Stocks Like Apple Benenfit from Passive Investment, Even Though Earnings Haven’t Increased Since 2015

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SVEN HENRICH: Sven Henrich, been running Northman Trader for about six years.
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Originally, private investors, way background was corporate management actually in corporate
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strategy internationally, always been looking at companies and opportunities.
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Hence, the background and analyzing stock markets comes natural to me.
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Our business model is really looking at identifying the big moves.
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We’re not day traders where we’re looking at swings, so be it long be short.
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Of course, as part of that, we’re looking at the macro environment markets in general–
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central banks, what have you, although that’s secondary, the key is technicals and being
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able to identify the big turns and that’s what we do.
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You see me on Twitter, @NorthmanTrader or on the website, northmantrader.com.
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Yeah.
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In April, I had put out a piece called, “Combustion”.
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It was this whole notion that both bulls and bears need to be mindful of potentially this
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really uplifting scenario.
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We had a big turn from the lows of 2018.
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We’re literally all central bank policy combusted by them and the view was we’re going to be
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raising rates, we’re going to be having a reduction in the balance sheet on autopilot.
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Then of course, markets dropped 20% and then yields dropped, actually started the other
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way around.
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Basically, it was yields heading to 3.2% on a 10-Year in October, and that sparked a whole
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selloff in my mind, but basically, central bank’s completely reverted policy.
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The Fed had this whole job owning operation all year long from tightening to easing and
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rate cuts are coming.
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That’s what they’ve been doing all summer long.
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In April, what I said was we’re going to keep going on this trajectory until something breaks.
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We had a quick correction in May, we had some of the same negative divergences that we have
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in the fall.
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Something interesting happened here, because we had a temporary high and then we had the
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correction.
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Then in July, we came to a new high and we had a correction.
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In June, actually, I had put out this piece called, “Sell Zone,” this was at the end of
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June, just before the Fed meeting in July, and the notion was this period, this price
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zone between S&P 3000 to 3050 is a sell zone, listed a whole bunch of technical factors
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for that.
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We had the initial reaction.
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It was coming off the heels of the Fed rate cut, the first rate cut since the financial
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crisis.
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We dropped from 3028 down to about 2780 on the futures contracts.
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A snappy technical reaction.
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Then it all started again with trade optimism and more rate cuts coming and so we rallied
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again into September.
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My view in April was that would be this potential for a blow off top move and the ultimate target
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of that was about 3100 as an extreme case.
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Now, what I find interesting here is that in September, we got back to this 3000 zone
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that I had identified at the end of June as a sell zone, 3000, 3050.
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We got another rate cut.
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The ECB cut, and we got to 3022, just below the July highs and we dropped again and so
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now we have to rate cuts, two drops, potential for double top because we have these all new
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highs up and sold in the last year and a half.
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There’s not been yet evidence that any new highs are sustainable so markets have been
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this wide range.
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In 2019, primarily driven by multiple expansion, either by trade optimism, or by the Central
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Bank put and my question in general has been, what’s the efficacy?
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Is there a sign that central banks will actually start losing control of the price equation?
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We’re at the edge of control here.
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We’re still in this phase here with the China trade negotiations.
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Global macro has been slowing down throughout the year, the US was the island and the sun,
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if you will, because global markets actually peaked in January of 2018 and then the US
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decoupled from the rest of the world.
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Europe, very close to a recession here.
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The manufacturing data is maybe now spilling into the services sector.
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There is now risk that we’re ultimately going into a global recession into 2020 and what
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central banks obviously, have clearly stated, their intent is to extend the business cycle
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by any means necessary, and we can talk about that separately.
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We’re now at this critical point.
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Will we get a trade deal that’s substantive?
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By substantive, I mean that actually impacts CEO confidence.
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Keep in mind, this whole year and a half year with this trade war going on, companies have
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been holding back on CapEx investments, business investments, and now, we’re seeing a slowdown
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in hiring.
