ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Tuesday, May 24, 2022. I'm Ash Bennington, joined by Thomas Thornton, founder of Hedge Fund Telemetry. Tommy, it looks like we got ourselves a pretty ugly day here in tech stocks. Dow Jones basically flat on the day up by 0.15%. S&P 500 off 0.81%. Closing out looks like 3,941. But the big story of the day, of course, is NASDAQ minus 2.35% closing here at 11,264. Not a good day on tech stocks. Not a good day for social media. Tom, how are you thinking about these markets, man?

TOM THORNTON: That's pretty precarious, I would say. Who knew that Snapchat was going to have such a big influence on the entire market? It absolutely crashed everything. And I think, did you say it was down 43% on the clothes? That's amazing. But look, I think that this has been a market that we've seen in the last few weeks, that if you miss earnings, you guide down, and it's a surprise, let's say Walmart and Target, you're going to get killed. And that's people just don't have any patience for anything missing.

And to me, it was strange that people were a little surprised with Walmart and Target, because I think people know that the consumer is starting to pull back. But I guess the magnitude of it, and just the sheer like shock value just sent everybody scurrying for the exits. I actually think that that's capitulation type behavior in those stocks. I don't think we've seen full capitulation in the market. And we may not on this swing. I think we're probably going to see some reflex bounces. And it's a bear market-- so you see bear market rallies that come out of nowhere, and they're pretty sharp.

ASH BENNINGTON: Yeah. You and I were talking a little bit off camera. I think you said who knew snap has such an enormous impact on markets. I'm not a Snap user myself. Any thoughts on why we're seeing such a steep sell off more broadly with one company guiding negative?

TOM THORNTON: I think it was a big read on the advertising business, online advertising. And this was really the first one. Google was a little light with YouTube and a couple other metrics. And look, their stock got massacred off their last earnings. It's a little bit of a surprise to me. Snapchat necessarily wasn't so cheap. For it to go down like this, maybe it's bringing it more in line with a valuation that the world can live with. I don't use Snapchat. My kids don't use Snapchat anymore. They used TikTok and so maybe Snapchats losing some market share to TikTok.

ASH BENNINGTON: Yeah. This isn't my demographic anymore, sadly. But I did a little bit of research on this earlier today, because to your point, I was a little bit surprised myself at the impact of the knock-on effect from Snapchat. And apparently, obviously, we know that it's the 18 to 34 demographic, where Snapchat has their presence obviously a crucial demographic for advertisers, for manufacturers or service providers. Here's what I found out that I thought was really interesting.

Apparently, Snapchat is very big in the digital TryOn space. For example, you want try on a new pair of eyeglasses, you want to do it in AR/VR, the place to do it, the place that 18 and 34 year olds to 34 year olds are doing it in fact is on Snapchat. So, this macro-economic warning coming out of Snapchat is being seen as something of a bellwether for that critical consumer demographic it would seem.

TOM THORNTON: Okay. Well, I if I need new glasses, I'm going to have to sign up to Snapchat. Yeah. Look, it's this is a market that again, they're punishing anything that misses. And I'm really nervous about Invidia tomorrow. And Invidia is going to be a real key tech market stock to watch. It could be a little soft but the stock is down over 40% since their last report. They're down, I think it's 60% off their highs. So, is it priced in? And that's going to be a big deal thing too.

Last night I bought such little, tiny positions in Zoom and Best Buy. Those look very washed out. There was heavy put buying in those names. And I thought they might be able to work and they actually worked-- well, Best Buy worked for a little bit today and Zoom worked pretty well, considering the market. And these were just little trades, but I think that we're going to come into a place where we're in this bad news get sold hard. It's going to be a not so bad news gets bought type market. And that's what I'm waiting for.

ASH BENNINGTON: Hey, talking of which, talking of the macroeconomic headwinds, I wanted to take a look at something that was just on Real Vision a couple of days ago that I think is really speaks to this point. This is an interview that Raoul Pal did with Dario Perkins, Managing Director at global macro available to all Real Vision subscribers on the essential Plus and Pro tiers. Let's take a look at that clip.

DARIO PERKINS: Were adjusting to a higher interest rate world. You basically had this huge bubble over the past two years in everything. And growth stocks were a big part of that, and this view that interest rates were never going to go up. And secular stagnation will probably get worse during COVID. Those are all consensus views up until quite recently.

That led to this constant rewriting of those stocks. And we've now had this massive readjustment, massive rotation in financial markets. We're starting to get back to where we were before the pandemic. You look at the PE ratio of the tech stocks, it's basically back to where it was pre-COVID. That, to me, looks like a quite healthy environment. Those tech companies will still generate the profits that people are expecting, but they're not going to be continuously rerated on the basis of very low interest rates. We now get this secular--

RAOUL PAL: It can go up, but it's not going to be the PE going up essentially is what you're saying.

DARIO PERKINS: Fine. But the fact is that we were living in a growth scarcity world. If you were a company that could promise decent future earnings, you got constantly rerated on the fact that nobody else was making any money, and so you had this perma zero rate environment. I think we've basically burst that bubble now, and the ratings have gone back to where they were.

