ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Tuesday, November 30, 2021. I'm Ash Bennington joined shortly by Tony Greer. But first, here's what we're looking at. Selloff in US equity markets. Looks like major indices down across the board about 1.5%to 2%, so bouncing around a little bit. We'll talk more about that as the show goes on.
Big news on the day, Fed Chair Jerome Powell on the Hill today saying it's time to retire the word transitory in relation to inflation. Additionally, Chair Powell also saying that it may be appropriate for the Fed to consider wrapping up the taper more quickly than originally planned due to inflationary pressure. I'm shocked, shocked to learn that inflation is not transitory. Tony Greer, what's going on here, man? Is the Fed starting to lose control of this narrative?
TONY GREER: I think they're being a little bit quite the opposite, Ash. I could be wrong. But I'm looking at this as they are opportunistically piling on the Omicron variant headlines, which yesterday, Jerome Powell came out and said that the Omicron variant poses downside risk to the economy. That complicates the inflation picture. I think that dovetails nicely with the administration's attempts to get the price of gasoline lower and get that out of the headlines in the short term if they can.
And then as you said, the most important thing that he does today is he comes in and he takes away the Punchbowl. You know what I mean? Like everybody's sitting here, looking to see how he's going to address it. And he finally addresses it like a man and retires transitory and says they're going to fight inflation taper earlier. It has the desired effect on the bond markets. We see breakevens finally come apart and pull all the way back into support.
And remember that because all risk assets right now are into support, in my opinion, or close to it. And then you start seeing breakevens pull back and you have that bear flattener action in the bond market where the curves are flattening, again, potentially pricing in a slowdown, God forbid, from a lockdown or a couple of other developments.
And I feel like honestly, Ash, we're getting to the point where it's time to start bidding for risk assets, including the stock market, oil, cryptocurrency and a few other things, so we can go whichever direction you want first, but there's a lot to cover here today.
ASH BENNINGTON: Let's take your opening thesis because I think it's a really interesting point. So, let's assume you're correct, that this has been played brilliantly by the maestro at the Fed in terms of the execution, taking the Punchbowl away, putting against expectations, etc., etc. Isn't this a dangerous game to play, Tony? Like, let's think this through, right?
So, the chair of the Fed comes forward and says, look, inflation has been clearly out of control here. It doesn't look transitory any longer. It may be time to start thinking about withdrawing accommodation. Meanwhile, now you have a 7.55 drop in WTI at peak to trough today, I think we're down around 4.8% negative on the day in WTI. And if that's what says on your screen.
But here's the thing, can markets really be fine-tuned? Like this is this almost Neo Keynesian idea that there are these-- you got all the dials, you look at all the dials, you process all the information, you change the switches, you fiddle with the knobs, and suddenly you can achieve this perfect landing. Sounds like a dangerous game to play.
TONY GREER: Yeah, it feels like a dangerous game unless you control the money supply, which makes the games a little bit easier. It's like we said, they find they managed to get commodities off the peak. And another thing that makes it easier for the Federal Reserve is I have a feeling that they may have had something to do with or at least the dollar is rallying on its own, whether it's the Federal Reserve that's encouraging that, whether it's the market-based inflation expectations backing off that are causing that, whether it's the encroachment of lockdowns across Australia and Europe and the UK that are causing that. The dollar is up and gone.
That's a major move that we were talking about over the last couple of weeks and saying hey, look at this, the dollar is rallying, but commodities are holding on. Finally, the dollar rally was so persistent and wound up being of the right magnitude to finally take a lot of the air out of the commodity complex. And I welcome it, to be quite honest with you.
We needed to clear out a little bit of length in the energy markets, clear out some length in the stock market. We needed to see a pullback to moving average support which is what I see all over the place, Ash. And that's why I'm excited about this pullback. So, if we want to go into equities first.
ASH BENNINGTON: Yeah, let's talk it through. By the way, Tony, this is what I love about having you on. When everyone is fearful, you're looking for opportunity.
TONY GREER: Yeah, man. This looks a lot like a lot of the dips that we've seen in the past, Ash. So, I'm not going to get scared about this, I'm not going to think that we're about to curl over in the S&P and start huffing lower. And I don't even believe that about the commodity complex. I think that it's a really, really-- I think it's a temporary reaction. And I think it's quite a manufactured overreaction.
And I don't want to get into the virus diagnosis here, but everything I've read about Omicron sounds like garbage. There's a couple cases in South Africa, the President goes in and says we're not taking flights from South Africa. All of this, you get the news from South African doctors that like, what is the world doing? This isn't a terrible variant that we're dealing with. The New York State Governor goes ahead and declares a state of emergency in the state of New York, like, what are we talking about here?
Once again, in terms of policy response, we've completely jumped the shark into, oh, my God, a new tidal wave is coming. And it's absolutely not, as of now. So, if it turns out that the media and the Federal Reserve, and now government is opportunistically hyping up the Omicron variant, then you're going to see markets snap right into shape in no time, and it feels like we're getting there.
