MAGGIE LAKE: Hello, welcome to the Real Vision Daily Briefing. It's Friday December 17th, 2021. I'm Maggie Lake, and here with me today is Jim Bianco, President of Bianco Research. Hey, Jim. Happy Friday.
JIM BIANCO: Happy Friday to you, one week before Christmas.
MAGGIE LAKE: Yeah, but it's a weird Friday, right? We were just talking about the fact it's not slowing down at all. We just have so many things going on and not turmoil in the market, but it definitely feels a little more volatile and unsettled. We had a selloff again in equities, and they're selling off into the close, which is never a great sign.
Although today, it's almost flipped from yesterday. The NASDAQ which had been getting smoked, holding steady, trying to keep its head above positive territory. The Russell was rebounding, and it was the Dow and S&P taking it on the chin. The Dow I think closing near its lows 500 some points, more than 1%. The S&P also about 1% 0.75%. 10 Year Yield dipping, holding around 1.39, 1.40. And we've got cryptocurrencies down. Ethereum 4%, Bitcoin something like 3%, 3.5%, and headlines of things getting canceled.
Not Christmas yet but the NFL canceling three games. I know that just crossed not long ago and everyone's upset about that, not to mention the parties getting canceled and virtual. There's just a lot to take in here. We'll try to get through as much as we can but let's start with this yearend action we're seeing with equities. What do you make of this selling, especially technology really getting slammed?
JIM BIANCO: Yeah. Let's start bigger picture here with what you see in the stock market. You could divide the world into two groups, eight stocks, which are the FANG stocks, Tesla, Microsoft, Nvidia and everything else. The "and everything else" has not been performing very well over the last couple of weeks, over the last few months or so. It's been those big things.
And by the way, the FANG stocks, Tesla, Nvidia, Microsoft, $11 trillion in market cap, they would be the second largest stock market in and of itself if those eight were listed separately. That's how big they are. This has been one of the narrowest rallies we've ever seen. You mentioned that the Russell has been rebounding. Russell at the same level it was hit in June, it's been just an awful performer before today.
MAGGIE LAKE: Yeah, Russell went down, they're just not falling with everything else. That is just not speeding.
JIM BIANCO: Right. And then in tech land, people get a little head fake. Looking at terrible tech, it's at negative low. I looked at the FANG stocks, they seemed to be okay. Look at the non-profitable tech or the--
MAGGIE LAKE: This is the blue line. I think if we're looking at this chart that we have, I don't know if that's up right now, but is that horrible looking?
JIM BIANCO: Down 30% since June is what that is. Where the FANG stocks are essentially unchanged, but underperforming the overall stock market as well, too. This has been a brutal period for the speculative technology stocks, as well. But like I said, if you're not in the FANG stock, if you're not in that group of that magic eight group or so, Elite Eight, if you want to call it that, it's really been a difficult market to go forward from here.
And especially if you start meandering away from the United States, especially as you get closer to China, the China market has been just awful over the last several months as well, too. When people go, let's look at the message of the market, okay, there's eight stocks, and then there's everything else and everything else.
MAGGIE LAKE: Jim, when you say nonprofitable tech, that sounds weird. Why would anybody be investing in it anyway? But that's not unusual, because you're looking for growth. You're reaching for companies that may be either reinvesting or early in their development so they're not really profitable, but they're showing a lot of hope or that's what you're guessing.
It's not that this drop justifies that, it's just that people are turning away from having trust that they're ever going to materialize, or maybe trying to have a hard time sifting out what was a speculative guess in a pandemic world where we accelerated digitization maybe by five years, and then what's going to be sticky? And maybe is the next big company?
JIM BIANCO: Yeah, that's right. And the nuance there is it's referred to as non-profitable, not unprofitable. That doesn't mean that it's incapable of creating profits, but you're right that in the early stages of all these startup technology companies, they're not expected to make money. That's why they're put in these nonprofitable category. And then you hope that they graduate into profitable companies along the way. Yes, this isn't that these are permanently broken companies that are incapable of making money, they're just early stage.
MAGGIE LAKE: But what does that tell us when we look at that decline over six months? What is that signaling?
JIM BIANCO: Well, I think it's two things. One, it is the natural correction to the gigantic run up that these stocks had in 2020. I like to say that every correction is a function of the previous advance. Well, when you went up 3x or 4x in 2020, you're not going to have a 5% correction, you're going to have a 25% correction when one does materialize. And that's what's happened as well, too.
Some of it is that. Some of it also is that the marketplace might be losing its appetite for taking on speculative investments, as well, too. And I know we'll talk about this later, if you're deep into the crypto rabbit hole, you're probably a little bit frustrated too. Because if you look at the price of Bitcoin or Ethereum, it's not very much different than where it was six months ago.
MAGGIE LAKE: Yeah. Let's go ahead and do that right now. Because I have so many questions about tech and about the macro picture. But since you mentioned that, we do have a lot of people and we have a lot of people who saw what happened in those markets got really excited, started dipping their toe in. And then you were on last week.
