ANDREAS STENOLARSEN: Good afternoon, folks. And welcome to Real Vision Daily Briefing. I'm Andreas Larsen joining you from Copenhagen, Denmark. You can see it's getting dark out here. So, it's late evening here in the northern parts of Europe. We've had a massive amount of market action to unpack here for today. And I'm super happy to be joined by Tom Thornton, the founder of the Hedge Fund Telemetry today. Welcome, Tom.

TOM THORNTON: Hey, nice to see you. Yeah, we have a lot to unpack, quite a day. I want to talk to you and ask you questions about the ECB meeting today. That was something else, and something about interest rates happen in Europe. What else? Equity markets in the US closed flat dead on the lows here today. Nasty last two hours, ahead of the CPI.

ANDREAS STENOLARSEN: It's been quite an action-packed day. We had, of course, the European Central Bank out earlier this morning, European Time. And they basically reignited the frontend of the Euro rates curve with some communication around interest rate hikes coming up over the summer. It was quite a mess of a press release if you ask me. And as you mentioned, Tom, the equity markets disliked this move that we've seen in interest rate markets. What do you make of the moves that we've seen in the US equity space over the past 24 hours here?

TOM THORNTON: Well, we've had this really choppy week, and I think the market has been dragged around and whipped around with option dealers that have, I think it's $3.2 trillion of options expiring a week from Friday, tomorrow. And the gamma levels are 4100 and 4200. So, once we broke the 4100, that's where I think the dealers had to sell more to protect themselves and increase the deltas on the downside.

So, that's the thought I have there. And I do believe that it's just a lot of concerns about the CPI, and everyone has their crystal ball out, trying to figure out what is going to happen tomorrow. And we will talk about that. That's what I'm told, right?

ANDREAS STENOLARSEN: Yeah, for sure. We will, of course, also give our own opinion on what's going to happen tomorrow with the CPI report. But before we get to that, Tom, I know you watch these parts of the European Central Bank's press conference as well. What do you make of what they told markets from the other side of the pond?

TOM THORNTON: It just seemed to me that she was trying to satisfy everyone involved. The hawks, the doves, everybody. And the 25-basis-point direction for July, I think that was an attempt to satisfy the doves. The first comments I was getting, oh, this is a dovish ECB. But I think that there was talk that in September, 50 basis points. So, that would satisfy the hawks.

I just think that you can't in a central bank world these days, be weak. And as you said, it was one of the worst comments. Why don't you tell us why?

ANDREAS STENOLARSEN: When I read the press release earlier today, it struck me how many "what if" scenarios they included in one press release. I don't think I've seen as many "what if" scenarios included in one press release before. So, it was a mess to get through it. And they started very firmly in this press release by basically stating that there is one mission and one mission only now. And that is to bring inflation back to 2%, which is quite needed.

If you look at the inflation pressure over the past three months in Europe and annualize it, we are basically running at above 16% now. Crazy numbers, right? And then you're absolutely right that it felt like they had to compromise between hawks and doves, which is something that we've seen before from the European Central Bank. We know that the part of Europe that I live in, tends to be more hawkish, and then you have the Southern European members leaning more dovish due to the massive debt load of their countries.

So, essentially, it ended up as some kind of compromise with a very weak message in terms of July only 25 basis points. I think the markets are basically looking for more, at least look for a risk of more than 25 basis points. And then they only opened the door for 50 basis points in September, if they have to adjust inflation forecasts even higher again. So, it is really tricky to figure out what they actually mean.

And by the end of the day, the European Central Bank as we know it, they will take it meeting by meeting, the forward guidance is very weak. So, that leaves it very tricky to trade, I think. So, I guess that's also something that you've been saying recently, Tom, that it's tricky to trade markets these days.

TOM THORNTON: Yeah, it's tough. And sometimes you can have all the data and everything, and the market will just turn on a dime up or down. And I've been saying all year on Real Vision, on the Daily Briefing on my notes, that we are going to have a lot of bear market bounces. We might have just seen the end of the last bounce, which I think we got about 12% out of the NASDAQ and 10%, maybe a little bit more on the S&P.

But things change really, really fast. And I think you just have to be very nimble. Adjust your exposures very quickly. I have actually a lot of cash, like a 30% cash weighting going into the CPI tomorrow, because honestly, I'm not sure where it's going to come out. I'm on the side of it's going to be the whispers around 8.5%.

I know that you are saying that it could be a little lower. Now, I've heard that there could be a seasonal adjustment. But I think that just looking at the gasoline prices in the last month, and this month already to start, I think we're going to see-- I don't think we're at peak inflation yet, it may start to level off at a high level. But we'll probably have another couple months of this, especially going into the seasonal travel mode for vacations and you have the natural gas issue, that's another thing. But why don't you tell me why you think we can come in a little lighter or under on the CPI.

