now we have quite a

26:42

bit of greed and that at

26:44

some point will revert to fear.

26:46

I don't know when. That's my

26:48

biggest concern. I can't time it,

26:50

but you see that could be

26:52

next year. It could be two

26:54

years down the road. I mean,

26:57

people were screaming bubble bubble bubble

26:59

in 98-99. Finally, they got right

27:01

in 2000 if they were still

27:03

in the business. So it's very

27:05

difficult to time and I tend

27:07

to agree with you that There

27:11

is a timeline, there is an

27:13

expiry date as there is on

27:15

every bull market and every bear

27:17

market. This one seems to have

27:19

been extended because of the two

27:21

things. I think there's been two

27:23

fundamental things. I could argue with

27:25

three fundamental things. Remember that we

27:27

had another shock, which was COVID.

27:30

And what's very interesting to me,

27:32

and again, this was something that

27:34

you have to say is is

27:37

bullish for assets and equities, which

27:39

is productivity. I mean, really, when

27:42

we think about it, what is

27:44

more important than productivity growth? It's

27:46

structural and it leads to lower

27:49

business costs. And it's at the

27:51

root of what profit marches are

27:53

going to be doing. And what

27:56

COVID did, COVID ultimately was incredibly

27:58

bullish for the stock. because

28:01

during the worst part of COVID

28:03

and the lockdowns in 2020, if

28:05

you weren't automated or digitized, you

28:08

were out of business. you're out

28:10

of business and actually what's interesting

28:12

is that the one sector that

28:15

the two sectors that actually are

28:17

seeing the best productivity growth that's

28:19

not technology and it's not financials

28:22

it's the retail sector and leisure

28:24

hospitality the old economy low-value ad

28:27

segments of the economy because they

28:29

have followed the Amazon model either

28:31

that or perish. So even in

28:34

advance of all the benefits that

28:36

AI are going to provide, we

28:38

just don't know the extent, but

28:41

the benefits will be immense. We

28:43

don't know the extent of it.

28:45

We're already in a period where

28:48

productivity growth is expanding at over

28:50

a 2% annual rate, which is

28:52

significant. And that

28:55

came out of the pandemic.

28:57

So we have that aspect

29:00

of it too that we

29:02

have to consider that we're

29:04

getting apparently a productivity revolution

29:07

from AI that's layered on

29:09

to an existing productivity cycle

29:12

that came out of COVID

29:14

counterintuitively. All that

29:16

said, as you mentioned, you know,

29:18

in 2000, the gig was up

29:20

and it was really, you know,

29:23

all of a sudden, it wasn't

29:25

really so much about the dot-coms,

29:27

it was about, you know, the

29:29

bellwethers. All of a sudden, the

29:31

Intels and the Ciscos and the

29:34

Microsofts, they stopped beating their numbers.

29:36

And all of a sudden, you

29:38

started seeing orders for telecom equipment

29:40

being canceled. And those are the

29:42

things we have to look for.

29:45

So, I'm on

29:47

guard. If I decide, say, to

29:49

buy any debt, or let's say

29:52

in the next couple of months

29:54

I decide I'm going to take

29:56

my thought process and maybe start

29:58

allocating more to equities, I'm going

30:01

to be laser focused. what does

30:03

bring this to an end? What

30:05

brings it to an end? If

30:07

we get inflation, if we get

30:10

inflation, the Fed's gonna have to

30:12

hike rates again. If you remember,

30:14

if you remember, When things broke

30:17

in 2000, we came off a

30:19

Fed tightening cycle because of Greens'

30:21

inflation concerns. If anything causes inflation

30:23

to go back up bad news,

30:26

if Trump surprises me and all

30:28

of a sudden we're going polehog

30:30

on tariffs, once again, my biggest

30:33

concern there is the Fed's reaction

30:35

function to that. Won't be pretty.

30:37

They will not be cutting rates.

30:39

Now at the unemployment rate in

30:42

the low force, they will be

30:44

concerned that that will lead to,

30:46

that will feed into wages. That'll

30:49

be Powell's primary concern. So policy,

30:51

tariff policy still have to be

30:53

cognizant of that. I have a

30:55

certain assumption, but you know, Trump

30:58

we know is unpredictable. Inflation, even

31:00

without tariffs, if somehow for whatever

31:02

reason it comes back, the Fed

31:04

will stop cutting rates and may

31:07

have to raise rates. That's a

31:09

risk. And we still have to

31:11

consider that we haven't completed all

31:14

the lags from everything the Fed

31:16

did in 2022 and 2023. And

31:18

we have a refinancing wall that's

31:20

coming into next year and the

31:23

year after that. So

31:25

we have to be cognizant of,

31:28

especially at a time when everybody

31:30

thinks that the business cycle has

31:32

been repealed and there's no recession,

31:34

I could tell you that one

31:36

of my concerns is that we

31:38

are in a growth turndown. And

31:40

people say to me, well, you

31:43

know, but GDP growth, 3%. Well,

31:45

you know, I've got the monthly

31:47

data on GDP and it goes

31:49

right up until October. And I

31:51

can tell you that indeed, indeed,

31:53

on a year-of-year trailing basis, real

31:55

GDP growth is running close to

31:58

3%. However, if you look at

32:00

the six-month annualized trend in GDP,

32:02

2.3. And then if we take

32:04

a near term look and we

32:06

look at the three-month pace to

32:08

October, the three-month trend is 0.7.

