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    Why Today’s Market Is Unique But Signals a Coming Recession (w/ Tony Greer and Nick Sofocleous)
    Articles, Blog

    Why Today’s Market Is Unique But Signals a Coming Recession (w/ Tony Greer and Nick Sofocleous)

    November 5, 2019

    TONY GREER: I was hesitant to bring you out
    here on camera because I like to have my closest confidant in the stock market to myself, or
    at least as to myself since I can get you. Nick, I want to thank you. You’re one of the guys that I don’t make a
    major move in my portfolio unless I check with Nick. I don’t put on a size position unless I have
    spoken with Nick in the last 24 hours. And that has to do with your experience in
    the markets. I want to thank you for coming down today
    and sharing this with us, man. NICK SOFOCLEOUS: Well, thanks very much for
    having me. It’s a pleasure to be here. TONY GREER: Yeah. So, let’s start right at the beginning. August of 1987, when you got your start in
    the markets. Take it away from there, man. The S&P at 340. Gold under 500. And US 10 Year Yields at 9%. NICK SOFOCLEOUS: So, yeah, fun times in in
    London. So, teenager, coming out of school. TONY GREER: How old? NICK SOFOCLEOUS: 17. TONY GREER: 17, right onto a desk. NICK SOFOCLEOUS: Yeah, well, not quite but
    close. But as close as you can get. And it wasn’t on a desk and you weren’t on
    the phones because there weren’t enough phones for everybody. You weren’t in front of screens, because there
    weren’t enough screens for everybody. So, you had to work your way up. And that was post-Big Bang in London. There was some real jobs and real people in
    London in those mid80s. TONY GREER: And you get started right in the
    buy side, correct? NICK SOFOCLEOUS: I did get started on the
    buy side. I was very lucky. And there was some people that decided to
    take a bit of a punt from someone that was fairly good with numbers. That happened to be me. Yeah, it was a really fun time. The 25th of August 1987 was peak market, pre-crash
    of October ’87. I knew absolutely nothing. And everybody around me was busy. And they were busy learning. They were busy trading, they were busy assets-allocating. And then after August of ’87, in October of
    ’87, we came up with a bit of a crash. And those days were amazing. Because when you know nothing, you learn everything. So, through the days in London, there was
    the hurricanes in ’87. Lloyds of London was basically was touching
    go whether they were going to be around, they had massive losses, the crash of ’87 in the
    US stock market. And there was one particular day, I remember
    it. I turned around to a colleague of mine, really
    senior, great, great asset manager. And I turned at him and said, so, yesterday
    we were buying, but today we’re not. Can you explain that? And he politely asked me to sit down and mind
    my own business for a minute. TONY GREER: Stay out of the way for a bit. NICK SOFOCLEOUS: That’s right. That was right. So, it was ’87. TONY GREER: So now, you’re in the middle of
    the firing lines, there is a market crash that takes the S&P down 22% or so and we probably
    wallowed around those levels for the next year or two before I guess the S&P broke out
    again in 1990. But what stuck with you from back then? What lessons did you pull away from being
    in such a volatile market with such little education at the time? Because I know all of that gets flipped on
    its head to where we are today. NICK SOFOCLEOUS: Right. That’s really interesting. What do you learn from ’87? You learn from really smart people in ’87
    to keep calm that if you can keep your head while all about are losing theirs, you’re
    going to be just fine. And that’s really difficult to do in high
    volatility environments. But that’s what I learned from ’87. TONY GREER: That’s a very good point. So, from there, you started making observations
    on markets, taking it very seriously and picking up some tools into your toolkit as you grow
    as a trader. So, into the early ’90s, we kicked the decade
    off with a war in the Gulf, we start moving into the very, very beginning of the internet
    boom, the infancy stages, I would say in the early ’90s, ’92, ’93. Tell me about your experience on the buy side
    as a young, now, someone in your early 20s going into that experience. NICK SOFOCLEOUS: So, 1990, you’ve got Gulf
    War I. And the experience from ’87 takes you into
    Gulf War I. Because when we started to rise in volatility
    in 1990, you could turn around today and say I’ve seen worse. So, all of a sudden, you weren’t panicking
    anywhere near as much as you were in ’87. Fast forward into now, you’re catching a bit
    of a wave of a bull market from ’91 through two, three and into ’94. So, now you’re into ’94. And you start getting an IPO calendar that
    is taking flight. So, every day, every week, you’ve got these
    red herrings coming through the post, and you’re having to read these red herrings,
    there’s no email, and you’re placing orders to buy these IPOs. And every day, there’s more IPOs. Now, history has told you if you could sit
    through ’87, through 1990 and ’91, you were in a bonanza situation in ’94 and into ’95. Fast forward, you start getting into the Fed
    cheap money, Greenspan doing everything that he can do to calm everybody. Then Greenspan turns around and says irrational
    exuberance. And you think the bubble is burst? Far from it. TONY GREER: Yeah, exactly. So, we keep going. NICK SOFOCLEOUS: And we keep going. We’re into 97- TONY GREER: Amazon is delivering
    everything to your house already. Starting with books and CDs, but we’re getting
    there. NICK SOFOCLEOUS: Right. But then the real trades are, if you can hang
    on to the bull market in the US, your real trades are being driven by currencies and
    being driven by rates. So, with Russia having its troubles in ’97,
    the US didn’t care, as in the US stock market really didn’t care. Fast forward, ’98 and LTCM blows up. So, the lesson of ’97 into ’98 is as much
    as you think it matters in Russia, it doesn’t matter until it’s on your doorstep. And your doorstep was LTCM in ’98, which was
    another episode of if you can keep your head while all about are losing theirs, you were
    in great shape. Because then you rode late ’98 into ’99 into
    early 2000s. TONY GREER: So now, were you actively- do
    you recall yourself thinking about your first days as a trader and the stock market sort
    of crashing back then, back in October of ’87? Are you worrying about this the whole time? Are you seizing your opportunities on all
    the tips and stuff? NICK SOFOCLEOUS: It’s so funny you should
    say that, that’s so true. In your first experiences, you always think
    they’re going to be replicated very soon. And it’s good to have that as a mental record. But it’s fatal for being able to trade correctly,
    because you miss your opportunities. And that’s when you try to gauge when you
    have opportunities. Are you in a bull cycle? Are you in a bear cycle? Are asset prices going up? Are asset prices basically going down? By the way, asset prices going down might
    mean asset prices are just flat, which is what we have now. TONY GREER: So, the markets are rallying ferociously
    into ’98, ’99, toward the dot-com bubble, which we haven’t gotten to yet. But in 1999, I know you made a tremendous
    life decision to change time zones, life centers, and everything. Tell me what was that about? How did you pick yourself up from being so
    entrenched in the markets in London and saying, okay, we’re going overseas? NICK SOFOCLEOUS: Yeah, that’s interesting. So, early ’99, I get a call from the company
    in New York, Sanford Bernstein. And they basically asked me, do you want an
    adventure, and I thought to myself, I’ve traded US now for ’99- probably eight years. I’ve been observant of the market now for
    12. If you want to be in the lion’s den for US
    equity trading, you have to be in New York. So, I said, I’d love to be part of that adventure,
    they were kind enough to say we’d love to have you. And off I came from London to New York. Now, the interesting thing about moving countries-
    and a lot of your viewers will see this, a lot of people will understand what I’m saying
    is it’s damn difficult. TONY GREER: I can imagine. NICK SOFOCLEOUS: It’s damn difficult. So, the people that you thought that you knew
    well in a city of any time, could be 24 million people, you can note that 12 million here,
    24 in the tri-state area, you actually don’t know anyone, it can be the loneliest experience. So, what that teaches you is take everything
    one step at a time, don’t cross bridges you don’t need to cross until you’re asked to
    cross them. Because there’s too much to take on board. It’s a big city, you’re being asked to be
    a professional in a professional firm, in a professional setting, where quite frankly,
    you’re the underdog. And you have to understand you’re the underdog. And you have to fight again and again, not
    only with the market, but with the people that are in New York, it’s you- you almost
    feel it’s you versus the world. But you can’t take on the world at once, you
    have to do it one step at a time. It was a huge life lesson. It’s one step at a time. Trying to do anything well take steps. And that was a huge lesson for me. TONY GREER: Well, I would imagine it was a
    huge challenge, both shifting sides of the pond, but you’re also shifting sides of the
    business, from the buy side to the sell side. You’re going from making decisions that affect
    the portfolio to make sure that you’re making money, or at least protecting yourself to
    now, establishing client relationships, figuring out how to protect your clients, figuring
    out how to educate them. Were you ready to go on the sell side with
    your sort of bag of market tricks? Or was it very much a process of saying, oh,
    this is a totally different job now, I’ve got to really learn everything from scratch. What was it for you? NICK SOFOCLEOUS: No, it wasn’t relearn everything. What you did is you took your information
    that you’ve gathered in previous years, you took your personal stats that you looked at
    on your screens that you made yourself, because they worked for you in how you looked at things,
    and then you applied it to the job at hand. And what you tried to do in those days, and
    it’s the same for today, is help. You try to help. You try to use that information to help so
    that other people could maybe be successful using your tools. They may not find those tools to be helpful
    at all. But invariably, they did. And invariably, they became as successful
    as they wanted to be. And you were part of that success, which was
    tremendous. TONY GREER: Yes, I know. I have some remembrances of that from being
    on the sell side on a sort of later date. But it was very rewarding to be able to say,
    look, this is what I’ve learned in the markets, you guys have got to look at this and to point
    out a blind spot to somebody and have them say, oh, that was really helpful. You have got a seemingly endless number of
    market tools that you use to look at to formulate your views. When you and I speak on the phone, there’s
    a sort of recurrence of let’s look at this again. And let’s look at this again. And where are we in cyclical versus non-cyclical? And what just happened in the tick index? And what has gone on with green to red days
    or red to green days? Can you tell me how that became part of your
    vernacular in any way? NICK SOFOCLEOUS: Yeah. It’s amazing, really. Because when you’re in a bull market, when
    your growths are going bottom left, top right. And you’ve missed the first move. How do you get in? You know you’re in a bull market, how do you
    get in? So, I’ve tried to figure out how there were
    these consecutive down days. And this all took me- I don’t know- probably
    took me two or three years to understand that when you had consecutive down days, sometimes
    at the end of that, it was the right time to buy, but nobody could tell me why it was
    the right time to buy. Why would they have these consecutive down
    days? Why were there three or four or five? Or in the crash, there was eight? Or nine? Why would they be this amount? And what was the difference between why there
    was three, or five? So, if I bought on the end day of the third
    consecutive down day, why did it go down on day four? Was I wrong on day three? If I was wrong, day three, why was I wrong
    on day three? So, I needed something that gave me an indicator
    of that’s a waterfall, that’s everybody selling at the same time, so that I could then go,
    I will take the other side to that trade, because I know that that usually marks somewhere
    near the zenith of a move. So, I found this index, the tick index, and
    it is the amount of stocks that have just moved higher than the last price versus lower
    than the last price. And then I had to find a number that equated
    to the bottom of the waterfall. TONY GREER: When was the selling the most
    intense? NICK SOFOCLEOUS: Right. Whatever was holding the market up, when did
    that go? When did the floor fall out? And if I was bullish, I wanted to catch the
    bottom of the waterfall. I didn’t want to catch everything going down. That’s a falling knife. Neither did I want to wait to see if it worked
    out sometime later. Because then, all of a sudden, you don’t get
    that wonderful V and your great entry points. TONY GREER: At the bottom, they’re near the
    bottom. NICK SOFOCLEOUS: That’s right. So, the tick index was something that I looked
    at, and when I might be able to use that. And then it was a case of what’s the number? What’s the negative number of that? TONY GREER: How intense of a reading do you
    have to get on the downside or the upside, obviously, but we’re talking about getting
    in on a waterfall. So, I’m assuming it’s down. NICK SOFOCLEOUS: Absolutely right. That took me another three years to figure
    out because I was using 1000, negative thousand. And then I would find that there was too many
    days that you’d had negative 1000. And it wasn’t timing anything. TONY GREER: They weren’t determinable? NICK SOFOCLEOUS: No. It was just noise. So, then I went to 1100. And then I had to wait for the days to see
    if 1100 worked. 1100 didn’t work. So, then I went to negative 1200 going look,
    at some point, I’m going to get the number. 1200 didn’t work. And then I had to wait for another set of
    days. And by the way, you only get three consecutive
    down days about 15 times a year. You only get four, therefore, eight, five,
    six and you’re at seven, eight, nine. You just read, you don’t see a lot of. So, always having to wait to prove whether
    this was right, or this was wrong. So, I came up with this number 1300. And I remember the first time it worked and
    within a bull market. And as soon as it worked and as soon as we
    bounced, a light bulb went off. It was an utter light bulb moment. And then it had to be proven. And I was in a bull market. So, the cardsTONY GREER: You’re getting the
    chances to prove it. NICK SOFOCLEOUS: The cards were stacked in
    my favor. And I knew that, so that you did want to buy. So, you had the most important function of
    I want to be a buyer, now, was a function of trying to find where I could get as close
    to an entry point as I wouldn’t get stopped out. I found this negative 1300. I also had a rule of it had to be three consecutive
    down days. NowTONY GREER: Discipline is being applied. That’s all. NICK SOFOCLEOUS: That’s what I’m doing. There’s going to be days when you have negative
    1300 ticks and you go, what just happened? But that’s not an entry point. That’s a place to ask a question. I ended up finding this negative 1300 tick
    on at least the third consecutive down day. And during a bull market, it’s bulletproof. Now subsequently, I’ve learned that something
    gets triggered within the market to pull some either strategies that otherwise would be
    applied, they’re not allowed to be applied. Because you see the whole screen go slower. It’s like a go slow market as soon as you
    hit that negative 1300 tick in a bull market. The last 18 months, we’ve seen this. On October last year, we saw that that negative
    1300 tick was applied, was triggered. And then we had negative 1400. TONY GREER: That’s where we had several days
    below that. Reading the mood, eight or 10. NICK SOFOCLEOUS: Now, this is where it gets
    interesting. You say, well, that rule applies. Surely. Yes, in a bull market. Totally. So, why did it break? Well, because we broke the market in October,
    and it manifested in December. That was brilliant information from the first
    week of October for me. And I looked at it and went, we got a broken
    market and discussed it with you, discussed it with friends, discussed it with other market
    participants. And then we get to Christmas Eve. And you go, wait a minute, we’re doing something
    very strange here. What all we’re doing is going down, going
    down, there’s going to be a divergence and sure is X is X, Christmas Eve boxing day we
    got that divergence. And you knew at that point, with that divergence,
    with those amount of panics that something somewhere wasn’t right. TONY GREER: Don’t fade the Fed, immediately
    jumped in your face when Steven Mnuchin reached out to six banks. We don’t want to fight the Fed after a 500-point
    slide either. NICK SOFOCLEOUS: If you learn anything from
    2008, when the Fed are involved in walking up the steps of the Capitol, you owe phone
    calls to liquidity providers. Yeah, you don’t want to fight back. And, look, we all do because we all go, this
    is a bigger problem. But it’s not a bigger problem until it gets
    to be a bigger problem. TONY GREER: That’s what’s been so interesting
    in why I wanted to get you in here approximately 10 years since the day I met you, roughly. Now, if we look at that, that has been over
    the recent 10 Year bull market, the recent 10 Year recovery. But what was so amazing about calling Nick
    up on the phone when the market would dip, I would call you up and be like, is this the
    one or what? And you would give me the parameters. No, we haven’t got the 13. And then you’d say you call me back after
    two or three down days, we’d get the tick. And you’d be like that was it. That’s what we were looking for. That was it right there with 100% certainty. And it’s because you tried the theory over
    the last 20 years. And because you knew where we were, but I
    think mainly because you had identified the type of bull market that we were in, which
    was going to be at that point from ’09 to call it ’15 was essentially a Fed QE-driven
    market. And you knew we were in a bull market. So, you got the tick readings. And every time I spoke to you, it was like,
    yep, this is the reading right here, boom, let’s go, we’re going back up. And to guys like me, who are looking and seeing
    things break down below moving averages, and you’re starting to see oscillators just starting
    to curl over and things like that. I’m a momentum guy so I’m looking for this
    to continue. And you saved me about 100 times in the last
    10 years, saying, nah, this isn’t the one because we’re still within the context of
    this bull market. And that was a really educational experience
    for me. NICK SOFOCLEOUS: So, we’ve had plenty of discussions. But when people say to me, the bull market
    started on March 9 th, 2009, I’m like did it really? Okay, prices went- that was the closing the
    low of the S&P. Okay. But does that mean that 1972 was the start
    of the bull market in the ’70s? I don’t know anybody that lived in the ’70s
    that thought they were living in an equity bull market bearing in mind that Baron’s had
    the end of equities in 1982. Because nobody was in a bull market in the
    ’70s when it came to equities, you’re in a commodity bull market. So, fast forward to 2009, I can apply the
    same action from March 2009 as 1972 when you read some of the articles written in 1972. And you say, well, was it really the start
    of the bull market? And my answer to that is I don’t think it
    was. So, then someone will ask, well, when was
    the start of the bull market? And I will say it’s the fourth of October
    2011. TONY GREER: Why that date? NICK SOFOCLEOUS: So, we’ve gone through 2010,
    2011 QE forever. We just had the debt downgrade in the July
    into the August. So, August, I think was August 3 rd , 4th,
    it was the Friday that we had the debt downgrade. And none of us knew what was going to happen. None of us knew what was going to happen to
    Treasuries. Now, Treasuries became bid only. And they just got downgraded. Amazing. But you do have something then that’s on your
    doorstep again. It’s LTCM. So, you go back and take your LTCM playbook
    and go, what happened then? It’s now one of those debt. We didn’t care of a debt downgrade in European
    sovereigns. Didn’t matter to us. We were like, oh, that’s a shame. Doesn’t matter. It’s not on our doorstep. Now, it’s on our doorstep. What do we do? LTCM was on our doorstep. What did we do? And then you look for times when you start
    discounting bad news, which is what you said earlier about the trade from red to green. You get a really bad jobs number on the fourth
    of October 2011. It was a stinker. And we went down to 1075 intraday, and it
    was awful. And everybody threw their toys out the pram,
    and then we started to rally. And then your ears perk up and your eyes become
    glued to the screens. And all of a sudden, you’re green, at the
    end of the day, on the worst non-pharm payroll print, you can imagine. TONY GREER: Right, that’s the signal. NICK SOFOCLEOUS: At that point you go, we’ve
    just discounted bad news. TONY GREER: That’s it. NICK SOFOCLEOUS: That’s it. TONY GREER: That’s your ego moment. NICK SOFOCLEOUS: The cycle, at that point,
    for me, was the yield curve. Because it had done everything you should
    have done. TONY GREER: Flat like a pancake. NICK SOFOCLEOUS: Well, it had steepened all
    the way from 2009, all the way into 2011. You’d steepened it dramatically. You’d cut rates, you’d had QE forever, that
    was still ongoing, rates were at zero. And then all of a sudden, you had 225 basis
    points of curve. And if you want to look at anything, 225 basis
    points of curve, somebody is going to get reflated. TONY GREER: And that’s what happened. NICK SOFOCLEOUS: And that’s what happened. And so, all of a sudden, if you can reflate
    your financial system, which is they were quite successful in doing it, whether we like
    it or whether we don’t, they were quite successful in doing it. And then you had the curves on your side,
    financial systems on your side, Fed’s on your side, who are you fighting against? And invariably, you’re fighting against yourself. TONY GREER: We know that answer. Because it’s very difficult to pay a new high,
    it’s very difficult. NICK SOFOCLEOUS: It’s very difficult. Until you do, and you get rewarded for it. And you go you know what? Nicely done. Because nobody gets the first trade consistently. You can go like, you know what? I just missed that. I’ve missed that one. But if I’m thinking about this correctly,
    I’m going to be okay getting involved. TONY GREER: There’s the lesson that you taught
    me ultimately, is that you don’t have to be afraid if you miss the first five minutes
    of a bull market, correct? You don’t have to be afraid because it’s going
    to have nine innings and there are going to be nine innings that you can make money in. And if we play it all right and we stick to
    our guidelines and stick to our discipline, it’s okay to miss the first five. That’s why when all these other markets have
    sprung to life, like crypto and cannabis, I just got very patient. And we’re able to say, all right, we’re going
    to get a chance to get in here. We’ll get a chance, we’re going to wait for
    everybody to throw the towel in. NICK SOFOCLEOUS: Applying all of those lessons. TONY GREER: Yeah. It’s just deciding are going to be bullish