I just want to mention in the stock market, Ash, it feels a lot like the other dips. It seems like a very controlled, even more so controlled than the Evergrande episode that we fought back in September. There was a lot more uncertainty, a lot more volatility. And if you ask me, a lot more risk to the markets, with a major Chinese shipping company going under, then this Omicron variant creeping its way around the globe, and simultaneously closing down countries in its wake.
I'm just not seeing that happened. So now that we've got an S&P that's had that old famous formula that we know and love, and we've put our kids through college on and purchased all kinds of things, we are in that mode where we're seeing those clusters of big tick index extremes on the downside. So far on Monday, we saw a minus 1800 on the low. Today, we saw a minus 1700 on the low.
My eyes are peeled for it now, Ash. A little dip to the moving averages, a red to green day and then, man, we're gone. That's what I think is going to happen. And I'm looking for the bad signal. I'm looking for the bad signal. I'm looking for up in the sky for somebody to say, you're right, Omicron's bullshit.
And here we go with the risk assets again if you look at some of them, you look at Bitcoin and Ethereum, they've been great performers against inflation as inflation hedges. They haven't moved a whole lot in this little de-risking episode. So, that's been encouraging to me in the fact that cryptocurrency is looking at the world and saying, hey, you guys are going to shut down over the Omicron variant? Not a concern of ours. You guys are going to ease up on the taper now and take away the Punchbowl? Not even a concern just yet.
I think that speaks to the utility of the cryptocurrencies creeping into the picture and holding on to their value. But I don't want to get it all over the map. I think it's important to talk about the rotation in the commodity markets, the S&P. Guide me here a little bit, Ash, like I said, there's a lot to talk about.
ASH BENNINGTON: Yeah, that's exactly what I was going to ask you, Tony. So, that's the thesis. That's the big picture. Walk us through the breakdown as you look at US equity markets sector by sector and what your plays are there and why.
TONY GREER: Yeah. Today's interesting, Ash, because it's month end. So, we saw markets just get a little bit creamed on month end. To me, it plays into the idea that if you got weak longs on your pad, they're all under pressure, take the loss and sell them. Come into December fresh as a daisy and look and see what's going to run for the last couple of weeks.
In the month of August, what we saw was a lot of weakness in social media, metals and mining. We saw a pullback in energy. It was a natural resources pullback, but we saw a fang stocks flat on the month and we saw the Russell go down. We've seen cybersecurity and software break out. We're seeing social media breakdown behind Twitter and this terrible, terrible choice of a CEO it seems like they just picked.
The rotation is still alive. When I look at the rotation on a daily basis, yeah, today's a big red day. It's one of those down days when the S&P is going to migrate back into support and find a level but overall, it's been a natural resources pullback, the commodity complex pull back and equities in a really, really orderly pullback.
Now, I don't get fatal about moves like this because everything seems fairly controlled. You still got sectors like the Homebuilder Index that put in a 4% breakout gain in August. You still got sectors like semiconductors, basically the supply chain story, the supply chain is still going to be kinked. Semiconductors are going to continue to make new highs. So, the rotation is still aggressive.
You can find bull markets within these big bear market moves and big pullbacks. And now, it's really a question about doing your homework and seeing which assets into support you want to start sticking bids in for. Because it seems like we're going to come out of this just like we've come out of every de-risking episode, if I had to guess, based on what's going on right now.
ASH BENNINGTON: Well, let me ask you this. One thing that might potentially be different and I'm curious to get your context on this is, as you talk about, the Fed taking away the Punchbowl, potentially withdrawing the accommodation, the 120 billion less the 15 billion that's been already been tapered, getting that down to zero, by June or sooner. Is there a risk, a risk that withdrawing some of that monetary policy accommodation could create a progressive tightening at the margin, and therefore make US equities less desirable?
TONY GREER: There is always the potential for that. That is an absolute logical read through that deserves some measure of probability measurement. That could definitely happen. We're taking away the Punchbowl, changes everything. It could change everything if we take this much liquidity away. Now, is that really going to happen?
Number one, are we actually going to go to full taper? Are we going to get there? We don't really know. I don't think the markets had to price that in yet. Let's consider when we went back into, we had taper talk back in 2013, 2014, I think it was, and I'm sorry if I'm off by a year or two, but I'm not off by much.
Between 2013 and 2015, we had a lot of taper talk and we were talking about the fit S&P potentially curling over. But what happens is you start seeing that economic strength, underlying economic strength start bubbling up under the hood. And if the economic data gets better, then we can handle a little bit of higher rates and a little bit less liquidity. So, there's always that adjustment mechanism in the markets that I'm not going to say pulling back on the QE is going to automatically mean stocks have to tumble over.