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Remember, with a 50-year low in unemployment, the official unemployment rate, and jobs growth
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has been slowing down.
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If you get a– and I’ve been very consistent on this, if you get a substantive trade deal
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that addresses all the big issues and causes companies to say, “Okay, now we’re more confident
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again,” then yes, you can have a massive blow off rally and now, with easing central banks
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and the oldest liquidity coming in, you can have that run.
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The question is, are these parties really in a position to say we’re going to have a
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substantive trade deal?
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There does not appear to be any sign of that whatsoever.
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We see a lot of positioning, actually this week even, we see China in the US aggravating
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the tactical battle, if you will.
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China is– in this morning’s indicating they may be open to a partial deal.
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What does a partial deal really mean?
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Is there probably a relief rally surrounding a partial deal?
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Probably.
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We can all speculate in the sense that, “Okay, well now, it’s not going to get any worse.”
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It’s a stalemate.
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We’ve basically, everybody’s waving the flag.
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Mr. Trump wants to get reelected in 2020.
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Can’t afford a recession.
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The Chinese don’t want things to get worse either.
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Everybody’s holding back.
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Fair enough.
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That could happen, but is it enough to then get confidence back to say, now, we’re ready
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to invest when the big issues remain unsolved?
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That’s obviously the question that no one can answer.
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Now, of course, the flip side to this is there’s not enough that the parties either can agree
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to that gives anyone any confidence because keep in mind, all the slowdown has perpetuated
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in the last year and a half.
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There has not been any sign of slowing down, maybe a little bit civilization in China but
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now, the US is slowing down.
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In fact, I think it was the Fed’s Rosengren that came out last week, and says he’s expecting
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1.7% GDP growth for the second half of the year in 2019.
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Not exactly convincing when you have a market that has rallied on nothing but multiple expansion
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in 2019.
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There’s a lot of risk both to the upside and the downside from my perspective.
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On the one hand, yes, there’s some similar elements.
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On the other hand, people like to say it’s different this time.
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Well, it really is different this time because, look, in the past, we’ve had situations where
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we’ve had high debt, and we’ve had yield curve inversions, we had all these things that are
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taking place at the end of a business cycle, but never before have we seen so much intervention,
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so much jawboning and never before have we come out of a business cycle where central
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banks have not normalized in any shape or form.
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This is uncharted territory.
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I think we’re all– I don’t know what the expression is so maybe we’re all mollified
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or pacified in a way because markets have changed so dramatically over the last 10 years
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as a result of permanent central bank intervention.
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I get it from any investor perspective, because we’ve all been trained, literally trained
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to know that any corrective activity in markets is contained.
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It’s contained within a few weeks, within a few days, within a few hours.
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All bad news is priced in immediately.
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We saw it in December.
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This was the most substantial correction we’ve had since 2011.
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Why did that happen?
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It stopped right when Mr. Mnuchin came in with his liquidity calls to banks and with
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Mr. Powell flipping policy on a dime.
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We’re flexible suddenly.
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This is this point where you never have anything that sticks from a price discovery perspective.
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My concern in general and the voices in the summer was that we’re creating these markets
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that disconnect ever farther from the underlying size of the economy.
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Well, there’s two trains of thoughts.
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First of all, this is a history part of it.
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History actually tells us that the inversion we have on the 10-Year and the 3-Months actually
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precipitates a recession every single time.
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The question is the timing of which.
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Now of course, you have other yield curves.
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Some of them which are inverted, some of which are not, but it’s really the point of the
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steepening.
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Once that inversion reverts back into a steepening phase, that’s when usually the recession comes.
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We’re not at the point yet where that steep learning has taken place.
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However, the 10-Year and 3-Months, it’s been inverted for several months now and that’s
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typically one of these classic warning signs.
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There’s another school of thought that says basically, well, none of this matters anymore
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because we have central banks intervening and blah, blah, blah, blah, blah.
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I’m not of that viewpoint.
