ASH BENNINGTON: It's Friday, July 24, just after market close in New York. This is the Real Vision Daily Briefing. I'm Ash Bennington in New York joined shortly by Max Wiethe, but first, Jack Farley with today's stories.
JACK FARLEY: Thanks, Ash. In Europe, the PMIs are showing signs of a continued recovery. The numbers coming out of Germany and France are looking particularly strong. Meanwhile, the US reported its PMI survey and they were nowhere near as robust. The services PMI increased to 49.6 while the manufacturing PMI reached a six-month high of 51.3. The composite figure of manufacturing and services together is right smack in the middle at 50.0. Remember, a reading above 50 indicates a growth in output so the fact that the composite figure was right at 50.0 means that the private sector is exactly on the knife's edge between expansion and contraction.
In the world of residential real estate, we did see some promising news with sales of previously owned homes up 20.7%, but renters and landlords are facing an entirely different set of challenges. The missed payment rate continues to inch higher. It's now at a record of 32%, meaning that for the first month in July, almost one in three renters failed to pay their full rent. By the way, during that period, renters could turn to unemployment benefits but these programs expired this Sunday, and over the next week, over 25 million Americans will be cut off from this assistance.
In other news, the Bank of Russia lowered its key rate to a record low of four and a quarter percent. Oh, and also, Goldman finally settled its 1MDB case with Malaysia, but the stock price barely moved on the news, and Brooks Brothers received a bid from the Sparc Group to buy the bankrupt entity for $305 million. That's quite a tidy sum, but there could be other suitors. It's rumored that the Italian Julio Group is going to make an offer, but all eyes are on WHP Global, a syndicate of funds from BlackRock and Oaktree, the big players. Will there be another bid before the August 5th deadline? That'll be the interesting question going forward.
Lastly, gold rides higher soaring past the 1900 level to set a new record. Meanwhile, the DXY continues its slide. If you're interested in these topics, there are two Real Vision interviews that you need to watch. One is Hugh Hendry and Luke Grohmann, who did a masterclass on the dollar. That came out today. Then on Tuesday, the great Lyn Alden will be back to provide an update on her views on gold, silver, Bitcoin, treasuries, and of course, the almighty dollar. With that, let's go to Ash and Max.
ASH BENNINGTON: Thanks, Jack. Welcome back, Max.
MAX WIETHE: Thanks for having me, Ash. I know maybe some people are disappointed that I'm not Raoul but I'll do my best.
ASH BENNINGTON: Nobody's ever disappointed to see you, Max.
MAX WIETHE: Alright, if you say so.
ASH BENNINGTON: Max, I understand you're looking at the S&P, the precious metals complex and the dollar. What are you looking at today?
MAX WIETHE: Well, I just think those are interesting things this week, obviously, we saw massive runs up in both silver and gold. Silver, especially with a couple of like 7%, 5% days, which is a pretty massive move for silver, breaking out of some major ranges and then gold as well hitting 1900 overnight last night, approaching all-time highs with the macro tailwinds I think everybody is pretty well aware of with printing and fiscal spending going on. I just think that that's really where the action is. Then as well, it's not just the S&P, it's the SNP in relation to the dollar and inter-asset correlations and how they tend to change.
Recently, I think, maybe a couple months ago, on a week like this, you would have expected to see the dollar spiking with risk off action in the markets like we've seen. I think we're down in all the major indices in pretty much across the globe and the dollar has been sliding. That's a big change from the dollar as being this pretty simple, we're going risk off, go to the dollar for safety, and I think that that's telling for where it might be headed. That's really what I've been watching and in correlation, as well, I talked to Greg Weldon today on Real Vision Live.
It was really perfect to have him on because he tracks everything but he's well known for his commentary on precious metals and he's pretty bearish on the dollar and views it just as a tide that's going to raise all boats in the commodity space but specifically, looking at gold and silver and he was giving some pretty lofty price targets for both of those metals, but then also other commodities in general. I think that that's an interesting place to be.
ASH BENNINGTON: Yeah. Max, that's a broad and comprehensive introduction about how all of these things relate together. For those of you who aren't following this as closely as Max is, DXY peaked in March at 102 spot 99 and is now basically slightly above the 52-week low at the close today at 9441. I'm curious, I don't follow the silver market very closely myself, and I'm curious, why is the action there? What's the distinction from gold? What is it that you're looking at when you think about silver?
MAX WIETHE: Well, the distinction is that it's not purely a monetary metal, it's also an industrial metal. There are more factors that I think go into its pricing than just what is happening in terms of monetary policy and macro. It isn't always mines, some of it comes from reuse and recycling. There's just a lot of different dynamics, nobody's pulling gold out of-- like the gold that comes into the supplies is coming from the ground. It's not coming from recycling. There's just like a lot of different things.