32:10

And I tell that to my

32:13

clients, and they don't believe me,

32:15

I have to show them the

32:17

data, that we are into already

32:19

into a growth turndown. And you're

32:21

seeing that in the employment numbers

32:23

as well, that not a contraction,

32:26

although we're seeing a contraction in

32:28

the household survey, but most people

32:30

don't pay attention to that. But

32:32

even in the payroll survey, things

32:34

are cooling off in the labor

32:36

market side, which is principally why

32:38

the Fed is going to continue

32:41

to cut interest rates. So those

32:43

are some of the concerns I

32:45

still have. You got a recession,

32:47

you get inflation, you get a

32:49

policy mistake. Those are the sorts

32:51

of things that would upset the

32:53

Apple card in terms of what

32:56

really provides a fundamental end to

32:58

this AI-related bull market. are the

33:00

conditions that brought the internet bullmarker

33:02

to and end back in 2000,

33:04

which is you start, you will

33:06

see it in company announcements, you'll

33:08

see it in order books, you'll

33:11

see it in earnings missing their

33:13

estimates, and that hasn't happened yet.

33:15

But that will

33:17

be the trigger point for the

33:19

reversal of this, you know, this

33:22

this AI wave. That might not

33:24

happen for a couple of years.

33:26

The reality is that I don't

33:28

know, and I don't think anybody

33:31

knows, investors have laid down their

33:33

bets. I guess one of my

33:35

concerns is that just the hubris

33:37

and the complacency that's out there

33:40

after you've been in the market

33:42

the past two years, you've been

33:44

spectacularly right. And it's like you're

33:47

at the... at the blackjack table

33:49

in Vegas and you keep on

33:51

increasing your bets. Everybody is all

33:53

in. I mentioned before about institutional

33:56

portfolio managers. We've never been in

33:58

a situation before where portfolio managers

34:00

in domestic equities were running. ratios

34:02

of just over 1%. Everybody is

34:05

all in. And you're taking a

34:07

look at the household balance sheet,

34:09

and the also balance sheet, 70%

34:11

of the asset mix, is inequities.

34:14

And even amongst baby boomers over

34:16

the age of 65, 60% of

34:18

their mix is inequities when it

34:20

should be closer to 30 to

34:23

40%. And that's

34:25

my big concern is that at

34:27

the point in which the market

34:29

peaks and rolls over. This

34:32

is my biggest concern. It's just next

34:34

to impossible to time it. And this

34:37

is when things will start to get

34:39

ugly, is that I do not believe

34:41

that the equity risk premium should be

34:44

as razor thin as it is, but

34:46

I know the message is telling me

34:48

that that will only be justified if

34:50

nobody ever sells their stock again, but

34:53

we know that they will, that is

34:55

human behavior. But at the top, people

34:57

will think they can get out at

34:59

the top. But

35:02

there's very few people like me

35:04

or Warren Buffett. There's very few

35:06

people out there. I am sitting

35:08

on a ton of cash. I

35:10

really don't mind four and a

35:12

half percent. You know, look at

35:14

genie main mortgages. What are they

35:16

yielding you like? over five and

35:18

a half percent. There is stuff

35:20

out there that's giving you a

35:22

very nice income and of course

35:24

four and a half percent tea

35:26

bills and five and a half

35:29

percent mortgage bonds sound pretty boring,

35:31

but right now I'm still in

35:33

capital preservation mode, but you see

35:35

my big concern is that my

35:37

big concern is that looking at

35:39

everybody is so concentrated in the

35:41

same trade and everybody is all

35:43

in on their asset mix and

35:45

portfolio managers have almost no cash

35:47

on hand to deal with redemctions.

35:50

that when that day happens,

35:52

where the buyer's going to

35:54

be? Where the buyer's going

35:57

to be? They'll be me

35:59

and they'll be Warren Buffett.

36:01

my liquidity position is quite

36:03

a bit lower than his,

36:05

but there will be very

36:07

few liquidity providers to mop

36:10

things up because that's the

36:12

big concern I have. You

36:14

mentioned about the dot-coms and

36:16

we can talk about all

36:18

the comparisons, but I'll tell

36:21

you right now that even

36:23

back then with all the

36:25

euphoria, the concentration of equities

36:27

and household balance sheets and

36:29

the cash position amongst portfolio

36:32

managers was nowhere near where

36:34

it is today, nowhere near.

