ASH BENNINGTON: It's Tuesday, August 18th, 2020, just after market close in New York. This is the Real Vision Daily Briefing. I'm Ash Bennington in New York joined shortly by Tony Greer, but first with today's stories, Peter Cooper.
PETER COOPER: Thanks, Ash. Yesterday, the Democratic National Convention kicked off, and will run through this Thursday with the Democratic Party will formally nominate Joe Biden and Kamala Harris as president and vice president for this election. What's unique about this year's convention is that it's mostly virtual, with a mix of live and prerecorded speeches. Additionally, it will not be featuring a single keynote speaker, but rather 17 in total. The Democratic Convention will officially end the primary season as the US moves full steam ahead into the general election.
The general pitch for the Democratic bid last night revolved around unifying and support for Joe Biden regardless of where these leaders are within the political spectrum, progressives, moderates and even some Republicans have come together at the convention to make the case that as president, Joe Biden would be the most capable to address the pandemic, the recession and the civil unrest. Part of the hope is to rally younger voters, those who enthusiastically supported progressive such as Senator Sanders and Senator Warren during the primaries, to cast their vote for Biden, a more moderate center left politician in what is evolving to be a higher stakes election.
The 17 keynote speakers Biden is elevating are diverse, yet almost mostly share a center left philosophy, a preview of Biden's vision for the Democratic Party as he considers himself to be a bridge for a new generation of leaders. As the convention is underway, we'll see how it unfolds. Also yesterday, the trustees at CalPERS met after the sudden resignation of the fund's Chief Investment Officer Ben Meng. On August 4, an anonymous complaint was filed against Mr. Meng about possible conflicts of interest as it concerns his own personal investments. The next day, Mr. Meng left abruptly. The complaint did not list any specific investments but the focus during the review has been on Mr. Meng's shares in Blackstone Group.
CalPERS had previously invested in Blackstone's private equity funds. After Mr. Meng was hired, CalPERS had committed $750 million in this fund. With CalPERS underfunded status and as municipalities and local governments within California are being built with greater mandatory contributions, the reputational risk associated with conflicts of interest is something CalPERS is sensitive to. It may also be a reflection of the immense pressure pension funds are under today. With that, back to you, Ash.
ASH BENNINGTON: Tear up the script. The S&P took out its all-time closing high. We've got Tony Greer of TG Macro, the trader's trader. Welcome, Tony.
TONY GREER: Well put, there's no script in 2020, Ash. You know that.
ASH BENNINGTON: Absolutely. Tony, what are you looking at today, a historic day?
TONY GREER: Oh, man. Yeah, the S&P close rhymes with the entire inflation bonanza trade, as I call it, that's taking place right before our eyes right now. It started this morning with the dollar making a new low against a bunch of major currencies, the DXY made a new low, Sterling against the dollar was up in a huge two sigma move driving markets this morning. That translates into the big wildly observable inflation trade that's taken place before our eyes. There's a Bloomberg commodities index technical breakout that's going on that I think could be very sustainable. It started leaping above moving averages as precious metals started rolling. It was really gold in the lead, for the longest time, and then silver, as you saw, caught fire and traded really quick from 15 to 25, and now, 30.
Everything metal, Ash, is going up into the right. I call it like the base metal baton trade because every time I wake up in the morning and turn on my screens at 6:30, I look up at the leaderboard and there is either aluminum, copper, iron ore, silver or zinc in the lead that morning with a huge magnitude moves. These are the things that you should be expecting when we're seeing unlimited and aggressive monetization by central banks. I think the dollar weakness speaks to the Fed being even more aggressive with taking the balance sheet from $4 trillion to $7 trillion, and the biggest economy on the block, the currency, having to take a little bit of a hit because of that, which seems totally reasonable to me.
I don't get into the big existential dollar crisis, I don't think that it's in danger of losing its status as the reserve currency. I just think it's selling off. That's really what I'm looking at, this dual inflation bonanza that we're seeing in CPI now, PPI finally coming through in the marquee data, and then being followed by the commodity breakout, which is just different versions of metals rallying due to monetization all over the world.
ASH BENNINGTON: A lot of action, a lot of price movement, a lot of moving parts here. I should say close on the day 3389 on the S&P, also took out the all-time intraday high setback in 19 February of 3393, went up to 3395 today.
TONY GREER: The S&P just keeps on trucking. It seems to be the same story over and over again, the way I look at it. We're seeing today for example, Apple and Amazon making a new high driving Fang. Fang is one of the big groups that's leading all asset classes on the year. Fang is up 50% on the year, it's battling Bitcoin for the lead on the leading asset class for the year, if you can look at it like that for me for a minute, with Bitcoin up 67% on the year, but then we're talking about GDX, metals and mining up 45% and gold up 32% on the year. This is clearly where the money has gone and where the flow has gone as the Fed has expanded their balance sheet.