ANDREAS STENOLARSEN: I think there's a distinction between core inflation and headline inflation when it comes to this debate. If we look at core inflation, that number will, in my view, come in on the light side, basically, due to base effects. So, we are measuring the core inflation against a very rapid increase in a couple of categories at this exact time last year, not least when it comes to the price of used cars and trucks. So, that makes me bet on a surprise on the low side for the current inflation.

But I agree with you on the overall inflation number. Because if you look at the development in gasoline prices, it seems as if to me that markets haven't penciled in completely what we've seen at the pump over the past 30 days, because it's been a massive move. And something that's even on the radar of Joe Biden right now. I think he will be watching the screen tomorrow.

TOM THORNTON: He knows what it is. He was on Jimmy Kimmel, a talk show last night. And all he was talking about was inflation. And look, back in January, he had a press conference. And the first thing he said was the Fed has to control inflation. And this is right after the Fed Chairman Powell was renominated and so that was the most important thing, or I believe the most important thing for the Fed right now is to control inflation.

I don't think they care about the stock market wiggling around, I think they would be fine if the market went down. That would help financial conditions, lower financial conditions. And having the interest rates move higher, should at some point, put demand-- and I'm watching the housing market here in Connecticut and New York. My daughter is trying to buy a house, her first house, and I'm like, you can't buy a house right now and she's got a baby and her husband, and her husband doesn't want to buy it but I'm seeing price drops.

I'm seeing some substantial price drops on houses, and I believe that is starting to trickle into the housing market. So, I'm more concerned about inflation staying around and look, if it drops down to 7%, it's still high, it's still going to hurt companies. And think about all the companies that rely on fuel and other commodities. It's going to be around for a while.

I spoke to a-- I pulled the tool my Bloomberg chat room and basically, everybody is in the belief that we'll probably have two more months of high inflation before we start to see maybe some moderate dropping. Let's just say, on the other hand, what do you think will happen with the markets if we come in sub 8%?

ANDREAS STENOLARSEN: Well, first of all, I think you're absolutely right at pointing to the price pressures that produces heat. If you look at the PPI, not the CPI, and then we are running at double digits inflation everywhere around the globe. So, the cost pressure is clearly there for companies. And therefore, I also lean the same way as you do when it comes to risk assets. I think we have another leg lower coming up.

But if we get a surprise on the low side on core inflation, it may, of course, sugarcoat a bit of the upside surprise that I expect in energy prices. But right now, all that matters to me is energy prices, because that's basically the focal point for the politicians. I made a somewhat stupid chart showing Biden's approval ratings compared to the price of gasoline at the pump. And they are one to one correlated since New Year's. So, for Biden, this is the most important political point. So, I think that's what matters to the Fed as well. Don't you think so as well, Tom?

TOM THORNTON: Oh, absolutely. And we're moving into a very political period with the midterm elections with Congress. And I think that the Republicans, if they cannot fall into the trap of a few different policies and Supreme Court issues, they will sweep these elections only because of the inflation issue. And that's all anybody cares about in the US, and I'm sure it's the same way in Europe.

I just think that they have no plan, no idea what to do. They're relying on the Fed. And look, tomorrow, one of the things that I think a lot of people are going to hear is 75 basis points. I think people are going to start talking 75 basis points for the Fed next week. I think the odds, as you can see on Bloomberg, will probably start to rise with a higher CPI. I think that even if it's in line, I wouldn't be shocked to see them to 75.

It wouldn't be the worst thing to just push a little harder, and I think you and I can agree, the central banks are way late. And they overstimulated and now, they're trapped, and this is what we got.

ANDREAS STENOLARSEN: And to meet in a sense to try and front load the tightening now, that is essentially also the direction the Fed is moving in. I'm a bit more uncertain on the European Central Bank, because of all of the structural issues that they have. But for the Federal Reserve, I sincerely tend to agree. And therefore, maybe even a print at 8.5, I think that's the consensus, if you look at the screens right now, would be enough to prompt speculation of a very hawkish Fed next week.

But let's assume that the market is starting to move in that direction of pricing the Fed even more aggressively than what we've already seen. Would that be a trigger for a new leg lower in equities? What would you gauge to make that assessment?

TOM THORNTON: Oftentimes, the bad news gets priced in before the event. And I wouldn't be shocked that we see some sort of bounce potential after the Fed. At this point, it seems like it's a very low probability. But if we continue going lower into that bed, meaning I could see maybe a relief rally coming out of it. But I think that we're really in a very, very difficult spot right now. People are really starting to feel the inflation.

You see it on the on the news every single night. And it's just pounding on people right now. I'm a little older than you and I saw inflation as a young kid when I lived in California, growing up where it got to a point with gasoline, they were rationing gasoline. And you could buy gas on odd or even days based off of the last number on your license plate.