It's oftentimes, we've seen where the Fed is going to ease back on liquidity, potentially talk higher rates, and the market says, okay, here's a little dip to acknowledge that but where do we go from here? Oh, we've just got better economic data, that means we can handle higher rates. So, I'm looking for that dynamic to potentially play into the markets, I think that's important to watch for and bring up a great point with that.
ASH BENNINGTON: Yeah. Before we transition over to commodities, just to add one more big picture point for people who are trying to get their head around the big picture issues here. So, you have this 120, or 105 now I guess, billion in US Treasury debt and agency debt purchases on a monthly basis by the Federal Reserve.
On top of that, you've got interest rates that have been at or near the zero bound for some time other than that period between whatever it was 16 and I guess 18, when they jumped off the zero-bound, got to about 2.4%. So, you still have interest rates at the zero lower bound. And in addition to that, you've got coming up on $8.7 trillion on the Fed balance sheet up from about 800 billion prior to the global financial crisis.
So, when we talk about accommodative monetary policy, you still have this massive wall of liquidity even as you begin to withdraw that monthly increase in the balance sheet, the balance sheet itself, the stock of debt remains undiminished.
TONY GREER: Exactly. So, you could talk about the taper all you want. And it's like saying we're going on a beer run, but we're only going to buy 20 beers. We're not going to buy a full case, we're going to buy 20 beers, and we're going to put those in the fridge. And then we're going to go out for another 20 beers instead of 24.
So, we're not reversing the operation in any way, shape, or form and we're still accumulating beer on the way. We've got the balance sheet now pushing toward 9 trillion. You've got the ECB balance sheet pushing toward a similar number. I think they're up over 8 trillion Euro now which gets a little bit hairy. And right now, personally, I'm really focused on the dollar.
The dollar has done all of this wrecking ball damage to the commodity complex. It set the euro, the Aussie, the British pound back on their heels. As I go around those markets and do some Fibonacci studies on the currencies, I noticed that they've all reached, and I'm talking about the currencies now, not the dollar, the alternate currencies have reached logical pullback levels, whether they be the five Fibonacci retracements or a trend line or just another horizontal support level.
And I feel like the dollar is into some resistance and is overbought. So, I still have this contention that this is all within the ebb and flow of the secular bull market in commodities, of the secular bull market in equities. And I really do think that the dynamic can continue, especially when I look at the cause. We locked down the nation once before, it doesn't seem like it's going to be politically palatable again.
I think that's the only thing that really is going to derail this rally. I'm not seeing it. I don't really want to bet on that happening. I'm trying to just play the moves day by day as I see them here.
ASH BENNINGTON: Good transition by the way into the dollar talking about commodities. Right now, DXY, the dollar index trading end of the day here, it looks like it closed at around 96, 95.87. By the way, this is up from about 89 in June, quite a dollar rally. Let's talk a little bit about that in the context of commodity markets, obviously, the base currency there. Talk a little bit about what you're seeing happening right now.
TONY GREER: Sure, Ash. If you ask me, the Federal Reserve has learned that the dollar is their weapon against headline inflation that's giving them a headache. We saw this happened before right after an FOMC meeting, we came out of the last FOMC meeting and the dollar started rallying and commodities got slaughtered and gold got wrecked from like 1900 down to 1750.
To me, that was a big wake up call. That was me saying, okay, if the Federal Reserve is going to use the dollar and gold as their tools to get everyone out of their hair regarding this inflation that they called transitory at one point that they've now capitulated on, they managed to manage the situation pretty well. But when I look and see like, where we're going to go from here, I still think that the strength in the underlying commodity markets is going to bubble up underneath that.
When I look at, I see the other currencies that have pulled back into support levels, I see the dollar into resistance levels, and it leads me to believe that this dip now in commodities is something that should be bought. But like you said, when the Fed gets the dollar on the run, we're going to get those market-based inflation securities to pull back. Bitcoin and BCOM off 7% in the month of August as the dollar took a 2.5% rally.
To me, that's a big macrocosm of the whole story right there. If you reverse this dollar action and it's going to be a dynamic trading vehicle, it's not going to go up every single month of the year, you're going to reverse the commodity weakness, and you're probably going to start another fire under the equity market. And it's just a question of, from what point?
That's how I'm looking at how they're managing it, but I very much feel like when they hear the complaints about the inflation getting hairy, they figure out how to say, okay, let's get the dollar higher, well, not gold lower. That takes care of the Bloomberg Commodities Index. And now they've got the base metals complex into dramatic support. Aluminum is still battling like a street fighter at its 200-day moving average, copper is trying to hold in at 9500, just below 10k, near the all-time highs, not breaking down.
Now, the big question mark is quite honestly, oil. It's been more volatile than the other commodities. It's been a steeper pullback, but at the same time, Ash, I look at this 20% dunk from the high to where we've been and all I see is opportunity, with the Shell CEO coming out and say the oil demand increase is outpacing the