    crypto and cannabis, or we’re going to be bearish? And we decided to be bullish, we applied those
    lessons and have had a number of opportunities. So, that’s why I feel like that is the most
    valuable trading lesson that you’ve taught me. And I’ve been in off for 10 years about it. So, but like you said, things started to change
    October last year into December. Let’s get up to speed now and talk about where
    the markets are versus where they are in the Fed. NICK SOFOCLEOUS: So, there’s a couple of things
    that in the last 18 months, that you can just look at, and it could be price appreciation,
    the global growth momentum going into the start of 2018. And people forget how great January 2018 was,
    we were almost parabolic. Almost parabolic. And at that point, I was like, oh, these are
    usually the ends of moves not start of moves. This is when everybody’s in the same boat
    and on the same side of the boat. TONY GREER: Right. And that can continue for a period but still
    worth making note over. NICK SOFOCLEOUS: Yeah. And then for some reason, still tricky to
    discern. We hit a bit of a speed bump in that February,
    we blew up the VIX ETN. And then we rebounded. And then through the summer, the broader market
    was rebounding. But for me, we weren’t being led by those
    wonderful cyclicals. In a great bull market, you want to be led
    by the cyclicals. Those are the high growth earners where you
    are going to be well rewarded. TONY GREER: That gives you confidence that
    there’s going to be more to follow. NICK SOFOCLEOUS: That’s absolutely right. So, we started being led by some safer havens. The more that we were going up, the more we
    were being led by the safer havens. And the more cyclicals were being left in
    the dust. So, all of a sudden, the hairs on the back
    of your neck go up. And you go, wait a minute, what’s happening? And you couldn’t really figure it out. Couldn’t really figure it out. The Fed were raising rates, the numbers were
    ok. But if your GDP numbers are okay and your
    growth numbers are okay and your PMIs are okay, why aren’t the cyclicals running? Fast forward into September, and we start
    dislocating some currencies, and we start dislocating some bond markets because they’re
    pricing for cuts, because they see something around the globe that isn’t global growth. So, all of a suddenTONY GREER: First time? NICK SOFOCLEOUS: For first time in eight years. First time in eight years, they don’t see
    global growth. They don’t see global growth, bond market
    starts to sniff out a Fed cut. And yet, the Fed are like, no, we’re going
    to raise. Then we get a very decent PMI in August, September-
    probably the first week of September. And the bond market dislocates. 10s go from 280 up through 3%. And quickly go up to 320. Now, there’s no problem with having 10 Year
    paper trading from 280 to 320. If I told you that was over the next 25 years,
    you’d be like it’s not a problem. Going 280 from 320 in three weeks, yeah, you
    have a velocity issue. You’re going to have a problem somewhere with
    volatility. And you’re going to have a problem somewhere
    with equities. And that’s what we found in October, all of
    a sudden, something broke in October. No one’s entirely sure what it was. But we could see it. TONY GREER: Yep. We had the trigger of Khashoggi disappearing
    and oil coming apart. That was one slight trigger that started. NICK SOFOCLEOUS: Entirely plausible. TONY GREER: Yeah. Just an idea. Maybe it wasn’t, maybe it was, who knows,
    but the timing is similar. NICK SOFOCLEOUS: It’s all part of the tapestry. It just stitch. And you will have your triggers that are on
    your screens and I will have my triggers that are on my screens. And all of a sudden, we might come to the
    same conclusion. But looking at different things. And when that happens you’ve got something. It’s always the same. Somebody comes from the left, you come from
    the right, you come to the same conclusion. And you go, can you talk me through how you
    got there? And I’ll talk you through how I got there. And that’s where we find ourselves. TONY GREER: That’s where we find ourselves. And we find ourselves I think, in an increasingly
    uncertain position due to the President. For the first time, we’ve got a White House
    that is barking like a dog at the Fed Chairman, floating stories about trying to decide whether
    or not they can legally remove the Fed Chairman. It’s a new paradigm, and it has become the
    focus of the markets. How’s the White House and the Fed are interacting? Are they getting along? Is Powell going to listen? Is Trump going to win? What’s going to happen? Clearly, the markets have won over a lot of
    fans into thinking that the President is really going to have a serious control over the Fed. We just went from pricing in four rate hikes
    to pricing in three rate cuts in a year. And I feel like the Fed is compromised now. But what do you think? NICK SOFOCLEOUS: It’s entirely plausible. I think that this is an environment where
    none of us have seen. I think it’s an environment where history
    doesn’t teach us too much. And you really don’t want to jump the gun
    and say, the current environment reminds you of early ’70s with Nixon and his then Fed
    chair. I’m not entirely sure that I’m in that camp. I think- and this is, again, this is new for
    everybody. I do believe that the Fed don’t have a choice
    in cutting rates. I think that the market was ahead of itself
    last September, got caught offside, the dark plots of the Fed just came down by 50 basis
    points for the end of 2020. These are facts, these are- we know. TONY GREER: Known knowns. NICK SOFOCLEOUS: I think when you’re dealing
    with the White House, you have to take the information, try to distill what your screens
    are reacting to. And once you are able to distill that, which
    is very difficult, and none of us know the answers because this is a different White
    House. It’s a different Fed chair. This is not Janet Yellen. It’s not Alan Greenspan. It’s not Ben Bernanke. You were able to understand the environment
    that they were working in. This environment is different. The White House has made this environment
    a little bit different. Powell is a different man entirely. I did have a bit of an issue with how easy
    it looks to him in late 2018. I was like, it’s never that easy. If it was that easy, this would have been
    done already. TONY GREER: He was a hot beaming with confidence. NICK SOFOCLEOUS: Seemed it. TONY GREER: And they’re coming, we’re going
    to raise rates, we’re going to do what the country deserves kind of thing. NICK SOFOCLEOUS: We’re on autopilot. I don’t know about you, but autopilot- not
    the best of strategies when you’re the Fed chair. We’ve basically got a Fed that is going to
    cut rates. If they don’t, there will be a dislocation
    shock. And that is again on our doorstep. I think the market’s pricing at 160 in end
    of 2020. And at the moment, the Fed is significantly
    above that. To tank. So, you’ve got a real issue. 10 Year papers trading at what, two or three
    today? TONY GREER: Give or take. NICK SOFOCLEOUS: Right. The curve’s at 25 basis points, give or take. And there’s no doubt in my mind that that
    curve has to steepen. There’s no doubt in my mind. And the trouble with a bull steepening curve
    is you can count the days ’til you have a dislocating equity market. TONY GREER: Really? You think so? NICK SOFOCLEOUS: Yeah. TONY GREER: Or do you think we’re going to
    have strong data that comes out? NICK SOFOCLEOUS: No, I think we’re going to
    have- Okay, this is that’s really interesting, strong data, as opposed to what? Weak data? TONY GREER: Yeah, I’m just thinking strong
    data potentially dislocating the bond market lower. NICK SOFOCLEOUS: Right. So, manufacturing data right now is appalling. It’s terrible. Consumer data is very good. The unemployment data is very good. Consumer confidence is very good. The homebuilders index seems to be fine. New Home Sales seem to be fine. And as do with the consumer, she was not massively
    levered. The balance sheets look pretty fine. That’s terrific. And then you look at the manufacturing data,
    and you go, this is tricky. This looks really bad. It looks a bit like 2050 when we had the earnings
    recession driven by energy of which you know only too well. So, then you end up with, so what data am
    I looking at? Am I looking at the manufacturing data? Or am I looking at the consumer data? Because the consumer data is okay, but the
    manufacturing data stinks. TONY GREER: How do we work out of it? NICK SOFOCLEOUS: How do we work out of it? I don’t know, I really don’t know. You don’t ever want bad things to happen. Nobody wakes up in the morning and go, you
    know what? I really hope today bad things are going to
    happen. But at this point, we’re going to have to
    manage our way through softer manufacturing data and okay consumer data. And what you don’t want to see is more of
    the White House, more of China, more of the tariff, more of the trade talks, more of that
    uptick in rhetoric affecting the consumer data, because it’s already affected the manufacturing
    data. Now, it might not only be that there might
    be several other estimates. TONY GREER: Nobody. Those are fair observations. NICK SOFOCLEOUS: This is where it triggers. So, does a weaker manufacturing data trigger
    some weaker consumer data? Or does the consumer data, being very good,
    help to mitigate and pull up some of the manufacturing data? And I don’t have an answer to that. And I’m trying to find those answers every
    day, I’m trying to find has the market sniffed out that the consumer data is going to help
    the manufacturing data? At the moment, all of those cyclical cross
    currencies are not saying that’s the case. TONY GREER: Right, that’s true. NICK SOFOCLEOUS: The Chinese data, the base
    metals are not saying that’s the case. Crypto, for interests of knowledge is not
    saying that is the case. You want copper to trade well. You want China to trade well, but China goes
    up because they stimulate. China goes up because they’re issuing credit. And you go, okay, I understand that you need
    to do that. But that’s really not a fully-fledged bull
    market. Then you go back to, okay, what did 2009 teach
    me? It taught me it wasn’t a fully-fledged bull
    market. What did 2007 teach me? Well, it taught you that we were all offside
    all the way up into basically October of 2007. Because we were like, there is trouble. But the market kept going up. Now, what happened in 2008 is you could look
    at 2007 and say, I told you so. Well, great. Good for you. How do you trade it? You have to be really careful. If you want to trade that on the long side,
    you know that your trades are shallow. If you want to trade it on the short side,
    now, it’s going to cost you money. Because every now and again, you’re going
    to get a short squeeze. And that is going to hurt. And I do find that right now in 2019. Just fast forward into 2019. That’s where we’re at. Those short squeezes can be brutal. And the leadership is less than stellar. TONY GREER: Panic buying into highs on steep
    high magnitude game days, likeNICK SOFOCLEOUS: Right, and the one great sector right now
    is software. There’s data galore saying people are buying
    software for productivity gains. Terrific. But at some point, you start pricing that
    as well today, little bit weaker on software. A lot of people asking questions, no normal
    answers. What did the market do? Market really didn’t do too much. It was a few ups, a few downs. Oil was okay. Gold was at 1420. I know what caught my eye. A little bit bad on software, a little bit
    better in gold and precious metals. TONY GREER: Right. Well, let’s speak to that right now. Gold’s clearly staging a potential breakout. Technically speaking, we haven’t been above
    1400 in about three or four years. It’s obviously a direct reaction, in my opinion,
    to the negative yield pool starting to expand again into the 12 and 13 trillion area. What are your thoughts on gold? Do you think gold has legs this time or? NICK SOFOCLEOUS: So, I was lucky. Like you, I played the precious metal trade
    from 2009 throughactually, into 2011 when I found that equities were going to be a little
    bit better for me. Thankfully, you don’t have to catch the bottom. You don’t have to trade the top. But there’s an awful lot of things that look
    similar in regards to why you would own precious metals, you’ve got interest rates that are
    going lower. You got manufacturing that’s down. Your only numbers that aren’t deteriorating
    are in the consumer. Well, gold doesn’t care about the consumer. Gold is, for want of a better word, a store
    of value. You might not like that value and you might
    not agree with what that value is, you might think that value is lower. That’s okay. But it’s still a store of value to many. For me, it’s a ticker symbol on the screen. And if it trades well, I can get my head around
    why it’s trading well, that’s fine. That’s fine. I don’t have to marry it. But I do have to own it. There’s always a bull market somewhere. You just need to be able to see it, and you
    need to be able to play it. TONY GREER: That is a great point. That’s a great point. And with 30 years, or 30 years plus of your
    history, I have a lot of respect for you saying coming into the situation right now and saying
    totally different, something we haven’t seen before. That’s to me a sign that your eyes are wide
    open, and that this is a very different paradigm. And then you’re not willing to just go back
    and compare it to something that happened 20 or 30 years ago, because to me, that was
    a scary comparisons as well, because the world is so much different. NICK SOFOCLEOUS: I would be very interested
    to have been around during something like the Cuban Missile Crisis. Where every day you woke up to a headline
    going, we’re three minutes away from pressing big red buttons. Right, good grief. That and all we can do is read about those
    occasions. But it does seem to me as though as much as
    we think this is a really bad situation, it’s 2019, it’s not the early ’60s. We’re not quite there. So, as much as people say, this is terrible. This is a disaster for the country. I think some of those comments need to be
    tampered slightly. TONY GREER: Yeah, yeah, that makes sense. What’s amazing is that they would have called
    Trump as a tremendous war hawk as he entered into office. And it seemed like he’s been at least, maybe
    not in the best of class, but he’s been sort of globally pretty careful. NICK SOFOCLEOUS: Yeah. Within the last week, we’ve seen the drone
    go down. And there was no air strike for whatever reason. TONY GREER: Right, following a Japanese tanker
    blowing up. Right yesterday. NICK SOFOCLEOUS: So, without knowing all the
    facts, all we know is these headlines. So, for someone to just turn around and say,
    all he wants to do is go to war. I’m like, well, that doesn’t look it to me. Because he hasn’t done that yet. Now, do I think that his international diplomacy
    is top class? No, I do not. But that’s just an opinion. What matters to me is markets. How do we react? How did we react to that drone? How did we react to the tanker? But I thought the oil markets reacted perfectly
    to an increase in stress in the Middle East. TONY GREER: Yeah, that’s about it. It took them a little while, but the price
    rallied 10% or so. And that the oil market respected at the gold
    market I think is respecting that among other things. There is certainly a good reason to be sort
    of looking into buying commodities on the dip. We like precious metals. Oil seems to be trading okay off the lows
    here. Most importantly, I wanted you to sort of
    define- you were really great. And I just want to wrap this equity portion
    up, you are outstanding in identifying the bull market from 2011 to 2015 as this is going
    to be a sort of Fed-assisted slow growth period that the S&P is going to be happy with. Then from ’15 to ’18, or soNICK SOFOCLEOUS:
    Well, ’15 to ’16. TONY GREER: To ’16. We were raising rates, the economy was growing,
    we had global growth. So, that was the premise of the market, higher
    rate, stronger economy. The S&P is okay with that. NICK SOFOCLEOUS: So15, you had your energy
    issue, where we started to go down, but the larger picture was you’re going to get an
    opportunity, because the cycle isn’t over. And that was when you could buy S&Ps at 1835. If I told you right now, you could have bought
    S&P at 1835, what would you say? Thank you. You’re 2950 and you say, okay. 1835, you’re good to go. TONY GREER: So, where are we in the cycle
    now? NICK SOFOCLEOUS: Oh, we’re really late, because
    we just changed. We just had the Fed- the Fed have just changed
    the cycle. Because now, we’re in a lower rate environment,
    we’re in a cutting rates environment. And the only time that the Fed have cut rates,
    and it’s worked out well, was late ’94 into ’95. Difficult to see this being 1995. TONY GREER: Right. Exactly. It’s just more like ’08, ’09 where they cut
    rates and the market wouldn’t take it. NICK SOFOCLEOUS: Right, because you had deteriorating
    economic numbers and the productivity gains just- with the internet, that was amazing. You just don’t have that now. You have business investment, business investment
    is not accelerating now. Back in ’94, ’95, business investment was
    as a percentage of GDP, was going through the roof. And you can see that, anyone can see that
    on their charts, you just need to know how to calculate it and you’ll be able to see
    it. And it’s a beautiful chart to show you the
    cycles. And if you overlay that with a curve, you
    really are 50% on the way to figuring out what does the cycle look like? TONY GREER: Well, I want to keep moving. Because we covered a lot of ground in the
    markets, we covered a lot of market history. And we let a couple of your tricks out of
    the bag, which was fun to do. But I want to sort of take a worldly view
    back, because our viewers have been enjoying me asking guys the question, if you are a
    young person in the markets today, and you see all these super traders and Masters of
    the Universe on television and you wanted to become one, what would your first step
    be into the financial markets? What do you think is available, whereas you
    and I could try to get a job at a big investment bank working on a desk of 30 guys, or men
    and women. Today, what are the opportunities for somebody
    that wants to become a trader? NICK SOFOCLEOUS: Yes. So, the environment has changed from when
    you and I decided that financial markets were where we wanted to be. Financial services have changed. There’s a couple of places that I would look
    at, first of all. One is deciding what my skill set was at this
    time. You’re 23, 24. What’s my skill set at 23, 24? You’ve probably got boundless energy. Do you like the markets? If your answer is yes, and you want to test
    yourself against them, terrific. And you need to find yourself a seat, there
    are companies that will allow you to do so- whether it’s using their capital, using your
    capital. Those aren’t the large banks anymore, because
    we know that doesn’t exist. But they do exist in a smaller environment,
    in a collegiate environment in different companies right now. TONY GREER: So, getting a job managing risk? NICK SOFOCLEOUS: Managing your own risk. And you can be taught by people, and there
    are plenty of well-versed, very successful people that would gladly have you on their
    team if you are successful. If you’re a successful trader in front of
    your own screens, people will like to have you on their team. Trying to find those companies is quite tricky
    because it’s a new set of ventures for people. As the banks lost to people, these new trading
    rooms did start up. That’s one avenue. I think that’s a very high risk avenue. I think that you need a counselor. You need somebody to teach you. And you need that constant because a lot of
    that is about confidence. The second thing is always- it’s something
    on the wealth management, you can help people within the wealth management business, and
    being involved in markets. And be hugely successful while helping other
    people. That’s a good gift. That’s a terrific gift to have. So, it really does depend, I think, on how
    you perceive yourself at a given age within your cycle. Your personal cycle. TONY GREER: Yeah, that’s a good point. If you are beaming with confidence, and you
    want to give it a try, and you’re single, you could probably get a job trying your own
    day trading operation somewhere. It’s not out of the question. NICK SOFOCLEOUS: It’s not out of the question. I wouldn’t advocate that. That’s a high risk strategy where you don’t
    even understand what your own risks are and how many risks you want to take and when. But there are plenty of operations when you’re
    looking to get into that type of market. Trying to be within financial markets, trying
    to get into a hedge fund. Terrific. Brilliant. There are hugely successful hedge funds. Super smart people. They are a joy to work with. They are a joy to work with. Not everybody’s on TV. Not everybody shouts from the rooftops. Sometimes, really, the best people, they’re
    around, you need to listen to them. Do your homework. Some of these guys will take the best of the
    brightest. TONY GREER: Yeah, that’s true. I like the wealth advisor idea too, because
    you can sort of swap your interpersonal skills and be wildly helpful to a wealth advisor
    operation and use that as your platform to learn about the markets rather than having
    them at your fingertips. NICK SOFOCLEOUS: Absolutely right. TONY GREER: Yeah, that’s a really good point. NICK SOFOCLEOUS: Absolutely. There’s a reason why family offices have grown. There’s a reason why the very large, historically
    large Wall Street firms want wealth management operations. There is growth in wealth management. And it’s okay to understand this. Well, there’s growth in wealth management. That’s okay. TONY GREER: So, even as the landscape changes
    quite a bit over the decades that there’s still entry level opportunities for people
    that want to be in this business? NICK SOFOCLEOUS: Absolutely right. TONY GREER: Yeah, that’s a fair point. That’s a fair point. All right. Well, I want to get way off of the business
    cycle and the business topic for a minute and ask you, Beatles or Stones? NICK SOFOCLEOUS: Beatles. TONY GREER: That was an easy one, huh? NICK SOFOCLEOUS: Yeah. TONY GREER: You didn’t think twice about it? NICK SOFOCLEOUS: Not twice. TONY GREER: What was your earliest turn on
    from the Beatles? When did they hook you? NICK SOFOCLEOUS: Oh, family. Family had their records. TONY GREER: Oh, yeah. It was all there before you. NICK SOFOCLEOUS: Oh, my goodness. Yeah. Absolutely. And also, they had melody. So, my record collection is nowhere near as
    vast as yours. It’s not really my thing. But as I got older, the Stones- you started
    listening to some of the Stones and going, oh, these guys were good. These guys were good. So, nobody’s bad here. It’s just a preference. TONY GREER: That’s for sure. Like the Beatles or Stones call you- the lesser
    of two greatness. You know what I mean. So, you can [inaudible]- NICK SOFOCLEOUS:
    Light blue, dark blue? Which one’s your preference? TONY GREER: You look great in both. That’s perfect, man. Well, we covered a lot of ground. I really appreciated you sharing a lot of
    your trade secrets, your history. All of this is so helpful, even for me to
    go over in an interview, and hopefully for the people that are watching to get your sea
    legs in the market and learn how to do that and learn how to survive. So, I can’t thank you enough for taking the
    time today, Nick. NICK SOFOCLEOUS: Absolute pleasure. TONY GREER: Great job, my man. NICK SOFOCLEOUS: Let’s see. TONY GREER: Brilliant.

