MAGGIE LAKE: Hi there, everyone. Welcome to the Daily Briefing. It's Thursday, May 5. I'm Maggie Lake. And here with me today is Tony Greer, editor of the Morning Navigator newsletter. And Tony, it's a bloodbath in the US markets today, complete opposite of what we saw yesterday. Let's just run through the numbers quickly for folks who may be listening while they're driving or walking. Big equity rally we saw yesterday completely evaporated, really, almost from the start of trade. The NASDAQ-- it's all settling here, down about 5%. And believe it or not, that's actually off the lows of the day.

The S&P looks like it's going to settle around 3 and 1/2%, the Dow off 1,000, a loss of over 3%. We're looking at a 10-year yield that is around 3.04%, again, off the worst levels of the day, but a major switch from what we saw yesterday.

Crypto got hammered earlier. That seems to be kind of hanging down toward the lows. It's off between about 7% to 9%, depending on what you're looking at. And the VIX is up on the day 23%.

Tony, this was just an ugly-looking day. I guess there's a glimmer of comfort that it didn't just bang into the end right at the lows of the day. But talk to me. What happened today?

TONY GREER: Stay tuned for that tomorrow, Maggie. Tomorrow's Friday's close. You will likely see a lot of the things that closed poorly today close on their dead-ass low tomorrow.

And what's all over the screens today is an immediate reversal of that post-FOMC bounce that we saw yesterday. And today, we've all of a sudden-- we come back to the worst day in the stock market since, like, April 29. Oh, I didn't even get what year that was. Excuse me. But we've got a 2 sigma freefall in Apple of 6%. We've got some subsectors of technology, like cloud storage, evaporating for 7%, new closing low, internet stocks, software stocks, FAANG stocks off 6%. We have a huge 2 sigma drop in cybersecurity stocks, and then also in homebuilders.

This is like the stock market woke up and all the interest rate-sensitive portions of the market said, got it. We're still in a tightening cycle, which means we go lower. And so that's what it seems like the rotation is on the tape to me. Look at what's down the least today-- utilities, energy, consumer staples. That's evidence of the great rotation that I've been preaching. We've got a huge dollar wrecking ball move right to a new high. And it looks like it's dismantled the Swiss, the rand, and the won on its way.

So these are major macro moves. And the moves within the stock market are really rhyming with the great rotation that I've been expecting with rising yields in this rising yield environment. So really-- no surprise, but just a different shape of that rotation on the tape today.

MAGGIE LAKE: So Tony, why-- I think people who are watching this, and these are the kind of headlines that's going to stoke a lot of fear because it's going to be plastered all over the morning news, the nightly news-- why the huge shift from yesterday to today? So it fits in with your worldview. But what happened? Was it something more technical yesterday that pushed that rally as opposed to some real relief around the Fed? Why are we seeing these day-to-day swings?

TONY GREER: Maggie, I always contend that the Fed likes to have the market go higher every day that they have an FOMC meeting just because they like to have the tape look like it's saying, yes, we agree very much with what the Federal Reserve is doing, because you can go and look back. And there's evidence that on FOMC days, the market's generally rallying.

So the market was assured yesterday to me by this little what I call the "we're not going to amputate" call by the Federal Reserve, which is like if a doctor walked in on your first moment of a checkup and said, look, ma'am or sir, we're not going to amputate the lower half of your body, for starters, so we're in good shape, just to set you up for anything after that is going to be good news. Then he went on and said that we're highly keyed in on the inflation that's happening now and we're going to go through a series of 50 basis point rate hikes to start combating that. And I think that once it wears off-- that that 75 basis point hike wasn't really a dovish comment at all. It wears into the markets that it was still a very hawkish comment. And we are in the process of a tightening cycle because now the Federal Reserve has got to adjust the commodity inflation that's roaring all over the screens, and will likely continue to, in the face of a 50 basis point rate hike because that's just not enough.

MAGGIE LAKE: I love that analogy. It's so great. And it's so true. And by the way, we-- Darius and I talked about that yesterday because he's like, whoa, whoa. I think there's still-- there's not a lot of good news in here. He's laying out and downplaying the idea that they can actually achieve a soft landing. So you're so right about that.

We also-- talk to me a little bit about-- you're talking about the great rotation. And you have been talking about this for months now. Talk to me a little bit about the framework that you're operating around that. By the way, we did, in the midst of all this ugliness-- we did have some pretty terrible economic data out today, too. We had a reading on productivity here in the US that was the lowest since 1947 while labor costs were going up. That is not a combination you want to see. You're paying more for less output, pointing a lot of people in the direction of stagflation, which is terrible. What's the framework you're operating off of, Tony? Do you think inflation has peaked, or what's your read on that?