36:36

So really the the fun

36:38

slow backdrop has me concerned

36:40

because as Herbstein famously said

36:42

anything that can't last forever

36:45

by definition won't and when

36:47

this does not last forever

36:49

and there's a head to

36:51

the exits. incredible

36:54

concentration of money in

36:56

the stock market. There'll

36:59

be a stampede, but

37:01

there'll be nobody on

37:03

the other side of

37:05

the trade. So

37:09

that's what really, you know,

37:11

people say to me, but

37:13

you wrote this piece, yeah,

37:16

my piece was basically more

37:18

of an attempt at intellectual

37:20

honesty in terms of trying

37:22

to provide some thought as

37:24

opposed to yelling bubble bubble

37:26

bubble bubble that maybe there's

37:29

something to this. But however,

37:31

let's say that the assumptions

37:33

behind the stock market, which

37:35

have worked so far, stop

37:37

working. What if anything

37:39

I mentioned causes the apple cart

37:42

to be upset? What's different this

37:44

time, and I hate those words,

37:47

what's different this time is the

37:49

undue concentration of equities and household

37:51

balance sheets? And what happens when

37:54

sentiment turns the other way? And

37:56

it's just the... of the situation

37:58

in terms of what that selling

38:01

pressure could look like with no

38:03

buyer on the other side. So

38:06

frankly, I think that I'm tempted

38:08

to wait it out and then

38:10

pick up the pieces and hopefully

38:13

I'll be there with Warren Buffett

38:15

because certainly he's seeing something. But

38:18

all I did in my piece

38:20

was tip my hat to the

38:22

bulls and provide an explanation as

38:25

to what the market message is

38:27

for all of us. And then

38:29

you can decide whether or not

38:32

you buy into those assumptions or

38:34

not. I understand the assumptions. They

38:37

don't seem crazy to me, but

38:39

I'm still not comfortable in assuming

38:41

that the earnings embedded in the

38:44

stock market, even with AI are

38:46

going to live to fruition. Let's

38:49

move on to inflation. More and

38:51

more pundits are turning to calls

38:53

for secular inflation has already begun.

38:56

Of course, the transitory team says

38:58

the opposite. As some people are

39:01

saying that the Trump election is

39:03

going to significantly influence this. What's

39:05

your outlook for inflation generally? Well,

39:08

I have a tough time believing.

39:10

Firstly, if we're going to have

39:12

this AI inflection point in the

39:15

technology curve. and

39:19

what it means for productivity.

39:21

How do you squeeze secular

39:23

inflation under that? Yeah, you

39:25

know, we had, you could

39:27

say, we had secular inflation

39:29

in the 1970s, and there

39:31

are a bunch of reasons

39:33

for that, you know, going

39:35

off the gold standard and

39:37

oil prices, going up tenfold

39:39

in a decade, fed policy

39:41

mistakes, but there's no productivity.

39:43

What was tell me what

39:45

was what was technology 1970s?

39:47

What was it like a

39:49

an icon camera a what

39:51

a transistor radio what was

39:53

productivity in the 1970s? We're

39:56

in a totally different era

39:58

right now. And like I

40:00

said, R&D spending is through

40:02

the roof. You know, 1970s,

40:04

we had the boomers, you

40:06

know, that 80 million pick

40:08

in a Python entering their

40:10

formative household formation years, and

40:12

they were buying everything in

40:14

sight from refrigerators to homes,

40:16

to carpets, to automobiles. So

40:18

we also had very strong

40:20

demographic demand. bumping against everything

40:22

I talked about. Tell me,

40:24

are we going to have

40:26

a tenfold increase in all

40:28

prices? We have, so we

40:30

have this AI craze that

40:32

is going to influence productivity

40:34

one way or the other.

40:36

We just don't know how

40:38

big it's going to be.

40:40

Well, that's an inflation killer.

40:42

How do you get inflation

40:44

out of that? And then

40:46

Trump, we know he's going

40:48

to dramatically increase domestic energy

40:50

production. How do you get

40:52

inflation out of that? And

40:56

we have a Fed that is

40:58

not going to let inflation get

41:00

out of control. You see, the

41:02

problem, not the problem, the situation

41:04

is this. In the 1970s under

41:06

Arthur Burns, Arthur Burns didn't have

41:08

the 1970s as a template for

41:10

what not to do. He was

41:12

living it in real time. We

41:14

know. about the

41:16

1970s today. And the Fed

41:18

will not tolerate an inflation

41:20

breakout. It just is, so

41:22

I give it as close

41:24

to zero odds as there

41:27

can possibly be, we're not

41:29

going to get sustained inflation.

41:31

And you can come back

41:33

and say, well, what happened

41:35

in 2022

41:37

and 2023. Yeah, yeah, okay. If

41:39

you want to call 18 months

41:42

of inflation, secular, run with that

41:44

story. Inflation went up for the

41:46

reasons we know, and we had

41:48

a big fiscal policy mistake. The

41:51

economy reopened. I went supply chains

41:53

were broken. China was behind that

41:55

to a large extent. inflation went

41:57

from 0 to 9% and then

42:00

all the way back down to

42:02

3% and probably going down because

42:04

when you strip out the ridiculous

42:06

way that the BLS treats the

42:09

rental, the dominant mental components, inflation

42:11

is 1.7% in the United States.