First of all, you're on last week, and you were pessimistic. And we certainly see what's happened since then. But when we were last on, I think it was last week, you also were really frustrated that cryptocurrencies, these digital currencies, which seemed like an alternative asset for your portfolio, seem to be moving in lockstep with risk assets and in lockstep with the riskier part of the equity market.
How are you viewing this? Because they're not falling out of bed, they're stabilized where they are at this range if you look at Bitcoin and Ethereum, and there are a lot more. We're just going to concentrate on those two, because they're the biggest, but how are you feeling right now about that?
JIM BIANCO: Still frustrated. And to be clear, I'm a HODLer, I own them and I'm not going to sell them anytime soon. But I get a lot of questions, especially on Twitter from people saying, well, if the stock market does X or Y, what do you expect Bitcoin to do? And I was like, man, that is the wrong question, because what you're implying is that crypto has now just become a highly volatile version of the stock market.
I don't need it to be a highly volatile version of the stock market, I could go buy the stock market unleveraged, or sell a triple inverse ETF, and skip Bitcoin altogether, or skip Ethereum altogether. What I'd really like them to be zero correlated to the stock market and to have their own cycle as well. But if they're going to start to assume the cycle of the larger macro market, then I think if that occurs over a long period of time, they lose their appeal, because all they are is just alternative.
They're not the alternative to the current financial system, they become an extension of it. And that's what we don't want them to be. Now, that's been happening now and maybe it continues for another week or month or something like that, and that's okay. But if this is, no, this is the way it's supposed to trade, I don't think that that's a good thing. That's what I meant by my frustration with it, is I expected it to be zero correlated, not highly correlated with whatever the S&P 500 happens to do that day or that week.
MAGGIE LAKE: Yeah, that's a great point, Jim, and I think a lot of people share that frustration. I was thinking a lot about it because I think we actually talked right before I headed to Las Vegas for the Real Vision Takeover event. And it was interesting, I asked people there about that and there was a lot of discussion. And we also constantly get asked about how to better understand this space. And it was great when we were there and talking about all of this.
Raoul Pal, the co-founder of Real Vision, as you all know, and Kevin Kelly made a really big announcement related to that. Real Vision is going to be teaming up with Delphi Digital to create a new crypto research service, which literally just launched last night. Raoul was talking about it yesterday on the Ask Me Anything he did with Real Vision members. Let's have a listen to how he described it .
RAOUL PAL: I reached out to Kevin, because I kept picking his brains, I even got him to write articles for me for Global Macro Investor because it was outside of my knowledge base. I'm like, Kevin, why don't we do something for the Real Vision community? Why don't we create that ultra-high quality crypto product?
Kevin is a Real Vision fanatic anyway, and he's like, well, I'm a subscriber to Real Vision Pro and Macro Insiders. He said, what I think we need is a crypto insiders product, the Crypto Pro, and I'm like, you're dead right. What we're trying to do is help people who really want to get to know the space.
We've teamed up and we're launching it, which is this whole Pro Crypto tier of membership and it'll dovetail in-- if you're a Pro member, you'll get a discount. But for everybody, there's going to be a huge, discounted launch. You can probably pay in crypto. We're just finalizing that now, so that's great, so it wouldn't cost you much in terms of ETH.
And what also is really interesting is we're going to launch it with an NFT. And what the NFT is, is everybody's heard me talking about our Web 3.0 vision and tokenizing Real Vision, and building asset management or brokerage, all of these community driven things, research. Well, we talked about the Affe before, the Apes with guns. They're part of our community, but they're not from us. But that's great because that's how communities now work. We're not in control.
But now, we're going to launch an NFT that's going to come with this. The community is going to design the NFT and we're going to lean on them to help us develop our Web 3.0 future. And that's when we tokenize Real Vision, all of that. If you get to realvision.com/procrypto, get on the waitlist as fast as you can. Because then you get involved in these founder NFT's, the whole community that's going to help us build Web 3.0, and you're going to get the best crypto research in the world.
MAGGIE LAKE: Awesome stuff. For those of you who are not familiar with Kevin Kelly and the team at Delphi, they're really one of the premier crypto currency research firms. He's the one that Raoul turns to actually to help him understand the space and that should give you an idea of the level of knowledge. He's actually also as tall as Raoul. We were laughing hysterically looking at them. In fact, I think there's a picture of him, another one of my colleagues, Elaine and Raoul, like all these people are really tall, which is crazy.
But anyway, we're super excited about the collaboration. We think it's going to help a lot of people, so for more information, you can go to realvision.com/procrypto, realvision.com/procrypto, you can find out information. There's an early adopter offer, and a Real Vision NFT, if I'm not mistaken. Super cool stuff and some offers, but I think they're limited and maybe it closes on the 23rd, so you're going to want to check it out.
And you can also, I'm sure, find information on our Twitter feed as well, or post on The Exchange if you need help. Jim, are you expecting this-- back to what we were talking about, are you expecting the correlation that you're seeing that frustrates you to decouple as we go into 2022? Do you think it was just a product of this weird time we're in right now coming out of the pandemic and shifting out of that quantitative easing, extraordinary measures that were put in place? Or is this something that's going to be a little stickier that we're going to grapple with as the industry matures from this very early stage?
