MAGGIE LAKE: Hi, everyone, welcome to the Real Vision Daily Briefing. It's Tuesday, June 7th, 2022. I'm Maggie Lake. And here with me today is Tony Greer, editor of The Morning Navigator newsletter. Hi there, Tony.

TONY GREER: How are you today, Maggie?

MAGGIE LAKE: I'm doing okay. And it looks like stocks are doing okay too. The major markets in the US moved higher despite a warning from Target that profits are going to be squeezed because of unwanted inventory. I guess good news for bargain hunters, but not so great for Target.

And the 10y year Treasury yield look like it was back below 3%. But hanging in there not far off that, and oil strong again. Let's unpack some of that. What's top of mind for you? What have you been watching?

TONY GREER: Yeah, well, I'm watching everything, obviously, Maggie. Target's in my wheelhouse with a short in retail on our view matrix. And it's just worth seeing what's going on when some of the retailers are getting caught with too much inventory, as you said. There was a great Wall Street Journal headline today, Target is going down because they've got too much stuff.

That's a little bit about the play that I think is going to continue to play out across retail, where they had some of their finest moments with everybody shopping from home. And we seem to have been through that phase now and moving to a phase of maybe travel and entertainment spending on this side of the lockdown, etc. The Target thing is worth watching, because the retail sector was flat.

Target was down 10% at one point early in the morning today. It's going out today somewhere around only down 2%, so there's a big recovery. And it's worth noting that retail didn't make a new low on that Target news, the sector broadly speaking. That sector looks like it may be getting in the later innings of this selloff for now if it continues to hang in there on really bad news.

Around that story, though, Maggie, I keep coming up with the same thing of the great rotation today. Because if you look at the leaderboard, it is an actual Picasso for those of us who are long the natural resources sector. We've got XOP with the new breakout high, oil and gas up 3.5% today, metals and mining joins the chorus today, up 3% That sector is coming off a big support level.

Oil services, another 3% rally. XLE, IGE, the natural resources sector, up over 2%. What I like about these is these are the sectors that are leading the market year to date. And XOP, the energy sector, some of that stuff is up 70% as in 7-0 year to date. Natural resources up 44% year to date. XME up 27% year to date.

And then behind that, we've had aerospace and biotech, which are nowhere on the year. Then we had all the junk on the year up 1%. We had software rally 1% today, momentum stocks rallied, cloud, cybersecurity, those are all down 20% on the year. Those are the sectors that are still sagging in that great rotation. And this oil story keeps getting better. It's dragging sentiment with it, but there's just a really positive outlook out there. And prices are reflecting that.

MAGGIE LAKE: Yeah. I want to talk about both the prices of the commodity itself and then what you were talking about in equities. And let's get to a question right out of the gate, Paul on The Exchange, saying, Tony, US oil supplies are at a 13-year low. SPR, the Strategic Petroleum Reserve, is at a 19 and a half year low according to EIA reports. How long will the energy bull keep bucking? Does it look like-- we were sitting above 120 now, does it look like there's more upside?

TONY GREER: Oh, yeah. Where's the downside, Maggie? I'm trying to figure out where the supply is coming from. I understand that markets get overbought and we're ways away from our moving averages in a lot of the energy sectors and in some of the commodities themselves. The issue is that there is the constant attack on supply. We've got this tightening where everybody around us holding on to what they would be exporting and that's driving the prices higher.

What we're seeing finally today is maybe some signs that there's an interim peak in the physical oil market. We saw a little bit of a pullback in crack spreads today. We saw a little bit of a pullback in the tightness in the curve today. What's interesting to me is a very interesting tell, while we saw that pullback in the crack spread, the pullback in the calendar, we saw a little bit of a rally in flat price through 120 now and all the refineries are breaking out.

It's interesting to see that even though there's a pullback in some of the indicators in oil that they're still buying in the stocks and those continue to break out. I don't know how long that is going to last. But my guess is that they are going to remain in the driver's seat, certainly in the lead on the year. And unless there is some a political pivot, we are going to see much higher oil prices, we're getting to that $5 sticker shock prices at the pump.

I'm looking into a couple of flights and airline prices are off that handle. Somewhere 8 and 10 times what they were during the pandemic. If you remember that treat where you can fly pretty much anywhere in the country for $150, those days are over. We're getting to the point of price elasticity. But I don't know if the economy is really slowing enough, broadly speaking, for there to be a big slowdown in gasoline or diesel demand.

And that's the question that I've got in my head right now. That's the question on the energy traders' mind is, okay, if there's a little bit of a stagflation story, if there's a pullback economically, is that really going to slow diesel demand? Because diesel demand continues to grow in a flat economy. If there's necessarily a pullback, we may be sideways in diesel demand growth. And I don't know if that's necessarily bearish the energy sector.

