ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Thursday, January 6th, 2022. I'm Ash Bennington, here with Tommy Thornton, founder of Hedge Fund Telemetry. Thomas, welcome back. It's great to have you on the show again.

TOM THORNTON: Welcome back to you too. It's been a while since you've been on the Daily Briefing, and I'm happy to have you today. Maggie's been great, but we got to catch up. We got a lot to talk about.

ASH BENNINGTON: Absolutely. I know it's been a minute since we've done the show together. Let's zoom the camera out, Tommy, and talk about what's happening big picture right now. Equities down, yields up. Obviously, crypto also taking a hit. All eyes on the Fed. Inflation talk of taper rising rates, a balance sheet unwind.

What's going on here, Tommy? I know you've been very busy. You've been active on Twitter. How are you thinking about this? And how are you positioning yourself?

TOM THORNTON: I thought today about the equity market. I looked at all the internals and I looked at a lot of the different facets of what's been happening. And we've seen a market over the last quarter with a lot of stocks that have already been hit and push down pretty hard. Finally, in the last few weeks, or actually last week, we've started to see the mega cap stocks start to give way.

I would say that the catalyst has been what the Fed said they're hawkish, which I don't think anybody should be that surprised. But the bond market has sold off and it spooked all the high flying tech stocks and generally a lot of the market except for the value stocks and there's been a huge rotation into value which is financials, energy, materials, some industrials. Cyclicals. I think there's a lot going on, and where do you want me to start?

ASH BENNINGTON: Gosh, there's a lot to unpack there. Let's start with the bond market as that sounds like the catalyst in terms of your framework, how are you looking at it? What rates are you looking at? What time horizons and how are you thinking about it?

TOM THORNTON: Well, there's a lot in the bond market that I'm watching. Actually, I thought we were going to see a bit more of a flattening between the 2, 10 but we have a little bit more, it reversed. Actually today, it flattened a little bit today, but I think that the 10 Year, which is my focus breaking above 1.7% was really an important level, because that's the recent peak. I look at waves, and that was the third wave higher.

Now we're in the fifth wave, and I have a price objective of just under 2% for the 10 Year. What's really giving me more, let's say conviction, is that we have DeMark upside signals, the countdowns on the upside on the daily, weekly, and monthly all happening together. When I get that type of in-sync behavior with one asset in different timeframes, it makes me feel like, okay, this is going to be a really powerful move.

Another thing is I look at the SPY versus the TLT, which is a basic ratio that I'm looking at. On a monthly, that's on month-on-month--

ASH BENNINGTON: Let's unpack that, Tommy, the S&P 500 versus TLT. This is 20-year or longer Treasury moves relative in direct proportion to price, not yield, so when you see TLT falling, that means yields are rising.

TOM THORNTON: Correct. I'm also looking at the investment grade ETFs and high yield, and both of those have been falling as well. Those have been rock solid, and we're starting to see stress there. This is a big month for issuance, and it's going to be a big test to see if people have the appetite to digest some of the issuance that's coming.

I think there's going to be a big issuance happening in the Treasury market, because now that the debt ceiling fiasco or actually, I used to call it the Kabuki Theater, is over, I think there's going to be a big amount of issuance coming. Then again, you have the Fed who's tapering, and they've been the biggest buyer of Treasurys, so I think that there's going to be upward stress on yields, and that will hurt equities.

What happens though is you'll get these spikes higher and then all of a sudden, the equity market will say, oh, okay, we'll be cool with that, and they'd bounce the tech names and get a little squeeze. Then the yields go a little higher, and then they get a little bit more nervous. But like, one thing that I look at, and I've talked to you about this is I make custom indices of different stocks and I have the MAGA index.

That is Microsoft, Apple, Google, and Amazon. I know it's a bad reference on a day like today, but the point is--

ASH BENNINGTON: Maybe we'll call it the GAMA index.

TOM THORNTON: Yeah, I think I built one of the GAMA index, but the thing is also on the top three MDX names, they're hitting two and a half month lows in that index together. Now, I think it's a lot has to do with Amazon that's been really looking weak, and I wouldn't be shocked to see Amazon break under 3000.

Apple and Microsoft are a bit extended, overvalued, overloved, crowded, but we'll see how that goes. They've got huge buybacks and the guy that's buying back the stock for Apple's just got his elbow on the buy button all day. Look, I think that there's risk, there's a weird action in the equity markets, because usually, I see things that get oversold, and they're not oversold.

Some of those are the percentage of stocks above the 50-day moving average within the S&P or in the 20 day moving average, those aren't oversold. They actually spiked up on the Santa Claus three-day rally in December. I'm a little bit confused on the equity market. It's not necessarily a good confusion. I think there's risk that all those mega cap names could catch down to all the other ones, the software names, the other ones that have just been decimated, but I also like financials.

I like energy. I'm not in energy. I've missed this move, and I'm a buyer on dips. But I like all the big banks. I like Goldman, JPMorgan, PNC, Citi. Citi's my largest bank holding right now. There's opportunity out here.

