ED HARRISON: It's Wednesday, November 18, 2020. This is the "Real Vision Daily Briefing." I'm Ed Harrison, joined shortly by Tom Thornton, who's the founder of the hedge fund Telemetry. But first, with the news of the day, Jack Farley.
JACK FARLEY: Thanks, Ed. The good vaccine news just keeps rolling in, with Pfizer today announcing its plans on applying for emergency approval from the FDA, Quote, "within a matter of days," this as Pfizer released new results indicating that their vaccine was even better than they previously thought-- 95% effective rather than 90.5% effective. Pfizer's vaccine also appears to have fewer side effects than Moderna's treatment, although so far, Moderna's vaccine appears to be better at managing severe cases.
Despite this great vaccine news today, equities barely budged, with all three US indices flat as I'm recording this at just after 2:00 PM Eastern. But the rotation into value is continuing, with money pouring into the reopening stocks, particularly those in the oil and gas sector. Since the news of the Pfizer vaccine last Monday, WTI Crude is up over 12%, with energy stocks rallying even further. And this makes sense-- an effective vaccine means a faster reopening, which means the sooner that oil demand will pick up.
But that's just the spot price of WTI. If you actually look at the futures curve, it's flattened dramatically since Friday the 6th, with the 2030 futures being price lower than they were since the news of the vaccine. This downward shift in WTI futures suggests that traders are bearish on oil's long term consumption pattern after 2025. In other news, the MTA, New York City's agency for transit, warned it may have to cut over 8,000 workers from its payroll if the Federal government doesn't provide $12 billion of support to fill in the gap left by plummeting ridership during a pandemic.
It's a very sad announcement. It touches on two themes. Number one, the strain that corona puts on municipal debt, and number two, the fact that municipals need fiscal stimulus from the government in order to paper over the cracks. And then there's deflation as well. Lastly, check out Jim Grant's interview with William White today. William White is a renowned central banker at the Bank of Canada and the BIS.
He's an outspoken iconoclast among his peers, a critic of Alan Greenspan's monetary policy, he called 2008. He's got some very strong views. Yesterday, Raoul spoke to Hugh Hendry, and Hugh kind of wants to sink the US yield curve to 20,000 leagues beneath the sea. Well, William White's got some very different views. So if you want a different slice, definitely check out that interview. Again, it's part of our interview series, "Paradigm Shift." And stay tuned for the interviews that are to come with Jeremy Grantham, Kyle Bass, Chameth Palpatia, and so many more. With that, let's go back to Ed.
ED HARRISON: Tom Thornton. And before we get into it, let me just say, happy anniversary to you, because we were just talking about this off camera.
TOM THORNTON: Oh, thank you. 25 years-- my wife is now a saint after this 25 years.
ED HARRISON: Yeah, that is a special day. I'm only on 15 myself, so I have another 10 to go to get up to you.
TOM THORNTON: Yeah, it's well worth it.
ED HARRISON: So, Tom, it's a special day for you. But for us, we want to pick your brain on the markets. That's why you're here. I was just looking at-- we had a DM today, and you were telling me what your thoughts were. I think the first thing is right before we just spoke to Jack, he was talking about the markets being relatively flat today. But he taped it at 2 o'clock, and now you and I, we're talking at 4:00 after the markets just closed. And the markets were down on the back of some gloomy news.
TOM THORNTON: Yeah, it's something that the market just woke up and figured out that the COVID cases are rising. De Blasio announced that they're closing the New York schools. And that really shook the market. And the way it dropped, I'd like to say it dropped like wet socks on a chicken.
ED HARRISON: Yeah, what do you make of this in terms of market action? Because first we had the Moderna news. Well, let's just say we had the Pfizer news, then we had the Moderna news, and then we had the Pfizer news again going from 90% effectiveness to 95% effectiveness. But at the same time, we're dealing with all of this COVID-19 death and hospitalization. Where is the market going to look for direction?
TOM THORNTON: Well, usually the market will look forward for something that's coming in the near term. However, this is a pandemic. We've never gone through this before. And now we have this great news with Pfizer, Moderna. I think the British study is going to come out soon. So you have all these therapies and drugs that are sounding great. Unfortunately, it's going to be a long valley to get there. So we have to go through it. Case counts are going to go up. I hope we don't go into lockdown. I think the human toll is terrible from every angle.
Especially we're going to have layoffs, we're going to have economic disaster with companies closing. And the government's going to have to come in and do something to try and shore things up. So a fiscal stimulus package is most likely going to be on the horizon. And we'll hopefully bridge that gap, but still, it's going to be tough. And I think the market just woke up and realized what we're facing.
ED HARRISON: I still can't make heads or tails of where the market is looking. Are they looking towards six months from now when all of this is in the rearview mirror hopefully, or in the immediate present? The growth versus value dynamic I think has a lot to do with that, because people are looking at growth and stay at home as a proxy for this is going to get worse and value for, OK, we're looking through the bad news today. What's happening on the growth versus value front from your perspective?