TONY GREER: No. Not close, Maggie. I think that the commodity rally is going to continue in earnest. And the reason that I think that is because the great rotation that you mentioned that I've been talking about-- that entails a pretty specific set of circumstances in the markets. And generally, what it's driving at, the great rotation, is natural resources being able to rally and natural resources stocks being able to rally, or at least hold their ground, while the technology sector takes a beating. And I say that because we've been in a 20-year bull market for technology, with rates largely pinned at 0%. And I think it's very clear now that the genie is out of the bottle in terms of commodity rallies. We've got low inventories of commodities. We've got commodities rally-- prices rallying. And we've got that political attack on supply through ESG and carbon-zero.

So with that in mind, I still think that there's-- I'm not going to get into that "the inflation is too high" camp-- the Jimmy McMillans, which I call them-- because I don't have a reason why the inflation should stop right now. If there is an attack on supply, then I don't know what is going to stop, for example, natural gas, which rallied 30% in April and rallied 20% this week. I don't what's going to stop that unless the ESG policy or the carbon-neutral policy is adjusted-- same thing with WTI. We're back to testing $110 a barrel, likely heading to higher prices. We've got no diesel fuel. And we've got no diesel fuel inventory. And diesel fuel prices are going through the moon. And the people that are buying diesel fuel aren't backing off from their purchases due to price just yet.

So we've got inelastic diesel fuel prices. And you know what that means-- that the economy is bearing that extra delivery cost for now. And if you listen to some of the CEOs of the airline calls, they're optimistic because they see demand that's been pent up coming back to the airports. And so there's the demand for jet fuel that doesn't seem like it's going away right now. There's nobody saying, I'm not going to go take a trip. That airline flight ticket is too expensive because the jet fuel is out of hand.

So until we get to a point like that, that's, to me, where the stagflation actually kicks in. And right now, we're still in a phase where the market seems like it can bear some of the price rises that are happening, and other parts of the market cannot. And that's why you see wheat get back on its feet today with higher natural gas and energy prices and the metals markets start to come back to life at support levels, because if we're going to continue to press on, this rotation is likely to continue. And today, one of the canaries in the coal mine was a huge move higher in 30-year rates.

So the 30-- the long end of the curve moving higher puts a hurting on homebuilders. And they're sitting here at a consolidation point, trying to decide if the fundamental trend is strong enough to get them to turn or if the trend in rates going higher is going to continue to put pressure on that sector.

So there's a lot up for grabs right here, Maggie. But it feels like we're going to see more pronounced great rotation because we were in the great rotation in the month of April before the FOMC meeting. And then this week, we're still showing signs of that great rotation after the FOMC meeting. So I'm expecting this snowball to start getting bigger and picking up speed as we head first into the end of the week and then into the middle of this month. And we'll see what happens.

MAGGIE LAKE: I want to just get a quick question in from Mark on the RV site and some great ones coming through. So keep them coming. And we'll get through as many as we can. But Mark asking-- "Since you're just specifically talking about nat gas, Tony, how high do you think nat gas goes?" I heard some big numbers being talked about today. What are you looking at?

TONY GREER: Well, it's-- I'm not a guy that's going to put a top on the number that-- of how high natural gas can go when we've got low inventories from the US to Europe. We've got Europe right now desperately trying to fill up their tanks for the winters for winter storage. And I would imagine that's probably a lot of what's driving price right now. And we've still got a particularly tight situation in terms of inventories.

So that's keeping the spreads really tight. And so now we've got this really steep backward-aided natural gas curve with a huge kink in the winter months, which means that even higher premium for the winter months because the market knows that these tanks have got to get filled up. And there's nowhere else to get them but the spot market right now. And so the natural gas to me-- it looks like it's going to head to or through $10 at this point.

The reason that I can think that with some conviction, and natural gas is the hardest dragon to slay in the whole commodity complex-- the reason that I can think that, though, is that it's behaving perfectly technically. It backed off from its $7-something highs into the recent highs of $6.50. And that's the level that they broke out from. Natural gas held like a rock there. And here we are $2.25 higher, basically, with very few offers in sight for that same reason. Europe is out there, trying to fill their tanks. And the only place they can get it right now is the spot market.

So I wouldn't be shocked to see this go to $11, $12, teens, or it could easily go higher than that, Maggie. And I don't think the world is prepared for that at all.

MAGGIE LAKE: That's what I heard, someone talking about a $20 number today. And it was shocking. But then it drifted in.

We've got some fantastic questions coming. I can tell from the nature of them that they're regulars. They're regulars who listen to you-- Jimmy, David, Mark, Adam. And I think that they are-- I think I understand the nature, and I'm going to touch on this, of their time horizon. The specificity they're asking questions with makes me think that they're trading on a regular basis, like we know you do, Tony, really short-term in some of these things. But asking that question or putting that out there in terms of what time horizon you're thinking about is incredibly important, isn't it?