It speaks to a couple of things to me. Fang being in the lead speaks to the wealth gap that's manifesting itself in the stock market as well as in society. We're seeing, for example, the QQQs have taken off and run away on the year, they're up 30% year to date. The S&P is up 5% year to date and the small cap stocks and the Russell are down 5% year to date. Given that this COVID the response by the Federal Reserve and all central banks, quite frankly, around the world has been such a steamroller, I'm guessing that these themes are going to play out really, really strongly throughout the second half of the year. In fact, they may really go into overdrive for the second half of the year.
I think what's going on is that the Fed has gotten the markets in a situation where we've got a couple of runaway trains going on, like Fang and big tech, etc., etc. and other areas of technology and then you've got drag coming from other sectors like energy are out of favor right now, utilities are out of favor right now, banks are out of favor right now. There's a little bit of balance that's just carrying the stock market in a slow and steady pace upward right now driven by technology, so I'm imagining we're going to see this and different versions of it between now and the end of the year.
ASH BENNINGTON: Yeah, just like you say, different inflections. It all speaks to a couple of meta themes. Number one, first and foremost, central bank liquidity. Number two, the inflation play with gold, and number three, software eating the world.
TONY GREER: Technology rallying the way it is really just speaks to the fundamental story of the situation we find ourselves coming out of the pandemic, where everybody's going to be working from home, needing more internet capability from home, more cybersecurity at home. It makes sense that these sectors are getting up and rallying right away.
ASH BENNINGTON: Yeah, that anticipates my next question perfectly. You've got a screen full of indicators behind you. You're looking at a lot of different signals. What does this portend, big picture, for what you see going forward?
TONY GREER: Well, it feels to me, Ash, like the inflation trade just caught fire again. There have been several legs to this trade like we saw with gold getting out in front with a lot of different reasons, gold seems to be the play on central bank balance sheets. Now, we're in a situation where the economy is getting help from the stimulus and probably coming out of the gates a lot better than anybody had expected going in. We've got a situation where inflation is manifesting itself all kinds of ways across in the market where we've got 5 Year 5 Year Forwards are perking higher. We've got TIPS that are trading bid only, Treasury Inflation Protected Securities.
You've got the yield curve slowly steepening and ticking higher indicating we're going to have a pickup of economic activity, we're going to have rallying prices, and like we said, it's become easy to get ahold of this trade because like we wake up one morning and there's another commodity taking the lead. There's another base metal rallying. There's another base metal at the top of the leaderboard. You check back at 4:00, like we look back today, what's at the top of the leaderboard today? There's a 2.5 sigma rally in TIPS, a 65-basis-point rally, which is a huge move in TIPS. We've got a 4% rally in copper.
Every day you get this confirmation and then you look to the economic data and you see that CPI is coming out higher than expected, PPI is higher than expected. This is giving you some confidence to really lean into a few of these inflation trades.
ASH BENNINGTON: 65 bps on TIPS is quite a lot. Are you look at anything else in the fixed income complex, specifically, what are you looking at in spreads?
TONY GREER: Well, like I mentioned, Ash, we see in the 2s, 10s spread perked up through 50 basis points. That's showing us that the bond market's pricing in a little bit more economic activity, possibly some more inflation. On the inflation side, I'm actually looking for yields to go higher. I'm looking for an actual selloff in the bond market in response to inflation data that I'm expecting to come out way higher than expected. We've got all the physical commodities that we need to see breaking out and rallying to the top of our screens, and we talked about metals only. We didn't even talk about the fact that crude oil, natural gas, they've all been rallying pretty sharply. Now, we've got some soft commodities rallying.
The inflation is starting to show up all over the screens. We're expecting yields to go higher in response. We just saw a 10-year yields test 50 basis points on the lows and come back strong to above 60 basis points. To me, that could be the bounce in yields that's sustainable. That was a rejection of the new highs in treasuries. It could be a short term top, where yields could start rising, and I'm looking for that to have maybe a little bit of a sideways to heavy effect on the stock market, if we see yields going measurably higher, but I think that that again will be something that will be met by the Federal Reserve and I just don't think that the broad S&P rally is something that you want to fade as long as rates stay in check in moving orderly fashion like this. A dislocation in the bond market or a several day dislocation lower in the bond market would be a different story.
ASH BENNINGTON: You expressed that thesis very clearly, how are you expressing that view?
TONY GREER: Well, we've got-- I said I've been writing for months, we've been well early to the precious metals trade. We've been long gold in various forms. We've traded in and out of silver. We just got ahold of XME, the metals and mining index as it's rallying. I'm grabbing indexes or sectors of the market, Ash, that I feel are still roaring and may never have stopped roaring, even despite the pandemic. The housing market to me is on fire like the old dot-com market once was, like the housing market. Everything is in line.
You're seeing lower rates, you're seeing people visibly show up to refinance. That's helping the bank economic activity, and you're seeing people show up to buy and build. That data has been wildly apparent in the economic data. We're seeing housing starts blow away expectations. We just saw a number of 20% rally in housing starts versus 5% expectations. Between that and new home sales going strong, the builder earnings have been really strong. You're seeing the finishing product companies like Whirlpool and Trex, etc. put up great earnings and just rally sharply.