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I think the signals are there.
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What’s missing for the bear case, frankly, as I called it the missing link is the fact
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that unemployment is still okay.
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There’s not been a minute where it’s been slowing.
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We haven’t seen that flip yet, where companies are suddenly really going into layoff mode.
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That’s what interesting looking at Q3 earnings now, because a lot of companies will show
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either flat or actually negative earnings growth, which brings me back to this multiple
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expansion.
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We’ve been running to market highs, not because of great earnings growth.
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Earnings growth is flat to weakening here in this quarter and so companies are experiencing
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margin compression.
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Then there is that point where they want to start looking at the largest expense line
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item, which is jobs.
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What’s been so interesting and the reason I kept saying that all new highs are sells
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is because all these new highs are coming on specific technical signals and sector divergences.
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Especially looking at this year, again, we see– well, last year was basically again,
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this was tech, it was Fang-led.
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It was the big tech companies.
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All new highs came on negative divergences on the technical basis and they were sells.
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What was interesting, ever since 2018, the markup of the market has radically changed.
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Last year, the banks were leading, the small caps were leading, right into these September,
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October 2018 highs.
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That has completely changed in 2009.
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You overlay a chart with the SPDRs vis a vis small caps and transports and the banking
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sector, it’s a horror show.
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When we’re looking at the S&P like in September and again, within all-time highs, I can tell
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you if you go back to exactly last year, the banking sector small caps and transports,
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they’re all down to 11% to 13%.
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They’ve not participated.
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In fact, they’ve been in months long ranges.
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It’s amazing because you see these rallies go up as and hey, people get bullish again.
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Then they drop right back to the bottom but the bottom is holding.
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Even this week, again, the small caps, transports and the banking sector, right on the edge
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of support and they keep bouncing.
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Now, I look at this from a technical perspective, I say, “Okay, well, the more often you tag
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a certain area, the weaker it becomes either to the upside or to the downside.”
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We’ve tagged these areas now multiple times and for a rally to convince, for new highs
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to convince and to be sustainable, we need to see those sectors partake and get above
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resistance.
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Until I see that, I’m very suspicious of any new highs if we get new highs and from my
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perspective, going back to this whole trade deal, unless we see a substantive trade deal,
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I view any rallies to new highs as sells because that’s basically what they’ve been doing.
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Just one more thought on this whole sector piece, there’s a chart I’ve been publicizing
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quite a bit that’s called the “Value Line Geometric Index.”
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It’s a fascinating technical indicator because all these indexes are market cap based.
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The Microsofts, the Apples, the Amazons obviously have a dominant impact on an index like the
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QQQ because they’re worth a trillion bucks each.
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If you take all the stocks and put the same dollar value on them, let’s say everyone is
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worth 100 bucks, and now track their relative performance, you get a completely different
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picture.
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What we’ve seen since 2018, since the September 2018 highs, is that all new highs that were
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made on the S&P come on the lower reading on the value line geometric index.
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That’s another one of those signals that tell you, “Okay, these new highs have been a sell.”
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See that picture change, then you can have sustained new highs.
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To me again, it comes all about efficacy of what the central banks are doing whether we
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get a solid trade deal or not.
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Because in so far, none of these things have shown any impact or suddenly changing the
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growth equation in the economy.
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Volatility has been fascinating.
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I’ve been publishing quite a few pieces on the VIX in the last few months.
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The VIX, I hear this all the time and I keep having to push back.
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People are saying you can’t chart the VIX because it’s a mathematical derivative product.
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Yes, you can chart the VIX.
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In our job, what we do, obviously, we always have to look for what is relevant.
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We can all have our opinions.
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What markets should do or shouldn’t do, they will do what they will do and what we have
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to do is keep ourselves on this and to see what is relevant.
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We know a lot of algorithmic trading is part of markets.
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They follow programs as well.
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You always have to look at, “Okay, what are they looking at?
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What are they sensitive to?
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What are they reactive to?”