We're trying to figure all that right now. But it looks like we're still going to see continued strength in a lot of natural resources plays. It still seems like it makes sense to me to sell rallies and technology if you've had those stocks for a long time. I think you'll get a few chances to pivot out of them before the year is over. But this is the way the tape is driving really hard this year, and I think that it's going to continue to do so.

MAGGIE LAKE: I'm curious, Tony, on the equity side, there are some people who just did not heed the advice and did not adequately increased exposure to energy, perhaps, or some did, but maybe not as much as they wanted to. And now they're thinking, is it too late? Because as you said, some of these numbers, even just individually, if you look at the oil, I just looked really quickly, because I noticed that Exxon was up 4% today, 62% year to date. Chevron, 51%.

And just as you said, you could go across for the day gains, you said you could go across all of the tickers you mentioned and huge gains year to date. Is it too late? Does it feel like there's more upside on the equity front? Or is that maybe looking a little toppy right now?

TONY GREER: Great question, Maggie. Because that is the topic that comes up across my client consultation calls during the course of the day is, can we still be aggressive buyers at this price? And I obviously have not been advising chasing everything into the stratosphere because I never do, you know that about me. I'm much more tactical about entries. But right now, we've got this situation where sentiment in energy is definitely stretched to the positive side, there's no doubt.

We are at a phase where things are getting overbought technically, where they're getting stretched tremendous distances percentage wise from say, their 200-day moving average. Right now, we've got XOP trading really stretched farther than it's been in a long time, away from those moving average support levels. You're on the lookout for reasons to make sales here. You're on the lookout for reasons to take some profit on this trade.

The thing that prevents you from doing so is that the structure and the physical side of the story is still so firm with, we're still short a lot of diesel, we're short a lot of natural gas. There are still a lot of buyers out there that are trying to get some into storage. The commodity market is really tight. The spot market is the only game in town. It still feels like with merchants and end users trying to get their hands on physical commodities that this is going to be the state of affairs for the next several months.

While it is in price, a price that is stretched in a short-term basis, a lot of these energy companies are trading at a cheaper multiple than they've been trading for a long time. And the refineries are trading-- the refinery setup with the crack spreads haven't blown out, they're set up better for profits now, and I've been saying this, than they were six months ago at half the price.

Now, you're seeing portfolio managers that say, well, if I'm going to buy for a long time out, a long time out the time curve, I can pay these prices, because I can see oil staying higher, refiner margin staying high, and eventually price will really rip. That's what we're seeing now, and it's hard to go along with that. Like I said, I'd rather advise clients to pick better chances. But it's still big picture wise, the setup is for energy prices to go higher, and probably the stocks as well, quite honestly.

MAGGIE LAKE: Yeah. And just to underscore that, of course, everyone, this is a big picture, you've got to evaluate your own risk profile if you were in the stocks, what kind of profits you're sitting on, your time horizon, when you need them, all that kind of stuff. That is always when we're talking, something people need to take into consideration and make individual decisions. But this is just the broad backdrop that we're talking about.

I want to talk about the refiners for a second, because you had a terrific conversation with Doomberg. It's on our website right now. And I know the issue of refining came up. What do people need to understand about how important refining capacity is playing into the story? And are all of those equities sitting with the kind of gains we've seen? Or is there some sort of rotation within the energy sector that we might see?

TONY GREER: Yeah, that's interesting. And a fair way to put it, that right now, there is definitely a rotation into refiners. Like, Marathon Petroleum, Valero, Delek, those names are up 10% in the last week. And to me, that is a late portfolio manager reaction to the crack spreads having blown out so far. And now, they're finally sharpening their pencil and realize, like we said, the refiners are better set up for profitability now than they were six months ago at half the price.

Now that they're better set up for profitability at the highs, you've got portfolio managers saying, they're still cheap to me, they're still cheap to me out six months, they're still cheap to me if gasoline is going to stay around $5 at the pump, where the national average is now ticking just above. Until we see that real demand destruction, real signs of maybe gasoline demand growth falling, it's hard to figure out how the stocks are going to back off, other than sentiment getting so far in the positive territory.

But it doesn't feel to me like portfolio managers are that long either the stocks or certainly not the commodities. I can call up a chart right now, Maggie, of managed futures in crude oil, and it will show you that the positioning is in the middle of the historic range, and not even near the top of it where you see speculators getting excessively long.

In the back of my mind, I still picture that buying power that if funds want to get in late to crude oil, or get in badly, or suddenly, a headline comes out, and $120 still seems cheap, they still have a lot of firepower to put into this market. And I would imagine that that's across equities and the commodity. That's why I really hesitate to play the commodity space, especially energy any way but from the long or flat side.