    Prussian Carp In Alberta, Canada: The truth about this invasive fish species.
    Articles, Blog

    Prussian Carp In Alberta, Canada: The truth about this invasive fish species.

    October 8, 2019

    – [Narrator] Just how do you track down an invasive fish species? That’s today’s news. (triumphant music) Prussian carp are becoming a real threat to Alberta’s native fish populations. Already confirmed in the Red Deer, South Saskatchewan and other
    Southern Alberta water bodies, Prussian carp appear to
    be expanding their range. Determining where these fish are located has become somewhat of
    a CSI investigation. – [Woman] So we just need
    to fill this with water, ’cause it helps once we
    stick the filter cup on. It helps pull whatever
    the capillary action of everything through. – [Narrator] The testing is
    relatively straightforward: a plastic cup with a
    special filter designed to capture traces of DNA
    is placed into the water. That sample is then sealed
    and will be sent away for analysis. The Alberta Conservation
    Association is sampling sites across the province
    in order to better determine the range of the carp. – How far have they spread,
    maybe where did they start, where have they spread
    to, and are there reasons why they haven’t spread
    further beyond that to the areas that we
    maybe don’t find them? Is it something that is
    environmental in nature or is it just because they
    haven’t gotten there yet, or because someone hasn’t
    moved them there yet? – [Narrator] The Prussian
    carp has the ability to adapt to just about
    any aquatic environment. Add to this their unique
    spawning abilities, and you would think we’re dealing
    with some alien life form. – The females don’t
    need males to reproduce. All they need is sperm
    from another cyprinid so it’s just kinda the
    broader species category that they’re found in. So there’s a lot of different minnows that fall in Alberta that fall
    within those categories of cyprinids. So, it just needs that to
    kind of trigger reproduction, it doesn’t use any genetic
    material from those males of those species. Then they produce these
    clones of themselves, so it’s a very quick reproducing. They can reproduce I
    think three times a year, or up to three times a year. So it’s very fast and a
    lot faster than any of our native species that we have here. – [Narrator] So the bottom line: If you catch a Prussian Carp, kill it and either take it home to eat, or dispose of the carcass properly. (triumphant music)

    The Great Pacific Garbage Patch Is Not What You Think It Is | The Swim
    Articles, Blog

    The Great Pacific Garbage Patch Is Not What You Think It Is | The Swim

    September 1, 2019

    THROUGH THE WORLD’S OCEANS. What’s leaving land heading out to sea is
    all the single-use packaging: it’s the straws, the bags, the bottles, the cup lids, the stir
    sticks, all this junk that we use once and throw away. A plastic bottle leaving California will get
    to Japan in about three to five years and come back across the northern half
    of the North Pacific. That spinning mass of water is a gyre. Plastic trash will migrate to those zones
    and get stuck. We actually take boats out in the middle of
    nowhere, we drag our net behind the boat and we count the plastic particles that are floating. Working with ocean modelers, we can get these
    never come to shore, that they would would just be stuck in this vortex, Curtis Ebbesmeyer, working with
    James Ingraham Jr. at NOAA, they’re the ones that came up with the term
    he said, ‘Look, I’m in an area roughly twice the size of Texas where I’m doing my transects’
    and that hit the media by storm. There aren’t these islands of trash;
    they don’t exist. It’s more like a smog of microplastic particles,
    two plastic, is the most common plastic in consumer use, and it makes your soap bottles,
    it makes your toothbrushes, it makes many of the consumer goods that float out in the
    garbage patch. If we think in terms of all the plastic that’s
    been produced since 1950, since it’s a synthetic material, hydrocarbons, it’s probably still
    here today on the planet. DR. SARAH-JEANNE ROYER WORKS WITH
    caps and not the bottle itself because the bottle is made out of PET. It’s sinking because the density of PET is
    THE SWIM EXPEDITION AND THE OCEAN VOYAGES INSTITUTE TO TAG AND TRACK THE WASTE THEY FIND. The Swim are using two different protocols. The first protocol is a visual survey of all
    marine debris they see from the vessel itself. Whenever they find an object that is large
    enough, they will get closer to the debris, they will take pictures of it. If there are numbers or lettering, they will
    share this information with us, so we can track back the origin of that debris. The second protocol is basically to attach
    a GPS buoy onto a marine debris to track their movement in
    SCIENTISTS TO BOTH IMPROVE MODELS OF HOW TRASH TRAVELS  IN THE OCEAN, AND LEARN WHERE TO FOCUS CLEANUP EFFORTS. MOST OF THE TIME, SARAH AND HER TEAM CAN’T IMMEDIATELY TELL WHERE A PIECE OF PLASTIC COMES FROM. BUT THEY CAN LOOK FOR OTHER CLUES. We need to use an FTIR or micro-Raman spectroscopy. This spectrum is matching a spectrum that is found in the library telling us what is the type of plastic. It’s probably the dream of all scientists
    to have a satellite and a new instrumentation to be able to quantify the amount of plastic
    EXACERBATING CLIMATE CHANGE. Only 10 percent of the habitat is on land. The rest, 90 percent of the habitat’s in the
    ocean, and it’s totally unexplored for the most part. Imagining all the jungles, all
    the deserts, all the savannas, all the Rocky Mountains… the ocean would be nine times more. The idea that somehow it could be 50 percent
    has an effect on your neighborhood, on your local watershed, and the ocean. Now, seeing the UN talking about it, seeing
    companies rise up and say, ‘We’re going zero waste.’ To see countries make a commitment to stop
    the flow of trash from land to sea… I feel optimistic that we can solve this problem. Be sure to visit to read
    daily updates from Ben Lecomte, track his progress in real time, and watch more videos
    about the science happening onboard Seeker. Click here for this next episode, and don’t
    forget to subscribe. Thanks for watching.