It was more that it had been-- it's been running up recently, but this week was definitely a huge move in the metal. That's why people are wondering, from a tactical perspective, you find yourself in these types of scenarios where if you were in the position, you might be sitting on a lot of profits and things have run very quickly. If you haven't been in the position, but you believe in the thesis, which I think a lot of Real Vision viewers do, they understand what the consequences of some of this fiscal and monetary policy can be, you might be having a little bit of FOMO and things don't go up in a straight line all the time and there are pullbacks and so it's really just a moment where you should be having that question of is it time to take risk off, or is it time to be a pig and go for those homeruns?
In talking to Weldon, he was, as I said, he puts some pretty lofty price targets and definitely falls on the side of this is not a time to be de-risking yourself. Everybody's timeframe is different. Everybody's entry point is different. I don't have the answer for everyone, but it's something that I'm thinking about.
ASH BENNINGTON: Let me jump in there actually, we're talking about monetary policy and fiscal policy in relation to the aggregate performance of the US economy. It's been a relatively busy day in the news cycle. Some interesting things, the thing that caught my eye and I'm curious to hear your view on this, Max, is Bloomberg did a fairly extensive piece today talking about the US economic recovery stalling, the word they used was stalling and they looked at this from a broad variety of domains. They talked about credit card spending, declining air travel restaurants, but mostly what the piece focuses on is how the rate of improvement in the jobs recovery as measured by the rate of improvement in initial claims has declined, effectively flatlining in terms of that recovery effort. I'm curious what your thoughts are and how your view of the things that you're watching is either driven by, impacted from the broader US economic cycle.
MAX WIETHE: Yeah, I'm not-- much like a lot of the commentators who come on Real Vision's Daily Briefing, what's happening in the equity markets doesn't make a lot of sense if you're looking at this broader economic data, but it does-- what we're seeing with the slowing of the improvement makes a lot of sense. When you go down as low as we did, you are going to see a bounce. It's a lot of like what I was talking about with silver, like when things happen that fast and that dramatically, there has to be some exhale to the move and what we saw with the bounce was exactly that.
I think we're obviously not back to normal. We're sitting here talking over Skype. I'm in a different city from where I normally live. No, it's not going back right away. I think anybody who legitimately thought that we would have a V-shape, a perfect V-shaped recovery that brought us all the way back was just insane. It's par for the course for me, it makes a lot of sense.
ASH BENNINGTON: Yeah, and talking about the recovery and the jobs recovery, I was just reading Mish Shedlock on thestreet.com, and he does this fairly extensive analysis of the Federal Pandemic Unemployment Compensation programs, the FPUC, and he walks through this alphabet soup of programs from the Department of Labor. His takeaway, essentially, i s that 30 million people are about to lose the $600 in unemployment benefits that have been added as a result of the COVID pandemic. His analysis is higher meaning worse than consensus. Most other outlets are pegging that number at closer to 25 million. He's above consensus meaning a worse impact from that.
It's interesting to think about that when we look at the stasis in the jobs market, and then we look at how this program is clearly going to be rolling off soon unless it's approved. The other thing that I thought was really interesting today was the story about Mitch McConnell. The GOP seems to be in a little bit of, well, I don't want to say chaos, but maybe disarray. The coronavirus aid, that FPUC that we were just talking about is about to expire and there seems to be substantial disagreement in the GOP congressional ranks about what to do next.
I'm not a policy wonk. I'm not someone who totally geeks out on what happens in Washington, but what's interesting to me is Mitch McConnell, to his supporters and his political opponents, has always been seen as a master of parliamentary procedure, as someone who's always one step ahead of the competition in understanding what's happening in the legislative process. Here, frankly, he looks a little bit flat-footed. When you combine all of these factors, the deceleration of the jobs recovery, the rolling off of 600 bucks a week for 30 million people potentially maybe 25, Mish Shedlock has it at 30 million, and then you add this legislative stasis, it really is a recipe for deceleration in aggregate of US economy.
MAX WIETHE: Yeah, I would have to agree but I think what you're seeing is a reconciliation with their party line of old and maybe what-- I don't want to say it has to be done. I'm not trying to prescribe policy or anything like that, but there are a lot of people out of work and it's been pretty clear that this, under this increased unemployment insurance, has made its way back into the economy. You can talk about whether that's the good thing for the long term, but if it falls off, it is going to have an effect and a pretty immediate effect, but at the same time, the GOP is the party of let the economy do the work and let it pull us up and a strong economy lifts all boats like we need to open, so it's a conflict between what are their core roots as a party and what their voter base believes with what is a very unique situation.
ASH BENNINGTON: Yeah. Speaking of things that supporters and opponents both agree on, in this case about President Trump, it is that he is not a typical Republican. He does not cleave to the traditional Republican laissez faire views in many ways, and maybe we're seeing some of that split reflected in Mitch McConnell's positioning on the coronavirus relief packages.
MAX WIETHE: In some ways, maybe it's a bit of a posturing for what happens post-election. If people are predicting that Trump is going to be out and the Republican Party is no longer going to have him as its main leader and driving force behind the policies he believes in, considering like, wait, is it time for us to try and reset and go back to some of the things that we had before. Do we want to go back and be the policy of fiscal responsibility again? I wouldn't be surprised if the election and the potential not removal of Trump, but not having Trump in in the White House is making some of these things pop back up onto their radar in terms of fiscal prudence and responsibility.