MAGGIE LAKE: That's so important, Tony, I think. And it has come up, it was what I was just thinking about because if you get to the end of a quarter, we always say there is a certain amount of chasing winners or making sure winners are in your holding so that your performance measures up. In that situation, or as a defensive play, one would think that would lend some support, that there are buyers on the sidelines if you are going to see any kind of dip.

TONY GREER: Yeah, of a lot of these stocks are still cheap on a cash flow basis, on an earnings basis, on whatever basis and matrix you want to look at the energy stocks, they have a bright, bright future now until there's a dramatic change in our political stance. I think that you're just seeing a little bit of that people either having to stop out or just getting into the markets late and we're seeing that on our screens now.

But no matter what, you've got to have the energy market on a dimmer where you're still looking to get longer on dips, and less long on rips. That's still the way we want to trade these things. Even though the situation and the prospects are extremely bullish, I just don't want to be misconstrued as saying this is a place to pile into these names in any way.

MAGGIE LAKE: Great to underscore that. I think that's super important. Because sometimes when we're talking about this, again, we're painting a broad picture, but I like what you just said, because I think we can also, by the way, ask that question when it comes to-- maybe in a different way, this idea of how you strategize around this time in the markets. We're talking about the oil market whether it seems like it's getting toppy or overbought, how do you position around that?

Now, Bo, I hope that answers your question. Bo asking, would you take profits on long held oil longs? It depends. I don't know that there's enough context there for Tony to answer that, but you're getting the idea that you need to be a little cautious here.

TONY GREER: As I've advised clients, put it that way, who have been in this trade for quite a long time, this is one of those times to turn the dimmer switch down a little bit on the position size, when they get really stressed away from the moving averages, because you want to be able to turn the dimmer side or the dimmer back up and turn your positions back up when they pull into support. That's just being a trader.

Being a fundamental analyst, you have to know in the back of your head that the picture keeps getting better for them as the buyers get lined up below the market. What happens is you have dips that are even shorter in duration and steeper in price than they would be because as soon as the refiner backs off 1% right now, everybody's like, okay, let's get back after the refiners. It's really, really difficult to manage right now.

MAGGIE LAKE: And I think this issue of whether you have this group of buyers in there, and that sentiment as a backdrop matters, so I caught up, and I don't want to get your perspective on stocks in maybe the opposite scenario. But I caught up with Christophe Ollari recently, we talked about the outlook for inflation and growth.

And he's very concerned that the Fed still playing catch-up. And even though we're seeing this bounce right now, it feels like equities, the tendency is to try to find a rally here, he's worried that there's a lot more pain to come for risk assets and the S&P 500. Let's have a listen to that clip.

CHRISTOPHE OLLARI: I was making some calculation, I think that to go back to some financial conditions that will be more in line with the Fed target, you need to go to 100 and I think that will put the S&P around 3400, so let's say 12% to 14% lower. But in the mind of the Fed and bear in mind, I'm not trying to say the Fed because it's very easy posterior to say it was so obvious.

I don't know anyone who envisage inflation to be 8.5%. Nobody. That's interesting. And they've been late to tighten. But I think that there was a trauma of the human shock of COVID which impacted their decision-making process. And I think that for Powell, there was a trauma of 2018. I guess that human plus lessons of the past made them to be patient, and they wanted to target the US job market first.

MAGGIE LAKE: Christophe also very concerned about Europe, by the way. That full interview is available to all members on our website. Tony, what are your thoughts here when it comes to the S&P 500? How are you positioning around this?

TONY GREER: Broadly speaking, I'm back to being a long short trader, to be quite honest with you, Maggie. I'm trying to capitalize on the great rotation. I'm really looking at shorts in technology as good a potential investment as longs in the natural resources space because I'm starting to get more and more conviction that this is the right way for the next several years, where big cap technology is going to finally take a backseat to a lot of the hard asset miners and drivers and producers. And that's the way it's going to be for the next five to 10 years.

Because it feels like this inflation genie is out of the bottle. I couldn't agree more that the Federal Reserve is miles behind in terms of doing anything about it. And I don't think there's any chance of any political turnaround that would alleviate the energy side of the inflation predicament.

I'm going to continue to look for upside surprises in data like this Friday's CPI number, where we're expecting 8.4% or something. And I'm expecting like a double-digit surprise at some point. I don't know if it's this month or next month. But with energy prices up here for longer, natural gas safely above $9 again, I can't imagine how they don't tick above 10% CPI.

And if that's the case, that's going to put upward pressure on yields. Upward pressure on yields to me is still going to mean downward pressure on the S&P. And I'm going to stick with my story, Maggie, that it's probably the type of rotation where energy, metals and mining, natural resources names hold up and perform fairly well. Technology names probably don't