Now, we're not there yet. But people are posting on their phones and Instagram and Twitter how much it cost to fill up their car. And that just going to grind on people's sentiment and the market. I think it's just a bad period right now. But I'm happy, right? I'm Mr. Happy today.

ANDREAS STENOLARSEN: Personally, I've been humbled almost by the inflation pressures that we've seen this spring. I've never ever seen anything like it in my life. Born in 1989, I've never seen inflation at these levels. So, obviously, this is something completely new for me to deal with from a professional perspective. And it has surprised me how sticky it's been. So, this is clearly something that you also need to take into consideration as an asset manager, as a retail trader, whatever you are, this will have an impact on markets over the next 6, 12, 18 months still.

TOM THORNTON: Yeah, it's going to last a while. And why it's going to last a while is the Fed is aggressively doing what they can to hurt demand, demand destruction. But here's the other problem. There's a supply chain issue here. And there's a supply/demand imbalance, especially in the energy markets. You also have a war happening not so far from your country. That's putting huge amounts of pressure.

Now let's play "what if", if the Ukraine-Russia, there's a ceasefire, that will be a relief, but it's not going to be like, everything's going to be back to normal immediately. It's going to take time, but there'll be a relief bounce which I certainly hope there's an end to that stupid conflict.

ANDREAS STENOLARSEN: Yeah. And a bit of anecdotal evidence from my side related to that conflict in Ukraine, I recently bought a car in Denmark, and no matter which car manufacturer I visited, they all told me that they had part of the supply chain parked in Ukraine. So, it's essentially impossible to get a car in Europe right now due to the conflict unfolding in Ukraine. So, it is a bit of a mess. And the reason why prices are increasing to a large extent.

I wanted to briefly play a clip for you in relation to this, because if inflation is lasting, and if it's more sticky than anticipated by many, then it might also be the trigger for a regime shift when it comes to equity styles. And Simon Mikhailovich, the co-founder of Bullion Reserve had a remark in this regards on another show at Real Vision. So, let's have a look at the clip.

SIMON MIKHAILOVICH: Investors will look for probably non-financial ways of investing money into businesses, into tangible assets, into tangible proven stores of value outside the financial system, probably, if financial systems were to experience the kind of disruption that I believe is highly likely, not guaranteed, but highly likely. And in a sense, it's a return to back-to-basics, Graham and Dodd, value investing, looking at realistic balance sheets, realistic sustainable balance sheets, sustainable earnings streams from products that are not subsidized by debt.

And that's where I think they will look for. But I think it's very situational in terms of what types of securities would make sense and in terms of what types of assets. So, I think that given the financialization of the last, say, 30 years, I think it's going to be a very big shock and a very big change in sentiment.

ANDREAS STENOLARSEN: Interesting remarks from Simon here when it comes to companies with a very solid earnings and income stream, because essentially, he's saying that this will become important in the new era. And in that regards, Tom, I know that you've been posting some updates on Twitter related to tech stocks. And I guess some people will claim that some of the tech stocks, they don't have solid income streams in an environment like this.

Can you please take us a bit through your thinking on the tech sector in the current inflationary environment and how you would gauge what's going on in that sector?

TOM THORNTON: Right. Well, my view on tech is that-- and when we get these bottoms and tradable bottoms, I've been advising to buy into the higher quality, more recognizable companies. They're going to have an easier way of moving higher. You have a lot of people that have tried to buy some of the really beat down garbagy type names. And they worked.

They worked on the first and second bounce that we've had so far. But this last bounce, you didn't really see the moves that we had on the others, so we're losing it the lack of resolve or the conviction that people have with some of the more lesser quality names. Like I bought Microsoft, I had some Apple, and I'm still long Adobe, I was long AMD and NVIDIA worked out.

And now, I think I just have just a few right now. I'm long some Electronic Arts, because I believe that there is an M&A transaction had for them. I'm still long Adobe, I think it's a very sticky business, great management, products are you just can't do without them. But I recently took some off, I've been able to trade this market. I make mistakes, I sometimes sell a little early and see some profits go past me.

I recently bought into some of the China internet names. I bought Alibaba before earnings, and it popped. And it's been this these false starts with the China internet. And I've been on the side of these are uninvestable when the government is at war with these companies. But they're starting to soften it up a bit. And they had a nice move this week, they gave some back today. But I keep my exposures at a very defined size.

My personal trading is defined by 5% is my max size position for anything. And I'll start in a bear market type shop buying a 2% weighting. And as much as that doesn't seem like it's exciting, you can still make money and you can widen your stops. Because you are not as anxiety driven with a huge position. It just works for me, and it's made me money this year.

ANDREAS STENOLARSEN: So, you still see opportunities here and there in the tech sector, despite inflation rising, despite interest rates going up, making it difficult to buy the sector on the most structural level, right?

TOM THORNTON: Yeah, I'm a little concerned about some of the semiconductor names. Intel gave guidance at a conference this week. And it was