ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Thursday, March 24, 2022. I'm Ash Bennington, joined today by Thomas Thornton, founder of Hedge Fund Telemetry. Tom, just one moment, let's take a look right now at what's happening in US equity markets, because they were strengthening into the close. On NASDAQ, which looks like the big gainer of the day, up 1.93%. Closing out here, it looks like 14,190, call it 192.

S&P 500 up almost 1.5%, 1.44%, 65 points gain up closing out the day at 4,520. Dow Jones Industrial Average up an even 1%, closing out the day at 34,703. Tom, so much to talk about. It's been a minute since you and I have done one of these. Really interested to get your big picture take on what's happening in markets right now.

TOM THORNTON: Well, it's been really just an amazing year so far. We've had so many good opportunities for the short side and on the long side. I'm just trying to navigate, and I've looked at this market at the beginning of the year, and I said it's going to be a very tactical year. What that means is basically you're going to have to be a bit more active on the trading side. And my view, and it's really holding up is that we would make a series of lower highs, lower lows, and continue.

I think that we have several catalysts that have been front and center on the markets mind, that's inflation and the Fed and what the Fed is going to do. Now we have a pretty good idea what the Fed is going to do. We also had, unfortunately, Ukraine creep into the picture. Sadly enough, it's not over. But there are some hints today that there could be a ceasefire. Honestly, just looking at the pictures of what's left in Ukraine, I don't know what more they can bomb. It's just devastating.

ASH BENNINGTON: Yeah, it's a truly horrific humanitarian crisis happening right now. And truly a terrible thing for people who are in Ukraine. Obviously, we have to look at this a bit from the framework of markets. I'm curious, how do you think about when you see a geopolitical crisis, a humanitarian crisis like this on the ground that has market implications? How do you think about it? How do you analyze it? And how do you fit it into your thesis?

TOM THORNTON: Well, the markets hate uncertainty. When it first started, everything started to fall apart. You had commodity spike. You had the grains, the wheat, soybeans, corn, everything just went nuts, and you had oil, especially go ballistic. Once things started to moderate a bit, and the news didn't get worse. Let's just say it didn't moderate but the news didn't get worse. It was pretty steady. Things started to come back down.

Market sentiment, which is something I look at every single day all day, it basically was so extreme with all the commodities. Commodity bullish sentiment was it 96%. Now we look at it from 0% to 100%, and 96% is about as high as it's ever going to get. I think I only saw crude at 97% once. I actually shorted crude, and that caused a real ruckus on Twitter. The next day it dropped, and I was like, what am I going to do? I got to cover this. It was too good. It's come down. I just re-shorted crude. It's not an overly giant position, but I think it's a bit extended. I'm seeing the mark exhaustion signals start to show up.

ASH BENNINGTON: Tom, is this WTI, May 22 contracts, you're looking at?

TOM THORNTON: You can do WTI. I have it on my site that I shorted USO because a lot of people like the ETF. So, it's a trade. We'll see how it works. I think the main catalyst is still the Fed and inflation. And now we're starting to hear more about 50 basis points from everyone. All the Fed heads are talking 50 basis points and front loading it and really accelerating it. I think that's going to be consensus, come next May and it's early May, and it'll be six weeks in between meetings.

I actually had a friend of mine from a big sell side firm, just imploring saying they've got to raise 100 immediately. They've got to do it. I was like, well, that's just a little much. I wouldn't be shocked if they did do intermeeting hike. It wouldn't shock me at all. Especially when we get the CPI on April 12, I believe. And I think that one's going to be just a barnburner. It's going to freak people out.

ASH BENNINGTON: Really interesting, Tom. Let's double click on that because it's such an important point. I think final PPI, producer price index, FD, the final destination final goods, PPI top 10% in the double digits right now. You mentioned this implication for a 50 basis point hike, that really is probably the most significant conversation that I hear happening right now. I'm looking right now at my Bloomberg terminal for the implied rate delta for the 5/4 meeting. This is the May 4th meeting. It looks like it's priced right now in an implied increase of 43 basis points. So, market basically saying moving toward 50.

TOM THORNTON: Yeah, I think. I think without a doubt that's going to become consensus. I always look for catalysts that can happen. I have that what could go right, and what could go wrong type of list I have. The one thing I believe that we're going to start to see are, it's on the Mike Wilson theme, that in April, the earnings are going to start to come out, and there'll be some real good earnings. But there'll also be a lot that have, let's say they're a little squishy with guidance, or they have real expense problems with inflation, wage costs, material costs. And shipping delays are still happening.

I think that we might see some real problems with a lot of companies that have already been down and could still get beat down. We saw it with Adobe. They were down significantly, and then their guidance wasn't very good, and they knocked them down another 10%. It's a little early to be speculating on that, but that's on my radar right now.