    🔴 5 Obvious Indicators a Recession Is Coming in 2020 | Recession Watch
    Articles, Blog

    🔴 5 Obvious Indicators a Recession Is Coming in 2020 | Recession Watch

    August 29, 2019

    In this series so far we’ve spoken to many experts about the global macro economy and it’s both the Analysts and the hedge fund managers who’ve given us their views on whether they think we might be moving to recession or not But to get a true picture we need to look at the sectoral level the sort of micro to the macro And that’s to understand the component parts of what makes up the economy so in this show I’m gonna go and speak to a number of people to get their perspective on what’s really happening on the ground to really ascertain whether There is something more Kind of odious going on beneath the surface or whether things are relatively plain sailing The first person I want to speak to is Mark Hanson of Concord resources Mark’s business ships metals around the world and speaks of the world’s largest customers I think it’s going to give us a really good idea of what’s going on on the ground Mark, good to get hold of you You know we met in London recently and you explained that you’re in the metals business and I just thought you’d be ideal for This program because I really want to pick your brain and what you saw is going on Give people a bit of an intro of what what you actually do It’s good to see you again So I run a company in London called copper resources, and we’re global metals merchant and trader Very active in all the markets physically and also financially across the precious metals base metals and a little bit of energy as well For context we deliver 2.2 million tonnes of metal products and raw materials to about 400 customers in 40 countries So we’re a very active global participant in the flow of raw materials So we purchase things like copper concentrate zinc concentrate alumina And then supply that on big ships trains and trucks all over the world everyday To customers in the smelting businesses and the fabrication businesses all over the world So by definition therefore your business could be pretty cyclical in terms of each of the commodities and different You know times of the business cycle demand and that kind of stuff it is Yeah, we really do face the daily fluctuations both of the microeconomics There’s various commodity markets But then also the macroeconomic factors of the drive those various markets and most of our products are directly quite industrial so what we’re seeing and dealing with other the wholesale markets that have to deal with the Smelting industries and the fabricators that fabricate those metals products into parts for automobiles or for them in the intermediate uses They do they go into consumer products So what do you think the end use for most of the metals are that you produce? I mean kind of because I’m trying to understand the industries that really you’re going to affect more than others or you’re going to see The effect of so our raw materials will touch final fabrication industries in aerospace automobiles housing products sometimes chemicals and other industrial infrastructure There’s two things. I’m really interested in One is the trade tariffs thing as a starter you know people with all of those global linkages whether you’re seeing people change their behavior pattern whether it’s building inventories, or Or running down inventories. And also whether bricks it’s had some sort of inventory build and run down as well Just just at a starting level. So for sure that the bigger story is trade and trade tariffs and that was a unexpected development that many Particularly industrial customers hadn’t come to appreciate I think the seriousness with which the Trump administration is approaching that topic they had been used to but break down to barriers not imposition of barriers and when the industrial world all of a sudden had a content within particular tariffs in China and having to deal with tariffs on Chinese fabrication products and Chinese export products That was an unexpected change in supply chains And I think people weren’t prepared or had forecasted to deal with it all so that that’s me has been the biggest story When I talk to business customers and people that move goods around the world for various final fabrication into media processing in different places That to them was a major reorienting of the supply chain They become used to where China is a major importer and exporter of a number of commodity products and commedia products remember products to steel products to auto parts and other things that touch China is in numerous amounts of goods that all of a sudden became quickly on economic and that wasn’t forecasted So I think that was one the other one that has been in the u.s. Story Particularly in metals, which it is it relevances You know Trump was it was very quick to put steel and aluminum tariffs on when he came into office And so what he did there was to protect domestic industry He put 25 percent on steel and then 15 percent of aluminum. That was a Boost to the US domestic industry at the expense of neighboring industry. So it hurt Canada at her production in Europe koalas a few exemptions in Australia, for example but by and large that was the first side that Trump was going to take very seriously the idea of reassuring American manufacturing what that did is a Turbocharged and already pretty good at that time American I would say you argued an American labor market domestic manufacturing base in certain industries like that So our real booze, which is now starting to fade a bit even even with those tariff effects So I think people were caught off guard and how serious he was taking that and then he was you know going to put it local reordering of trade flows by us by the pen by Fiat very seriously, so There’s a couple of questions on that. So in terms of the the global that the Chinese tariffs have people found That the new supply chains yet Or are they still trying to figure out how they’re going to? Haven’t gonna find all this sources tomorrow because China has been a big supplier of this kind of stuff China is a huge participant in those markets, but it is also very possible for people to move production reasonably quickly to alternative places So Vietnam is a beneficiary. The Philippines is beneficiary Japan is a beneficiary these replaces that companies can move either because of technology or Cheaper labor or are shipping the ease where they can move operations reasonably quickly. Do you think so? Well that’s happened. We can speak to some business people. It’s very easy for them to look at alternative sites in Asia and move away from Production in China and I do think some of that’s happened in some basic industries I do think that’s also why Trump’s move to those tariffs has been arguably somewhat successful in bringing the Chinese to the table to dialogue around a number of issues that were of importance and so your role is in that is to For your own customers sauce product from different places Essentially so to get around the tariff. So yeah, that doesn’t necessarily affect your business negatively It just changes some of your know for us we read and we’re not in the processing business so the people that are affected negative negative by the horse or the people that have plant equipment in China and then have to pay The import or export errors that are associated with their processing So that those are the customers that I think will look at and have looked at alternative destinations Mexico Southeast Asia Japan is another one where you can see There are gonna be some benefit to the local economies from that from that movement for the u.s it is it’s sort of funny because it’s not necessarily a job back to the US or Manufacturing back to the US but rather moving into an alternative location. It doesn’t have that tariff And if you found that you said that the the US benefit is kind of fading now Do you think that because you you see the kind of globalized world of metals? And do you see that America can really compete even with tariffs or you gonna find that there’s always going to be somebody else with cheaper metal To import into the u.s U.s. The US economy was by far the strongest consumption economy as the data As economic data clearly showed that it was also true an industrial basis where the auto market was the strongest you had real Activity again in building some infrastructure you had the rehabilitation of certain plants with smelting as I mentioned earlier. These were micro things We were seeing that reflected a broader and broader macro picture Until the start of this year and that meaningfully cooled I would say late in the fourth quarter and then certainly in the first and second quarters of 2019 The reasons for that is I think is a few but important to me I think people began to lose confidence that these policies were going to be driving Stimulative activity domestically, whereas instead they were becoming seen as kind of attacks So the cost of to consumers ultimately pass some of the increases in the supply chain changes Whether people began to feel that the momentum was fading behind any stimulus or boost did there have been in the economy driven by these suits or restoring efforts and other things were failing and I Think that took activity in the u.s quickly off What I would say had been a very brisk level last year in terms of business we did and it was really a standout market to a much more muted pace and I wouldn’t say that it’s Shrinking per se at the moment, but I would say that we don’t see industrial growth doesn’t exist at the moment, right? So growth is flattened out significant in the US and what are you seeing globally in terms of growth because you see the whole picture I guess you’ve got customers all around the world How does it feel to you out there? Look, your Europe has been consistently poor for several years now so there’s been no real change, maybe look industrial metals demand and commodity demand your Eurocentric has been poor I would say for a number of years, but it’s it’s Consistent along a level where people don’t expect a meaningful pick up rate or do change in that industrial Activity a rather steady flow of business that reflects normal export markets and normal consumption It hasn’t been a meaningful uptick that I can recall in the last few years in European construction or in in the auto market Domestically in Europe who’s been flats a week for a number of years now, that’s a reflection I think of just What would my macro markets have told us for a while is that it struggled to get that kind of traction? Where’s the US since Trump’s election did have a noticeable increase I think in Consumption people’s plans business investment all that was real and we did see that in a number of opportunities and business development initiatives We took Leon Sheridan and an illuminator fire in Louisiana, for example, but when employing people for that operation for example was very difficult We sort of see these these micro Points where the labor market for example was very very tight. You couldn’t hire people to work with some operations We wanted to restart or we’re going to have to increase wages to reflect that the US was very healthy but I do feel that that Comparative advantage seems to have faded quite a bit in the last six And the reasons for that Is probably a few but most important seems to be the people’s confidence is kind of drained from the business plans They wanted to make and their certainty in terms of political Evolutions of tariffs and other policies has become more of a drag than it is. Yeah I’m getting that I’m getting that impression as well I just see people of putting plans on hold, you know, and also the US aircraft manufacturing industries It’s you know, there’s problems there. We’ve got problems with the car sector as well So you just see demand overall just feels like it’s slowing down As you said it’s not yet in recession yet in the US but it kind of feels like it’s slowing and sorry You arete say elsewhere About the new. Eeehm economies have been from a commodity demand perspective I would say very volatile from when there’s some markets have been very good some years and some markets been very bad market like turkey For example that previously has been a real real excellent market for metals consumption and construction fabrication fell off a cliff a few years ago with the political developments there and was lacking to the currency and lack of Confidence there was a real indicator that that economies, you know been very boring Reflexive subsequently in industrial demands. We haven’t seen come back Southeast Asia similar to China has also been very quiet There’s been some signs of that offshoring from China having effects in some smaller markets like Vietnam or Philippines on highlight These two countries are probably better than people think simply because you’ve seen more business activity come from other country from China in particular their fervor for investment South America similarly You know in southern Africa is sort of hit or miss depending on on the vacancies of sort of the cycle But certainly nothing stands out there in the Latin region. Certainly the last two quarters last six months hasn’t been anything special Yeah, so you’re not really seeing growth anywhere. I guess across the global economy So if I look at the chart of copper for example as a proxy for like, you know Industrial metals just doesn’t look good to me It feels that prices want to fall because as you’re saying there’s no real demand out there. You’re not telling me yet I don’t think that you’re seeing a full recession but you’re just seeing no real incremental demand and that copper chart worries me that the whole metals complex can come lower and Also, I’m worried about the dollar going higher as well Which obviously has a big impact in your business and he thoughts on on color metals prices Because of demand and the currency side to two most important drivers because Highland what is the dollar? That’s all for all metal is gonna be key driver mister direction of the US dollar it certainly is I think surprised a number of market participants that the dollar has remained as firm as it is even with the Seemingly and with the bond market moving as it hasn’t with the expectation for easing from the Fed as it has That’s compounded a lot of commodity market participants at the same time We have pretty significant short positioning across the metals markets and copper in particular out of highlight recently is that very strong signs of the market did turn very short as part of that expectation of slowdown yet the prices failed to make Any real significant negative headway? There’s one other conundrum that I haven’t quite been able to square with the slowdown. We have seen in business, which is real It’s the lack of increase in visible inventories on the exchange So logically you would expect to see metals inventories increasing as consumption slows down producers are still producing The prices are still pretty good and you would expect to see inventory Exchange grow as people deliver that unwanted metals They’ve changed that hasn’t been happening in any meaningful sense across the LME metals Which is interesting because that’s not something I can fully explain yet but it sort of suggests that things aren’t as bad as we might think in terms of metals supply the man balance even though consumption is recently weak and metals premiums which is a prices that are paid over the Change prices to deliver the goods into certain locations or also, they’re poor but they’re not horrible as well so for the moment, I feel that we’re this sort of the zone where people Expect things to get better in the next six months they’re for continuing to stock up on their products as they would expect but not budgeting for any sort of major increase and Therefore we haven’t seen the backup of inventory yet Which would be the clear bear assignment to look for when going short copper or another zinc or aluminum or something like that? We haven’t seen that yet Yeah, it’s fascinating because we’re seeing you know from speaking to a bunch of macro people about their view Everyone’s kind of at the same point it’s like, okay everything is now pricing in slow growth and There’s not clear picture of whether we go into recession or not And it’s kind of like we’re waiting for the next three or four months to see that data My view is I think it might be the dollar that does it but let’s see it certainly could be the Meaningful move higher the dollar would pressure or all commodity prices from energy to copper to other base metals lower than a question but there’s an interesting flipside of this which is if the Fed delivers as people expect and if that stimulus is enough to Ignite some of the confidence that seems to have been lost in the last six months I do believe that because of the Situation we see in some commodity markets where we have low visible inventory You have reasonably balanced supply demand balances that Creates a situation we could actually have a fairly strong rebound in some of those prices to reflect people’s short-term increase of confidence If we continue to see data deteriorate if we see visible inventories rise If we see things like time spreads weekend if people don’t want to hold money So then you see the contango is growing in those markets. Those would all be signs that Actually, what we’re seeing is there is a real meaningful move towards recession and then towards actually, you know Not just no growth but contraction it feels like being long volatilities the right answer because one way or the other We’re probably gonna get reasonable move. We either break down or break up based on their so it’s going to be super interesting Mark, listen, thank you for allowing me to pick your brains and get an idea of what’s going on It’s it’s incredibly consistent hearing from what you’re talking about. What everybody else is talking about as well? We’re kind of in that wait-and-see moment where none of us can really get any clarity yet We’re not seeing there’s not many signs of a sharp deterioration. There’s not many signs of a bounce So I guess we’ll have to wait and see for a while We’ll have a clearer view of Which one which way we’re going and we should see whether the whether the the Mac reviews that input out there. I’m fed Amazing work or whether we see a real industrial Retrenchment that is going to take us into a period of very very weak growth and possibly recession. Come see ahead. Which one I Think we’re due I think we’re due for a period where we do see business activity contract and we do see a bit of a pullback and I think we’re overdue for that and the number of you know Industrial leadership leaders CEOs of the companies involved in our industry They recognize that I’ll close with this song The commodity space is not the space that’s going to be hurt as badly as some other sectors this time around everyone If sort of looks at the contest, I’ll be horrible because of China. That’s true But the industries also have been through a very rough period already for four or five years So you look at commodity prices and commodity companies. Well, yes, they’re obvious. It’s going to be more more downside But but the the industry is a much cleaner and more disciplined shape than it was because we’ve already been through some lean years Miss prices have been lower in exodus 2012 commodities have been on a downtrend Therefore the balances and the sort of discipline that’s been associated with that Leave some of those markets in better shape than they would have been on the one several years ago. I had this happened Yeah, it kind of makes sense for me is at the end of this as our buying up You know if it does go to recession, there’s going to be a longer-term buying opportunity in the commodity complex I think just because as you say it’s the kind of final flush out if it happens and after that There’s been a lot of restructuring that goes on. Oh, sorry one more question president precious precious metals amount You know that’s base from a training perspective and also a Shipping of concentrates to content there’s a copper and gold I think those markets are are primed for resurgence, and we’re seeing it already where an investor interests coming back Physically speaking. I think that business is picked up as well We do a lot of sports moves that active and in those in the products and that business is gone I think it’s much better in the last few months Investor interest is critical to those prices and there’s no question in my mind That investors couldn’t be bothered at all that sector in the last few years And now we see that positive price action and that almost hedge If you like against some of the outcomes we’re talking about has people quite interested in the space again So I’m positive on the prices. I think that we will continue to see investor interest there and central bank behind It’s been very strong as well, which is something that hasn’t been seen at this rate in many many years so the floor seems to be under a lot of that and if that can maintain itself then I think the Prices will be an interesting place to be for the long side if the views that we’re talking about come to fruition Perfect. Well, thank you ever so much. It’s zero. Yeah. Good to see you Wes so mark is like some of the guests we’ve had so far he’s kind of in that Pause point of not sure whether the date is gonna weaken or strengthen he kind of think it’s probably going to But I guess we’ll have to wait and see I think one of the big things the commodity sector is going to be the dollar But the other area want to find out about it’s the chemical sector you know chemicals make the world go around the car the unsung heroes of the global business cycle and Our guy on the ground. There is Paul Hodges. So let’s find out from Paul what he’s seeing with the chemicals business around the world Hi Paul Hodges. How are you? Yeah, let’s just think you back when you know No, so I’ve interviewed up a whole bunch of people So rack row guys analyst trashes in this particular program the idea is to kind of get a secretory. ‘el the micro to the macro right brilliant But you know you were one of the people I first want to reach out to to pick their brains on What you think and sees going on because the chemical sector which you’re an expert on is one of the most economically sensitive areas of all and you know We hit it off when we first met because we realized we were looking at the world from the same perspective But from different ways of getting to that perspective so, you know I wanted to get an idea what you were seeing now because there’s a number of things obviously with tariffs going on and supply change Changing Plus, you know economic slowdowns in certain areas. Give me what you’ll think your perspective is right now Well, I suppose if we sort of get go go back and do a helicopter view As we said in previous interviews What we’ve seen since December 2017 