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Because we want to be able to interpret risk reward short or long on that basis as well.
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What the VIX has done over the last two years is fascinating.
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There’s been very specific what I call compression patterns in the VIX, especially on the low
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end.
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It can drive people nuts.
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It can get caught, consolidate on the low end and then boom, you have a spike.
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That seemingly comes out of nowhere, but it doesn’t.
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It’s in the charts.
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I call them these compressing wedges.
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Now, what’s been happening on the big picture on the VIX is as the S&P has made new highs
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each time, the VIX and the in between periods has made higher lows.
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There’s a trend of rising volatility.
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Obviously, December last year was the big spike.
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It’s the lows, what happens during the lows?
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Remember, 2017 was the most volatile compressed year ever because we had global central bank
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intervention, we had the upcoming tax cuts, there’s no volatility markets from a trading
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perspective, I hate that.
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I love volatility, I want to see things move, but now that we’ve had these selloffs, even
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the smaller ones, if not been able to contain volatility to the extent that they’ve been
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able to do in 2016 and 2017, since 2018, we have a trend of higher lows.
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Now, the VIX is again in a compression pattern that suggests the possibility of a sizable
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spike still to come this year so we may have one more hurrah before the yearend rally that
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we so often see in markets.
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I think this whole shift of passive is fascinating.
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Maybe a couple of comments on that.
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I haven’t seen this discussed anywhere.
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Just my impression.
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I’m wondering how much of the shift from active to passive investment is actually a consequence
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of central bank intervention.
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What is driving passive?
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Well, you talk about management fees on the active side.
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Well, the main driver for the movement to passive is that people have given up.
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They see active investors lagging the indices.
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Why are they logging the indices?
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Because everything is geared towards the big cap stocks.
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The intervention– if you’re really careful in analyzing and you’re smart and you have
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a smart team, if you diversify in the universe and you get hammered anywhere you lag in the
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indices, and passive allocations keep allocating passively.
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It’s like this dumb machine that doesn’t care how much it pays.
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It doesn’t care what the valuations are, doesn’t care about any of that.
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To your point about signaling, yes, it’s amazing when you see– and that’s why I’m coming from
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a technical perspective, you see charts that are massively, massively historically overextended
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but no one cares because you have this passive machine that keeps investing.
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I think I mentioned this last year, too, it’s like, are people actually aware what they’re
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competing with?
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Because you and I may have a sense of, “Okay, this is getting very expensive,” but a machine
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doesn’t care what it allocates.
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The ETF doesn’t care what it allocates.
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It just has to do rule based.
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You’re sitting in the market with entities that don’t care if they overpay.
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Classic example is Apple.
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Take that stock as an example.
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It’s obviously hugely valued.
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It’s a big company.
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It’s a trillion dollar valuation, but it keeps buying back its own shares.
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Obviously, as a big company, it benefits from these passive allocations.
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What people don’t realize is that Apple has the same amount of earnings that it had in
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2015.
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Four years later.
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Absolutely no change in earnings, same amount of earnings, but people are paying almost
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twice the price for the same stock.
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Why?
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Because Apple’s been buying back its shares, therefore reducing the float and save for
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the same amount of earnings produced a much higher EPS, earnings per share, bigger.
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It looks like it’s growing, but it’s not.
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That’s my point about this whole pacified machine that has been created.
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You, since corrections are not allowed to take place for an extended period of time,
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you’re looking at all of sudden at yearly charts.
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We have stocks, as I mentioned before, like a lot of sectors are lagging behind, and the
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big cap stocks keep holding everything together because all the money goes towards them.
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Because corrections are so short, we have yearly charts that show nonstop gains for
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10 or 11 years.
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There’s absolutely– the December corrections even show up in these charts because they
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were still up on the year in many cases, so you look at Starbucks and Disney.
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Disney is a good example.
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Up 11 years in a row.
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Well, this is this fantasy that’s being propagated now.