42:13

So give me a break. Where's

42:15

the inflation going to come from?

42:18

You know, I guess you'd say,

42:20

well, if you get a tariff,

42:22

well, you know, the way other

42:24

good tariffs is that inflation is

42:27

a process. Inflation

42:29

is a process. If OPEC had

42:31

just raised prices once in 1973,

42:33

would have on a price level

42:35

shift, but they raised all prices

42:37

every year. So for you to

42:39

get ongoing inflation from tariffs, they

42:41

would have to go up every

42:43

single year. Now,

42:45

Trump raised tariffs in his first

42:47

presidency, but he didn't continue to

42:50

raise them every single year. And

42:52

in fact, inflation ended his term

42:54

lower than it was when it

42:56

began his term, every inflation measure.

42:58

So no, I don't buy into

43:00

the big inflation view. And I

43:02

don't know why people are so

43:05

hung up on that. It just

43:07

will not be tolerated. It will

43:09

not be tolerated. And it's not

43:11

just at the federal reserve level.

43:15

Every single baseball that I'm

43:17

reading, baseball after baseball is

43:20

showing consumer price, consumers are

43:22

balking. There is a consumer

43:24

revolt against not just inflation,

43:26

but prices, which is why,

43:29

what is defining all in

43:31

the shopping season right now,

43:33

is why it's spread promotional

43:36

activity, discounts. Consumers are not

43:38

just revolting against inflation, which

43:40

is a greater change of

43:42

prices, they are revolting against

43:45

the level of prices. Oh,

43:47

my bigger concern is deflation,

43:49

not inflation. And then you

43:51

have to decide for yourself,

43:54

what is inflation? Is it

43:56

the prices that businesses want

43:58

to charge their customers? is

44:01

inflation the price that customers

44:03

are willing to pay? and

44:07

you're seeing that in the

44:09

data. So no, I think

44:11

this is a new secular

44:13

trend of cost. You start

44:15

seeing Lamborghini's being parked at

44:17

the wall art. You know

44:19

something's changing. So no, I

44:21

don't buy in. If I

44:23

got to say if I'm

44:25

comfortable with any view and

44:27

there's white arrow bands around

44:29

any forecast, I am. nowhere

44:33

near being in the inflation camp.

44:35

I am in the deflation camp.

44:37

David, I can't thank you enough

44:39

for another terrific interview. Before I

44:41

let you go, I want to

44:43

talk a little bit more about

44:45

what you do at Rosenberg Research,

44:47

because you're real rise to fame.

44:49

was based on the Breakfast with

44:51

Dave newsletter, which frankly spent I

44:53

think three or four different employers

44:55

over its history. You've really expanded

44:58

it quite a bit since you've

45:00

started your own firm. There's more

45:02

to the story now than just

45:04

Breakfast with Dave. Tell us all

45:06

about it. Right, well look breakfast

45:08

with Dave and early morning with

45:10

Dave that is every single day

45:12

I get up at 4.15 a.m.

45:14

and I spill my guts out

45:16

for my clients and tell them

45:18

what I think is going on

45:20

and do my best not to

45:22

make it repetitive but you know

45:24

things are changing every day and

45:26

I deal with the small picture

45:28

and the big picture it's really

45:30

aimed at helping investors get through

45:33

their day but there will be

45:35

some long-term thematics in there. It's

45:37

a very eclectic thought piece that

45:39

I put out every single day

45:41

that's really aimed at connecting the

45:43

dots between the macro and the

45:45

markets. And you're right, I've, you

45:47

know, I started Roosevelt research in

45:49

early 2020. I had six employees,

45:51

now I'm up to 18, and

45:53

I have, you know, nine people

45:55

on staff on the research side

45:57

that are economists and strategists. So

45:59

I've, I've

46:02

increased the menu of products

46:04

to cover as many things

46:07

as I think makes sense

46:09

for the investor base that

46:11

we cater to, which is

46:14

individual investors and institutional investors.

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So we have different products that

46:19

look at the equity market, we

46:21

look at the corporate credit market,

46:23

we look at the precious metals

46:25

and the commodity market currencies. I

46:27

would say that interestingly enough and

46:30

I'll just put, I guess this

46:32

will force me to put my

46:34

ego into the closet is that

46:36

I would say at this point

46:38

looking at the readership that Brexit

46:40

Dave might still be the flagship,

46:42

but it's very close now with

46:44

our monthly strategizer asset mix recommendation

46:46

model that comes out every single

46:48

month. In fact, the latest one

46:50

is going to be released on

46:53

Monday. And for investors that just

46:55

want to cut to the chase,

46:57

where do I invest? Now, there's

46:59

a lot of people that want

47:01

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47:03

say. But if you want to

47:05

know where to invest globally and

47:07

we cover all the asset classes

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in all the regions, it's our

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47:14

David is there any chance of

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listeners 100% 100% you know we