is a definite slowdown in the chemicals industry and this matters because we are the third largest industry in the world after energy and agriculture and We go into all parts of the economy and we’re in that position in the value chain Where we we do get six to nine months lead time on what’s happening elsewhere So you just then sort of if we start to focus down a bit, you know One of the wake-up calls for me was October last year where there’s a big industry conference in Europe And I walked into my first meeting with some said senior people from a major company Said how’s business my always my first question. Oh, we were down 40% the second half of September Wow I said, oh, you know and it went through three days We had 20 odd meetings with companies you know judge not just European companies but global companies and one CEO joked halfway through I Said oh, no, actually we’re doing better than everyone else. He said we’re only down 20% No, no, I don’t want to sort of say. Oh, yeah, this is a collapse what I’m saying? Is that mark at the moment at which we transitioned from a stable slightly rising? picture towards a real significant downturn and so if we come back we’ve now got the may data from our friends at the American Chemistry Council and Normally May would show quite a sizable Improvement because it’s right in the middle of the second quarter so car sales should be going well Construction should be going well all of these things and the weather has been good was good in May But in fact the only bounce by 0.2 and percent, you know that’s less than half of what we normally get in May so what we’re seeing is a deteriorating picture in the industry in almost all of the of the major markets and The bounces this is something I look at a bit The bounces are weaker than they used to be and they’re getting weaker all the time So the outlook for the second half of the year isn’t terribly good I don’t think so when you talk to your clients in the chemical sector, are they getting concerned? What are they doing in terms of inventory bills and that kind of stuff. Are they running down inventory? Where are they and that kind of cycle as well if they’re perceiving growth growth to be weak going forwards? Well, I taught in fact earlier today To CEO of one of the European majors on it exactly this topic It’s difficult in the chemical industry because we have got the geopolitical issues around Iran and the oil market So you’d be it’d be pretty risky for you to D stock at this stage Because we don’t know what’s going to and what might happen in the Strait of Hormuz And so, you know if we wake up one morning and find things on fire and oil prices $200, you know That’s an easier way of people going out of business. So there’s this is pretty high risks out there So really one thing is the oil price and feedstock could be quite important. We’ve talked about in the past This time is just a sort of stable issue what people saying? Analogic will instruct me when we’re talking. He said look we don’t know He said I’ve been talking to a lot of my colleagues We don’t know at the start of the month how the end of the month will turn out is great uncertainty Now so far so far he was saying, you know Let’s not talk ourselves into a downturn so far actually in you know it what we’re seeing at The moment is is a patchy area. Some areas are very bad I mean the auto market obviously is very bad to see that see the numbers there and so on Other markets even in the environmental area for example the personal care markets So actually they not not doing too badly Rangers and growth So what he’s saying is that we seem to be moving away from where we’ve been over the last 20 or so years where to forecast growth you say Oh, well, let’s take IMF GDP numbers and you know Maybe it’s one x out of what are the half x or whatever and we’re now looking at a much more specific oh, this Nisha is doing okay that one no, I’d rather you know, and so on and so it’s very hard to to forecast and have people had supply chain problems from Us tariffs on how they dealing with that Well, I mean we are right at the heart of the terracing in chemicals because they went on very early a year ago and Particular if you look at this from the US perspective The US is expanding its its production of polyethylene the largest single polymer By 40 percent due to shale gas Developments and the idea was that that would mostly go to China because the US market for polyethylene It hasn’t grown for 15 or 20 years and in fact it worked declining with the single-use packaging problems that is developing and consumers moving away from plastic bags and so on but of course In actual fact because of trade tariffs the sales to China have gone down over the last two years rather than going up So so where is that product? Well, we were slightly lucky in the vertical verse with her accountants because they’ll actually delayed everything by here but now we’re starting to be right in part of this problem and There really aren’t many places for it to go But we’re seeing much more coming to Europe for example, but the european market is is not growing either. So it’s just destabilizing the market latin america the Market, there is pretty flat since nowhere for it to go middle east is already an exporter So you’re you’re getting pressures building up from the pressures so far are building up in price So prices are coming down very dramatically over the last six or nine months because people aren’t really having to push Hard to get the volume moved. So that’s the that’s I guess a lack of demand and plenty of supply which is Exactly. Yeah and so let’s look at the regions, so I think you’ve been highlighting that China’s been pretty slow and I think you were one of the first people to see that buy exactly this process took us through the regions and then finish up with the US, which is I’m specifically interested in because I think it may be slowing down more, but I can’t tell and Most people are speaking to aren’t sure either yet. So I’d love to hear your perspective Really what I think Machan has been slowing for it for a while now Basically because you know if we what happened From 2008 was that they doubled debt to GDP ratios from hundred and fifty to three hundred percent You know, it was never that China became as so many people believed middle class overnight It was just that there was a lot of borrowing out there So us you could afford to buy a new car bill car sales went in ten years from five hundred and fifty thousand a month to two and a half million now, I stopped normal, you know that is I think it is important that we recognize that what we’ve seen in some areas is Completely at normal and so we shouldn’t be too worried You know if we come down from two and a half million to 1 million or one of the 1/2 million sales Actually, that would still be quite good growth compared to where we were it just doesn’t look very good You know compared to the last like last four or five years. So there is of us. Well, we need a historical perspective if we look at the top 10 market top ten economies What we see is that only two of them are on the rising trend. So Italy’s on a rising trend but only up to zero India’s on a rising trend but only up to two point two percent so pretty flat otherwise They if we look around Europe is is negative so France and Germany are negative do UK slightly strange because the May data which I’m using here is Still affected by the pre brexit stockpiling that we talked about in April You know every village hall in the UK was filled with stuff You know, it was a it was a false alarm so all of that has to Has to change so hard to see a pattern in the UK, but that doesn’t look as though it’s it’s growing very fast Of course, we’ve got the worries about October and a real brexit No Deal coming up then Otherwise if we look at them things are relatively flat Now, you know if we look at the US What is surprising? Is that the u.s Conceptually has this fantastic advantage because of shale gas and so the fact that the u.s Is not growing and the chemical Ret railcar shipments are not growing and so on is one of these things it’s a bit like the Sherlock Holmes Story if you remember that of the dog that didn’t bark in the night and you know, the great detective realized well Wait a minute the dog didn’t pop when this murder took place. So actually they can’t have been a stranger there It must have been the owner who did the murder And and we’re seeing that a bit in the states because the state’s ought to be rocketing up if the economy was doing well Then you know and then the states would be doing well because so much of you know so much of chemical business is trade So if you if you ask me where I think we are I think that what Trump is doing with trade restrictions is really damaging the chemical industry and that we are seeing the first signs of that because the whole Growth of the chemical industry has lost 25 years or so has been due to globalization and now that’s being cut off of them At the knees as it were the chemical industries got to be an indicator for the global economy And and so what you’re basically I’m interpreting what you’re saying is well if the chemical industry Is going to suffer from trade tariffs then trade itself is suffering and therefore the global economy Yeah, and in terms of the US and your you’re seeing a slowdown in the u.s You know what we’re What we’re also seeing was and I think we you know we we began to see this six or nine months ago, but There are lots of lots of signs, you know we look very closely at the auto industry because it’s three and a half thousand dollars worth of chemicals in every new US car and As you saw the volumes were down in the second quarter they were particularly down in in in June and at the same time, you know, we look at the used car market and that was up 9% and Experian reporting that you’ve now got record numbers of prime and You know super prime our buyers deciding to buy a used car rather than a new car now That seems very significant to us That’s you know, the people with the best credit scores and presumably the best incomes are saying, you know I need a new new new auto but I think yeah the price differential which is ten thousand dollars or so I think for this for the moment, I think I’m going to trade down. Yeah, that is super interesting so overall if you look at your indicators for across the chemical sector you’re seeing continued slow down or are you seeing a stabilization because in some sectors like the Metals industry they’re kind of seeing it’s stable at zero growth I don’t know how you’re seeing it right now You seeing a continued deterioration with the US slipping or you know, what’s your kind of prognosis? We’ve virtually on the point of saying we are either in a recession or about to enter the global recession You know, what what what could change that view? well, normally quarter three is pretty quiet because it’s the holiday season and everything else if it turned out that we’ve just been seeing a pause for some reason and Suddenly everybody has got low stocks and they need to rebuild and so on then yeah Then we would get a bit more confident. But as I say we’re saying about the oil price Think stocks are left below out there I think that stocks are actually you know If I was a buyer today And I talked to them a lot of the time I would have my stocks slightly above average Because I’d be nervous about geopolitics and so on but what’s your in it is really? you you’re you’re in a battle between the negative impact of trade terrorists and The way that the world economy is now being driven in a downwards direction versus the short-term issue of what’s happening in oil markets and feed stock markets, which Makes you nervous short term now both of those factors if you stand back and think about them, you know And if we talk about this in three or four months time, what we’ll say is well, both of those factors were negative There’s nothing out there that’s showing me that people are feeling confident about buying new cars about buying new homes about you know, We talked that six months ago about what we saw on the smartphone we’ve talked in November, you know, smartphones sales went into recession and then suddenly you know in January the street woke up to this and There was there was there was panic all around with Apple and so on. Oh Yeah, these three core consumer markets which have driven the world economy for the last 20 years or so They’re looking pretty weak some weaker than others in certain places. But no, I I I’m I’m afraid to say I’m Pretty pretty good pretty negative now poor. That’s what yeah I just wanted to pick your brains because you see it with a different perspective and I think it’s super useful for everybody To hear then. I really appreciate getting the time to chat with you Getting an idea and let’s how this plays out. I think I think it’s crucial. I think the next couple of months They’re kind of into the summer early. Autumn. I think we’ll have a really good idea I’m 10 to be like you I don’t think we’re gonna get the pickup the kind of Q3 q4 pickup that some people are expecting But yeah, let’s wait and see I’m yeah, I’m a little bit more sanguine as you are as well I mean the final thing that I’d say route is that we don’t take the view that the Fed is key in this What we’ve always said is that China did the massive stimulus? You know, he took the debt up and so on and it was like the car sales You know car sales in the rest of them of the world compared to 2007 and today are they up at all? It’s because of China and everything that went into that So we look at shadow banking and we look at this steamers Pro and they are clearly reigning that back And and that’s the key thing They’re uncovering debts all over the place for local government and so on and so that’s the real Headwind here that what that does. Is it brings forward demand from the future so if China is now finally having to cut back and you know 300 percent of GDP is a kind of level it makes you cut back You know People keep saying oh they must do new stimulus Well, there’s no sign of that and I think they’d be crazy if they did do it so So if China is is going to continue cutting back like that Then I don’t see there’s much option for anybody else and whatever the fact does to me I mean, I’m not a trader as you know I stock market trader III I think is relevant today where they can drop interest rates tomorrow to zero I don’t think it would make it. What effect it will get you bounce on the S&P Yeah, people have talked about that. They’re pushing on a string approach that the Fed whatever they do This is really gonna make a difference because there’s no true source of demand out there That’s all brilliant to speak to you as ever really good to get job Thanks you thanks a lot both mark and Paul Talked about how important the car sector is for metals and the global business cycle in the chemicals industry So obviously my go-to guy on this is Daniel Daniel Ruiz Has a deep understanding of the car sector and I want to find out globally What’s going on? because we’re all seeing global car sales shrinking and what his view is on the US where and know he’s got some strong views and They’re kind of Against the mainstream narrative. So let’s see what Dan and has to say Daniel good to get in touch with you finally cuz I’ve been talking to Mark Hanson in the metals business. I was speaking to Paul Hodges in the chemical business. They’re like, it’s all about a car industry Really you need to understand what’s going on there and you are my man in the car industry. So Give me a top-down perspective Of what you see is going on on a global level and then we’ll get down to the US where I’m really interested in What you’re saying, sir? So starting at the global level? Total global vehicle sales are down about six point four percent This is kind of more than two like a every market phenomenon, and it’s very concerning It’s it’s starting to have ripple effects on not just the the automakers but the suppliers and I think the phrase you use often is There’s quite a bit of knock-on effects that that are yet to be seen But some are starting to filter through so why is this happening globally right because I’m noticing the phenomena I mean, these are some big fools in car sales numbers all around the world What was it was that the rising interest rates that preceded it or is it excess inventory or is it what the hell’s going on? Others are Sifl, you know, it’s it’s they don’t they don’t go up forever there’s normal cycles and You know It just it’s things like that that happened that happened naturally in terms of interest rates It’s not so much what happened with interest rates? About in terms of them going up the issue here is that interest rates have been low for so long? that auto prices are inflated to levels that can’t be supported so You’re starting to see in my opinion Pushback from consumers that that have you know that have been stretched as far as they can go There’s no longer a financial mechanism to keep monthly payments low in terms of affordability, so It’s happening. It’s having a negative impact on sales. That would be my my you know, my my best guess on a global scale I’m very very Confident that that’s a big part of the issue in the u.s. Although there’s a lot of nuance. Yeah Well, I’m gonna come on to the US and a sec Are you seeing any pickup anywhere or do you seeing continued slowdown in sales outside? In the rest of the world. Is there any bright spots anything stabilizing or does it all look pretty shit still? Yeah, so China Appear to be a green shoot in June, right? So for the first time in a year there increased first glance I said, hey, that’s that’s great news, you know the economy seems Possibly. This is a sign that that yeah, the auto market is is turning in China But soon after reports started coming in that what fueled that sales increase was Pretty heavy discounting up to fifty percent I’m not saying that all the sales were fifty percent. I’m sure there’s somewhere in between but you know Large discounts fueled via the sales result but more importantly the thing that stands out particularly important to the viewers is that whole sales declined For the twelfth month in a row Despite the retail increase and another little important nuance that that was reported is that there’s no pickup in demand from dealers to automakers in sight So is it positive that that that sales increased? Yes that will bring inventories down. I Have some concerns about and anytime that there’s that there’s pricing pressure You can you can expect there to be other issues later on down the road I can say that with full confidence in the US. I know that the Chinese consumer is a bit different than the US consumer both from from purchasing habits and from Know that how they how they manage debt but anytime that you put pressure on a new asset it’s gonna filter down to the to the used asset and if The market is even remotely similar to ours That’s gonna have a negative negative impact on trade in values Which in other words is consumer purchasing power. So what I’m concerned with is that we see a spike that was very much related to heavy discounting that Has a negative impact on trade in values and then the following months. You have to have a Continued decline possibly worsening So I’m keeping a close eye on that. That was the one green chute. But otherwise all the markets are down Europe’s down Canada’s down mexico’s down. The u.s. Is down all the major markets are down So 220 by the us where you focus most of your attention what’s going on there? and you know how how rapidly are things changing the u.s. Is starting to get really really interesting a Couple months back that came on and I said that the US market is by far the most important the the automakers that I cover the reason why I cover them is because I have quite a bit of data and indicators that I use leading indicators that I use To forecast results in the u.s Extremely reliable and for the big three for GM and FCA north of 80% of full company EBIT comes from North America, so what I’ve been explaining to viewers is that the US has been very very Late to the party, right? It seemed like like auto sales worldwide turned down They also turned down to a greater magnitude than the data than they did in the US so the companies obviously have had headwinds overseas But they can overcome a lot of those overseas headwinds with us strengths or North American strength And that had been a story of the car industry for a while. Both America was strong enough Correct. Correct. North America was strong enough, you know at some point in time I think if we have time during this interview We should discuss the whole case for autos because it’s extremely important that that folks that are watching this understand the other side And quite frankly, I think it’s over which we can discuss in detail as well So what is happening to us growth? What are you saying you for the key indicators? what how bad is this gonna get I have three indicators that I use once a short term once a Medium term and provides confirmation for my forecasting and then one is a long term so my short term indicator is They supply and they supply is really really simple a really simple calculation But when used properly it is the absolute best indicator for you for the automotive industry Because in essence what you’re doing is you’re counting based on the sales rate How many days it would it would take for you to run out of it? Right based on the amount of inventory that you have so You can assume that if the rate of production is Equivalent to the rate of sales, then you have a very very steady day supply of vehicles however, when you see a spike and day supply You know that there’s an imbalance between production and sales that supply is outweighing demand and vice versa so There has been some improvement in base apply when you look at it on an overall market basis for the u.s It’s important to note that the improvement has come on North American production cuts not on an increase in demand or sales and When you when you start taking it a little bit deeper and you start looking at the companies that I cover for example for GM and FCA There’s there’s still there’s still risk in that in that indicator That suggests that there’s going to be further production cuts down the road. The medium-term indicator is is my wholesale estimates So in essence I can take day supply and forecast sales It’s a great indicator for that as I just explained wholesale estimates that I provide My clients are extremely accurate within a 1 to 2% margin of error. So So they provide confirmation on a monthly basis and then quarterly before of earnings We need to discuss those and Because I think there’s gonna be some surprises in q2. I Thought they were going to be coming in q3, but some are going to show up earlier and that’s a surprising weakness. You’re thinking. Yes yes, and Confirmation to a bigger theme that I have going right now which is critically important