ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Tuesday, August 3rd, 2021. I'm Ash Bennington. Once again, it's TG Tuesday. I'm joined today by Tony Greer, editor of the Morning Navigator. Here's what we're looking at right now. US equity markets for the most part higher today, it looks like all the major indices are in the green. S&P 500, the largest winner on the day, up 0.82% to close at 4423. Big winning sectors on the day are healthcare, energy, and financials.
Also out today, a report from the Federal Reserve, household debt in the US rose $313 billion. That's the fastest level of rise since 2007. It's nearly $15 trillion according to the data out today from the Fed. To put that into perspective, that's nearly three quarters of US GDP which weighs in at around 21 trillion in household debt alone. This number really knocked my socks off today. The majority of that new debt is from mortgage origination.
Over the last four quarters, mortgage origination totaled $4.6 trillion which is 44% of all outstanding loan balances. According to a reporting out today by CNBC Jeff Cox, that is quite a statistic. Finally, on the day, a major speech from SEC Chairman, I should say, Gary Gensler at the Aspen Security Forum today talking about the role of regulation in the digital asset, Bitcoin, cryptocurrency space. We'll have more to say on that later. But first, Tony Greer, welcome back to the show.
TONY GREER: Ash, great to be back, my man. How are you doing?
ASH BENNINGTON: Good, man, we missed you.
TONY GREER: It's nice to be missed. It really is nice to come back from a little trip and have people say that we're looking forward to hearing your comments on the markets. And it's great to be able to provide that, right?
ASH BENNINGTON: Yeah. So, let's jump right in. What are your thoughts? What are you looking at right now? What have we missed? Bring us up to date.
TONY GREER: As a performance hawker, Ash, on August 3rd, I'm still resonating on the July market performance. That's actually following through on our screens now, as the S&P climbs to, essentially what looks like could be a new all-time high close today, if not within a couple of days. But I think the important thing to note is that in July, the S&P extended obviously to new all-time high. They've made eight out of nine of the last month of rallying in the S&P. We've got a tremendous streak building up here. When the market has been this strong in the first half of the year, you'll have those stock market Almanac people reminding you that the performance is usually really good into the end of the year.
So, I feel like we're right in the power curve of that trade where we can ride this carefully and perhaps nonlinearly, but into the end of the year. And I love that you opened up with the household debt data, because I do think that that's important. And I think it's also a very close offshoot to why the dollar backed off in July. And I think that this is relevant for a couple of reasons. The Federal Reserve concocted this dollar short covering rally to really put some heat on the commodity complex in order to make their transitory comments seem like it was really pertinent.
And then we had Jerome Powell come out last week when I was away. And this was a clip that you could miss from Europe about his literally verbal diarrhea trying to discuss what type of inflation we were having and how some prices were going to be persistently high and other prices might be transitorily high. But what it sounded like to me was that we've got a Fed Chairman that is actually way more concerned about the inflation picture than he had led on to being in the past. So, when I look at the debt number that you brought in this morning and I compare it to the fact that, right now, the dollar is just not going to be able to rally when we've got a $21 trillion economy with 30 trillion in debt and a balance sheet that's expanding through 7 trillion with no signs of stopping right now.
And as you know that no sign of stopping by the Federal Reserve, or the global central banks has been a pretty strong tenet of our assets are being inflated trade. So, I think that that's relevant. These debt numbers do come back. They do weigh on the dollar. And what's interesting to me is that bonds are bid over right now. So, that for me is something that's really, really hard to contend with when we're trading into this inflationary scenario. We've got 10 Year yields now backing off towards 1.2% and lower. We've got all of the curves essentially tightening up from the highs. And we've got five-year breakevens that have remained fairly bid showing that we do have inflationary stirs around the market.
So, this has been very difficult to unpack, Ash, where bonds continue rallying, stocks continue rallying, commodities continue rallying. And here's the Federal Reserve over on the side saying this inflation is going to be transitory. So, the picture has gotten a little bit difficult to discern and that has to me shone through in the July performance of the stock market. We saw the S&P rally to a new high, but the rotation was barely recognizable for me.
We had healthcare, utilities, cyber security, and software leaving the market. In the negative side, we had energy getting trounced for 8%, transports losing ground. Social media and cannabis getting lambasted. And the S&P is still able to make a new high. So, when that rotation changes to something I don't recognize, we have to wait and see how things pan out. And that's really the stage that I'm in right now. I know there's a lot to unpack there but that's my story, and I'm sticking to it.
ASH BENNINGTON: Tony, you just set us up for a three-hour conversation.
TONY GREER: That's what we're going to do today. The marathon Daily Briefing. Exactly.
