MAGGIE LAKE: Hello, and welcome to the Real Vision Daily Briefing. It's Monday, December 13th, 2021. I'm Maggie Lake, and here with me today is Dave Floyd of Aspen Trading Group. Hey, Dave, great to see you.
DAVID FLOYD: Hey, Maggie, how are you?
MAGGIE LAKE: Doing well, thanks. For Monday as well, anybody could be better on a Monday, especially Monday that looks like this. It seems like we've got that risk-off attitude coming back into play at the start of the week. You have all the US stock indices in the red with tech leading the way down, the NASDAQ, I think I'd last checked, off about three quarters of a percent. They actually came off their lows, but still ending down. Money moving into bonds, the 10 Year anchored at around 1.42%, and the US dollar, pretty steady, if not higher, with the Fed meeting this week.
There seems to be some fear creeping back into the market here, Dave. Nothing too severe but some fear creeping back into the markets. What did you make of the action today?
DAVID FLOYD: Well, I think based on with the Fed meeting coming up this week, I think maybe people are really starting to think seriously on what they're going to do about inflation. I always make a point not to really get too much into the macros and trying to draw conclusions, I tend to be a levels based trader, a technical trader. But I think the reality is with the inflation data that we saw last Friday, and Powell's comments about a week or so ago, saying they want to drop the word transitory, inflation is probably going to become a bigger issue here.
Not that it isn't already, but if the Fed really starts to hone in on it, and they don't get sidelined, politically, that does bring a big wrinkle to the marketplace. The price of money is what drives everything. If the price of money starts to move higher, that's going to be problematic. Now, we didn't see that today. We saw, as you noted, 10 Year rates are about 1.42%. But boy, if that begins to change, then I think we've got some issues but the market was we ended up closing pretty much on the lows on the S&P.
MAGGIE LAKE: Take a leg down. And that leg down really in the last half hour is that probably because it looked like it was trying to stabilize a little bit off those lows, so probably tells you everything you need to know. Not only do we have the Fed, and we're going to dive into that in a little more detail, we have the US Fed, the Bank of England, European Central Bank, Bank of Japan, Swiss and Norwegian Central Banks all meeting this week.
You've got a ton of central banks weighing in, so we have the possibilities for some divergence, too, which I know really shows up in the currency markets, which you watch closely. What are you looking at? The dollar seems pretty resilient here heading into this. What are you seeing happening on that front?
DAVID FLOYD: It's been moving sideways for about a week or so. But overall, the dollar has been moving up and as you said, it's been very resilient. For me, I'm looking at a pretty key level here about 98.40, give or take. That's been a pretty sticky level. We haven't been able to elevate above that. Conversing on the downside, we really haven't been able to break much below 95.80, so we've been trapped in this range.
If I had to stick a flag in it ahead of the Fed meeting, I'd want to be long the dollar. What they ultimately do and how the market reacts is a difficult game to play, but the dollar seems to be holding in there so I just want to go with the flow and not try to disrupt that until proven otherwise.
MAGGIE LAKE: Yeah. Are you surprised by that?
DAVID FLOYD: Not really. If we're going to be looking at higher rates here in the US, that might create a capital flow into the US. Again, for me, it's just all about what's price action doing? If the market's indicating they want to be long the dollar, try not to overthink it much beyond that, because then you get into the world of opinions and making forecasts on a lot of information that has a lot of different basically decision points that you can use in there and find yourself stuck in the weeds as opposed to saying, hey, market is keeping the dollar bid, why don't I just stick with that theme until proven otherwise?
MAGGIE LAKE: Yeah, and especially when it comes to the US dollar, there are a lot of strong opinions around that, around fiat currencies in general as we know. The Fed meeting this week, as you said, they've been telegraphing it, pretty by and large, do you expect that they're going to say they're going to start to increase the pace of tapering those bond purchases that they put into effect? We know that. Now, it was a big change and it hit the markets when Powell said that in front of Congress pretty bluntly dropping transitory.
Everybody was surprised by the bluntness and clarity of it, but we've had a little bit of time to settle in. Does it feel like that's priced in or just the uncertainty and unknown factors around what reducing tapering looks like? Does that present challenges?
DAVID FLOYD: Well, I think it does. Let's keep in mind, even if they reduce tapering, it's still an accommodative policy overall. I think what was interesting, I read a piece last week by an analysts that I follow, this guy's takeaway from some of Powell's comments recently have been that he's basically made it clear that inflation is now the concern, not necessarily supporting asset prices, supporting full employment and whatnot.
And if in fact, that is what was intended, and again, I'm going a little bit outside of my wheelhouse, so to speak, based on what I read, if, in fact, that is the point, inflation is going to be the number one boogeyman so to speak at the Fed, not necessarily asset prices, and not necessarily the economy. And if that's the case, again, that's a very different paradigm for all of us to be in that we haven't lived within for many, many years. It's always been about accommodating, putting band aids on little financial boo-boos.