and I think largely misunderstood and then the long-term indicator which is which isn’t an important in the piece of this of the puzzle is Time to equity so time to equity in essence What I’m looking at is what a new vehicle buyers loan look like three years ago I’m looking at the average transaction price the average loan term the average interest rate I’m a merging that loan and then based on a proprietary formula that I developed I plug in used vehicle values and I can tell how long it takes for them to reach the break-even point in their loan So it’s it’s it’s it’s a terrific indicator because I always know what’s gonna how that looked how that picture looks three years into the future Because in essence I if I’m looking at three years back today meaning folks that purchase a new vehicle in 2016 I’m looking at them particularly because that’s your typical replacement cycle. Well, I’m logging data for 2019 currently and I can plug in the same formula for used car values and then I can determine how how time to equity is Shaping up going into the future And it’s not looking good. Well the best way to describe it is we have not begun the healing process. So So you’re saying your short-term indicators? down you’ll meet medium-term indicators are indicating an Acceleration of weakness and your long-term indicator is not showing any pick up Into the extended future yet. Is that right? That’s correct so this is quite a large bust coming in the hell in the car market if You’re if we’re not seeing it doesn’t looks more than a short-term cycle here. It’s not an inventory cycle We’ve actually got a bigger slump Absolutely, and that’s it That’s a great great point because we can go through ups and downs where inventories get out of hand Production gets cut all of a sudden day. Supply looks good, you know in three or four months later. We’re back in the same boat That’s just how it happens as as you as the market continues to weaken over time because of headwinds like time to equity so There’s a lot of people who were looking for a pickup in the back end of this year and So I’ve been talking to the other guys the chemical guys the metals guys and others about. Okay. What are you really seeing? The guy metals is is unsure because he’s seen kind of a balanced Kind of flatline of growth the chemical the guy from the chemical sector thinks it probably is turning lower and the u.s Is was a lag from the rest of the world. I think you’re saying Much of the same things that right That’s correct. And I think we got an important clue. Yes Sure, right, so I’m doing research and I’m trying to get prepped for this call And I want to be as current as possible and leer Supplier, I think they’re the eighth largest supplier of vehicle automotive parts they temper down their cue to guidance by I believe 10% and Importantly, they said that the back half of the year is gonna be worse than previously expected Well their customer their biggest customer or the automakers the biggest two customers are General Motors at eighteen percent of revenue Ford at sixteen percent of revenue and they very clearly stated that the reason why they’re cutting guidance is because They’re there. Their customers are decreasing production so we’re past in my opinion the Theory Thesis stage and we’re on to the confirmation stage. Yeah, and this is something you’ve been flagging for a while. You said it’s coming It’s coming and now it’s in full swing the equity price of moving around with Confidence but you know global confidence But the reality is you see is nothing but a slowdown going ahead and perceptions Narrative can can move stock prices around in between earnings calls but if the earnings don’t support the narrative or The perception then you’ve got a problem on your hands And I’m hoping I can provide some insight on that topic Daniel look perfect I just wanted to pick your brains and it’s been really interesting to hear you Because so many people said it’s all about the car sector and you’ve said very clearly the car sector it’s screwed It’s going down for a period of time and I think you know that’s very useful for us For on the ground to put this whole macro picture together to learn. I really appreciate it And I’m sure as this develops as the story develops You’ll come back to real vision and update people on their more, you know because you have a big detailed thesis and I think it’s important for you to come on real vision in due course and and Come and talk to us about that. But in the meantime, thank you so much for talking to me today so I think it was interesting to see how Concerned Daniel is by what’s going on in the in the car sector? I think that’s right I think there’s definitely something going on and it’s a at a global level as well Which I think is very important in this kind of recession outlook. I think the other thing I’d really like to understand is that other very cyclical businesses shipping and Harris is the person that might go to on shipping who really knows the details particularly the US shipping market So we’re gonna get some idea of what’s going on there And what he sees is moving around the world and whether there is a pervasive slowdown going on Harris good to speak to you again soon. Yeah listen I wanted to pick your brains because my idea here is that I’m concerned about a slowdown that may be larger that may go into something recessionary and you know, I’m looking across both the global landscape and in the US and It’s not clear where it’s headed but I know that you look at some of the things that are quite Cyclical in some of the markets that use trade and I know shipping is one of them So I just want to pick your brain to see what you’re thinking now I know things like shipping a more complex because there’s a secular thing, you know secular shipping prices had fallen significantly over time But there’s also a cyclical element and if you could tease apart any of that for us in in kind of what you’re seeing out there right now, right so Global macro, I’m seeing similar phase. You are the World trade seems to be slowing When you look at shipping, it’s a little bit different because you have local forces at play particularly with what’s happening with IMO 2020 IMO 2020 says that all bets will start January 1st have to only blower and low slow for fuel or they’ve installed into scrubbers and what that’s doing is it’s Forcing vessels off the market as they install scrubbers so supply is contracting somewhat Also, a lot of older vessels are getting scraps because they’re not going to be fuel-efficient this new low sulfur fuel is very expensive Compared to the previous fuels so you’ve seen a lot of older vessels getting scrapped So in the supply side you’re seeing contraction on the demand side We’re gonna have to see what happens, you know the trade war obviously has both drivers and shipping isn’t this monolithic thing people love to look at the Baltic Freight index for there’s many different categories of shipping sub sectors. So maybe look at some of the containers. Yeah demand For Chinese containers going into Los Angeles is slowing but when you look at other things like Baltic Freight or You know crude oil anytime you have trade wars in the trade disruption it means that the number of vessels on the water have to go further in the number of ton-miles increases take the Situation with Venezuela right now. It used to be that America imported a lot of Venezuelan crude That’s now all become circuitous where Venezuelan crude goes somewhere else and then eventually usually comes to America and Venezuela Which is importing refined product from America is not directly reporting it it’s going somewhere else first. So what that’s doing is its increasing Shipping routes and it’s increasing the number of ton miles. It’s actually bullying Prices even though the global economy and world trade and especially index you look at my cash shipping index are showing serious Declines it hasn’t yet hit shipping. And if anything I think shippings do it quite well Yeah, it’s interesting because one of the people I interviewed as part of this program a guy called mark Hanson He runs a metals distribution business essentially so metals trading attribution so He’s shipping metals around the world and the same thing all these supply chains breaking Has meant there’s more shipping going on has everyone scrambling to find new supply chains But what he’s seeing on those so the supply side for that and demand for that he can see But he’s what he saw was the overall demand for metal itself was falling yeah, and I think it’s interesting with your Port of Long Beach and some of these kind of things to see that container shipping seems to be Seems to be slowing and that would be an indication of global demand what that makes it I mean containers is one of those direct indicators of global demand and the important of stuff into America. That’s Consumer products. Yeah, I think that’s definitely slowing But when you look at other indexes Baltic Freight indexes, and we’ll take your highs right now And that’s because US soybeans don’t go to China anymore. They go to Brazil Brazilian soybeans go to China It’s just being all the trade routes longer. Yeah, exactly So shipping itself is not necessarily the it’s not a bearish But within that you need to kind of flip out you need to tease apart There’s two stories going on or going through it Actually, probably three stories one is the change in fuels so you can yeah, that’s that’s huge Then there is the new shipping routes which is which is another big story and then there’s probably a falling of demand for in world trade within that whole sector So it’s a really complicated thing Which is interesting because a lot of people will look at Baltic Freight and go well the world’s fine But what you’re actually telling me is now the Baltic price is fine for a bunch of very specific reasons. Does that make sense? Which is that you’re in year 10 of a bear market in? Dry bulk and these vessels last about 20 years and after these guys have been ordering vessels for ten years in losing money every day They stopped or any more vessels and so the supply is cutting off. I remember if you take weights to zero it’s very easy to buy vessels and especially we have Chinese and Koreans and other state banks giving Interest-free loans and very high LTV is you have these Greek guys. That kind of are say man If it doesn’t cost me anything to hold on to it Let’s just take three more poets and we’ll figure it out later and it’s not lasted for a decade you have its oversupply thing While the financing cost is very low so the operating costs if you losing a few thousand dollars a day operating these things eventually go broke and It’s taking a very long time because of the low interest rates to go broke But they’ve all gone broke and they stopped ordering and what a vessel hits 20 years again scrapped So you start to see more scrapping pickup Especially if I’m alone 20 20 and you’re starting to see less alluring So we’ve had is sort of a shift and it’s why it’s a cycle. It’s unto itself There any other areas that you’re seeing that that maybe we can tease out some economic indicators from weather? from within shipping for example, not in particular You know most global trade Continues no matter what happens with the overall economy And shipping when you really think about it you’re looking at very small changes in supply and demand one to three percent a year that then have huge changes on shipping rates and with IMO 2020 and the vessels coming off line right now to get Scrubbers installed you seeing that shrinkage in supply and that’s why rates have been bit up It’s gonna be probably a couple of months before we start seeing data as to total tons of products that have been moved around and that data usually gets refined and you know cleaned up over time also to get to an exact number of Tonnes moves tons miles it’s easier to look at just because you see the the rates daily. Yeah interesting One thing I’ve noticed is also As well as is air freight another freight, you know rail freight air freight. They’re all in freefall right now. It’s really yes I mean rail is terrible Every week maybe this is one of those data series you get weekly actually from their work us round and every week It’s sequentially worse and it’s pretty amazing to see this just roll over you look at Cass You look at Asian air freight gets company negative 20 or something is it’s really quite surprising And one more thing on the shipping side, which I think is really interesting a lot of these banks lost so much money on shipping and with new rules related to Basel they can’t keep the It’s harder for them from a risk weighting the other standpoint to have shipping loans You’ve seen a lot of banks basically saying we’re not going to be doing shipping loans You put our shipping book in to run off and you guys need to refinance these loans when they come to You’ve also seen a lot of massive portfolio sales So it’s kind of credits the sector which I mean it’s gonna have a long-term consequences They’re probably that are good for the sector Short term to be a lot of pain with a lot of people who can’t roll debt and are forced to go into the market And issue 10 percent preferred debt as opposed to borrowing at LIBOR plus 25 or 50, which is where it’s always historically been So it’s just an interesting change what’s happening as anxa tightening up? Yeah exactly, right? Brilliant. Okay. Well look. Thank you I really appreciate your kind of input into this part of that happy the jigsaw puzzle of Trying to piece together all the parts of the global economy and figure out what economic signals are real signals What are different signals and that kind of stuff? So I think it’s really interesting Yeah, definitely and we’ll get you back on real vision soon Yeah, so I think house has really helped to shape the understanding of what’s going on in that shipping market But the final part of the equation for me is housing and are now housing is not really the epicenter of what’s going on Right now but there are signs I think and I showed it in my first video that there is a slowdown in housing I think housing knocks onto consumer confidence. So it’s something we should understand So I wanted to speak to Keith to find out what Keith thinks on the housing market overall Because I know he’s looking at some forward-looking indicators that might really help us Keith’s great to finally get to talk to you. I really wanted to pick your brains about the housing markets You’re one of our experts in the housing market So I really wanted to get an idea of what you’re seeing in the top-down picture right now Housing markets are really hard to understand you just can’t look up prices the way you can with a stock or an ETF and That’s why there’s so much nonsense that Have been written about stock housing markets for forever So I’ve tried to look at things that I think tell us a lot about what’s going on with housing markets that for some reason Wall Street in the media just doesn’t pay any attention to right now, for example There are some serious red flags out there that if I could just briefly run through them I think they’re important for example Home sales have been weakening in even the hottest major metros for a year or so Some of them most of them are down double digits Now slowly home sales by itself isn’t necessarily a problem but Combined with that you have the rising inventory of homes for sale two months ago it was in the house market in the country Silicon Valley, San Jose was Double the inventory of a year ago and it’s still up substantially. See the other hottest markets Seattle Denver, LA are all showing a pretty substantial rises in Inventories you put those two together and that it suggests to me that we’re going to see and we have been seeing increases in Reductions at home prices. The last had I’d point out is the media pays no attention this so ever But I’ve for years. I’ve looked at it closely. What about Investors in housing markets. They’ve been a factor forever but there’s some evidence the last couple of years that Investors are plant even broader role in housing markets and had it not been for that I think there was a good chance that home prices would have already Plunged let me give you an example the largest website out there in terms of advice and information Good information for investors in single-family houses. It’s called the bigger pockets two years ago. They had 700,000 members now they have almost a million and a half and They took a recent survey. They have a lot of good information that it took a recent survey. Ok Was it an enormous survey? But it showed that in the last year those surveyed 80% of them had actually purchased in the last year so I think that the role of investors, let’s just say in the last 18 months has Increased now the numbers are all over the place So it’s really hard to get reliable figures what percentage of homes now are being purchased by investors By I I think it’s my best estimate is twenty to thirty percent are Investors and these are not flippers. These are people buying to invest and to rent out because they think there’s That it’s still profitable. I think they’re probably wrong, especially in the heart of markets but 20 you take away those twenty to thirty percent of buyers the market just Implodes it’s as simple as that, but I’m working on this on my next column, but it’s hard to get really reliable numbers in terms of what percentage are now buyers But I think it has been Increasing the past 18 months and it’s crucial much more important for example than foreign buyers the Chinese buyers we know they have gone away, but that’s this is much bigger than Than that 30% from the entire was caught so Keith. Are you concerned about a broader slowdown in prices going forwards? Is that what you’re looking at something that’s kind of less benign than we’re seeing right now Well, that’s the question. I mean I get questions Keith. Is this just a slowdown? You know The prices are no let me out but that in something temporary or is it longer-term? And I just don’t see anything at all that could turn around this trend I just don’t see it buyers if they have an extreme interest on the house of my but what could turn it around for example, so that more Millennials can purchase that’s just not going to happen the fact that Inventory is rising is just telling me that that you can’t find enough buyers at these prices Well, if that’s the case, then the only alternative is what they start reducing their asking price and You know like you I don’t like to make predictions, but I just the more red flags. I see the more I think that that these houses that housing markets have topped out and that we’re hitting lower I’m not saying necessarily. It’s gonna be like 2008 through 2012 But I’m not saying that it’s not one of the other things that you were suggesting there that demographics plays a role I mean, it’s something I look at a lot do you think that there’s a there’s a supply of property that comes from the baby boomers and The Millennials aren’t able to buy yet because the prices are so far apart. Is that a key element here? That means there’s an ongoing amount of supply that could Lower prices or flatten prices for the next ten years or so. Is that something that that’s within your framework? Yeah, I mean Democrat demographics are important. I don’t think they’re as important as these other factors that I mentioned But you certainly have to consider how many Millennials? Can afford at these prices now and the numbers out There are are pretty pretty frightening But like you I mean numbers tell me a lot and if you take a look at the numbers that I mentioned, they’re all They’re all Suggesting that you can’t find enough buyers at these prices and you know as would stop If you can’t then prices will go down. It’s just harder to trace them. I just saw today Adam data a reputable Sub data supplier about housing markets that I have used They said Oh median prices just hit for June hit a record-high Well, so what did I never talk about median prices they don’t tell you anything They hide a lot depends on the mix of houses and between that and Case Shiller, that’s what everybody looks at to me They tell you nothing That’s why I’ve been looking at these these factors Which I think suggest what’s going really going on in housing markets It may not be going on in the in the smaller markets but I don’t focus on smaller market because people are interested in what’s happening in the 50 largest metros, that’s where the markets are really made so what you’re suggesting is that that may be you probably the indicator here with inventories building up and that imagery build up is a future indicator of prices falling one of the things I’m thinking about in my world is if prices are falling does that mean that We’re gonna start seeing confidence hit as well. And does that filter through to the broader economy? Does that people make people less liable to buy cars or less viable to it invest in the stock market if they see? Household net worth coming down as their house prices come down. How do you see that playing out? Yeah I mean I try like you I try not to say that the world is falling apart and it’s going to happen tomorrow and You know and batten down the hatches but I think I’m also comfortable in saying that if We’ve topped out and in prices in certain metros, even the hottest one Silicon Valley Prices have started declining if that continues then surely likely that inventory of unsold homes will will increase people who may have there a lot of people who have held off putting the house on a market while prices will going up if They no longer think the prices are going up. They will start putting them on the market which will add to the inventory build-up and You can just see this thing beginning to snowball and I just you know, there were reasons I’ve written about for six years Why prices went up it was an artificial? Reduction in the supply of homes because the servicers stopped foreclosing It wasn’t it had nothing to do with demand. It’s the supply side and They can’t do that anymore. There are still millions of delinquent properties that are out there that have to be dealt with At some point the banks and let other lenders are gonna have to start putting them on the market All of these things you add them all together there and I just don’t see how how this can Turn around. I think we’re really at 2006 You know it had been okay. That’s my take keep well fascinating to talk to you Thank you so much for giving us a better guidance on this housing market I think it’s really interesting when I’ve been looking at the top level numbers as well And for me the whole thing looks a little bit concerning as yes It doesn’t look like it’s falling off a cliff as you say, but it’s concerning enough that we need to pay attention And if the economy starts getting a little bit more sluggish as well housing I think will go with it Great to talk to you and keep up the great work. Thanks so much, Keith