ASH BENNINGTON: Tommy, let me ask if I can, why do you like the banks? Is this a rising net interest margin play on rising rates? Or do you see some other secular reason why you see a tailwind there?

TOM THORNTON: I think that the rising rates will help them. If we can see the yield curve steepen, I think that would certainly help. I think those are very underowned currently, and I think that they could continue higher. I think they're safe in this type of play. Somebody's going to write in safe, oh, yeah, safe.

But I think right now, there's some pent up demand for the value area, and I'm more than happy to buy the US banks, which I think are in a lot better shape than European banks, Asian banks. I think it's more like a safe haven. It's not necessarily going to spike up 20%, but going into earnings, I think they're going to do okay.

ASH BENNINGTON: Tommy, a lot there, but let me just draw a line under something that you were mentioning earlier, just to put a really fine point particularly for people who are new to the fixed income space. We talked a lot abstractly about some of the things that were happening in the bond market, but the simplest thing to think about right now, if you're relatively new to this is just a look at the US 10 Year Treasury Note yield.

From December 31, trading on a yield basis around 1.5, 1.49, I think it hit whatever, 1.5 a day. Now here we are, 1.725. It's 22 bits here from the end of the year. This is a really dramatic move. 10 Year Note yield doesn't generally move this quickly unless there's a significant driver behind it.

TOM THORNTON: Yeah, and it's better economic data, which I believe we'll see for the next few months, and then it's going to start to moderate. But the Fed-- look, Jared Dillian said the best piece is if Kashkari is getting hawkish, imagine what all the other members, how they're reacting to the inflation data.

Look, I think inflation will probably moderate come April on some things, but I think that there's real risk that the Fed's going to really finish the QE tapering end of March, and I'm not necessarily sure they're going to raise rates because I think the equity markets are going to freak out so much that they're going to say, oh, we're going to hold off. And I think that's the wrong thing to do for the Fed, specifically because they're reacting to the way the market is, not necessarily the economic data out there.

ASH BENNINGTON: Yeah. By the way, Jared's joke there. Neel Kashkari, who is the president of the Minneapolis Fed has been consistently dovish. When you hear him making these remarks that sound rather hawkish, it's certainly a sign that the hardest-- it's like getting a 10 from the Russian judge, I guess. It's just like this idea that the people who've been most resistant to the idea have come on board and said, hey, let's retire transitory as Chairman Powell said.

TOM THORNTON: Maybe that's a sentiment sign saying that inflation's peaked. It could be on some things, but I just think that-- I like when, Ash, you have to explain the joke that I just made. That's good.

ASH BENNINGTON: And I love when you cap the joke with a contrarian indicator, maybe this is an inflation peak.

TOM THORNTON: Yeah. Sometimes, when you see these types of people that have had one way opinion and then make a big 180, sometimes it's a little late. That's certainly a possibility.

ASH BENNINGTON: One of the things I wanted to talk about on this general theme, is your ARK short, you're up 40% on this trade.

TOM THORNTON: Yeah. Look, nothing against Cathie Wood. I think she's a great promoter and she's done really, really well. But I also look at it as a liquidity aspect and inflows. It's actually maybe something people should think about in the overall market, because in 2020, her inflows just went nuts. She had so much capital, and she could just buy any stock she wanted that was speculative, that had no earnings, and was the future, according to her.

She bought tons of Tesla. Look, I think that the problem is that if you start to lose that momentum, which she did last year, she's going to have to start selling down some of the highfliers, and let's just say very illiquid stocks. That is a risk to the whole fund. If I was running a hedge fund today, and I had to post all of my trades every day, I would be panic-stricken that people were going to pick me off.

Something I'm picking her off, I actually shorted it because I thought Tesla was going to be the one that would knock her, pop the bubble there. We've seen huge outflows, huge outflows in ARK all last year, and it's weird. I have this chart that like all green inflows and then all red outflows.

She's had to sell down a lot of her stocks, partly because just the liquidations and that happens. I've actually, way back when I worked at a fund that was a long only fund and that was around 2000, I get what she went through. The thing is the Tesla trade has actually been amazing for her, and I've said all of her research in Robo taxis and full self-driving and all the things that she predicted that would be happening now and the semi-truck and the Roadster, none of that happened.

It was just a gamma squeeze. I look at it like it was like her hitting a hole in one, but she shanked the ball off of a tree and off of a cart path and it landed in the hole. It's a hole in one. She can say I crushed it in Tesla, but everything else has fallen apart right now there. I'm not sure if I'm going to hold on to my short much longer. I might take some off. It's getting a little overdone.

ASH BENNINGTON: Obviously, Cathie is not here with us today. If she were, I imagine she'd probably say something on the order of, hey, look, these are longer term positions. We're taking these because we're looking at the future. We're looking to growth. We're trying to predict what this world is going to look like in one, five, 10 years. Obviously, gamma squeezes happened, prices move up, prices moved down. Inflows and outflows in the fund happened but it hasn't affected the thesis.