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Because I just put my money into passive funds, I don’t have to think about it.
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It’s risk free central banks always intervene and so we have these massive charts that are
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vastly extended.
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Even the technical indicator I watch.
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On any chart timeframe, you will find this useful.
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Be it on the daily chart, the weekly, the monthly, the quarterly and the yearly, it’s
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the five exponential moving average.
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Even on a daily chart, you see vast extensions above it, it will reconnect either to the
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upside or the downside.
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If you see massive extensions on the weekly chart, at some point, it will reconnect.
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The reason I mentioned this is there are stocks like Microsoft that are 50% above the yearly
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five EMA.
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Why is that relevant?
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Because if you look at the history, look at a stock like Microsoft, you can go back to
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its inception and this stock always connect every single year like clockwork.
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There were two exceptions, Microsoft, my favorite example.
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One was the year 2000.
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It was in 1999.
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It was completely extended, did not touch the fire a yearly five EMA.
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Then the second year was 2001 when it went way above, and then it obviously plummeted
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down with the NASDAQ crash and reconnected, and now.
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It’s now on its second year, it hasn’t even touched it.
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It’s vastly extended.
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From my perspective, I look at all this with what central banks are doing here.
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I see risk building that these reconnects, technical reconnects, will take place at some
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point.
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When they do all of these stocks all of the sudden have 30%, 40%, 50% downside risk.
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This is the undiscovered country.
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It really is.
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Look, I’m coming from a training perspective.
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I’m resentful of central banks simply because of the volatility compression that they have
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aimed to do.
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In fact, Jay Powell came out yesterday, made a very telling statement with regards to repo
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and overnight money markets.
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He literally said we have to calm markets down.
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We need to calm.
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Where’s that in your charter?
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Where’s that in your job description to calm markets down?
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Look, markets are supposed to be free flowing in price discovery, but it’s telling because
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he has to control that aspect of the interest rate equations, he has to control it.
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That’s the point.
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Everything is controlled.
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When I look at this experiment that has taken place over the last 10 years, and I’m just
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absolutely flabbergasted that this is not being pressed more critically by journalists,
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by the media and by the public discourse.
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QE, lower rates were emergency measures to deal with a crisis.
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That was the original intent.
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Ben Bernanke, QE1.
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Then came QE2, and then twists and turns, then QE3.
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It morphed into permanent intervention.
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The promise was always we’re going to normalize, becoming come out of financial crisis, everything
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that we do, low rates were going to incentivize growth in the economy.
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They haven’t.
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It was the slowest growth recovery in history.
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In the meantime, low rates have enabled this incredible debt expansion.
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Now, we also got eyes always glaze over with debt no one even– the numbers have gotten
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so big and continue to get ever larger that no one even can fathom these numbers.
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Here’s a fun one.
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In the last 10 years, the US has added more debt to its balance sheet than in the previous
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42 years combined.
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That’s this vertical curve we have and there’s no end in sight.
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When the Fed, last year, tried to normalize its balance sheet and try to raise rates,
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which they managed to get to, basically, the lowest point of raising ever, it all fell
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apart.
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The 10-Year hit 3.2% in October of 2018.
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That was the end of it.
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The debt construct cannot handle higher rates and so they were forced to capitulate.
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My question and the answer to your question is, can they keep this going forever?
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Which is interesting to me, coming back to this point I made earlier about valuations
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of asset prices vis a vis the underlying size of the economy.
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In the year 2000, when the NASDAQ bubble burst, the overall market cap of the stock market
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got to about 144% of GDP.
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That was it.
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It was just too high above the economy.
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That’s where the crash happened.
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That’s where the recession came.
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Then we re-inflated.
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This was the lead up to the housing bubble.
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Cheap money, who caused the housing bubble?
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Well, we can argue it was the Fed with cheap money and this cheap money had to go somewhere
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and so we offered credit and subprime mortgages to people who can’t really afford it.
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The stock market rose to about 137% of GDP.