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47:58

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48:00

good everybody on this

48:02

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48:11

One of my client of my

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48:54

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48:56

right here at Macrovoices.com. right here

48:58

at Macro voices.com. Now,

49:03

back to your hosts, to your

49:06

hosts, and Patrick and Patrick

49:08

Ceresna. to get an update from

49:10

David. Now I'm recording this post game

49:12

without Eric, so joining me this week

49:14

is Nick Galarnick. Great to have you

49:16

back, Bud. Thanks for having me, it's

49:18

nice to be back. to be right,

49:20

so so get to that chart to that chart

49:22

you're gonna find the download link

49:24

for the find chart deck in your the

49:26

post game chart deck If you don't have

49:28

a research roundup email, it means you

49:30

have not yet registered email, it means.com. Just

49:32

go to the macrovoices.com..com, and click on

49:34

the red button over David the red button

49:36

picture, saying looking for the downloads. the

49:38

downloads. Nick. On page I have have the S

49:40

&P 500. Let's just dive into it.

49:42

Let's start off start off of your

49:44

levels your you can always have that

49:46

shared your you. levels us in the past.

49:48

us in Yeah, so right now, Patrick,

49:51

on the S &P, on we have an

49:53

implied move for next Friday's December for

49:55

next Friday's December 20th monthly 80 points, which gives

49:57

us an implied upside of implied upside

49:59

an implied downside. downside. 6,000 on the nose.

50:01

Given that we've ran pretty hard, I

50:03

do think that we see perhaps a

50:05

further push to the upside on a

50:08

Santa Claus rally. However, beyond that, into

50:10

mid-January, after the Trump inauguration, I'm getting

50:12

a bit bearish in that time frame

50:14

or so. Well, Nick, there's no denying

50:17

the prevailing bold trend that's in

50:19

place. The pattern of higher highs,

50:21

higher lows has been very much

50:23

in place. And certainly there's sectors

50:25

of the market, like the mag-seven

50:27

that continue to rip to rip

50:29

higher. The interesting thing here is

50:31

we have a huge gamma pinning

50:33

driven by this huge open interest

50:35

from that JP Morgan whale which

50:37

acts like a gravitational pull at

50:39

these levels. So while we could

50:42

probably take a couple stabs the

50:44

upside, unless the FOMC can break

50:46

the market out of the orbit

50:48

of this this gamma pinning. then

50:50

I think that the market has

50:52

an equal chance of actually just

50:54

staying stuck at this level throughout

50:56

the remainder of the year. Typically

50:58

that's why we see those low

51:00

volume and low volatility periods often

51:02

in the holiday window. and at

51:04

this stage it's entirely possible that

51:06

that could continue to be the

51:08

story. Now though Nick what I

51:10

want to talk about though is

51:13

let's look underneath the surface of

51:15

the S&P 500 and that's on

51:17

page 3 I have the percentage

51:19

of stocks on the S&P 500

51:21

that are above their 50-day moving

51:23

averages. Now for an index that

51:25

is trading at its all-time high

51:27

We have seen the market breadth

51:29

deteriorate from 70% down to 52%

51:31

where basically half of the stocks

51:33

are actually in a down trend.

51:35

The pattern has been persistent all

51:37

year. We started the year up

51:39

over 90%. We saw peaks at

51:42

85% twice. And the most recent

51:44

new all-time high on S&P came

51:46

with only 70% participation. Now that

51:48

was on the... the Republican victory

51:50

push on the upside. And so

51:52

what we're seeing is the deterioration

51:54

of the market breadth. for a

51:56

moment looked really good when the

51:58

financials and other sectors like that

52:00

were doing well, including the energies

52:02

when the Republicans won in November.

52:04

So Nick, this is where on

52:06

page four I overlaid the S&P

52:08

500 versus the Russell 2000 and

52:10

the MAG 7. Yeah, I'm looking

52:13

at the Meg 7 right now.

52:15

They're handily up performing everything else

52:17

in the market. Like, look at

52:19

names like Tesla, for example, which

52:21

has almost doubled in the last

52:23

six months. Apples at all-time highs.

52:25

Google hit all-time eyes yesterday, rightfully

52:27

so. They're the most undervalued in

52:29

my opinion, and one of my

52:31

key holdings is my portfolio. Amazon's

52:33

at all-time highs, metas at all-time

52:35

highs. So everything is at performing

52:37

right now in the mega caps.

52:39

The real problem here is that

52:41

everything else is lagging. And that

52:44

includes semiconductors as well, including in

52:46

video, which is yet to hit

52:48

any all-time high with the rest

52:50

of the mega stepins. Yeah, and

52:52

that invidia I think is an

52:54

issue because it truly was the

52:56

general of the bull market up

52:58

until now. But what is interesting

53:00

is obviously in November everyone was

53:02

very excited about the small cap

53:04

resurgence and it's very quick to

53:06

see how the Russell quickly just

53:08

came right back in line with

53:10

the S&P and I wouldn't say

53:12

it's worse or better, it's just

53:15

really not where the money flows

53:17

actually occurring. What's interesting is literally

53:19

in the last week and a

53:21

half while these mags sevens went

53:23

ripping higher, literally almost parabolic on

53:25

the upside, we have seen the

53:27

S&P 500 equal weight index and

53:29

the Russell both actually systematically selling

53:31

over those same six seven days.

