MAGGIE LAKE: Hi, everyone. Welcome to Real Vision Daily Briefing. It's Monday, April 4th, and we are coming to you live from the Real Vision Macro Experience event out in San Diego. Look who's here with me. Tommy Thornton from Hedge Fund telemetry. He's here along with a lot of our other all-stars. We're going to be unpacking a lot of topics. Tommy, great to see you.
TOM THORNTON: Nice seeing you. It's great to finally meet and do this in person. It's fantastic.
MAGGIE LAKE: That's right. This is the first time, Tommy, in our meeting, even though you guys see us live all the time. It's a perfect time. It's going to be a great week to talk about this, because we have a lot going on in the markets. It's midday here. We know US stocks just close though. It feels like we're in this a little bit of a holding pattern. We saw stocks rally. It's some big moves. Twitter, we're going to talk about that in a moment. It seems like this pause and everyone's trying to figure out what comes next. So, why don't you just set the scene for us? Where are you thinking about the markets?
TOM THORNTON: Well, we've seen extremes. We were at extremes coming into the year at the highs, and then we just had a major buying opportunity. Now we're fading a little bit. We had the mega cap stocks leading the charge today. The equal weight S&P was mostly flat. I just think that right now, it's a little precarious. I think that earnings starting in the next week are going to be really a big tell of what's happened with inflation, wage inflation, input costs across the board are really going to affect a lot of companies.
MAGGIE LAKE: And consumer demand too.
TOM THORNTON: Consumer demand, I think there are some signs that there is some demand destruction starting. So, we'll see.
MAGGIE LAKE: We know that people are feeling inflation. We know that. This is a question is how much is it impacting their behavior? How much is showing up now and what's coming? It's a really hard time to gauge what's happening. I think this is one of the themes we're going to talk about this week. Raoul and I touched it on Friday.
You have the macro environment, and it feels like maybe we're entering a different period. We know with interest rates, but then you've had the shocks. The coming out of the pandemic still working through that. Now you have the shock of war. You have commodities. It's hard to figure out what's going on here. How much of it is a structural shift to something else? How much of it is as maybe temporary factors?
TOM THORNTON: Well, there has been two main catalysts that I've been watching. First is the Fed. And that to me is the most important thing happening right now. Ukraine and Russia came into play. Hopefully, we see some ceasefire or just de-escalation. It's just been tragic. The Fed let's talk about it a little bit. They are going to see next week a CPI number that is going to be red hot, red hot. And maybe the highest in our careers that we've seen as professionals. So, what's the Fed going to do? There're six weeks in between the last meeting and the next meeting. I think the Fed could do an emergency hike.
MAGGIE LAKE: Really?
TOM THORNTON: Well, here's the other thing. The market--
MAGGIE LAKE: So, a hike in between their regularly scheduled meetings, it used to happen more often. Rarely happens now. Usually when it does it's easing, because there's some global crisis or something. I don't even know when's the last time they did an emergency hike. I don't even know. It's been a while.
TOM THORNTON: I think they did early 2000s or right after 2000s. I don't know. Historians, let me know.
MAGGIE LAKE: Yeah, exactly. Get somebody look it up, but it's been a [?]. The fact that we can't remember, it means it's been a long time since that happened.
TOM THORNTON: Oh, yeah. They have cover to do it because the market has risen off the lows. And I don't think that they care about the market. And so, if that happens, it'll restore some credibility. I think they'll do 50 at the main meeting in the first week of May. If they do that, they're going to have a lot of-- I think they want to be over 2%. I think they're going to get there probably, maybe into summer. I think that's a good thing.
I think it's also important because this CPI is going to be really hot. And that was due to Ukraine, and you had wheat prices and all the grains, and everything was so high. Crude was at 130. You had this and now everything in the commodity sector, or the markets have come down, and they've given back a lot of that Ukraine boost.
MAGGIE LAKE: Which is important, not the big gains, but that last spike up.
TOM THORNTON: I don't necessarily-- I'm not a super bear on commodities that we're going to see this big drop, but I think it's going to level off at a higher level from where we were. The other thing is, the Fed should go as aggressive as possible because the April CPI, which will be announced, I believe it's after the May meeting, will probably come in a little lighter than what we have this month.
MAGGIE LAKE: Now it's the cover for them to try to make up the ground that being behind the curve--
TOM THORNTON: You're going to hear all the people come on TV say, Fed mistake or policy mistake. They're tightening into a slowing, all that.
MAGGIE LAKE: What is not that what the bond markets telling, the longer end of the bond markets telling us that they think that they are about to make a policy mistake, or that there's going to be the collateral damage is going to mean that recession is inevitable?
TOM THORNTON: Well, someone said, there is a yield curve for every narrative.
MAGGIE LAKE: Which we're going to be talking. I'm stealing that line, by the way, I enjoy one of the sessions that [?].
TOM THORNTON: And there's going to be so many people here that will talk about the yield curve. It's been talked about so much, but yes, I think we will probably see a recession. Let's just say it's like 2000, and the tech bubble burst, we never technically went into recession. But when you had such high growth, and then it came down to basically flat, it felt like the end of the world.