ASH BENNINGTON: Really interesting clip. Two things stood out to me, Tommy. First this quote, "living in a growth, scarcity world." Interesting point. And finally, this idea that several months ago, it seemed that interest rates were never going up. And now we have, for example today, Madame Lagarde at the ECB coming out with increasingly hawkish comments about the European Central Bank beginning to withdraw Ultra-accommodative monetary policy. Thoughts on the broader macro economy and something of what we're seeing here from global central banks, Tom?

TOM THORNTON: Well, my first comment is about the Fed. And I think the Fed, one thing that they do is that they will tell everybody what they're going to do in advance, or they'll start piecing it out with the Fed heads going on speeches and talking about their plan. And that I think is a good thing. Nobody needs necessarily a quick turnaround of policy.

And sometimes when you get like a Bullard who will say 75 basis points in the market freaks out. Then Powell says no 75 in the market freaks out. I don't think that's a good thing. But looks like it's going to be 50, 50 and then 25. And that to me, is going to get priced into the market. And people are going to start to get used to that and live with that type of that plan.

QT starts in a week, June 1st. And it'll be interesting to see how the market, if there is any reaction towards that, if the market doesn't even notice it, it'll be interesting to watch. Lagarde and the ECB, and they're a lot better people than me to speak about the ECB, but they seem to be going along a little bit more making it up as you go.

And I think the Europe is getting very concerned about inflation. I think they're really, really concerned about energy inflation. And they know that they have to do something and they actually have cover with the Fed doing what they're doing. I think she's just following along with what the Fed's doing right now. And they cut rates all at the same time. They'll raise rates at the same time.

Inflation will eventually moderate. And I don't think it's necessarily going to be like this drop in inflation. I think it's just going to be steady for several months. The next inflation number, it'll be interesting to see how the market reacts to that. It could be perhaps a little less than last month, although gas prices were higher, so that's a risk right there.

ASH BENNINGTON: Yeah. So much to talk about there. Just a couple of points to throw out. First, ECB president Lagarde today said that the ECB is going to be out of the negative interest rate business by QQQ of this year. This is obviously relatively quick transition to be made. Here in the US, you mentioned Mr. Bullard, Governor Bullard, obviously Fed Governor Bostic has said some things to the contrary, even fire trucks with sirens blaring slow down at intersections.

It's almost this weird push-pull effect. And Tom, for me, the big picture 50,000-foot when people asked me at a cocktail party, what's going on? It seems like the challenge of the Fed has, is that they have significant problems right now on both sides of the dual mandate. They've got challenges with growth. And they've got challenges with inflation. So, stable prices, maximum sustainable employment, that's the lever. There's a fulcrum in the center that they move back and forth to try and balance it out.

But what do you do when you're running at an eight handle on inflation, and you see growth slowing, you see indications, significant challenges in the US economy? We got a new home sales number out today that was pretty ugly, below consensus, below consensus range, below prior, it was 591. It was 591,000 was the actual on the print. Consensus was 750,000. Prior was 763, 000. Revised was 709,000. These are ugly prints on new home sales.

TOM THORNTON: We're seeing it across the board on a lot of different surveys, they've all come in a little light. And we're in a stagflation environment, and that's going to be the path until we most likely move towards a recession. And I'm not sure exactly when we're going to be in a recession. It could be this fall. And that might be when the Fed starts to pull back. They could, after doing 50 basis points twice, or let's say they do 50 basis points and things get really ugly in the data. They may do 25, And the market may take a relief on that.

Now the Fed, their policy mandate right now from the president is to cool inflation. And so, they're not necessarily looking at the equity markets saying, oh, we've got to support the equity markets, that's secondary on their list of things that they're concerned about. Now, we're starting to see unemployment, or we're probably going to see unemployment data start to tick up. You've seen some layoffs happening here and there. It's not prevalent across the board, but I think that's coming. And that's just part of the cycle of what to expect.

ASH BENNINGTON: Tom, the headline writer in me says, boy, did you just say stagflationary environment and heading into a recession?

TOM THORNTON: Well, that's a novel thing that nobody's saying right now. Everybody's thinking the same thing right now.

ASH BENNINGTON: But currently, stagflationary, I mean you see that the impact of growth, obviously, we know we got one negative GDP print, but you see this as being adorable stagflationary environment and recession on the horizon imminently.

TOM THORNTON: Well, I was talking to Julian Brigden yesterday, and he's not in the recession camp, imminent recession camp. And so, my view is mixed between his-- I think, towards the later part of the year, we're going to start to see the recession take place. And you have a lot of negative political stuff coming up with the, I say negative just because I hate politics, but the midterm elections are coming and I think that's going to put everybody in a bad mood.

And I think that it's going to cause more consumer spending slowdown. We've seen a real big spike and a lot of different places, and the airlines have been doing really well. And the airline CEOs are saying demand is off the hook. And I've been traveling and planes are full, but we're starting to see some slowdown in the retail sales in clothing, which target highlighted.