TOM THORNTON: Yeah. Well, that's great, but liquidity is another issue that if your investors are pulling their money, your long term thesis still is intact, but you're losing-- people are jumping off the ark, so to speak, because they don't want to sit around for five years and hope these things come true. They may, they may, but it just may be a lot lower before a lot higher. A lot of those stocks don't have earnings, which let's just stop right there.

ASH BENNINGTON: Shifting gears here a little bit, talking about things that have gone down a bit and may go up more in the future. Let's talk a little bit about crypto. Right now, Bitcoin trading at 43,257, Ethereum at 3428 as we speak. I just saw Mike Novogratz calling a floor on Bitcoin at 38,000. I know you've been doing some DeMark analysis, what are your thoughts right now on Bitcoin, on Ethereum, and on the crypto complex more broadly?

TOM THORNTON: We're going back to the recent peak. We had a DeMark sequential exhaustion signal the day before the last high, and we recently had some DeMark buy signals. I went on to my clients and I said you can buy a little here and it was around 4500, 4600. I said use a little over 4300 as a stop, and it's just technical. It's not anything.

One thing I said is not all the boxes were checked here that gave me the confidence to say this is a super strong buy. Part of it was that there was a chance that the sequential could recycle and that continue to trend lower. That's on the daily, and on the weekly, we've had a downside countdown in play for a while. Again, I like to see the weekly exhaust on the downside, and the daily together and that would give me a really big buy signal.

I didn't like seeing Ethereum making a two-month low or almost a three-month low, and I think that when you have the NASDAQ, and a lot of the high flying stocks start to get hammered and the markets are going down hard, people own a lot of the speculative stuff in the NASDAQ and they're going to own Bitcoin and they're going to sell anything that's not nailed down.

ASH BENNINGTON: Talking about tech, talking about the future, I want to take a look at a clip, something that I really enjoyed. This is a conversation hosted by Dr. Pippa Malmgren, and the guests are Alexander and Hector Fernandez, the Fernandez brothers. Really fascinating, insightful clip, let's take a look.

ALEX FERNANDEZ: Like if you go back to 1990 and you think about how computing was back then, very few PCs in people's homes. But there's a lot of mainframe computing. We're using mainframes to process things. Think about what right now, AWS is, think about, basically, cloud computing. These investments were made in the 1990s that are now coming to fruition today.

The pattern repeats. And this is what game teaches you, find the pattern, get ready for the cycle. That's what finance teaches you as well. These worlds come together in such an incredible way that you're just waiting for that moment. Unfortunately, when you're 20, you don't realize how far those damn moments are, they're like 20-year cycle. You don't know what that is.

But I think this is something that is extremely important, especially for people that are watching, especially people who are like, I don't-- video games, it's a toy, I don't get why this is happening. But you take a step back, you look at it. It's a way to connect with people.

ASH BENNINGTON: Well, there you have it. Talk about the future of gaming, not just for gaming's sake, but the broader applications of gaming technology, gaming as a new operating system to connect the world, to connect people. I find that just absolutely fascinating, Tommy. Any thoughts on this? Have you thought about this gaming space?

I think it's just absolutely intriguing. When I was out in Las Vegas during the Takeover event that Real Vision did, Real Vision Crypto, I had the chance to have dinner with Alexander Fernandez. And he just blew me away with his thoughts. It's like one of those things I've been thinking about gaming for some time. If you have friends who have teenage sons, especially, they sit in front of the computer, and they play these games, and they're just super engaged in it.

Sitting down with Alexander, I had the sense of the ideas that I'd thought about in the shower just come back to me elegantly formed in Alexander's analysis of the world, just a really impressive guy with a really interesting take on this space.

TOM THORNTON: The gaming world exploded already. The Oculus goggles and the AR goggles that Apple's going to have. I heard a friend of mine said that he got it for his son for Christmas. And he tried it, it's really cool and great. I think the bigger application is going to be maybe military.

People don't realize that these people are going to have these goggles and they're going to be piloting a drone flying around the world and hopefully not killing people. But the bottom line is they make video games so close to real life. There's some frightening thoughts there. On a better note, my neighbor has a gaming setup for Formula One driving, and it's got a heavy steering wheel, and it's got screens all around. I love it.

I really want that. I love gaming. My biggest problem is I don't have the time. If I had the time, my wife would find that time and make me do something else with her. I love the idea, and I certainly do think that he's absolutely right about the future. I worry, though, about some of the applications that could go.

ASH BENNINGTON: Yeah, me too. Two thoughts. One of the things that I think that makes Alexander's thinking on this subject so interesting is that his key insight is that gaming is going to be an operating system that connects the world. We've already built these very rich worlds. We've built the technology. We've built the hardware. We've built the software. This is going to be something that's going to expand much more broadly than just in the gaming space, per se.

Second thought to your Formula One point, I went and did one of those virtual headset Formula One driving games. I sat in