TOM THORNTON: Well, the value trade is starting to work. And specifically with financials and energy, it's starting to work real well. I did, however, trim some of my financials yesterday. I still am long a few. I like Citi, I'm long KBE, the ETF, PNC looks great. So I like that sector a lot. I am also long energy-- a lot of energy right now. And it's working really, really well so far.
I will hold on to the energy stocks through some of the turbulence I see with this COVID news. I think they're very, very oversold. And I think 2021 will be a very good year for the energy sector. As far as the growth sector, the top-five mega cap stocks have been 50% of all the attribution in the market over the last several years. So I do see those as being still very, very extended. And I would not be shocked to see some of those stocks, even though they're performing well from an operational standpoint, those stocks pause and maybe pause for quite a while-- maybe several quarters, maybe even a year-- maybe even Netflix maybe have topped out for quite a while.
So I'm really cautious on the growth area. I do see that there's going to be a lot of chop with the work from home stocks-- the Pelotons, Zooms, Wayfair. Those are going to chop around, and you have a lot of shorts that are trying to get cute and short them. And they'll just get squeezed higher and chopped around. So I think it's a tough trade to try and time the work from home short right now, especially with COVID lockdowns.
ED HARRISON: Yeah. A few things that come to mind, the first, I'll just make an offhand comment about Zoom. I saw someone was saying that as soon as the New York City schools shut down, Zoom went higher-- zoomed higher, if you will. I thought that was interesting. The other thing-- when you were talking about the financials, the first thing that came to mind was NPLs. I was thinking, because when you talked about Citi in particular, where the NPLs are going to come doesn't seem like it's going to be the large cap banks. What are you thinking in terms of financials? Where do you want to hide in terms of who's not going to be impacted by these next few months?
TOM THORNTON: Well, I think everybody's going to be impacted. But their loss provisions that they put out in the second quarter and third quarter were massive. And I think the Fed asked the banks and some of the credit card companies to price into their risk models of 13% unemployment. And here we are I think it's under 8%, and I think it might go higher most likely in the next couple months. But still, I think that you have a big tailwind as the country and the world reopens after the vaccines get fully out there into the population.
ED HARRISON: Yeah. And what about the same for your energy companies? Where's the place to be there?
TOM THORNTON: Well, I like the drillers a lot. And they've had a really good run off the lows. And I was looking at the OIH today, and they did a reverse split on the OIH earlier this year. And it's trading around 130. And the all-time high on OIH is around 1,200 going back to 2014. So I would not be shocked to see this group move up another 100% in 2021. And I know that sounds crazy, but it certainly wouldn't even bring it back to where it was two years ago.
ED HARRISON: Yeah. That is an amazing number, how far down they've fallen in that time frame. You talk about 2021, what kind of time frame are you trading around right now? What's your thinking in terms of the horizon?
TOM THORNTON: Well, I have two time horizons. I look at a daily and a weekly-- short term, intermediate-- so I may trade on a daily time frame up to two weeks. And on an intermediate time frame, it can be from four weeks to 12 weeks on an intermediate time frame. So I'm looking at the financials and energy longer term. I'll trade around them and trim some and add them back on dips. But certainly right now, I think that if we start to shake out a little bit more, I don't think people are really set up for that.
And keep in mind, the election went a lot better than a lot of people expected. They thought there was going to be contested elections. We really haven't had a contested election, even though there's the president that's still fighting it. So that's a real positive. Volatility has dropped back to 20. It's still relatively high for the VIX. But I think that could start to lift as well. So I'm cautious right now going into the end of the year.
And also more than half of the stocks in the market are down for the year, so there's still going to be some retail tax loss selling, some funds that are going to be selling into the end of the year as well. And remember too-- I was looking at retail stocks today, and the moves we've had on some of them like Kohl's, Nordstrom's, Macy's, even, Target had a great numbers-- I think those are going to come in a little bit if we start to lock down again. And I think people are not spending that much money.
ED HARRISON: Yeah, that's an interesting point. And when you say that, I think to other markets for confirming evidence, we were exchanging notes, and you mentioned something about bonds beginning to bounce. You were talking about gold and Bitcoin as well as in the commodities space, coffee. Can you go through some of those and how you're looking at those particular markets?
TOM THORNTON: OK. So I'm short bonds. And we recently had a backup in rates. And we stopped on the 10-year just below 1%. And we did have what I look at are DeMark indicators, and we did have some upside exhaustion signals on the yield. So it looked like we were going to back off a little, and we did. I'm long a little bit right now on the 10-year and the 30-year.
And usually the bond market to me is a better indicator of market risk. And with yields starting to fall again and bonds starting to rally, I think the bond market was telling us, look, the COVID thing's going to be here for a while. It's going to get worse. And so we already saw it in the bond market ahead of it. Next, let's talk about gold. Gold is like every asset. When markets get weak, gold will sell. People will sell anything liquid that's not nailed down.