53:33

And so really now we're seeing

53:35

almost all of this momentum shift

53:37

from a broader base to just

53:39

a handful of stocks. We are

53:41

already seeing corrections in the financials.

53:43

in the energy space, all of

53:46

these which were doing so well

53:48

a month ago, and the question

53:50

really then becomes, is this a

53:52

scenario where by the end of

53:54

the year, once all of these

53:56

is exhausted, the magsevans have exhausted

53:58

their upside, which could still be

54:00

higher? we see that be the

54:02

catalyst for a very challenging first

54:04

quarter of next year? It really

54:06

feels like it bud. Yeah, it

54:08

really does. And one thing to

54:10

note too is that with the

54:12

NASDAQ 100 rebalancing occurring on Friday,

54:14

we have Apple, for example, is

54:17

an increase their weight by about

54:19

1% as well. Microsoft almost 1%

54:21

too. You have EQIX being added

54:23

by about half a percent. A

54:25

lot of these names are going

54:27

to be even higher in waiting

54:29

overall, namely the mega caps, you

54:31

know, Apple, Microsoft, Invidia, Google, Amazon,

54:33

Tesla. They're all increasing in weight,

54:35

so that will actually accentuate the

54:37

movements of the indices based upon

54:39

the Meg 7 performance. 100%. So

54:41

moving on to page 5, I

54:43

have that NASDAQ percentage of stocks

54:45

above their 50-day moving averages, again

54:48

a breath indicator, looking now specifically

54:50

at the NASDAQ stocks. And what's

54:52

amazing here is that it really

54:54

shows what has been driving the

54:56

NASDAQ. And it's really the MAG-7s.

54:58

Look at, we're at 53% of

55:00

stocks above their 50-day moving averages

55:02

on the NASDAQ. More importantly, We

55:04

have not seen a breakout of

55:06

this breath indicator above 60% on

55:08

a sustained basis almost all year,

55:10

which basically is that it isn't

55:12

really a NASDAQ and technology rally,

55:14

it is really just an AI

55:17

rally in a few of these

55:19

mags' sevens that are such a

55:21

market cap behemets that they're basically

55:23

running the entire show. The fact

55:25

that breath is divergent in this

55:27

way in itself I think is

55:29

not healthy. What I was originally

55:31

thinking was going to be something

55:33

that was very healthy for the

55:35

market was that on that Republican

55:37

victory it felt like the market

55:39

was widening its breath. You know

55:41

we saw those energy stocks, we

55:43

saw financials, we saw all these

55:45

consumer discretionary names and other things

55:48

all starting to rip to the

55:50

end. it was like okay well

55:52

now we have the backdrop of

55:54

something that could be bullish because

55:56

the whole market could participate that

55:58

really is dissipated almost in its

56:00

entirety. There are lies a problem

56:02

as well right you know with

56:04

the Republican victory so many names

56:06

ripped the upside and a lot

56:08

of people don't really factor in

56:10

that once Trump is in office

56:12

They remain bullish on a lot

56:14

of names too, but the problem

56:16

is that most of that upset

56:19

is already priced in based upon

56:21

the movements we've already seen. And

56:23

a lot of names have already

56:25

fallen back down, namely energy stocks

56:27

that I've noticed as well. Right,

56:29

so moving on page 6 and

56:31

7, I want to talk about

56:33

the skew and the implied correlations

56:35

in the market, but to put

56:37

them into context, I think we

56:39

start off just talking about the

56:41

VIX and where volatility is here.

56:43

What's your take on this really

56:45

low vol vol ball? Yeah Patty,

56:47

so with the VIX right now

56:50

at a 14 handle, we're looking

56:52

at about 0.85% movements intradate top

56:54

to bottom. What we're seeing is

56:56

a lot of this spot up

56:58

VIX down, but I think that's

57:00

going to change after the first

57:02

month of the year into January.

57:04

I think we're going to see

57:06

perhaps some more downside in the

57:08

broad markets and a correlating spike

57:10

in the VIX. It seems almost

57:12

like everyone is very complacent right

57:14

now and no one's looking at

57:16

buying insurance because we seem to

57:18

sort of rapid run in the

57:21

last couple of years, but to

57:23

me this is very reminiscent of

57:25

late 2021 or so when everyone

57:27

was very bullish and that what

57:29

happened at the gate into 2022

57:31

we saw a massive decline on

57:33

the industries, namely tech stocks that

57:35

occurred for the entire year. And

57:37

I think this is actually a

57:39

big risk factor going forward. which

57:41

has me hedging myself a lot

57:43

more than I usually do. It's

57:45

a good segue to go on

57:47

to the CBOE skew index on

57:49

page six here. Now first of

57:52

all, the VIX is down in

57:54

the 13 handle. We temporarily even

57:56

saw it down on the 12

57:58

handle, which is not totally out

58:00

of line. If you look at

58:02

the daily ranges or even the

58:04

daily implied just so low and

58:06

the market volatility has narrowed, the

58:08

gamma pinning is occurring, you know,

58:10

when there is a lack of

58:12

major news and a lack of

58:14

participants really making big moves during

58:16

the holiday season, that in itself

58:18

could mean that these lower volatility

58:20

period for let's say 30 days

58:23

for, which is essentially through the

58:25

holidays, may not be totally out

58:27

of line. But it really is

58:29

a bigger question of what is

58:31

in store for the new year.

