ASH BENNINGTON: Goldman Sachs' economic forecast. What's next for the economy in Q2? Near all-time highs on US equity indices, and the pullback risk. Finally, Coinbase, energy, and Chinese tech stocks. Welcome back, Tom Thornton.
TOM THORNTON: Ash, how are you?
ASH BENNINGTON: I'm doing great. I know we've been talking a lot offline, and we've got a tremendous amount to cover here. Let's get started with just a general 50,000-foot overview on markets and your thoughts.
TOM THORNTON: OK, well, let's start with the equity markets. I'm seeing a lot of real pent-up demand to be buying stocks. Unfortunately, the volume has been really, really light in April. I think it's just a seller's strike.
And if you look at the intramonth chart, we had a really strong two weeks up, and then we've gone sideways. And market sentiment remains extreme. If you look at any of the polls, especially Investor's Intelligence, which comes out tomorrow-- and I'll be talking about it-- that's been extreme. The Daily Sentiment Index has been extreme.
And the other thing that I'm seeing right now, which is really sort of unique-- I talk a lot about DeMARK indicators, and I've used DeMARK indicators for 20 years. And I screen every day within the S&P 500 and other markets of how many exhaustion signals we're getting.
Now, we've had a bunch on the daily. A lot of the dailies have just been run over, and they haven't worked. But what is happening now, since this trend has been so long, now we're seeing a very, very large number of weekly exhaustion signals. The sequential and the combo cell countdown 13s. That has more intermediate-term implications happening right now.
And then, I think we were on earlier in the month, and I was talking about interest rates would pause. We hit about 1.75 on the 10-year, and yields backed off. That could have been due that the Japanese could come back and buy US Treasuries. Could be positioning, where a lot of people were set up short and they had to cover, thus yields dropped.
Now, today, we actually saw a little bit of a rise back over 1.61, 1.62, almost 1.63%-- nearly there, a rather large move. And that could start to scare the equity market as it did before.
Now, I'm looking at upside targets over 2%, 2 and 1/2% on the 10-year. And that's something that, when I showed targets of 1.75 earlier in the year, I didn't really get a lot of attention. But now, if we do go over the recent highs in, let's say, the 10-year yield at 1.75, then I think people are going to start to notice.
So my view right now is we've had a big move up since beginning of April. We've gone sideways with the chop. Earnings are coming out. People aren't getting rewarded for the good beats that are happening. And expectations are super, super high.
So if we're not getting the upside after earnings, after beating earnings so much, I think that that's telling. And I'm looking right now. Google's up 4%-- or, Alphabet is up 4%. Big numbers there, and I think that they just keep crushing it.
ASH BENNINGTON: Yeah, massive numbers. I think-- was it revenue report growing up by 35% or something quarter-over-quarter?
TOM THORNTON: Yeah, they just print money, print money.
ASH BENNINGTON: There's so much there, Tom, to unpack. Let's go back to the thing that you said at the beginning that I thought was really interesting, which was the volume on this market. Talk a little bit about the context for the thinness of this market for people who don't follow these indicators as closely as you do.
TOM THORNTON: One of the things that, when you see light volume, that typically occurs towards a wave five type of move. And we've had five waves-- Elliott waves-- on the upside. And I honestly think that it's just we're running out of money to push this any higher.
And the other thing is, we are going higher. That's partly because sellers have just stopped selling. I mean, why sell? I mean, motivating a seller only happens when you see declines and they get fearful of losing profits-- or taking losses, if they recently bought.
So we're not going to get big volume here. But if we do move down 5%-- or my view is that it could be 10%-- sell in May, go away, it just might work this year. We'll see. But everything's lining up to where everything is very, very peaky. And I think right now, it's-- we've had a good start to the year. And if you're not taking some profits, and holding some cash, and diversifying into some other places, you're doing it wrong.
ASH BENNINGTON: Yeah. The other thing that reminds me of is something that you said right at the end, which is this notion that you see stocks with big beats not being rewarded for it. And that potentially-- potentially-- starts to look a little toppy. Talk a little bit about that mechanism, why it happens, and what it may be signaling.
TOM THORNTON: I think it's partly because people are positioned already super long in these names. And the financials were a really good example, because they came out with really big beats. And they beat, I think, overall, one of the larger components of growth this quarter.
And everything was running up into numbers, and wham, they came out. Good numbers, not a lot of loan growth, but still, they sold off. And I think that people were just very much positioned long in the market. And that's probably why you've seen some of the names that have beat numbers not really do it.
I mean, let's say, I mean, I'm looking at Microsoft. Hang on. Microsoft, breaking news, is down 3 and 1/2%. That's a super crowded name, really hard to go wrong in this. But they tend to sell off after earnings, and that could happen with some other larger tech names we'll see later this week. It's going to be a very busy week.
ASH BENNINGTON: Yeah. And that brings us to something else that we touched on in the very beginning, which was the Goldman Sachs economic forecast. I think we have the chart loaded up. We can run it on the screen. Talk to this. Explain what we're looking at right now.