ASH BENNINGTON: Yeah, indeed. [?] and Nick will kill us if we do that. But it's good to know. We do have enough material to do it. Look, some really important points. I don't think we quite got to an all-time closing high today on the S&P, but it looks like we're really close. We're in flirting distance there, right? Really close. I'm looking at bond yields. You're talking about the US 10 Year, but we've dropped it looks like from a high of around 1.74 in April on yield down to 1.17 right now. I mean, that is striking bet.
TONY GREER: An incredibly fast rate of change which needs to be respected. It describes to me it's another case in point why I don't stick my hand into the bond market buzzsaw and let it get chopped off, because it would have gotten chopped off with yields as low as they are. There's a few things that have resonated with me, Ash. And you'll appreciate. You like listening as much as I do to guys like Grant Williams interview Kyle Bass. And that recent interview was just launched yesterday. And I love that Kyle was all over.
Two things to me were important. Number one, he was all over the fact that he thinks the Fed is not going to end this posture of constantly accommodating markets which is a theme that we've discussed here. Remember when we talked about Felix Zulauf in $40 or $50 trillion Fed balance sheet? Okay, Kyle Bass is of the same mindset. The other thing that I loved is that he's saying, I'm going out to dinner here in the States, and I'm getting the dinner bill, and it looks like I'm paying in pesos. The number has inflated so much for dinner for two in the US. And so, here we have that dichotomy of the inflation signals hitting your wallet full force, hitting your grocery bill full force, every month, a little bit higher, incrementally higher. And the Fed's saying there's not much inflation and the bond market is agreeing with the Fed.
We don't have a leg to stand on here as market participants looking for inflation. Meanwhile, we know it's happening. So, the idea is, what do we trade? How do we get in the right lane? And I'm still sticking with the idea that the oil market is very much intact. We've had a little pullback from the highs. But structurally, the market is well intact there as is the commodity rally. So, we've got to really just sort out now, why bond stocks and commodities won't stop making new highs every day and figure out which train to get on. It's really difficult. And it's a very transitionary portion of the trade to me, but I have to be honest with you. That's the conversation going on in my head.
ASH BENNINGTON: Boy, that's a complex and nuanced picture that you paint. This divergence between the real world and financial markets. Listen, I'm a New York bachelor and the world's worst cook. I know how horrible the food prices are especially with prepared foods. $22 for a grilled chicken sandwich. I mean, it's just crazy out there. And I think that it seems like maybe it's some labor shortage getting factored in because prepared foods are a lot higher right now where the rate of change in prepared foods is increasing at a faster rate than the rate of change in food in general.
But this does speak to what you were suggesting, this disconnect between financial markets, understanding the different directions that bond markets are going in versus US equity markets. By the way, we should probably say DXY, US dollar index, 92.05 right now.
TONY GREER: Yeah, like we said, the dollar index has backed off the highs, but yields have not recovered. So, you're seeing the dollar index starting to show that inflationary trade coming back. If you remember, the yields were making their highs when the dollar was on its lows. Clearly, we're away from the lows now with the rally that the Federal Reserve manufactured but commodities haven't backed off and five-year breakevens haven't backed off. So, you can make some cases in the market where the trade is still intact and there are other places that it's gotten blown apart and maybe overshot.
And I think that that probably speaks to positioning being offsides. It feels like the grain markets have run into at least a little bit of a technical quagmire where they're not making new highs every day. We saw lumber back all the way off. But it feels like the reality, Ash, I was able to basically unplug from the screens for a good 10 or 11 days, literally without looking at any prices or any price action, and just picking up headlines here and there, but remaining totally confident that the S&P rally was going to be intact, that the oil rally was going to be intact. And for me, it was really empowering to come back and flip the screens on and have them tell me, yeah, that's pretty much what's going on. There are a couple of challenges here and there. But right now, we're at the juncture in the trade where we're getting a little bit of a change in the rotation, but it's still generating the same result.
Incremental higher highs and the energy markets, incremental higher highs in the S&P. A few gut checks here and there, but the market is bouncing off of support levels and showing you that it is actually still in a destination to higher places. And so, with that being the core tenet of what we're looking for, if we can have the rotation match up with what should be happening in our head, which would be a continuation of the base metal rally, a continuation of the gold rally, a continuation of the energy rally, those things aren't happening right now. But at the same time, the S&P is holding it together and continuing to make new highs. So, it's for now for me in my head, it's just deciding whether I'm weighted properly in this sector rotation for the next phase of the rally. And so, that's obviously-- yeah, that's fair.
ASH BENNINGTON: Yeah, I know. I was going to say, tell me about that. What do you think about your waiting right now? Obviously, one of the things that's been interesting to me, and I think to you is just the whipsawing sector to sector that's been happening. Who leads, who follows, who declines, and yet at the same time, the aggregate indices marching higher. Tell me how you think about that sector rotation and how you position for it?