This homebuilders rally is something that really the pandemic was just a bump in the road and that's another way that I'm expressing that, Ash. Everything between-- I'm looking to express it between my natural resources base positions, and then some of the other sectors of the economy that I think are in good shape and should continue to rally.
ASH BENNINGTON: Yeah, two big bits back to back. You had the home starts today and yesterday, the sentiment index from homebuilders definitely looks like things are on a tear. I guess my question is, do we know if this is a weird coronavirus play where people are moving out of inner cities and moving out of the city and moving into the suburbs or does this tell something about what real demand is? In other words, will we see that expressed through in other places potentially in earnings?
TONY GREER: Specifically, in terms of the housing market, my local channel check show that it is very much a fact there are people moving out of the cities and moving out to the suburbs. If you're going to be working at home, living at home, your home is now your castle, and people are not going to get along with it being a cubicle in New York City, Chicago, Minneapolis, for example. With the race out to the suburbs, that's a very specific COVID factor that's bullish for builders. I think if you took that away, I think that the market was already on its very good standing with low interest rates and more millennials buying homes than the markets would ever really lead on to, because that's the reality. It's new home sales have been strong and they have been going to younger and younger families. The myth that millennials will only own an apartment in New York City cubicle is proving to be false.
ASH BENNINGTON: Tony, one of the things I enjoy so much with our conversations is you start with a data first and work your way back to the theory rather than the other way around. It's such a powerful way of looking at it when you're actually seeing what's happening on the ground.
TONY GREER: Well, what's cool about this market, Ash, is that with the S&P at all-time highs, but the VIX at 2520, still very, very pricing in a lot of volatility, portfolio managers are leaving tire tracks all over the tape. If you start paying attention to what's performing on a daily, weekly and monthly basis, you can really follow the money pretty clearly and that's how we've been able to latch on to some of these themes. It's really all it is.
ASH BENNINGTON: That's very well said. What is the money telling you as you look forward?
TONY GREER: Man, there's a couple of trades that look like they're seeing all the flow, big tech is obviously the one but we don't know when Apple, Amazon are going to finish rallying. It doesn't look like they are. It looks like they're only getting more powerful on this side of COVID. That's one component of the rally. We're seeing Bitcoin up 65%, 70% this year and even though I got off of the Bitcoin bus, I am a full throated supporter of it as a currency that's not going to be manipulated by anybody. We'd like to see Bitcoin rallying. Then we're seeing money flow into the gold stocks. Metals and mining has become the new tech market.
We just got this headline that everybody's going crazy over that Warren Buffett bought Barrick and to me, that's the biggest who-cares headline of the year. I don't mean to be disrespectful, but he's saying one thing, he's trading another way and he's obviously realized that this is a way that he's got to be positioned, so who cares is my point. The reality is that we can stay latched on to and trade various legs of this gold rally. We just had a great pullback in gold, for example. Gold was trading at as high as above 2000. The Robinhood traders got wind of it, and, Ash, I'm telling you, it wasn't long after a friend of mine, who is a Sif in the gold market sent me a screenshot of all of the Robinhood traders that were in GLD, and it was something like 4000 of them.
You're saying, okay, how long is it going to be before they bail from the high print and next thing you know, you get a nice $125 washout where you can buy an up trending, beautifully trending precious metal on sale. I'm just talking about these are the opportunities that the market is handing you when it's trading at volatility like this. These are the ones that you get confidence in, and you can really get your bat off your shoulder and take some swings into the end of the year that this is going to continue.
ASH BENNINGTON: Tony, that reminds me, I'm curious. As a certified data junkie, what are you doing with all this data that's flowing off of Robinhood? We've never seen anything like this before, open API, you basically can look into the trades. It's really surreal.
TONY GREER: Yeah. It's so surreal, I don't think it's going to last, Ash. I feel like you're already going to take steps and start hiding the information, but I'm not going to second guess these guys. As you can see, there isn't a lot of money. They're not having any trouble with that, and it's not a phenomenon that I want to fade. If they have figured out how to gather the masses on their platform and introduce them to trading in this era, then I tip my hat to them and we're just going to sit back and see how it unfolds.
ASH BENNINGTON: Someday, my guess is the data gets parameterized and sold.
TONY GREER: Yeah, I would imagine, right directly to Citadel for an enormous fee, and then they'll make money on the other side of it, too. We'll see what happens.
ASH BENNINGTON: American capitalism.
TONY GREER: That's what it is.
ASH BENNINGTON: Tony, what else are you looking at as you look forward? We talked a little bit earlier about the tech stocks. What's your play there going forward?
TONY GREER: Well, it's to cautiously get into them for momentum trades at this point. Amazon just today, for example, broke out of a pennant that I've been drawing for days since it made its high. That is probably a good place to look for leadership. Let's just put it that way, that now that Amazon has already consolidated through this pandemic period and bounced off moving averages and broken out of the technical pennant, that's