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Guess where we topped in January of 2018?
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144% market cap to GDP.
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Where did we top in September of 2018?
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146% stock market cap to GDP.
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Where did we end this summer in July?
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144% stock market cap to– there seems to be this natural barrier that says, “Okay,
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well these valuations have to be justified somehow.”
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When I now see the Fed saying, okay, well– back in September, where we’re back at 144%,
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what are you trying to do here actually?
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Obviously, what you have done, what all the central banks have done has not produced organic
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growth anywhere near the growth that we’ve seen in previous cycles.
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That’s why the ECB still in negative rates and they’re trying to do more than negative
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rates.
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For me, that the question is one of control, efficacy.
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Does this produce another lasting jumping an asset prices?
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There is no answer to that question yet, but there may be signs.
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For me, the first sign was, okay, this July rate cut when we had that sell zone of 3000,
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3015.
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Does the Fed rate cut actually produced sustainable new highs?
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The answer to that was no.
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Then in September, we had the second rate cut.
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Did that produce sustainable new highs?
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No.
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Yesterday, Jay Powell talked about increasing the balance sheet again, but don’t call it
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QE, wink, wink.
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We sold off.
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Those are those three specific signs, events where the Fed has not succeeded in producing
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new market highs or for that matter, new growth.
27:53
I think the question is very much outstanding.
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Once we know what’s happening with this trade deal, we need to keep reassessing the mechanics
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of markets and the technicals and see if we can actually see a sizable turn in the economy.
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I’m highly skeptical.
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Because all we’re doing is just keep enabling more debt and demographics are not changing
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as a result of that.
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The deflationary cycle is not changing as a result of that.
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Beyond temporary highs, I have to see where that’s producing anything on the macro form,
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and so far, it hasn’t.
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I think we have to differentiate two things.
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The MMT part, it’s your classic capitulation.
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We don’t know how to solve any of the world’s problems, because that equation is ongoing.
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Because we have demographics that are sending a very clear signal.
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Working age population, by the way, I’ve posted out a few times.
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I find it fascinating.
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For the first time ever, the growth in working age population is actually going negative.
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That tells you everything you need to know.
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There’s a huge demographic change going on as the baby boomers were retiring, how do
29:13
you produce growth with those numbers, unless you believe in some AI productivity fantasy,
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which we don’t have evidence for that yet.
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MMT to me is the ultimate absurdity of it all.
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Free party, free credit.
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We keep printing money and there’s no consequences.
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MMT adherence will obviously push back hard on this, but even central bankers like Jay
29:44
Powell are very much opposed to MMT.
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I personally think is a fantasy, as well.
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In terms of your question about fiscal policy, can now governments come up with infrastructure
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programs or what have you to really push that equation?
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This is where I’m going to have a different take on everything.
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Now, this brings me back to what we’re seeing in the political sphere in the United States
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and the United Kingdom, in Germany, everywhere across the west.
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We have social fragmentation, the likes we haven’t seen in our lifetimes, at least.
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It’s hard to see political cohesion anywhere.
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Germany, for example, used to have three or four parties, not a six, seven and no one
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has a majority of any sort.
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The UK Brexit is a classic example.
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It’s impossible to come to any agreeable solution that’s been going on for years.
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The United States is, impeachment aside, what’s happening down that front, this fragmentation
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has been going on for at least 20 years.
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It just keeps getting worse and worse and worse, and how do you get to a complex policy
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solution that enables you to actually implement structural solutions if you can’t agree on
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a common reality, and there’s no common reality on anything right now.
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Although to be fair, Democrats and Republicans in the US always agree to spend more money,
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that’s what we just saw again in this latest budget round.
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I remain unconvinced that fiscal– even though I hear Draghi claiming for more fiscal spending,
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I don’t see the political cohesion to bring something like that about– German, interestingly,
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on a side note, they’re actually running it surpluses.