And this is-- as I'm listening to you talk, there are bits where you and Raoul agree. And we've been talking about this all week. We're doing this series, "The Global Recession-- Is Everyone Wrong?" to try to tease out where-- what people are thinking about in terms of what's happening with the global economy, what that means for markets, and, importantly, what time horizon are you looking at because that means everything. And as part of that, Christian Alexander, Teddy Vallee, and Eric Basmajian sat down together to chew it over in a fantastic roundtable. I want to play a clip of something that Eric said when it comes down to this question of recession. Have a listen.

[AUDIO PLAYBACK]

ERIC BASMAJIAN: My view is that, as the government size has risen to such a high level, and it's increased dramatically after COVID, it's going to continue to push the trend growth rate lower and lower to the point where it makes recessions more likely and more frequent because the trend growth is already so close to 0%. So I believe that part of what's happening is the economy is normalizing to trend. But that trend is a lot weaker than what it was historically. It's not 2% anymore. And when we were in the 2010 Obama era, we had to reluctantly accept that growth was 2% because we were used to 3% in the pre-GFC era.

So we've slown from 3% to 2%. And now that 2% is history. We're now at a 1% trend growth. That's my view. And the closer that your trend growth settles to 0%, the more frequent and likely recessions are going to be. So coming back to this theme, I just think that that's another reason why, over the next six to 12 months, a recession is going to be even more likely.

[END PLAYBACK]

MAGGIE LAKE: So Tony, do you think that there is going to be recession? And does it matter for the types of trades you're putting on right now on-- based on your time horizon?

TONY GREER: I'm not a biologist. So I don't if it's going to be a recession. I'm, obviously, riffing on that other news topic. But my point is I don't really know and I don't prognosticate recessions because I'm not an economist. What I do try to do is stay away from being a terminal bear on the US economy. It always seems to me like there is some sector of the economy that gets going and roaring that nobody really accounts for.

We saw a massive rush into real estate that created a bubble. And it went on for a long time. There was that bubbling section of the economy that was roaring. And it's not going to be that now. But it might be something like solar. The solar business is growing left and right. I know a lot of people that are chasing down that bull market right now very successfully in a number of different ways. And so that's something that could make up for some other economic weakness.

So I don't about the economy. And I don't want to waste any listener's time trying to prognosticate. I react to what happens on the screens, Maggie.

MAGGIE LAKE: Yeah.

TONY GREER: --how to get forward.

MAGGIE LAKE: But you make a very good point, which is that you're not locking yourself into a thesis. And I think that's something we're learning from all these conversations. And by the way, that full interview is available for all Essential, Plus, and Pro members. And we're going to tell you how to find out, if you're not a member, how you can access all of it at the end of this. But I think that's really important, Tony, that you leave yourself open.

We have a question coming from David on the RV site. "What's your take on bonds?" We've seen a big move. You mentioned the 30-year today. So what are you looking at in terms of the bond market? And how are you positioning around that?

TONY GREER: I'm looking at its horrendous performance. And I'm saying that I'm not a bond trader, either. So you're going to ask-- you're going to wonder why the hell you have me on the show in another minute. But I'm not a bond expert. But my point is I am a performance junkie. And it's very clear that we are off to the worst start of a year in history for the bond market, by a large margin. I don't think that that's something to take lightly given the background situation that's causing it. And the situation that I'm referring to is that tightness in commodities and vertical commodity trading, especially when we're entering this wacky period where we've got supply chain issues that are likely to get worse.

I don't like to mess around and try to put a top on where this commodity rally can go. So I think that that really can continue. And I think that as long as the Fed is going to play patty cake with this type of soaring double-digit inflation, the Fed is going to continue to get bitten in the ass. And I think that that's what's coming when they throw out this 50 basis point rate hike. They feign dovishness by saying, we're not going to cut-- hike 75. And the market realizes it doesn't make a difference. We are in a 50 basis point per meeting tightening cycle unless the commodity market falls over and dies. And that is not about to happen, given the structural setup right now.

MAGGIE LAKE: Which is why it's important you have to watch. And by the way, a lot of people pointing out that if you're looking at the first quarter, you got killed in equities. You got killed in bonds. So people are really looking for someplace they can go that's going to hold up in this environment.

Adam from the RV site asking, Tony-- "thoughts on industrial metals and precious metals?"

TONY GREER: I'm bullish. I want to stay bullish in those sectors despite their pullbacks. Gold miners are a tough performer trading on the back of gold, which really has been a really tough trade to latch onto because it's doing what gold should do and remaining unvolatile in a volatile time period. So while I do like them, I do feel like it is going to be an uphill battle being long gold miners.

I think that metals-- industrial metals and mining, like Alcoa and Freeport-McMoRan and things like that, are really, potentially, in the early stages of a long, long bull market. And I think that because it doesn't seem-- like I said, it doesn't seem like, politically, we have reached any