ASH BENNINGTON: We were talking about rates, I wanted to take a look at a clip because it's very germane to this point that we're talking about right now, from a show called Recession Risk Do Slowing Global Liquidity Flows Signal The Next Downturn. This is a conversation that I had with Mike Howell, of Crossborder Capital on the Essential Plus and Pro Tiers at Real Vision. All Tiers, it actually airs next week 3/28. But I wanted to take a look at this clip, because it really is right in the wheelhouse of what we're discussing right now. Let's take a look.

MICHAEL HOWELL: Now what this is telling us is the appetite among investors for risky investments is absolutely collapsing here. In other words, what they're rushing towards is the safety of a 10 Year bond. And that's the safest asset for many investors in the system. That's what they're really going for. The flattening in that curve is saying that the appetite for risk is plunging. Now, that's not a great backdrop, when you've got the cost of refinancing going up and a lot of refinancing to do.

What you'd expect to see right now are the credit markets beginning to sell off. Outside of this this hour talk, look at the relationship between credit spreads on the yield curve, inverted yield curve, what you'll find is that the yield curve, the government, the Treasury yield curve, leads the credit markets by around about nine months. So, a big flattening in the curve, which we've seen should now be causing spreads to widen. And hey, what's happening? That's what that's what the path is saying.

ASH BENNINGTON: Michael Howell starting out talking about flattening of the yield curve, but he ends with an interesting point, which is this notion that flattening of the yield curve tends to precede the spread widening between on the corporate side, meaning tightening credit conditions. I'm curious, Tommy, I think you said about nine months is the typical average time that we see those spreads widen after yield curves flatten. Curious to think what your thoughts are about that. Where are you on, credit spreads and its implications for the US economy?

TOM THORNTON: I heard someone today say something so brilliant. He said, there is a yield curve spread just about for everyone, everyone's narrative. I would agree with what he said that if we start to-- We're flattening and if things start to steepen, that's usually when it's time we're in a recession. If you go back and you look in the periods of recessions, that's generally what's happened. It has to flatten and then have that turn, and we haven't seen a turn yet.

My view on bonds right now and I've had a bunch of people ask, I've had a view and I have to back up and think about this, because I was just talking to Jared Dillian a few weeks ago, and it's all changed a bit. At the time, I've been short bonds. I've expected rates to go higher. Then we had a period, when I was with Jared, I said, look, I think there's going to be a risk off, and this is when Ukraine was really starting to heat up. And rates went down, I said, but I see 2.45 on the 10 Year sometime today, or this year, sorry. Maybe today. It's still early.

Now I'm looking at things at more of a short term. We could see rates drop and bonds catch a bit. Bullish sentiment on bonds, as at 10% bulls at super low. I'm starting to get some DeMark signals on, well, there was some for TLT and IEF. And the 10 and 30 Year, the yields still have a few days left to fulfill those exhaustion signals. So, that's on my radar that we could see a bit of a bond bid happen and developed.

The weekly more intermediate-- I'm trying to talk here, hello, cut. Anyway, intermediate term and longer term, I still see yields going higher. I think that's going to be something that, it's going to be choppy, but I think we could see 30, I think over 3% somewhere down the road here.

ASH BENNINGTON: Yeah. We should say UST 10 Year Treasury yields right now trading at, looks like 2.36% right now, obviously, significant steepening of the 10 Year-- as you see that, significant increase, I should say, in yield as prices deteriorate on the 10 Year.

TOM THORNTON: You can get a 2 Year for 2.13%. That's a bargain in 5 Year, almost 2.4. I think we were on this a year ago, and I was telling you my credit people that I speak to, we were all looking into 2 Year and 5 Year and that's where people were hiding out. I think it was the 2 Year, and I said the real breaking point is going to be when it breaks 25 basis points, and now here we are above 2%. Big moves.

ASH BENNINGTON: 2s5s, it's still looking relatively flat, right?

TOM THORNTON: Yeah. I mean, the 2s10s is-- I think it's the 2s5s is a little steeper. I have my 2s10s here. Anyway, so that's my thought on bonds. I think there's a lot of good trades involved on the long and short side. I'm just, again, it's very tactical for me right now. I'll buy them and sell them and do everything I possibly can. But I really look at market sentiment at as a leading of something a condition that I look for, and then I layer into mark indicators, and a couple other things that tend to give me a pretty good read of when to buy and sell at extremes.

ASH BENNINGTON: Yeah, 2s10s spread right now at 23 basis points. When you look at this chart on a one year time horizon, you can basically ski down it from 1.5 down to 23 bps.

TOM THORNTON: Yeah. Again, there's a yield curve for every narrative.

ASH BENNINGTON: Talk to us a little bit about your sentiment indicator. What you look for, and how you think about sentiment in markets, because it's an important part of your thesis?

TOM THORNTON: Well, when I was at my hedge fund way back, I did a lot of the technical work for the firm. I also looked at market sentiment. I spoke with all the big sentiment polling companies, Ned Davis, Market Vein, Investors Intelligence. The one that I really liked was the Daily Sentiment Index from Jake Bernstein. And so, what I've done is I have all of Jake's hard data numbers, and I put them on charts.