58:33

What's interesting here is that while

58:35

we are seeing at the money

58:37

implies relatively cheap, whether it's the

58:39

one month, three months, six month,

58:41

even one year implied. are all

58:43

on the lower boundaries of their

58:45

ranges and buying at the money

58:47

options is relatively affordable. But when

58:49

you look at the skew, which

58:52

is essentially the steepness as you

58:54

go, let's say, out of the

58:56

money on insurance in the markets,

58:58

what you're actually seeing is that

59:00

the skew is actually up along

59:02

the top end of its multiple

59:04

year ranges. And this could be

59:06

a reflection of the very low

59:08

at the money fall, but at

59:10

the same time, me dealers are

59:12

not really willing to sell out

59:14

of the money puts that cheap

59:16

at this moment. At least a

59:18

skew is still a little bit

59:20

on the upper side there. What's

59:23

interesting is on page 7 when

59:25

we look at the implied correlation

59:27

index from the CBOE. and we're

59:29

down near 10% I mean this

59:31

thing oscillates obviously from zero to

59:33

100 and so we've seen back

59:35

in 2000 and 2021 periods where

59:37

we were up you know 80%

59:39

correlation we're down to the lowest

59:41

levels this has obviously been a

59:43

huge problem for dispersion traders who

59:45

live off of these kind of

59:47

correlations, but it also is a

59:49

reflection on many investors who are

59:51

individual stock pickers that may be

59:54

very frustrated with the fact that

59:56

their basket of stocks isn't performing.

59:58

same as to the benchmark S&P

1:00:00

index, which has obviously been so

1:00:02

grossly overweighted, these MAG-7s, which are

1:00:04

carrying the index. One way or

1:00:06

another, this is a really bizarre

1:00:08

market environment with the breath deteriorating.

1:00:10

I think that as for all

1:00:12

of the optimism and bullishness and

1:00:14

speculation that's going on on there,

1:00:16

under the hood, the market is

1:00:18

nowhere near as healthy as it

1:00:20

looks on the surface. And I

1:00:22

think that that's got to be

1:00:25

a big a warning sign for

1:00:27

the new year. Yeah, I totally

1:00:29

agree. Now moving on page eight,

1:00:31

we have the US dollar index.

1:00:33

What are your thoughts? Yeah, this

1:00:35

is also super interesting because we

1:00:37

are trading now along the two-year

1:00:39

highs of the dollar index. Individual

1:00:41

currencies, like for instance, a euro

1:00:43

broke, it's already that range. We

1:00:45

saw the US dollar against the

1:00:47

Canadian dollar, the CAD breakout of

1:00:49

these multi-year ranges. So we're already

1:00:51

seeing currency movement. With this consolidation

1:00:53

as a flagging formation above the

1:00:56

moving average, it really feels like

1:00:58

at this juncture that we have

1:01:00

a dollar that is setting up

1:01:02

for a bold breakout. And this

1:01:04

is very much in frame with

1:01:06

something that could be a risk

1:01:08

off play in the new year.

1:01:10

Typically a US dollar rallying during

1:01:12

a period where risk assets are

1:01:14

struggling has been something then the

1:01:16

macro space that has been evident

1:01:18

in the past. and so it'll

1:01:20

be really interesting to see whether

1:01:22

the dollar breakout starts to happen

1:01:24

in the new year and if

1:01:27

it lines up with equity weakness.

1:01:29

Now on page 9 we have

1:01:31

that gold features chart which is

1:01:33

now pushing not too far from

1:01:35

all-time highs. I do think we

1:01:37

push all-time highs quite soon but

1:01:39

what are you thinking your pettie?

1:01:41

Oh exactly well look I was

1:01:43

very concerned when we hit 2,800

1:01:45

but about the fact that well

1:01:47

we finished the number of measured

1:01:49

moves to the upside but everyone

1:01:51

was so bullish so optimistic so

1:01:53

leveraged up and like there was

1:01:56

no risk in it and we

1:01:58

had a very quick and fast

1:02:01

kind of like catching traders off guard

1:02:03

that forced them to cover created that

1:02:05

spike there was room for there to

1:02:07

be two ways what we call a

1:02:09

zigzag correction that could have been as

1:02:11

deep as 2,500 but my big picture

1:02:14

bullishness was always there it was just

1:02:16

a matter of of when will this

1:02:18

corrective pattern have fully played out and

1:02:20

a potential new bowl phase begin. Here

1:02:22

we are once again back above the

1:02:24

50 day moving average. We didn't make

1:02:26

lower lows during the consolidation for the

1:02:29

last couple weeks. We broke above a

1:02:31

very key level around the 2,700 level.