ASH BENNINGTON: I'm interested, Max, we started out the conversation talking about some of the things that you're looking at, specifically US equity markets, the US dollar and the precious metals complex. Then we shifted here to a more broader macroeconomic and even political economic conversation. My question to you is this, do those two conversations in your mind relate at all? In other words, when you think about the things you're watching, and then we have this conversation about macroeconomics, the recovery and the current political situation in the US, do you see those things as linked at all? Do they feed into your analysis, or are you looking at it as something that largely has its own rather fundamental and technical momentum of its own?
MAX WIETHE: I'm going to give you a half answer, which is that it depends. It just depends on the timeframe that you're talking about. I know Tyler is a big flows guy, like it's all about flows and what the whales are doing and a lot of the things that we-- it's like a huge pet peeve of mine and we talk about it on the editorial team all the times. Such and such happened in the markets today as this headline happened and although the people writing those headlines are doing a very good job of limiting their downside risk by saying as not because of, the implication of that headline is that those two events are connected.
I would say that on the daily basis, the idea that what is happening in the markets and what's happening in precious metals and with the dollar is because Trump did XYZ thing and there are obviously exceptions to the rule. It's not a coincidence if massive things, massive moves, saying the dollar happen like on the day that like we go to war or like write headlines and factor in.
ASH BENNINGTON: The ultimate weasel word to look for is amid.
MAX WIETHE: Amid, yeah.
ASH BENNINGTON: When you see amid, you know that there's a-- I've used it myself.
MAX WIETHE: Yeah. Look, the idea that-- and we all knew that this fiscal cliff so to speak with the $600 was happening, is it going to work-- let's say it doesn't happen, $600 goes away just for our sake of argument here, that will work its way into the economic data and that will work its way probably into prices eventually, but it didn't for a period of time that the market was around.
ASH BENNINGTON: Max, all very well said. You mentioned also another point that I think is really critical, talking about differing time horizons, different timeframes that you're looking at the market over. I'm curious, do you have a particular time horizon right now that you have conviction on in a particular direction for one of those asset classes? How are you looking at it, and what is the interpretation that you're bringing with regard to time horizons?
MAX WIETHE: Full disclosure, I'm short the dollar on a relatively short time horizon like two to three months. That's around the timeframe that I like as an investor at this moment in time, but at the same time, I really am-- like that interview this week with Beeneet Kothari, that idea of taking long term views on a very small number of companies. That makes a lot of sense to me too. That's not how I'm positioned or what I'm looking at but I think that there are many different ways for people to be investors.
ASH BENNINGTON: It's a great interview as well in terms of looking at things from a longer term time horizon. In fact, that was the piece that I liked this week and spoke about during our new podcast where we talk about the content at RVDB. Question for you from the dollar, again, getting back to today's news flow, escalating trade tension with China. China ordered the US to close its consulate in Chengdu Province, presumably as retaliation to the Trump administration ordering a Chinese Consulate in Houston to close, we've got mutual allegations of espionage, stealing research, and just as we were coming into the close today, it crossed the wire that the US just arrested a Chinese scientists who've been hiding at the consulate, the Chinese Consulate in San Francisco. This is the largest bilateral, second largest bilateral trade relationship rather with the US after the EU, accounts for roughly half the US trade deficit. What are your thoughts in that in relation to the dollar?
MAX WIETHE: I actually don't have any thoughts in relation to the dollar. A lot of the positioning that I'm taking right now is we are seeing things disconnected from headlines, it's more general framework and letting the charts speak to me, and just looking at trends and being a trend follower, waiting for confirmation that the trend has ended. Those sorts of things long term could play into the dollar but the dollar move happened long before that event, before the trade tensions came back up and the price action at least intraday didn't reflect any effects. Again, it comes back to that idea of, like different timeframes. I think that a lot of these events that people talk about, they do have effects on markets, they don't match the time horizon that people are assigning those effects to them and so it's not on my radar.
ASH BENNINGTON: Yeah, to exactly that point, Max. What seems to be almost emblematic of that is I don't know if you're following this, 1MDB settlement today from Goldman. Basically, Goldman settled with Malaysia for 2.5 billion in cash and additional 1.4 billion to cover potential shortfalls if asset forfeiture sales fetch lower prices at auction, total funding-- total funds rather at plus legislative settlement, potentially 4.5 billion to Goldman, they're obviously going to need to increase their provisioning for legal and regulatory exposure, some market participants and analysts had estimated the total exposure as high as $10 billion. Goldman traded up a bit earlier on the day on the notion that the uncertainty had been removed. No one likes an unquantifiable hit to the balance sheet looming out there in the future. Then it mean reverted and we closed on the day three up, I'm sorry, down. One spot 55. Off less than three quarters of 1%. In other words, markets just shrugged.
MAX WIETHE: Yeah, exactly. Something happens and then the move happens and everyone's like, see, this headline caused this thing to happen, and then