JIM BIANCO: No, I expect it to decouple. It'll last for a couple of more weeks, a month or two, but I think the reason that everybody's focused on is there's one giant narrative that undertones everything in the market right now. The Fed is pivoting towards a more hawkish stance, the Fed is looking like they're getting ready to raise interest rates, do the taper, raise interest rates, potentially reduce their balance sheet as Governor Waller hinted at earlier today, as well, too.
All of that matters for the economy, inflation, financial markets, the 2022 election is even wrapped up in that as well, too. It seems like everything is focused on this one story. This will get resolved one way or the other. The Fed will hawkish li pivot, and then we'll have to price that in, or they won't, and we'll price that in. And then we might see the correlation start to drift away. But for right now, it's really all about that one story, is that what's the Fed going to do? If they're going to raise rates, how aggressive are they going to raise rates?
MAGGIE LAKE: Yeah, we got a great question from Oliver on The Exchange that covers a lot of this. And they're asking, what's your outlook for economic growth in a world of less stimulus and possibly higher rates? And do you think we will see more stimulus in 2022 after weakness shows? That gets to this really interesting dynamic on how the Fed is going to handle this. It's a tricky job they have.
JIM BIANCO: Yeah. This is a great question because it comes to the intersection of a lot of things. The Fed is looking to pivot, as I mentioned, towards being more hawkish and potentially raise rates. The belief by a lot of people and this is what got us going Wednesday higher is, yeah, the Fed will maybe raise rates, will be hawkishly pivoted but don't worry, anything that upsets the apple cart, anything the market doesn't like, the Fed will apologize and immediately stop.
MAGGIE LAKE: And you get that hint coming through from Oliver. We've been conditioned to understand that that's what will happen.
JIM BIANCO: Right. We have been conditioned to understand that's what will happen, because that's what has happened for the last 13 years. But there's a new dynamic in this, inflation. And this whole argument about whether or not it's transitory or persistent, I've been pretty adamant that it's persistent, and it's going to stay persistent.
But let me talk about, what if inflation comes and the Fed says, well, we can't really raise rates that aggressively because the stock market might not like it? What's the downside? Where's the consequence? The consequence is in politics. If you look at the polling data, and I'm going to say this nonpartisanly, for the majority party, which happens to be the Democrats, they're getting killed in the polling data right now.
And they're getting killed because the public is saying, without question, the number one issue in the country is not Omicron. It's not COVID, it's inflation. They are very, very upset about inflation. Now, go back and read about where they were in the 1970s about inflation. That's where they are right now. Here's the thing--
MAGGIE LAKE: And inflation, we used to say that it's a pocketbook issue. You can talk about economic issues, and you could talk about the change in the workforce. When you go to the gas pump to fill up your tank, it costs double what it did, or you're tacking on another hat, you feel that immediately. That is money out of your wallet that you can spend on other things. Same thing with your grocery bill, housing, you name it. Those are real cost items for consumers that they feel, so it's understandable that it's feeding through to the political discourse.
JIM BIANCO: Yeah, and keep in mind too, 40% of the country does not have a stock portfolio or own the house they live in. They have no savings, or very little savings and they rent. When those prices go up at the gas pump or the grocery store, they just get less full stop.
MAGGIE LAKE: There's no cushion.
JIM BIANCO: There's no cushion. You meet a lot of people watching this. All right, we might be in the same position from our paycheck wise. Oh, but my stocks went up, my house has increased in value. We're a little bit less agitated about that. What I was going to say was, for those that say, well, the Fed can never get aggressive in raising rates because the stock market might not like it, then the Democrat Party gets slaughtered.
And there are already rumors in Washington that the sacrifice will be Janet Yellen in 2022. We'll blame her for inflation, throw her out the door. And by the way, if you want to quick crypto aside to that, Gensler is already positioning himself to be the heir apparent, but let's be real here. This is a white guy that wants to become a Treasury Secretary in this administration, so he has to appease Elizabeth Warren in order to get her blessing. If he wants to be Treasury Secretary, he's going to come down even harder on crypto.
MAGGIE LAKE: Yeah. And then for inside baseball, Elizabeth Warren is seen as, for those who don't follow up very closely, very anti-Wall Street and certainly anti-crypto, very worried about consumer protection and has been tough on the crypto space. Jim's suggestion is the tradeoff is he will come down very hard so that he can get access into the job he wants. That's very House of Cards.
JIM BIANCO: It is House of Cards, but I wanted to just emphasize this idea. There is a downside, oh, we can't upset the stock market.
MAGGIE LAKE: Listen, if you take the politics out of it, price stability is the Fed's mandate. We just have been in a deflationary period, and so there have been plenty of economists, plenty of people around who have been very vocal about the fact that they're concerned about the Fed's policy toward inflation, who have nothing to do with politics. There's a real economic concern on that front as well.
I think Oliver's getting to a very good question, which is what happens to the economy