And I think gold's been sold partly because there's no stimulus right now. That's been DOA with the fiscal negotiations dying back in October. Bitcoin-- well, I'm not a Bitcoin bull or bear. I have actually never traded, personally, Bitcoin. I kind of wish I did, because the signals that I've had over the years have been really good using the DeMark indicators.
ED HARRISON: Interesting.
TOM THORNTON: Yeah. Back in 2017 when we peaked-- was that the last big peak? Or '18?
ED HARRISON: Yeah, I think it was '18. If you were talking to Ash, he would tell you.
TOM THORNTON: I know, he could tell me the date. But I remember on my note that day, I put Bitcoin on and I said, look, I don't trade this. I have nothing here to prove. But we did get an upside exhaustion signal, and the next day, that was the top. And we're starting to see several on the daily that are not working. And usually when I see the daily working-- and sometimes when the DeMark indicators don't work on a shorter term basis, that means the trend is just absolutely furiously strong.
And we've been seeing that for the last couple of weeks on the daily indicators on Bitcoin. Now in the weekly, we're on week 12 of 13. And 13 is the magic number of when there's an exhaustion signal. And so I think that we're coming close to a level right now that it's very extended on the RSIs, on the daily, and the weekly. And so a backoff in Bitcoin if overall markets get weak-- because, again, people will sell anything that's not nailed down in turbulence-- you could see Bitcoin pullback to perhaps 12,000, 14,000, between there. And that might be a great buying opportunity.
And I will say, I'm more enthusiastic about Bitcoin when I see people like Michael Sailor, who I've really been a big fan of his from microstrategy before Bitcoin-- I've seen a lot of his conversations. He's really a very brilliant guy. Then you see Jack Dorsey and Square getting involved in Bitcoin, and you see some other notable people-- Paul Tudor Jones, Stan Druckenmiller mentioned it-- so you're starting to see an adoption with a wider audience.
Although, again, I don't have anything to prove in this, I do think it's extended just from a technical point of view. And from a sentiment point of view, whenever I see new programs get launched-- I'm just kidding. Just kidding. Raoul, I'm sorry. No, it's going to be great. And I'm really very, very happy for all the people that have crushed it with Bitcoin. And there are a lot of you, and congratulations-- love seeing people make money.
One thing I will say, and it's a "Real Vision" thing. I went to a "Real Vision," the Blacklist. I went tot he Blacklist event, and I met a guy there-- super unassuming, nice as can be, not a finance guy. He actually was in the military. And he put I think it was like $25,000 in Bitcoin-- and he got blown up. I think it was the Mount Gox scandal. He lost his money, and then he ended up-- he had $25,000, and he took the last $30,000 he had and did it again.
And he sold it at that peak in 2018-- at the very peak. And he was selling it from November to December right into that. And he told me something that was really incredible-- he said the stress of watching it go up so furiously and seeing his number-- he could see what he was worth-- just go up millions at a clip, he said it was so stressful. And he just felt like he had to get out. And he said, I haven't invested in anything else since.
And I just found it incredible, because I bet there's a lot of people right now that are feeling that stress because it's going up, it's furiously going up, and you're like, oh my god, I don't want to lose this, I don't want to lose this. But you know something? I've always said this-- take some off on the way up when you have a profitable trade. You don't have to hit the exact high-- same thing if you're buying something when it's coming down. Take some off, lower your level of risk so you can sleep at night and you're still going to participate. And if it goes through 100,000, you're going to be fabulously wealthy. But keep your risk in check.
ED HARRISON: Yeah, I think that's great advice, because I've heard the same advice in terms of the psychology. It's really all a psychological game-- making sure that you feel as if you're not risking your initial capital after you have had this win. It's incredible the loss aversion that we all have starts to kick in when you're doing incredibly well in the market.
TOM THORNTON: Yeah, exactly. And I'll tell you this-- I'm remembering back in 2008 and 2009 at the fund I was at, and we were short tons of financials. I think we were short well over $1 billion in financials. And we were watching all of these stocks just get obliterated, and we were making a really great return. But it was really stressful. And it was really stressful being right and being in these and thinking, oh my god, they could turn around immediately or something can happen and we'd lose these gains.
So I learned then with the team that I worked with, we diversified and took stuff out-- or I wouldn't say we diversified. We were diversified, but we basically were trimming on the way down. And I will say that I remember our financials team, they said, OK, cover all the Bank of America. And we had millions of shares of Bank of America short, and cover Citi and all these. And they went long. And they went long in February about two weeks before the true bottom.
And I was very nervous at that point, but I knew that things were getting washed out. I was nervous that the company's were going to go out of business. But they did a great job and knew how to turn that corner. And I think that was important, especially since we were taking profits on the way down and lowered our risk for that. So that was good risk management.
ED HARRISON: That's a great story, I have to say. That's amazing. You know, when we're talking about all of these parabolic moves, I'm thinking about Tesla, by the way. Because you were talking about a gamma squeeze that's going on in Tesla