TOM THORNTON: OK, I've been staring at this chart for two days, and I put it on my note today, because I really-- I thought a lot about it. And you've had some sell-side calls. Mike Wilson at Morgan Stanley's been saying something like this. And then, Goldman Sachs put this out.
Basically, Q2 is going to be as good as it gets for GDP growth quarter-over-quarter. Year-over-year, it's not-- it's going to still beat in a big way. But I think people are going to start to look at this and see the economic backdrop in the US is super, super strong right now, but it's not necessarily a typical recovery, because nobody's really seen a pandemic before. And nobody's really seen this type of quick unemployment drop without, necessarily, a recession.
And I'd say, look, this is a pandemic pullback with unemployment spiking, but now you're starting to see those people come back to work. And I think you're going to see, in the next three to four months, really, really strong employment numbers. And that's not necessarily new jobs being created, but that's people going back to work.
And this whole thing about, with what Goldman is saying, is that we're going to see quarter-over-quarter declines in GDP. Now, they'll still be really, really strong, but eventually-- and this is part of my theme-- it's going to get back to normal. We're going to be back in this normal place.
And when we get there-- which could be a quarter or two away-- we're also going to have the prospect of higher taxes. We're going to have capital gains, we're going to be looking at, going up-- which, I don't think it's going to be 40%, but I think it's going to be somewhere around 30, 35 at the most. They're going to work something out. But still, that's an increase, and I don't think people will like that at all.
And you'll start to see that job growth or job numbers start to level off as well.
ASH BENNINGTON: Right.
TOM THORNTON: And you have a lot-- one thing that's really important is you have a lot of companies, on their conference calls, talking about they can't find workers to hire. And part of the reason could be they're not paying them enough.
So they have to step out of their comfort zone of what they want to pay people and bump it up to hire the best people they can. And they're competing with the government, which is still paying out a lot in unemployment benefits. So that's something I'm watching.
The last thing on this, in the data with all the regional ISMs or PMIs, there's been this huge move in prices paid. So you've had this giant move in commodity prices. Semiconductors, there's a shortage. We know all about that; that's very clear. Lumber has gone crazy, corn-- everything's just gone parabolic. That's also going to start to wane.
And I did get some DeMARK signals on the daily and weekly lumber and corn this week. And we'll see if those signals can exhaust that trend or signal an exhaustion of the trend. But those are really, really parabolic type moves that shouldn't be able to sustain, that, prices paid, will start to come down.
People are paying up for goods to keep their businesses running. That's the bottom line. And that will top out, probably, with Goldman Sachs's call in the second quarter.
ASH BENNINGTON: Yeah. Boy, that's such an insightful analysis. So you've got the macro on the one hand, the micro, what's happening in markets right now, seeing some of that inflation coming in to commodities prices, the specter of wage push inflation hanging out there.
My take on that Goldman chart-- and I've been studying it since you sent it-- is it's interesting to me. Two things that are noteworthy-- first, the subpar growth as you get out to the edge of the curve there in Q4 '22, coming in at 1.5% or 1.3%. And the second is that Goldman is above consensus estimates pretty considerably for Q2 '21, 8.1% versus 10.5%. But gradually, as you hit out to Q2 '22, that starts to sink, and their forecast is below consensus.
TOM THORNTON: Right. And let's complete this. I thought about, well, what's the thing that we all have to worry about? And it's the Fed.
I have been saying that-- and I said this earlier in the month-- that the Fed heads are-- the governors, and maybe even Powell, Clarida, will say that-- they'll start to, as they said, start thinking about thinking of, perhaps, changing policy. And they're going to see this data, and it's going to be just unbelievably good.
I mean, you look at Ed Hyman from ISI on his video calls, and he does this. He's like, I can't believe this type of-- this data. And he's an economist that's seen so many different markets, but he's seeing this just go straight up, and it's so strong.
The Fed's going to have to do something. And I think the interesting thing is they will probably go in June and say, here, we're going to taper-- I mean, even if it's a little, $10 billion or something, that's going to have the market start to get concerned a little bit. If they go big, it'll be a much bigger thing. But I don't think they will; they'll do it in dribs and drabs.
But here's the problem. As that GDP starts going down, and the growth starts going down, they're going to start tapering into that slowdown. And they just could-- they might just be behind the curve on this. And I know everybody's going to say, oh, no, the Fed can't do anything. I'm not saying "tighten," but I'm just saying "taper." Some of the-- it's just egregious, how much they're buying.
And the other thing that's interesting on yields, on rates going up, there's so much issuance coming this year-- and really towards the second half of the year-- to pay for all this. And the Fed's not going to be buying that issuance. And so I'm curious to know who's going to buy it and where rates are going to be to entice those people. So that's just all stuff swirling around my head and what I'm debating in my head all day.