    🔴 Are Construction Stocks Headed For A Downturn? (w/ Bradley Safalow) | Stock Trade Ideas
    Articles, Blog

    🔴 Are Construction Stocks Headed For A Downturn? (w/ Bradley Safalow) | Stock Trade Ideas

    August 29, 2019

    Welcome to real visions trade ideas today. We’re sitting down with Brad saw flow of PA a research. It’s great to have you here Thank you for having me. I’m excited and this is your first time on real visions trade ideas So could you give us a little bit of your background on what you do? Sure. So PA research is a fundamental research firm that I founded about nine years ago now and it the idea I had previously worked at a hedge fund and before that at JPMorgan as an elite south side analysts. I wanted to bring an absolute return focused product Which means I generate not only Long’s but also short ideas To the market that was backed by not only rigorous fundamental analysis, but a ton of primary research So for your viewers, it’s kind of a hedge fund quality research product with no agenda No investment banking conflicts. Just get the idea. Right? Let’s generate high returns our investment ideas, right? Okay So with that in mind, what idea do you have today today? We’re gonna focus on treks, which is a composite decking manufacturer based in Virginia The company’s name is probably if you have a deck you’ve maybe have considered purchasing their products They have gained a lot of share over the last several years And due in large part to a number of factors but there’s been a movement towards replacing wood decking with composite decking and if you’re not familiar composite decking is made of recycled plastic bags bottles other things combined with wood products to create what people hope is a Experience that resembles wood and that will last a longer period of time now, we have a bearish view on treks which the stock itself has done well over the last several years but our bearishness is based on the view that the company is now facing a huge increase in competition at a time when they’re having Significant manufacturing problems. So before we start on the on track it’s important understand who they’re competing with and how that’s actually changed in a meaningful way the last two three years, so the industry If you go back to the last cycle composite decking actually took about 24% of the linear feet installed in the United States of decking So one of the things that I think investors trip up on as they say well today It’s 18 to 20 percent of the decking industry is composite decking The deccan suggestion is lost share and the point of this is that it is very expensive, right? so what’s happened in the industry is that you have an Influx of competitors and an influx of competitors who are now trying to bring lower price product to market so in the case of tracks Historically, they’ve had some competition there’s dozens of players out there But in the last few years you’ve seen a lot of acquisition active activity in this space. Where a Company called fibrin was acquired by Fortune Brands Universal Forest Products, which is a big wood distributor and across the country acquired their own platform And then you’ve had a couple other acquisitions that were made in the space and now instead of treks really competing against A few other players that were not as well capitalized they are competing against increasingly a swath of companies that have Distribution across the country. So you have fiber on you have a brand called decorator’s which is owned by Universal Forest Products You have timber tech which is all my ASAC and interesting enough at the start of this year timber deck launched its first ever advertising campaign national TV advertising campaign in our research suggestive gained a ton of consumer mind share and Broader backing from distributors. So you look at tracks, which has had a nice growth for a long period of time Now there’s suddenly facing competition from large. Well capitalized companies and Here’s I think the most interesting part attracts is that if you look across the building product space most companies app Operate with gross margins around 23 to 25 percent Trek’s has a 43% gross margin Now there are a number of factors that contribute that one is the pricing of the product two is that they were running their manufacturing facilities at max Utilization and three is that they really have not faced a ton of competition. So now you have competition coming into the market competition that’s gaining distribution and What’s most interesting is that in the last three four quarters Trek suddenly has had major execution problems So they’ve tried to roll out this new lower priced product that they hope will accelerate adoption of composite decking That will cannibalize their gross margins unequivocally. So there’s that dynamic but separately the management team is had a hard time getting the action right for these new products So what happened? This spring is that they actually fail to deliver product to their dealers to their distributors? So for the year, they’ve lost a ton of market share now The decking orders come in at least the initial orders for spring/summer selling season come in, November and December So if we look towards the fall part of my thesis is that the company will lose share because These competitors are now in the marketplace at the worst possible time for the company when they’ve actually failed to deliver so the market when I say the market in the investment community views this stock this company is this Massive secular grower the stock trades in nearly 30 times earnings. My view is that they’re going to struggle With gross margin compression and slower sales growth as a result of competition So there’s a lot of specifics with the treks itself, but I want to talk a little bit about the sector overall We recently had Jay Van Sciver on he’s the industrial sector head at hedge eye and he had this to say about the space So you had a series of really unusual and exceptional events happen to the building products construction material space first You had tax reform tax reform generally made your house and even the most optimistic view less It attacked Shultz are a lot fewer people are taking advantage of the tax benefits afforded to residential housing Second you had 125 years you’ve never had more rain than you had in the first half of 2019 I think is a stat that people haven’t quite internalized But it was the wettest year in the period that note was measured over the last 12 months, right? they’ve been doing that for a long time since like 1895 and the third thing is we had a spike up in interest rates and you know the middle of 2018 and interest rates are now down and we tend to see on average Construction spending respond to lower interest rates with about a seven-month lag So we should as we enter 2020 least on a relative basis have a better environment for residential construction Building product suppliers like mohawk. All right so with mortgage rates declining and with the weather possibly improving do you think that could be something that could Specifically buoy trucks sure so I know in the case of Jays Arguments he was talking about mohawk, which is actually start stock. I personally own and has been as a firm I published my portfolio holdings every quarter so my subscribers can see that but So much about Mohawk has to do with how they’re dealing with LVT and some of the manufacturing issues. They’ve had Certainly lower rates will help them lower rates will help anyone in the broader construction space so I don’t disagree with that the weather element which is interesting a lot of the building products companies have complained about them another company beacon roofing which is Well the largest roofing distributors in the u.s Missed badly this most recent quarter and they talked about the rain so that there’s no debating that that better weather will help And I would say that composite decking currently because of the credit conditions The category is growing at a low double-digit rate and my checks with dealers suggest that they you know through this spring and summer they were Let’s just say on average expecting mid-teens and then they do suspect some slowing in the back half Certainly trikes will continue to benefit from that yeah, my expectation is that Relative to the share gains. They’ve had up until this point or really up until 2019 That they will start to show slower growth in the industry and then again from an earnings perspective the margin dynamics for this company are about to change drastically and so you have a scenario where you know, I think the company’s earnings could ultimately be 25 to 40% below where the street is and In that scenario, I expect a massive rewriting of the stock going from hey, we have this huge secular grower and have high margins I mean a scary high margins for a building products company and that you have some mean reversion in that margin profile and the growth rate and that leads to what I think is a stock that’s trading in the low 80s now can trade as low as 35 40 now the stock over the Course of the past year has seen some pretty choppy action It recently released earnings and shot up out of that range that it was in it Shut up about 20% Is that a concern here? And and were you short the stock before earnings releases? Your second question first. Yes about the stock. We you know, we introduces a short idea in March of this year My timing there wasn’t wasn’t exactly perfect But you know, we take a long-term view. Most of the short said I’m looking at our kind of two three years in duration as far as the action in the stock, the volatility is really surrounding the production issues that they’ve had at both their Winchester plan and Nevada plants where again, there is a big question whether the company can consistently execute on Producing both their high-end traditional product which is called treks transcend and this new lower priced product called trucks enhance Getting those lines up and running is create a lot of production problems They were also trying to do so many different things. They’re launching new products. They’re trying to increase capacity at their existing plans And again now facing all sorts of different Competitions so the volatility around the stock really has more to do with their execution issues Not so much with the the broader industry trends. So even though we saw bullish earnings outlook yourself fairly booked bearish on the stock Yeah, it should have spent a little more time talking about it would actually happen with earnings So the company in the quarter of the second quarter, I actually missed their gross margins or what they had got it to And they were all set. That was some other error So I’d say the actual quality of their earnings beat was very low. The sales number was not great The reason why the stock traded up so much is that their guidance for the third and fourth quarter? They basically said we have all these catch-up sales to do Because again, we weren’t able to deliver a product in the channel inventories in the channel have been depleted to some level there There’s been a drawdown and so we need to restock so What’s really happened in totality is that earnings? That should have been delivered in the second quarter been pushed to the third and fourth quarter? Some kind of changing the seasonality the business at least for this year Again, my view is what happens next year is gonna be a very different selling landscape for the company Alright, so could you talk a little bit about your target price and also where you would stop out of this sure So we expect the the company’s earnings to disappoint 2020 2021 as this competition dynamic takes hold and I think the company will continue to struggle some of these execution issues. So We think the stock in trade 236 is our official target, which is 15 times by 2020 earnings number as far as being stopped out From a stock price perspective obviously everyone wants to manage risk, but I’m you know Someone who’s fundamentally focused and what’s going on in the industry. It would have to be a change in the competitive dynamics the company’s ability to deliver incremental gross margin in excess of 45 percent some other factor that would cause me to read Recalibrate how I was thinking about the name Not necessarily an absolute price now in terms of that. What do you see as being the biggest potential risk to this Shores basis? Yeah I think you know you’ve touched and we’ve touched on this several times is that the category growth is very strong And so, you know even a poorly run boat in a rising tide and will still motor along, right? So that’s what’s happened for trucks this year and certainly for the stock so that to me is the biggest risk is how long can the overall demand and this shift from wood to composite decking a lot of people view that as a secular trend and there are people in the industry trying to lower the price of Composite decking to drive that trend, but that’s that’s going to be The momentum for the business the only you know from a US about this earlier about from a credit perspective I don’t think people are cognizant of how much these businesses are really reliant on all sorts of exotic forms of credit so That is a really important dynamic and it doesn’t get talked about enough around this company great Thank you so much for joining us. Thank you for having me. So Brad is bearish on Trek’s Specifically, he likes shorting it at current levels and sees downside risk as low as 36 dollars over the next two years Just remember this is a trade idea and not investment advice Make sure to do your own research consider your risk tolerance and invested cording. Ly for real vision, I’m Justine Andre

    🔴 The Stock and Bond Divide (w/Michael Purves) | Stock Trade Ideas
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    🔴 The Stock and Bond Divide (w/Michael Purves) | Stock Trade Ideas