TONY GREER: Ash, I'm just looking at my view matrix here just to go over it. And we've been postured long the energy market. We've been postured long metals and mining, but we've been shaken out of that length right near the top as that metals and mining sector came off. But as we're still bullish that sector, it didn't really back off much and it didn't give us a chance to get in very cheap either. So, when you're looking for those things to keep going and then you turn and you look at July's performance and the market is led by healthcare and utilities, two sectors that I have precisely zero exposure to.
I have to do a little bit of a gut check and say, am I chasing down these commodities or are these commodity trades now getting a little bit later innings, and maybe I should posture into something like healthcare just for technical reasons. Maybe I should swing into something like more like financials if those are going to pick up and run again. Should the yield curve hold in here and should yields hold here? If yields hold in here, then financials are still dirt cheap at these prices. So, there's a lot to consider. And those are the conversations that are going on in my head right now, as I reenter after taking a little break, and coming back with a lot of dry powder that I'm looking to employ but I want to employ it tactically.
I've been looking to get into the grains trade. And I've been looking at some of the technical-- I've been looking at some of the chemical trades as they are offshoots of the oil rally, obviously with petroleum byproducts potentially rallying. So, that's really what I'm doing right now as I get back in, is sifting through the sector performances. And I'm going to be really keyed in on this week close to see if it's a continuation of that July rally or if we start to see the manifestation of what I'm expecting which is more rallying in inflation-based sectors, metals and mining, gold stocks, continuation in oil, a pickup in transports and then following on with financials and technology.
ASH BENNINGTON: To hit on the inflation trade and also the point that you made about rate of change, I have to tell you, that report that I was talking about out of the Fed on the levels of household debt. The one statistic in there that I literally needed to read three times to make sure that I got it right was over the last four quarters, mortgage origination totaling nearly $4.6 trillion. And this is the killer which is 44% of all outstanding loan balances. So, in other words, 44 cents of every dollar for US residential mortgages outstanding right now were originated in the last 12 months, 30-year mortgages, 20-year mortgages, 25-year mortgages, 44% originated in the last 12 months?
TONY GREER: People are taking advantage of the cheap rates. It's part of that secular push out of big cities and that secular push into home offices. And I think that's really what fueled a lot of that borrowing. It was anecdotal I think this time around, Ash, where we can actually look into the newspaper and get a little bit of an idea of why that's happening. So, at least it's not as alarming. It takes some of the sting out of it.
But I agree with you. You point out these numbers are getting historically stretched now. And so, you have to wonder if there's going to be a pullback to the mean. And if that's a pullback to the mean, and then maybe there's a pullback in the housing trade which we haven't really gotten at all yet, that I would welcome if there was a steep dip because I still think that they're set up for success. I know that there's some really strong opponents to that trade because I know that mortgage applications have backed off since the highs and all of that debt was taken out.
And so, there's certainly the argument that the Home Builders could be in a position to back off sharply to match up with that backoff in mortgage applications. I would relish that dip if it came. And I'm respecting the view that guys like Julian Brigden have about builders backing off here, but I am very much his posture the other way as in I'm flat looking to buy them rather than short looking to ride the trade down.
ASH BENNINGTON: I think you made two important points there. First of all, some of that's refinancing action, obviously, with historically low rates. And second, those numbers have backed down in terms of the new application, new construction, some of the indices of future construction have slowed. But man, that is just a striking number.
TONY GREER: Yeah, it's interesting that you point out that. I like that you say the pace has slowed in that housing sector. Similarly, Ash, we saw ISM data yesterday. ISM manufacturing data comes out. And we've been watching the prices paid module. We saw the ISM prices paid I think in June tick up to 92. We came in yesterday looking for like an 89 and got something like an 85. So, prices paid while still trading at the high end of the range, therefore, inflationary has slowed the pace a little bit. And maybe that's the explanation for the bond yields backing off so much, even though we think they've gone farther than they should have.
But it does make sense to me that the reopening pace, the mortgage application pace, the homebuilder pace, the energy rate, rebound pace, all of that was scorching for a little while. On the highs, when we're seeing jet fuel consumption pick up, we're seeing refinery utilization pick up. So, the cyclical trade was literally burning for a while as we had that big reopening party for a couple of months. So, it makes perfect sense for me for this trade to back off in nonlinear fashion, traded to support and then I think, it seems pretty telegraphed to me that a lot of these inflation trade is going to get back on its feet.
And the reason that I can say that is because a couple of weeks ago, we were talking about the Federal Reserve comments about inflation being transitory and we got this huge dollar rally that not crude oil back to 65, and the S&P back to its 50-day thinking that the Federal Reserve was going to start a tightening cycle. And here we are, and the stock market keeps pressing on, making a new high, bonds keep going. And so, it looks to me like this is going to continue for a little while, while we sort out which market is right, the bond market or the stock market.
ASH BENNINGTON: Boy, you're so right. It's such a complicated