Now we're confronted with something that is far more problematic, inflation is far more problematic than a recession, really gets out of control. And there was a great article this weekend by Mohamed El-Erian, who basically said, the Fed is at risk of making the biggest blunder in recent memory. And those are pretty strong words from someone like that, who's seen as someone who always follows along the party lines, so to speak.
MAGGIE LAKE: Yeah. And we really have seen, and it's interesting, because if that is the case and that's the main focus, there's a lot of disagreement on that. Mohamed feels really strongly, they've been laid on it. They were wrong to categorize it as transitory. And then there are others who say, I don't think it's here to stay. Its driven by supply chain issues. Yes, it may be taking longer to work through, especially as we see these other variants come up, but bigger picture, we're still in a deflationary period.
The fact that such a divergence of people and experienced market watchers really don't agree on this. Even Raoul and Julian have different feelings about it, for those who are really familiar with the site, so very interesting. And again as you point out, it could be an issue. I wonder, as we're looking at, is there any particular talking broadly dollar, any particular cross that you're watching or that you think will be interesting here as we sort through this uncertainty?
DAVID FLOYD: Well, I think, obviously, if the dollar rallies or even if the dollar sells off, regardless of the direction it moves on Wednesday, assuming there's a big move in either direction, the cleanest way to play that is obviously with the Euro given that it's basically about 55% of the dollar index. For the present time, I'd be bearish on the Euro given that I'm thinking the dollar index will move higher.
If bonds start to get spooked, though, meaning rates start to push back higher, I think dollar/yen could be a great tradeoff. That would also be consistent with a stronger dollar too, but the dollar/yen trades more with rates, although if the dollar index is moving, that can certainly help at the same time. Those would be the two currencies I focus on. Once you get too far away from those, you get a little bit less impact by what the dollar index is doing.
Some of the currencies like the Aussie dollar and the Kiwi dollar, those tend to be more overshadowed by bigger moves in the S&P. If the S&Ps suddenly are weak, even if the dollar is rallying, that's going to even put more downward pressure on those currencies. But I think the further you get away from non-index components of the dollar index, it becomes a little bit trickier to gauge where they're going to go.
MAGGIE LAKE: Yeah, that's a great point. Currencies are complicated, anytime we're talking about them, they also have some ripple effects through and I always think of commodities immediately, because especially the dollar is an issue for commodities, just one of the crosscurrents that you have to watch in that market. You also have certainly other headwinds that can come up and influence it.
A lot of folks have been playing in the commodity market this year. We've seen some big moves in the metals. Tony Greer, longtime commodity trader and frequent contributor, sat down with Doomberg, I love that, Doomberg, just recently, and they talked about some of these challenges in the space. Let's have a listen.
DOOMBERG: Here's the thing about commodities which makes them fun and makes them frustrating and makes them exciting and makes them volatile. Supply and demand doesn't get just get turned on with a switch. These are actually asset intense, low return on capital projects that require huge engineering and technology prowess to even pull off. If you mix in the slightest of economic uncertainty, capital freezes up.
I would point you to an interesting situation that's developing that maybe some of the viewers aren't following so closely, but what's going on in Peru with the copper mines, left wing government coming in, seems to be embarking on all of the classic steps of nationalization. Then you have to study whether such a government could survive and will the leadership be impeached, but commodity investors and companies that specialize in the space, they abhor uncertainty.
If you don't know what the 20-year outlook for your billion-dollar investments is going to be, maybe a take your time and do a bit more study before you move from engineering to construction. Because you spend a billion dollars, you dig a deep hole, you get the mine operating and then suddenly, the rules change. And the royalty share to the government goes up or the taxes go up or your license to operate gets pulled, or protesters show up at the gates.
MAGGIE LAKE: Yeah, so interesting. By the way, that full interview is available on all tiers. Dave, we have a great question from Malik. I'm a retail trader and would love to get insight on how you bridge the fundamentals with technicals going into the FOMC meeting in relation to-- he's looking at gold, but I think it applies to probably everything. Could an increase in the pace of tapering validate inflation fears, and then have ripple effects in the market? In his case, he's asking about a rally in gold, but I think you can again, play that out through whatever asset market you're watching. How do you bridge the fundamentals and technicals?
DAVID FLOYD: Well, in all honesty, I try not to bridge them too much because as I've noted many times on these interviews here, I really just try to rely on technically driven trades. It doesn't mean that I'm not aware of what the fundamentals are. I think to not would be probably reckless. But I find that when I get too much into the macro, I start getting into drawing conclusions that are in my head that may or may not be consistent with what the market's doing, so for me price action is always the barometer that I want to use.
Yeah, sometimes I'm wrong. Suddenly, the trend goes from up to down and you get caught long when markets start to roll over. But no one approach is ever going to be perfect, so for me, personally, I just stick with the price action. I have an acute awareness of the fundamentals, but I try not to let it drive what I'm going to do. As it relates to what the Fed's going to do, this is a pretty key meeting, in my opinion. They're either going to come down hard on inflation, or they're going to tow the party line and keep it dovish, and that in and of itself could be a really nasty outcome potentially.