1:02:33

And so this is a gold market

1:02:35

that might be setting up for a

1:02:37

breakout. Now there's always a risk of

1:02:39

a double top retest and a consolidation

1:02:42

along its high. It's very similar to

1:02:44

what we saw in May earlier in

1:02:46

the year. their backdrop of a bullish

1:02:48

gold environment is there. If they can,

1:02:50

if the bulls can here, can gain

1:02:52

any traction on this, the next measured

1:02:54

move to upside is toward 3,000 and

1:02:57

it could very well be in play.

1:02:59

Let's see whether or not they can

1:03:01

hold it. The key for me is

1:03:03

that they want and they need to

1:03:05

spend at least the next week continuously

1:03:07

supporting all Short-term sell-offs towards 2700 you

1:03:10

want to see good accumulation on every

1:03:12

dip to show that the next bull

1:03:14

phase has begun well Nick finally though

1:03:16

I want to just touch on page

1:03:18

10 on the crude oil chart. And

1:03:20

this is a chart that has just

1:03:22

been stuck in the mud, left for

1:03:25

dead. Nobody wants to talk about it.

1:03:27

No one cares about it. But here

1:03:29

we are at a major support line

1:03:31

that has now been tested like five,

1:03:33

six times. Now, whenever a support line

1:03:35

is tested, there's always a risk. that

1:03:37

it was going to break temporarily to

1:03:40

a lower low just to wash out

1:03:42

stop losses and other things sitting below.

1:03:44

But we've clearly found a fair value

1:03:46

zone for oil and a level where

1:03:48

there's a balance between buyers and sellers

1:03:50

and it's settling in here. And the

1:03:53

question is, does that establish accumulation pattern

1:03:55

that will be the base for what

1:03:57

will be a mean reverting oil trade.

1:03:59

There's a very large amount of shorts

1:04:01

out there, a lot of people that

1:04:03

are underweight oil, and so if oil

1:04:05

in any way shows sign of life,

1:04:08

it could spur a number of traders

1:04:10

just putting money there that could see

1:04:12

us trade back up to the mid

1:04:14

to high 70s. on just a reaction

1:04:16

trade without it even becoming a new

1:04:18

bull market. And so there, from an

1:04:21

asymmetric perspective, I think there's room to

1:04:23

watch oil and what happens here next.

1:04:25

Now Nick, that does it for the

1:04:27

charts, but a lot of our listeners

1:04:29

have been asking, where did you go?

1:04:31

And what I wanted to just share

1:04:33

with all of our listeners was that

1:04:36

you and I started piloting a new

1:04:38

options YouTube show. It's called the Long

1:04:40

and Short of it. So we started

1:04:42

with the first episode discussing a Google

1:04:44

butterfly spread that you came up with

1:04:46

that turned out to be quite the

1:04:49

banger. And in the last episode, we

1:04:51

went deep on why portfolio hedging has

1:04:53

rarely been cheaper. Yeah, Patrick, it's been

1:04:55

a pleasure doing that podcast so far

1:04:57

with you. You know, two things to

1:04:59

really emphasize on why we're doing this

1:05:01

new podcast is one that macro voices

1:05:04

focuses more on macroeconomic topics, whereas I'm

1:05:06

more of a micro trader. I trade

1:05:08

individual names myself, I'm trading on shorter

1:05:10

turn time frames, and I'm using options

1:05:12

predominantly, which we can't really discuss too

1:05:14

much in depth over here. And the

1:05:17

second thing is that Being on YouTube,

1:05:19

we can actually visualize the strategies we're

1:05:21

talking about in real time so that

1:05:23

our listeners can actually follow what we're

1:05:25

talking about and see what we're talking

1:05:27

about on charts. Now bang on, you're

1:05:29

exactly right. It's so awesome. We can

1:05:32

share the screens and talk about all

1:05:34

the strategies and show everyone the options

1:05:36

chains. It's really cool. Listeners, if you're

1:05:38

interested in taking your options education at

1:05:40

next level, make sure you tune in

1:05:42

on YouTube. All the episodes can be

1:05:45

watched on my YouTube channel at Patrick

1:05:47

Sorezna, the links in the research round

1:05:49

up email and or on the chart

1:05:51

deck. Yeah Patrick, well that does it

1:05:53

for this week's episode. can we find

1:05:55

this week in this week's research roundup

1:05:57

for our listeners? Well in this week's

1:06:00

research roundup you're going to find the

1:06:02

transcript for today's interview, the chart book

1:06:04

that me and you just discussed here,

1:06:06

including a link to a number of

1:06:08

articles that we found really interesting. So

1:06:10

you're going to find this link and

1:06:13

so much more in this week's research

1:06:15

roundup. That does it for this week's

1:06:17

episode. We appreciate all the feedback and

1:06:19

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1:06:21

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1:06:23

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1:06:25

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1:06:28

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1:06:30

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1:06:32

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1:06:34

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1:06:36

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1:06:38

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1:06:41

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1:06:43

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1:06:58

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1:07:07

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