MAGGIE LAKE: That's a great point because you don't need a negative GDP print for people to be like, wow, things feel like they're bad.
TOM THORNTON: Yeah. And the Fed needs to do something aggressive because you have housing markets. You cannot buy a house these days. It is impossible to buy a house.
MAGGIE LAKE: We walked around this area. We're in a beautiful area at Del Mar. Wow, the rails we were at, looking at the prices and they're just up.
TOM THORNTON: There's a lack of inventory. Interest rates are going up. It will slow. Not fast enough for people that are looking to buy, but I think that's in the cards.
MAGGIE LAKE: I want to ask you a question. Send your questions in. We'll take them. We're still getting them. It's a little bit harder when you're live trying to get them. I do want to ask because you mentioned commodity prices coming off that Ukraine boost. Shari C. from the Exchange is asking crude oil seems to have pulled back notably, is it a good opportunity here to establish a position if a ceasefire does not materialize in the coming weeks and months?
Now, we have no idea. No way of knowing about a ceasefire Russia's plans. We're going to have some geopolitical conversations here trying to tackle that, but just from a trading perspective, how are you positioning yourself around energy right now?
TOM THORNTON: Well, the energy specialists that I listen to, they see a lot of tightness in the market. They believe, even without Ukraine, Europe is still going to suffer with-- yeah, I think crude prices can go up, but they may not go up as dramatically as some people-- there are the crude bulls that think we're going to be at $200 a barrel. That maybe could happen, but I think it's more likely that we're going to stay within a 10% to 20% range from here to higher. I've been trading it up and down a little bit.
MAGGIE LAKE: What about the equities? Because some of those oil companies that seem big gains over the course of the year, do you jump on things in the equity space, on the energy space from here, or does it feel like you want to wait and say?
TOM THORNTON: I want to see the equities come in a little bit. I get a 5% drop in equities, XLE or XOP. Yeah, I'll buy it. Right now, I think that it's a little frothy. Exxon gave some guidance, which wasn't necessarily stunning. So, I think they're going to be conservative as well.
MAGGIE LAKE: Yeah, they always are. It sounds like they're going to be. What are you looking for? You mentioned earnings are going to be key here. What do you want to hear? And is it going to be sector by sector? How are you going to approach this?
TOM THORNTON: Okay, so one thing that's really interesting is the financials will kick it off. We've seen other quarters where the financials have gone up into the quarter, into their numbers, and then they fade. This quarter, they're down significantly into their numbers. I know that there are less deals that have happened this quarter, you've had a lot of stuff with nervousness with Ukraine.
MAGGIE LAKE: Yeah. There's a great-- we were circulating a story about the number of deals that have been pulled. It's a larger than some of us, and you're talking to your venue as to.
TOM THORNTON: Exactly. It's that deals. It's a lot of things that it's going to be a lot slower. So, are these prices built in here? I think we'll see how that goes. I'm looking at them as longs. That's there I wrote about it today. I think we're getting closer to longs they're getting exhausted on the downside. So, I'll take advantage of it. I want to buy the financials.
It's hard when you also have interest rates that are, they're not going up. You have a yield curve that is inverting-- it's not ideal but if it steepens, I think the financials will be better off, let's just say.
MAGGIE LAKE: What about tech? We saw them moving again. Everyone was in this environment. When you have a higher interest rate environment, all future earning companies, it's not going to be. We're going to see rotation. We're going to go into value and defense. And yet some of the things that have been rallying and a tech again.
TOM THORNTON: I know. They just forget the narrative that they had. High interest rates are going to kill tech. Yeah, I've heard from some really smart people. Some people that are going to be speaking here, and it hasn't mattered.
MAGGIE LAKE: You could tell. We have some good conversation. It's like, you said and [?].
TOM THORNTON: Yeah. You, Julian.
MAGGIE LAKE: He's actually Julian Brigden, do that Daily Briefing on Wednesday. Not often that our audience [?] on the side. I'll be sure to ask him. I'll put your question in Tom.
TOM THORNTON: Well, the thing is with tech, you've had a lot of the mega cap names. Microsoft went down hard. Apple went down hard. Amazon was down, they're back to little higher levels, or where they were near their highs. You still have semiconductors not moving up as they had. There's been some gains, I was long Nvidia and AMD recently and take some profits.
My main focus this year has been tactical trading. I think that you cannot get so comfortable in anything, long or short, to where you can say, oh, I'm going to look out 12 months on anything. I'm doing a panel on what's going to happen for the next 12 months. I'm going to tell people every day is a new day. Don't be complacent. Take trades. Take profits and limit your losses. Don't be stubborn. This is a market that you just have to keep moving.
MAGGIE LAKE: That's a tough environment.
TOM THORNTON: It's really tough.
MAGGIE LAKE: I didn't notice-- I think it was last week I started to hear just a little bit, but TINA come back into the conversation. There is no alternative. Given what you just said, that does not sound like a strategy that should people should, never was a strategy, I guess but in effect, do you think that effect is in play? Do you think equities are getting flows just because there doesn't seem to be another place people can figure out where they want to put their money in?