And really, you can get a great read because when things look really scary, market sentiment is really low. And you can say, well, this is where it gets when it is really scary, and it can't go much lower than this by history, historic measures, and so it really is very helpful. Sentiment is more of a condition, so I have to overlay a trigger on that too, when it turns. There's also the other part of when market sentiment goes above or below 50%. I think Brian, we have the S&P, we can show the S&P sentiment chart.

Okay, so this is the S&P index on top and the Daily Sentiment Index on the bottom. This is actually a 1 Year chart. It doesn't show-- No, it's a 2 Year. Basically, you can see how it's chopped around down here on the lows. If you see in the middle of this chart, it really held the 50% level all year, you had these very shallow pull backs of 4%. I think that was the biggest one, and that was like markets in turmoil on CNBC. But we've really broken it.

Now we're in this bit of a regime where sentiment is depressed. And so, it really works well. And it's lifted. It's trying to get above 50%. If it gets above 50%, I think we could see a little bit more support in the market. Now, I've actually been asked to talk about Bitcoin.

ASH BENNINGTON: Let me just jump in really quick because I wanted, while we have this 2 Year chart of the S&P, this is a really interesting chart, because yesterday was actually the anniversary of the lows on market from the COVID crisis. And since then, the S&P 500 has essentially doubled from the lows. NASDAQ Composite doubles from the lows. Dow Jones Industrial Average up 90%, are just shy of doubling from the lows.

TOM THORNTON: Yeah, the market sentiment got to 10%. I think it was 10% on this low. And hit it a couple times. In March of 2020, it hit 4% at the lows, and that was pretty much a call to say, okay, it's not going to get worse. And if it does get worse, it probably won't last much longer just based on these charts that have worked pretty well for me in the past.

ASH BENNINGTON: Go ahead, Tommy, you're about to hit Bitcoin.

TOM THORNTON: Oh my god. I don't trade Bitcoin. I do analysis on Bitcoin charts. I don't know the ins and outs, like you do, Ash. Why don't we look at the sentiment chart for Bitcoin? We just started the Bitcoin charts for sentiment.

Okay. Yeah, it's cool. As you see, it's rather correlated with the price. The thing that's interesting right now to me is it's the first time sentiment is poking above 50%. It hit 53% yesterday afternoon, and it's probably going to be a lot higher today after the big move that we had. This has been something I've been watching. I think that if you trade with sentiment and the direction, there's a red line on the bottom there, that's the 20 day moving average of sentiment. And that's increasing as well.

As you see, just six months back the 20 day moving average of sentiment on Bitcoin was trending down. You can see a lot of little wiggles in there on the everyday price. If the moving average is going in your favor, you have a pretty good wind in your sail right now. Brian, why don't you pull up the chart with the DeMark analysis?

Okay. There's a lot going on here. I should probably put this on Twitter. I will later. The bottom line is, if you look at the top, there was a DeMark sequential 13 on the day before the sell signal on the day before the top, and that worked out pretty well. We had one happen in the middle of the down move. That was one that I was hesitant to tell people to get long and buy. It just wasn't a full exhaustion signal.

There's that yellow line right there. That's the wave pattern that are target that I had. And people were like, I can't go there, and can't go there and did. You don't need to know DeMark analysis or anything. What's nice is it's built a nice base for the last few months. I've been looking at 45,000 as a breakout level, and it's failed there a couple times. The difference this time is that there's a little red two, and that red two coming after a green nine. Those are DeMarked signals.

The two goes to 13. This is the second day of the sequential countdown, and it doesn't necessarily have to go in perfect order it can skip. But ultimately, it's most likely that this will move higher. I still think that it will make a lower high. I don't know if it's going to get above the 53,000 level of where that last bounce. I'm watching it. I'm not necessarily bull or bear on it. I'm just explaining that there's potential there. That's it.

ASH BENNINGTON: Yeah. Tom, I want you to hit a couple of more things, just before we jump into questions, because they're coming in fast and thick from our viewers here. I'm curious about what your thoughts are on a conversation that's been had around markets and around macroeconomics circles about supply chains. I just watched a very sobering documentary on Wall Street journal.com, about how supply chains may stay impaired for quite some time.

Essentially, what we're seeing here is a shock caused by external factors. But what's really the challenge, it seems, is that there are all these long term structural constraints, the supply chain, particularly in Long Haul over road trucking, and at US ports, that just won't be resolved when, for example, the reopening trade finishes or the challenges in Ukraine are hopefully resolved quickly. There are structural challenges beneath the surface, how does that play into your thesis? And how do you use that lens to think about your trades?

TOM THORNTON: I think it just puts more pressure on companies and their potential earnings capacity or what they can do. I just think that it's a headwind for a lot of companies, and they're going to have to raise prices across the board to get the products or pay more to get the products and materials that they need. Yeah, it's not going to go away anytime soon. I think everybody that's really well versed in that has a very clear idea about that. And the more problems that happen, such as Ukraine and the COVID spike in China, it's just going to make it even a longer process. Yeah, I'm not watching that Wall Street Journal. I've got plenty of negative things in my mind.