ASH BENNINGTON: Yes, so much there in these very complicated times. Not talking about tightening, but reducing the rate at which the balance sheet is expanding, in your view. And that naturally brings up-- I guess it's the $20 trillion question-- Tommy, when are you going to start worrying about worrying about inflation?
TOM THORNTON: You hear a lot of-- I hear both sides of it. And I some people that are seeing the other side of this, and they're saying, we're going to see deflation. I also have friends like Julian Brigden who is just about ready to scream, he sees super high inflation. And part of it is all the data he's watching. And they're out of their minds, oh my god, this is going to be so inflationary.
But I think it's a little of both. And I think you're going to see this, it's going to be more transitory. So I think you're going to see this-- well, we've seen a lot of it already. But I think it's going to be, maybe, towards the second half of this year, we're going to start to see inflation, that spike, come back a little bit, or level off. That would be fine.
But the Fed wants it hot, and they're getting it hot. And they're going to-- I don't know, they're going to figure out what they're going to do if this inflation number gets a little out of hand. The worry that I have, and people should watch, is the rate of change on rates. If rates start to really rise quickly, that is going to spook the markets more than just a gradual rise. So it's an unruly-type move that will be the concern that we have to watch for.
ASH BENNINGTON: Yeah. Tommy, you've been doing this for a very long time, watching these markets. And it's interesting-- I can't remember a time where I heard so much speculation about price stability on both sides of the spectrum. Hearing people screaming about the risk of inflation, other folks talking about the potential for a deflationary spiral-- it's a weird time.
TOM THORNTON: Yeah. I mean, we're living in a very weird, weird world, and I think that it's really unprecedented. And back a year ago last March, when everything was falling apart, all my indicators were basically, I had tons of DeMARK buy signals. And I was-- trying to tell people to buy into a pandemic was just, nobody wanted to hear it. Market sentiment was at 4% bulls.
I actually screen-grabbed the CNN fear and greed when it hit 1% bulls. And I looked at it then, and I said, well, it can't get much worse than this. So we've got all these signals, and everything's lining up, so let's get in there and buy.
Now, I bought, and I made great profits. And I was thrilled to make 50% on Zillow, but it went up 200%. Sorry, I did not get that right. 50% was nice on a lot of things, but it's just been wild. It's been a wild year.
ASH BENNINGTON: Yeah. We teased at the top of the show, Coinbase, energy, and Chinese tech stocks. I know you have some insights there. What are you thinking about?
TOM THORNTON: OK, so last week, or last time I was on, I mentioned I was going to be buying Coinbase. I actually-- their earnings were leaking out of what their revenues were and how many new subscribers, and it's just like, it's incredible growth.
And I like Coinbase over the next two to three quarters. And the reason I like it is because they continue to have just a domination in the market for crypto trading, as you know, because, Ash, you're the Prince of Crypto. Raoul's the King of Crypto on Real Vision.
But I like that. I like their margins of what they have. Now, guess what's coming in the next few quarters. JPMorgan's going to have it. Goldman's going to have it. Everybody's going to have some sort of crypto trading, and they're going to undercut Coinbase's high margins. And that will slow things down.
But when I told people I was buying Coinbase on Twitter, and I bought-- on the first day, I paid a little high and a little low, about 1%, and I want to get to 3%, so I haven't bought any more. My average is around $350; it's OK.
But the way I see it is this is short bait. And short bait is like everything you see on Tesla. Everybody wants to short Tesla, because the valuation makes no sense. Elon Musk is crazy. Compared to-- I can go on and on about that.
But short bait is what is going to happen with Coinbase. And everybody was talking about, oh, the CEO and the CFO sold 95% of their current holdings the first day. And I would say, OK, there's two ways of looking at it. It could be bad-- like, oh my god, they know something that we don't know. I think that they were just being greedy and took everything they could, and know that the stock was going to come down.
But I will say this. On a direct listing, you don't have a lockup. So if they actually sold 20% of their holdings, they might have 30% that they can unlock in six months. So we don't have an unlock situation to worry about. And I'm just waiting for the next-- short interest came out yesterday. I'm waiting for the next two weeks, and we'll see what Coinbase's short positions look like.
And I'm expecting it to be a really, really high number. And I want them to report. And then, we're going to see a short squeeze. And if I'm wrong-- I'm still a fairly small position in this-- but it's the picks and shovels of the gold rush for crypto, in my opinion.
ASH BENNINGTON: Yeah, it's an intriguing point about Coinbase and JPMorgan. Obviously, these are two very different types of mentalities for investors, two very different types of products. I think it's coming out of JPMorgan's private bank. It's going to be an actively-managed fund-- so something very different than retail investors who are going to jump in and buy for themselves for their own account, manage their own wallets, potentially, at Coinbase.
But it just suggests to you-- well, two things for me, at least. Number one, it's the breadth of the space-- just how many different products, audiences, types of products, types of objectives that you have. And secondly, wow, what an about face for Mr. Dimon!
TOM THORNTON: Yeah, look, I think crypto is going to stay. Some of the