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They’re getting criticized for that, which makes actually, I think Germany really an
31:47
interesting place to– if we do have a global recession, what country is actually able to
31:54
really deal and stimulate ultimately.
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They’ve been very disciplined and holding off on this point, but I suspect they may
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have more ammunition than anyone else when we do hit a recession down the road.
32:09
How do you see the end of the cycle playing out?
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I am actually looking for a yearend rally, because I think what happened in December
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of 2018 was superbly rare.
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It happened only once before and that was in December of 2000.
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That’s how rare these December dumps are.
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However, I’m just going by what I know now, and I don’t know what’s going to happen with
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the trade deal and this time, the other.
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What I do know now is basically what I see in the charts is there’s just another very,
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very sizable volatility spike to come.
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I can’t tell you when that comes, it would maybe make sense for that to happen in October
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or into November.
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Then that spike is probably be a buy in markets for a yearend rally, can see that happening.
32:57
I expect the Fed to cut rates again in October, maybe throw another one in December.
33:02
We’ll see.
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I think ultimately, the question is, and I’ve been posting this chart for months now.
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It’s this broad megaphone pattern.
33:09
If they can get above it, we can have a massive all liquidity and ala March 2000.
33:18
It was just crazy blow off the top.
33:21
I’m not predicting this.
33:23
I’d actually don’t want to see that.
33:24
I think stuff like that is just going to be horrid ultimately, because it will just exacerbate
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the pain on the downside.
33:31
If markets cannot sustain new highs from here, I think going actually back to an earlier
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question you asked about historical example, look closely at 2007.
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We made a high in July, we made a high in July this year, then the Fed cut rates in
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September of 2007.
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Because that was their response when subprime was contained.
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Don’t worry about– there is no recession.
33:55
That’s the same narrative we’re hearing now, there’s not going to be a recession.
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The recession came only two months after– three months after the Fed cut rates.
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It came in December of 2007, when no one saw or admitted a recession was coming.
34:11
After that rate cut in 2007 in September, markets peaked in October, and that was it.
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No one– this is the fascinating thing, see, market tops are only known in hindsight with
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enough distance.
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They’re not apparent or anyone at the time.
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That’s why I’m just using that as an interesting example and as a threshold to say we must
34:33
make new highs from here or we’re risking, we’re actually made a double top in July and
34:39
in September of this year, so I think people need to watch the price action very carefully
34:44
from here.
34:46
Just finishing up on 2007, when markets made on marginal new high in October of 2007, and
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the Fed was cutting rates, Wall Street projected price targets of 1500 to 1600 to 1700 for
35:01
2008.
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All of them.
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All of them were bullish in December, not knowing that the session officially actually
35:09
started in December of 2007.
35:11
The S&P close the year at 800, 880, something like that, cut in half, basically.
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I think what we all need to be closely watching for is efficacy of what happens on the trade
35:26
front, efficacy on what happens with the central banks and the price action in the charts.
35:32
Do we see participation coming from the small caps, transports and the banking sector?
35:40
Yes or no?
35:41
Will we see sustainable new highs or not?
35:43
If we don’t see new highs, risk for double top, watch what the VIX is doing and then
35:49
it remains a range bound market for now with opportunities and both sides but I think there’s
35:54
some critical thresholds that have taken place.
35:57
Punch line, no bull market without central bank intervention.
36:02
It remains an artificial construct.
36:05
I am worried that all of us have a warped perception of value of what markets should
36:13
be doing because, let’s be very clear here, we would not be at new highs in or we would
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not have hit these current levels of 3000 in the S&P were it not for complete central
36:25
bank capitulation, four rate cuts, jawboning trade optimism, all these valuations have
36:35
to be justified at the end of the day.
36:38
You cannot lose one of these equations and so markets remain artificially inflated.
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The question is if, like in 2000, or in 2007, central banks efficacy loses out.
36:52
Remember, they had to cut rates by over 500 basis points to stop the bleeding back then,
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and now, they barely have 200 basis points to work with.