TOM THORNTON: Well, what I've seen in the last two years are people are chasers. People will chase whatever is green. Meme stocks are going up, let's buy them.
MAGGIE LAKE: I saw that in last week hugely.
TOM THORNTON: You get tech moving, let's buy tech. It's easy. Then the music stops, and there's no chair and look out. That's what I'm watching. And they bought energy. They bought commodities. And they got bagged at the highs. So, that's the problem.
MAGGIE LAKE: Is this stock rally over for now? I think we touched on it before, but this is a big question for people. Okay, we bounced. Some people are saying it's a bear market bounce. It's over. You got to get out. Other people feel like you know what, maybe there is because of some of the things we're talking about. There's just a constant bid to the market, and you can still play equities, and that maybe their earnings are going to be better than we think and surprise on the upside.
TOM THORNTON: It's all a matter of perspective and positioning. Let's just say the market continues to travel a little higher into numbers, I think then the market will sell off. If we were down and expectations were really low, then it's easier to-- oh, they came out with just okay numbers, but the stock rallies. I just think that you could have some good numbers, and you might see some sell offs, just because people get too long, and they're not positioned properly. I don't think it's TINA, I think it's more FOMO. I think you are wanting to jump on that green highway to prosperity, that's the--
MAGGIE LAKE: Well, and when things move, they move so much that if you do that, sometimes you're making a lot of money, but you have to watch out because when it turns, you're going to [?] in that.
TOM THORNTON: I'm really good at market extremes. Right now, like Raoul said on Friday, we're at a place in the middle where we don't know where we're going to go. Are we going to go higher? We could. But we're going to need other sectors to come in and do some lifting. I think it is a bear market. I think we're going to see earnings tail off because of inflation, because the Fed is going to raise rates aggressively.
Not every time the Fed raises rates that the market sell off. Sometimes, it's just a very sustainable market in economic trend. I think what we've seen-- In the last couple years we've seen things that a lot of economists can't explain.
MAGGIE LAKE: Yeah. Speaking of FOMO and momentum, what do you make of Elon Musk taking a stake in Twitter? Huge gain in Twitter stock today.
TOM THORNTON: It's not that surprising. His talked about doing something with social media. He's on social media, and he's made a pretty good market for himself in Tesla stock, in crypto stocks or crypto currencies. Yeah, it makes sense. The thing that I don't understand is he's talking about like freedom of speech, or freedom of the press, and all this of what people can say or can't say. He's a CEO of a trillion dollar company, and so you have consequences of what you say, and what you--
MAGGIE LAKE: He's been already ensnared in some trouble around that, because you have a lot of compliance rules about fair disclosure, public fair disclosure. So, there's a lot of regulation around that.
TOM THORNTON: Yeah. Fake buyouts, it's a thing. It's something a little--
MAGGIE LAKE: With that huge game, what would you do with Twitter stock today, if anybody was holding it?
TOM THORNTON: I was long, and I sold it recently. It was just a trade. I would have sold some. And I told some people to sell it. And it could go a little bit more.
MAGGIE LAKE: Tesla was also up. Someone is, why is Tesla up if he's buying a stake in Twitter? And I said, I don't know. Just because it's Elon Musk, right?
TOM THORNTON: Because people are buying calls, and it's a gamma squeeze, and it's jump on-- It's green, go. It must be good. But they just came out with their deliveries, and they were a little light of consensus. When I say a little light, we're talking 7000 cars. For major automakers, 7000 cars would never be an issue. But with Tesla, they calculated to the 1000 not 100,000.
The crazy thing is that estimates actually came down. I heard of the Tesla IR, investor relations, sent around to the sell side analysts that cover Tesla, and they said, where are you on your estimates? Now, there is a very well-known analyst. I will say he's on a lot talking about Tesla. He always has a very high price target. He covers Apple. He has the highest price target there too.
His number came in a lot lower, and it moved the consensus lower. But a week ago, he was telling people on Twitter that they were going to beat the street estimates by 15%. It's just one of those things that--
MAGGIE LAKE: I had to be careful.
TOM THORNTON: Well, it's not just that. I just think it's a bit unethical to say that. Look, their numbers are, they're up 67% year-over-year. That sounds great. But quarter-over-quarter, they're flat. They're up half of 1% whatever. Look, all the automakers have supply chain issues. They have to chip shortages.
MAGGIE LAKE: Yeah, it's still. We're hanging on to such an old car, and we have to keep this thing running. I feel like so many people feel the same way.
TOM THORNTON: It's a demand destruction. When prices go up, demand can fall off. The model Y which is Tesla's best-selling car probably between Model 3 and Y, they don't break it out, but it's $63,000 now. That's a big ticket, especially with all the chaos happening in the world. The markets are down. I think that stuff.
MAGGIE LAKE: And people start to feel that. We're not sure where we are with that psychology yet. Because, yes, we feel inflation but you're not sure how much that sinks