Regarding gold. God, it's done absolutely nothing. If the market's worried about inflation, it's certainly not being reflected in gold and some people are also making the argument that inflation would be seen in crypto. Well, we're not seeing that recently, either. We are in a really funky phase of the market, I can tell you that. And I've been at this for 25 years plus, and it was one of those times where you're just not seeing the normal relationships that you would expect to see.
MAGGIE LAKE: Yeah. And we're hearing that from a lot of people as well, Dave. It's a great point. Some of those traditional correlations, I don't know if it's just temporary, or they're breaking down in a different way. We're certainly going to watch that. We continue to ask people about that. What about the bond market? What are you watching there? Because this is where you'd really see it react to the Fed.
And again, some people have been surprised at the fact that the yield curve flattening. We've seen a reaction in the short end, but we don't really see that following through in the long end. People are wondering what the bond market is messaging, if anything. What are you watching there?
DAVID FLOYD: Well, I'm watching it closely for sure. 10 Year Notes are one of the things that I trade very often, but we've just been sideways for the last couple of weeks. And over the last week or two, we've actually seen prices, rally a little bit here and then pull back. But it's really strange. Again, if inflation is as hot as the numbers are indicating, it doesn't seem to be reflected in the bond market.
And I've always looked at the bond market as being where the smartest money is, not because it's the bond market and that's where there's a lot of smart people. There's a lot of smart people in every aspect of the marketplace. But given that that's where money is priced presumably, that is going to be the most sensitive marketplace because how money is priced impacts everything, valuations, just everything. Right now, the bond market doesn't seem to be too concerned about inflation, but obviously, that can change.
But right now, we're just moving sideways. It's really hard for me to gauge which way they're going to break out. I think looking purely at yields, which of course is going to drive what 10 Year Notes do, I'm looking for anything above 1.52%. 1.64% is actually the big level. If we can get above 1.64%, I think that'd be pretty ugly for notes. Back below 1.37%, that would be really positive for notes. I think until we get past either of those extreme levels, it's probably going to be a little bit of a ping pong match, which it's been for the last couple of weeks.
MAGGIE LAKE: Yeah. And is that the part of the yield curve that you'd be concentrating on? Are you just staying away from the short end?
DAVID FLOYD: I look at all aspects of the yield curve but in terms of expressing the trades, I'm always looking at it from a 10 Year Notes perspective, or 10 Year yields.
MAGGIE LAKE: Yeah. Which is the benchmark.
DAVID FLOYD: I'm just quoting, yeah.
MAGGIE LAKE: I want to turn our attention to stocks because as we saw the nervousness play out there, and tech getting hit. I'm sure everyone's been participating in it. A lot of conversation about the fact that Time Magazine named Elon Musk Man of the Year, put the picture on the cover, Twitter blew up with both sides feeling really strongly about this. But a lot of people asking, is this a contrarian indicator? We did see Tesla stock down 5.5% today. How does that chart look to you?
DAVID FLOYD: Well, you could look at it in a couple of different ways. The fact that it can't get any traction as the S&Ps move higher, you could interpret that as, hey, the wheels are coming off, so to speak, no pun intended. However, if you look at the structure of the price action from the highs back in mid-November, it's very choppy and overlapping. And that normally indicates that's a corrective move, it's not indicative of an established trend in this case down.
But Tesla is a different beast. You've got a lot of people with very strong opinions playing this. You've got a lot of institutional flow, a lot of passive funds that have to own this, so you may not want to read too much into the price structure lower. For me, the fact that we couldn't hold above 980 today, which has been a level we keep bouncing off of, what's interesting, we've bounced off at one, two, three, four times in the last two weeks, and each successive high has been lower than the last, so you've got a series of declining peaks.
I think if we can hold below 980, which we clearly did today, we're closing at about 964. Now, heading towards 870 would be my projection, but that's from a trading perspective. I don't really have a strong opinion on the company. I don't know. The fundamentals I know are out of whack, but maybe they're not based on future cash flows, and again, stuff that I don't get into. It's a personality stock, it's a cult stock, it's so many things and that's what makes it so hard to pin down.
MAGGIE LAKE: Yeah, that's a really interesting point. We could say that about others and in fact, we saw some of the other, I'm going to call them Reddit favorites because I hate the phrase meme stocks, but we saw GameStop, we saw AMC, we saw some of those kinds of stocks getting hit.
Again, if we try to take the that that narrative out of it, the fact that there is this strong feeling around them, would that be expected with stocks that have seen huge runoffs in a risk off environment? And does that spill over to other risk areas? Do you watch those charts at all? What do you make of that?
DAVID FLOYD: Well, I think it's actually a really good point to bring up, Maggie, because I think it's great. A lot of people make a lot of money in the meme stocks or however you want to characterize them. But for you guys, it's nothing I played. I've been doing