In Nordstrom, after hours, they had better than expected numbers. Maybe we're moving into that. It could have been worse type, I haven't seen the numbers, but it could have been worse type. Let's buy it after it's not as bad. I should just write all these down. It's not as bad. It could have been worse. It's terrible. Sell it. I should have that on my screen right here.

ASH BENNINGTON: You could sell one of those like tear off calendars, right?

TOM THORNTON: Yeah, exactly. Just pull a tab, like a little boom sell. That's your plan.

ASH BENNINGTON: Tommy, our screens are lighting up right now, with questions are flying in. Any other points you wanted to cover before we got to questions from our viewers?

TOM THORNTON: Maybe, but let's go to viewers.

ASH BENNINGTON: Okay, here we go. Doug E. from the exchange, first question. If we slow or go into recession and interest rates go down 1% to 2%, he gave me percentage points, would you expect tech stocks to go up?

TOM THORNTON: Well, they're cyclical, so most likely if you go back and you look at the 2000, 2001 period, tech stocks did go down and they were in a bubble. This is a different period where you've already had a really, really big pullback on most every tech name out there. And the NASDAQ is super oversold. The percentage of stocks above from the 20-day to 50-day, to 250-, 200-day, they're really depressed.

And I think the average stock is down 50%. And the NASDAQ, it's just dreadful. You might see some reflex rallies. Some bear market rallies. It depends on where you're looking in tech. I don't think it's necessarily going to be this great bull market again, just because rates go down. Because I think there's a lot of damaged companies out there. And they went up on QE, and we're not doing QE again for quite a while.

ASH BENNINGTON: Yeah. Here's a question that comes to us. It's a great question, actually, particularly for you, from MLC, from the Real Vision website. What is Tommy make of Tom DeMark's monster rally call? Is their DeMark signal for the 10 Year rate? A secondary question. But I'm really curious about your thoughts on the first.

TOM THORNTON: Alright. I wasn't on the conference call that he did. I've known Tom a long time and I'm a DeMark user. I've used DeMark indicators for 20 plus years. Tom is a really unique guy. And what I see right now for me is a lot of DeMark by countdown 13 start to pick up. And I look at on my side, I screened for the 13s within the S&P, so we have a high number of those. We have them on the S&P index. We have them on the SPYs. NASDAQ, just about everything.

And once you get those, you have a 10-day, 12-day window before you start to see a price reaction. If you don't see that, then the trend can continue. But Tom DeMark, I believe is looking for a more strict version of what is his combo. And that would require one new low or another low, actually two days of lows. And that would trigger a buy signal.

And if we get there, we get there-- I'm using the default indicators. And my view is that we're in a place that you can use a shotgun, rather than a sniper rifle at this point. I don't have any signals on the 10 Year right now. I think the 10 Year, rates are going to go down a little bit. I also think the dollar starting to roll over as well. I had signals on the dollar.

ASH BENNINGTON: Here's a sniper rifle question, but the good news is you get to pick your target on this one, Tom. Ralph Humphry's from the Real Vision site. What strong trades are the gods of DeMark showing Tom?

TOM THORNTON: Well, again, the S&P and the NASDAQ, I believe can rally. There's been no momentum after these signals. We had a few days of a pop, which was actually a nice little pump, didn't last long. And usually we get these rallies in the last-- the last six months, we've had rallies that lasted a couple of weeks and then they fizzled out. What I've been buying, I bought some Microsoft. I'm buying more alphabet. I'm buying-- I have some Apple. It's not making me very happy right now.

Oracle, I bought recently. I bought some Target on the drop. And I still think that that one is exhausted. These are like buy signals that we're getting. I'm trying to tell people to upgrade your quality in this type of environment. If the market bounces, it's going to easily go towards the mega cap names that worked in the past. I'm not there yet on Amazon. I was long for a little bit, but it bounced. I got out. I'm short on the way down.

Now I'm all over the place today. Boy, I think it's just, again, upgrade your quality. When we do bounce, it's going to be the mega cap names. You're going to get more bang for your buck in some garbagey Ark like name, but I think that you're better off with the more steady brand name, market share owner mode type names.

ASH BENNINGTON: Here's a question that comes to us from Greg 87, from the exchange. This is Real Vision internal social media network. Greg is clearly an optimist, Tom. We need those in the world. ISM reports from today, sees strong growth still for 2022. Won't this play into the Feds narrative that they're able to stay on track and achieve a soft landing? And if so, doesn't this make the backdrop for equity markets even more bearish, and they'll keep tightening? Well, it sounded like a bullish question at the beginning, didn't it?

TOM THORNTON: He tricked you on that one. It's not that much of an optimist. Look, we haven't really seen all the economic data fall apart as much as it can. And it will. And it may take a while. It never really falls apart unless you have a new pandemic like we had, and then everything fell apart and then came right back. Yeah, it's going to take time. And I think the Feds just locked in on to 50 basis points and a 25 right now. And the 25 is going to be the wild card.

And if they pass on the 25, which will be going