    August 24, 2019

    Welcome to trade ideas. I’m Alex Rosenberg here with Michael Purvis of tolbukhin Capital Advisors, and before we get into everything we’re gonna talk about today. What’s a what’s a tall Bakken I tell you Thank you for asking. Thank you for having me back Alex. So yeah tall bakit is the name of my new firm It’s an obscure Swedish phrase referring to sort of a knoll with with with large Pine trees on it. Actually. It’s a slightly obscure reference But when I’m fond of as you know, I’ve been you know for the last several years. I’ve been we at whedon company broker-dealer The way the sell-side is changing is that it’s it’s really kind of bifurcated. There is either trade execution over here if you will Which is increasingly favoring large scale heavy technology or there’s just content right and there’s a there’s an unbundling of of how you know content and Trade execution is happening And so for me just looking prospectively looking at some of the trends in Europe was myth it and so forth it just made it was eminently clear that just going to a Pure content model that where the we’re clients institutional clients are just paying a monthly or quarterly fee for High-quality advice and let’s get some of that advice here Last time you were on was in June you talked about this Divergence between what the bond market and what the equity market seemed to be looking at you said it was almost like they were looking At two different sets of economic data with the bond market looking for much slower growth maybe even recession equity markets much a lot more sanguine and A lots happened this week. We’ve gotten the Fed statement. We got powell talking about how its insurance cut We got another tweet about tariffs from the president and then today friday we got a jobs number that you know pretty good overall pretty Substantial wage growth that at least so given all that who’s who has the upper hand who’s winning this fight between stocks and bonds? I think one of this enduring things is this sort of Enduring gulf between the the bond market when I say the bond market bugging me about the Treasury market On the one hand and then the equity market and I’ll put the credit with that as well You know high-yield investment grade credit over here, right and you ask me who’s winning? Well in a sense I guess they’re both winning because the S&P is up twenty percent year-to-date and if you went long Treasuries, you’ve been doing great but within that sort of both or winning condition the question is is what what is the story between this two because still okay, a Powell gave us 25 basis points and and It would seem to be a little bit more of a nudge that hey we’re not at the we’re not starting a cut a cutting cycle but You know, we could easily do more than just this one cut, right so sort of between those two areas Trying to thread a few different needles which was you know quite candidly You know for all the criticism that Powell gets he has a very hard job when on the one hand There’s an enormous gulf between where? the rates markets the bond market the treasury markets decided to go over the last several months on the one hand and where his Economic forecasts are which are pretty much by the way right aligned with Wall Street consensus forecast as well in most other Institutional forecasts whether it’s IMF or world bankers so forth right there, you know, there’s variances But they’re usually marked by 10 or 20 basis points in terms of 2020 GDP and inflation Right and then on the other hand Powless all has to fight this battle in a sense with the white house, right? Because sure enough, you know right after the powell came on wednesday There was you know trump was out there commenting that hey, you know, look he’s not playing ball here Right and this morning larry cudlow was in the media discussing how look you know? We’ve had highly restrictive monetary policy for the last two years There so, you know, he doesn’t have an easy job, right he’s fighting a war on two fronts the white house and the markets and with a with a huge gap between between that I think it’s how this gap gets resolved is a gonna require a lot of Finesse from powell right finesse that he’d a lot of people would say you hasn’t actually mastered yet there but frankly, you know, you could have the most articulate and nuanced Fed, share ever in this role It’s a hard job to sort of navigate that right because on the one hand if he does say he doesn’t give us a cut in September because the economic data is strong and The bond market is still Heavily bullish rates meaning they’re expecting yields to be lower for longer Across the curve. Well, that’s almost You know, like giving a rate hike in a sense to the markets in terms of it’s jarring and therefore he drives up the VIX and he’s and he’s gonna Put you know a little bit more financial stress and it’s a little bit circular, right? Because then of course financial stress is one reason for him to to to cut right so it’s a very difficult condition There and I think there’s another dimension of this whole REITs rally here, which is really important I’ve touched on it in June, but I think it’s worth talking about again, which is that the global rates market Has been one that’s been even more extreme, of course, right? And Look at the bond market where 10-year bonds are, you know minus 40 basis points. They keep somehow making fresh lows No, we can debate the economic rationale of buying a bone with a for 10 years with a negative 40 point yield on it But nonetheless that’s where the markets are are actually pricing that particular security, right? so One of the things that I think is a real conundrum for Powell is that he’s talking about the rest of world issues rest of world weakness The eurozone China and so forth as being this principle Rationale for the insurance cut. We just got our for and effectively for any dovish policy we get prospectively But my question would to Powell would be but sure but a lot of that stuff is already Reflected in these foreign bond markets, right? So what buns are crazy low? That’s reflecting real bad real persistently weak economic condition and Germany and Europe and so forth and Those bund yields have been dragging down our Treasury yields with it right now. Clearly there’s a the Treasury market the Euro dollars market the Fed Funds markets are very focused on What Powell’s policies going to be with respect the Fed Funds rate nonetheless? The correlation between the buns and the 10-year Treasury yields has been spiking Hugely, as both fields came lower together, right? You know, there’s always some correlation, but the correlation got really really strong here. So play out a scenario into later this summer or fall Where you know it sounds hard to imagine right now, but what if there’s a big economic? Uptick in some of the eurozone data what if those bond yields? Start climbing back to zero or up to positive 10 20 30 basis points where they were For a lot of the last several years, even though the euro zone data never got that great right in 2017 It was ticking up but it it never really got back up but still from minus 40 60 basis points is a scenario You have to consider and given how strong the correlation has been with rates coming down together Is that going to lift that certainly at least the ten-year back up and also not only re steep and our Treasury yield curves? but also sort of throat yet another monkey wrench into how Powell is processing all this data and all this market data Economic data and the market data. So if it seems like the bond market and the stock market are looking at different things Perhaps is because they are maybe maybe earnings and the economy in the u.s Is strong enough for for equities to remain bid while the bond market, you know? That’s a pool of investors were thinking do I want to buy US Treasuries, or do I want to buy bonds at negative rates? So I guess if you’re thinking about the chance of improving economic data in Europe Leading those rates to go higher obviously negative for the bond mark in the US as well I guess how correlated do you think that global economic data is especially we’re in a world with with you know deep increasing trade tensions increasing divergences between the political outcomes I mean just look at brexit in and all the other things that are happening in Europe that are not necessarily related to What factories are producing in the US I guess? Know, how does that? Correlation play into that market correlate. Yeah It’s a great question and thank you for asking it but you know look the stock answer about the US is that we’re relatively Insulated relative to certainly economies like China the eurozone and so forth that it’s just we’re a lot more self-sufficient and That’s true. Having said that if you look talk about the US equity complex, that is not insular, right? I mean that is if you You know for discussions, they just pretend the SP is one giant company, correct? It’s a global multinational company where nearly 50 percent of its revenues come from overseas Therefore right. So even if our economy is more like 25 for some the SPS more closer to 50 percent, right? So there’s a doctor you know when you talk about the US economy and you talk about the US stock market you have to first start with the you know appreciating That difference there. The other thing you were touching on is is that is that these? They’re this economic correlation across countries and and look clearly the US has been the performance story Relative to the rest of the world still is that’s sort of saying on the face of it that there’s correlations are relatively weak but there’s also things that kind of you know tend to tend to lag the correlations have been remarkably strong between Eurozone particularly a lot of the German manufacturing data and a lot of the Chinese Economic data, right those correlations pretend to be really stickier and stickier So in the midst of this this global situation where stocks and bonds are maybe looking at different things, of course You know all part of the global economy as we discussed Where is the greatest pain trade do you think is it in stocks is and bonds and you know Or is it in some other asset and which way does that go? It’s hard to figure out how people are you know, when so many people are looking at different things It’s not like everyone’s on one side of the boat necessarily, you know That is a great question like you several minutes ago You asked me like so who’s winning bonds or? Equities and I said both I would say though in terms of where the pain trade is and I think that’s a really good question a way to sort of frame this discussion Where’s where’s the asymmetric risk to the downside and I would say Candidly, and it’s a tough call to make given how strong this bond market rally has been right but to my mind I think There’s still a very good case for rates in the United States to be going higher here, right? We talked about some of those Scenarios where what if the euro zone data gets better? But if the China stimulus starts taking hold in that ricochets into the euro zone data and that lifts Yields higher that will be exported into our market over here and then you’ll see you know it quick rise up higher here and I’d very least there’s a lot of sentiment pulled up on that whole Treasury notion right that you know, 10-year yields are going to 1% and all that and some people were even saying 0% I’m not quite convinced That’s that’s the case and then when you talk about where are people how are people positioned, right? well Look at the euro dollars positioning, right? If you look at the net speculative positioning relative to the total open interest there at seven-year highs, right? I mean, I mean basically post great financial highs So basically in the money markets everyone and their grandmother seems to be long euro dollars right now that to me is a risk factor That that people are heavily on one side of the boat equities on the other hand We’ve had you know, year-to-date rally 20% We came off those December lows, you know was supposed to be this Oh my god, you know we’re gonna be you know There was part of that whole like we have trade and we’re gonna Powell is gonna hike us into a recession, right? And When we had that, you know, we’ve had a really solid risk rally here But I’m not convinced that it took everyone with it, right? I don’t see a lot of sentiment gauges that are where we’re like, oh my god, like, you know It’s not like every taxi driver sort of screaming about like, you know, you get long Amazon right that condition. I don’t see it Either in the retail space or the institutional space right now. I think there’s a partly because of this bond market bid There’s a healthy skepticism about oh my god. Well, geez, you know, do I really want to play here? do Be buying the market 20% of year today when the bond market is sort of seems to be telling me is there’s a recession in 2020 so I don’t think you know, there’s I think a lot of large-scale allocators have been De-risked equities Last year thinking it was sort of topped the eighth-inning of this economic cycle and a lot of some of them have come back in like the Norwegian self the sovereign wealth fund was Public about you know buying that dip on late December, right which obviously wasn’t brilliant rate But I don’t know how many of them are there. I think there’s a lot of people that are still being very careful with with risk right now Which means that there’s room for the market to rally further or at least that if it does sell-off that maybe perhaps then those guys will come back in and And be dip buyers So I think right now my landscape is is that is that if there’s asymmetric risk to the downside? it’s more in the bond market than there is in the equity market I think people are really gonna appreciate this perspective because we’ve had a lot of people Come on, real vision to beyond what it sounded like is the consensus side of the trade, you know John Burbank coming on talking about buying call options on Eurodollar futures for instance, which is you know, Sort of his way play this potential Recession lower rates even going down to negative raise potentially outlook. So it’s it’s first of all really great to hear the other side I think this is really useful just from from a high level if you were to advise anything tactical to kind of play off of this this allocation that and this idea that people are playing for these lower rates that if David turns around especially in Europe. It could really turn the other way fast. How would you think about that tactic? Well, I think look if you’re using ETFs just simply speaking You can look at the TLT and shorting that or buying puts on the TLT would be sort of an obvious way of rates going higher in the United States play I think I think with in equities I think if rates do go higher or utilities have been extraordinarily Aggressively bid right just like euro dollars have been aggressively dead. It’s sort of effectively the same trade Those have a lot of torque to the downside if rates do in fact break They’re getting long banks would probably play as you know, if particularly at the backend Increases higher and and that you see those yield curves, you know ranging a little bit more dynamically to the upside. Very good Well, Michael, thank you for sharing this contrarian perspective I think the way you look at the world and make sense of the way acids are correlated and the way Economies make sense together. It’s gonna be really useful for folks. So Michael, thank you so much for joining us, Biba So Michael fears bonds may be overbought and specifically he thinks the potential for an uptick in global economic data Could drive Treasury yields higher in bond prices lower He recommends playing the set up with put options on the TLT That was Michael Purvis of tall Bakken Capital Advisors into real visions. I’m out with You

    🔴 What the Fed Rate Cut Means & How to Play It (w/Tony Greer) | Stock Trade Ideas
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    🔴 What the Fed Rate Cut Means & How to Play It (w/Tony Greer) | Stock Trade Ideas

    August 22, 2019

    Welcome to trade ideas I’m Jake Merle sitting down with Tony Greer Editor of the morning navigator Tony great to have you back on the show for having me man So we just saw the first rate cut in over a decade Powell. Just got done giving a speech and Personally, this is the first rate cut. I’ve seen. Yeah, I know I’m a student of the markets Just getting into the markets and I want to get your thoughts. Is this a good thing a bad thing? What’s going on? Yeah We should I guess we should set it up with some history since you’re student of the market right last time the Fed cut rates We were addressing The housing crisis, right? So we started off with Fed Funds at five and a quarter and wound up lowering that them to zero Over the course of I think just over a year and during that time the market got shellacked Right because the stock market was then can falling into the mortgage crisis. We were dealing with Excuse me. We’re dealing with Bear Stearns. We were dealing with Lehman Brothers going bankrupt the whole thing We had a much different economic background as well. You know, we had higher oil prices. We had oil prices up in 95 So we had higher interest rates at around four percent in the ten year. So things were much different, right? We were we were addressing then what was coming out of a crisis right now. We’re not coming out of any crisis, right? What seems It seems like a sort of smartly prudent rate cut to me believe it or not And this is a little bit of a change of opinion for me, right? I originally thought that Powell was 100% beholden to Trump for this rate cut, right? I mean he literally seemed optically like he was just Caving to the president pointing around the world saying being a complete baby the way he knows to be everybody else gets lower rates Why we have such high interest rates President Obama got zero interest rates for his whole ten-year Why do I have to have 3% interest rates, you know? So he conflates these stories out of nothing and starts putting pressure on the Fed Chairman and that’s when you know We saw even more of a dovish pivot but we saw that goal the dovish pivot go around the world and it was really in a reaction to a collapse in the Manufacturing sector, which was really evident like you can see them right go right around the world for Europe to China, you know We saw PMI stick down from either the mid 50s to high 50s To the low 50s and then some into the 40s now as you know that you know p.m Eyes, we judge economic expansion and contraction as being either north of south of 50 So we’ve seen Europe already go into economic contraction due to the trade wars right at this point We’ve seen the market falter right when we have fears of trade wars tipping Equity earnings over and having a negative effect on the economy. So what do we have every time we see that? The u.s. Gov to the rescue, right? Like we saw Steve minuchin back in December The government comes to the rescue says there’s going to be plenty of liquidity at all the banks and the market was manages to recover so the mat market gets back on its own feet and We go into earnings season and earnings start coming out positively and then the SP can continue to run from there So while it seems completely absurd that we are cutting rates with the stock market at an all-time high and with unemployment at 3.7 percent and with PMI, even at 51.7 indicating expansion and no sign of inflation. It does seem like preemptively a smart idea considering the ECB just turned full dove right after in response to their PMI is coming off if There’s no pivot by the Fed then we wind up with a you know widen the interest rate differential with us over a several other countries and probably a strengthening dollar right and in a really Super strong dollar is gonna hurt our exporters something that the president doesn’t want to me we can’t be the outstanding hawk on the planet right now because it would just Topple too much within the system which seems to be going along with just fine right now one of the things that’s interesting that Powell Said was that they’re not gonna change They’re not gonna cut the balance sheet down any more from here right to me that that’s directly addressing the fact That’s that’s for Trump. Right? That’s to say that okay Look, we’re gonna leave the balance sheet right where it is So that it doesn’t mess with the stock market the 25 basis point cut seems like it’s rational in response to p.m Eyes around the world coming down and US PMI coming back. So if we Fall below 50 and start seeing drag on economic data. They will look smart and have said, okay we’re a little bit ahead of this and As you would have expected He left the door open for another rate cut And the reason that he has to do that in my opinion There’s no way that the Fed can almost never anymore signal that they’re done for good cutting rates because then their risk is They say that they’re done cutting rates the economics of the u.s. Stay sideways too firm and the stock market backs off Now, what do you think? They’re gonna have to do if the stock market backs off? They’re gonna have to cut rates Are they gonna have to go there do something? So to me, it makes sense for them to say yeah that you know We will address as time goes by we’ll make it data dependent, but they definitely didn’t rule out another rate cut So it seems to me now as the markets go It seems like the equity market is probably gonna go by business as usual, right? I mean there’s a little bit of a dip today in response to It’s probably sell the fact type of response where we were expecting a quarter of a point We got a quarter of a point. Nobody knows really what’s gonna happen next So let’s probably take profits on the stocks that we’ve bought in the last three to six weeks at least right? So that move doesn’t scare me And nor it is it I’m not gonna be one of those guys that’s out there saying, okay Here comes the big tumble right rather I would be looking to posture myself to buy a dip in this environment if we get an SMP pullback – it’s moving averages I would certainly take a chance and look for the stocks that I want to get long and buy them Will that be the 50-day moving average 200-day? Yeah somewhere in there depending on how fast it gets there right rate of change is everything so if we fall down there and the next You know two sessions. I might be a little hesitant if it takes us two weeks To sort of back and fill into that area then I think it’s a good idea to you know Sort of do some shopping and get a little bit longer the stocks that you want to buy or put a new length on In stocks that you’ve been looking at and and have you had on your radar So I think that’s the way that I’m gonna play it. I’ve still got a fairly outsized bond short position on for me And I’m trafficking right now in IEF. That’s the seven to 10-year Treasury ETF My premise for the bond short was that interest rates had fallen too far? given the strength of the economy Right all of a sudden it seemed to me like the Fed was on hold and then they said okay we’re gonna respond to changes in market and we saw some economic weakness abroad and Bonds just went on a run and absolutely, you know knocked interest rates much lower across the curve But we’re still sort of being sensitive and I think that the Fed is also being sensitive to that curve Right because the big alarm that everybody watches is the three-month ten-year spread Three-month ten-year spread touched down at zero in March of this year When that spread touches zero agos inverted a recession has followed more often than not right So I think the Fed is saying, you know, we’re seeing numbers come off abroad. We’ve got this three months ten months three month ten-year spread as a little bit of an alarm going off in the office saying there’s usually Recession that follows this and so maybe they’re being prudent and following along with that narrative in their rate cut So the bond market to me This is going to be another test I mean since I’m in the 10-year part of the curve, I’m gonna talk about that But to me, this is gonna be the ultimate test of 2% in the 10-year I’ve been calling it the Battle of two percent right rates came from a high of about three and a quarter or so Came tanking down to 2% in the 10-year and so far we’ve been sideways, right? So I’m looking for more and more data in the US to sort of hold steady or Maybe even improve and to catch the bond market which has gotten overly overly optimistic and bullish off Sides to a point where the bond market has to sell-off and 10-year yields have to trade up higher So this isn’t a generational trade, right? This is just a feeling that the bond market is overbought Sentiment is overly bullish Everybody is positioned long And so let’s take a chance at fading that and seeing if the US economy stays sideways and we have a chance at rates Retracing to where they came from. So that’s basically the way I’m playing it It feels like stocks can probably hold the dip and go on rallying business as usual, right the Fang complex is still Driving the markets and you know performing fairly well So would that be a short-term trade or you bullish on the markets in general for more of a longer-term picture as well? Yeah, I mean You know my timeframes Jake are usually somewhere from you know Trading timeframes or a week to two months and investment timeframes are sort of three months to a year Maybe a little bit beyond kind of thing You know if you get lucky and something really continues to perform but for a bond trade This is something that’s very tactical right where I am, right? I You know yields fell to 2% I put the trade on at this level and Sort of when they break if bonds rally and break through 2% That’s where I get out So I’m not risking a large amount of money at all I just kind of waited for them to get to this level I sold Treasuries via the ETF and I’m gonna see what happens now, but Most importantly. Like I said, I think that the equity market can probably sustain this I feel like no matter What if there is another steep pullback in equities that we’re gonna hear from Steve minuchin again? I mean, they’re not gonna change the game plan at the White House or at the Treasury, you know The goal is the stock market to continue up into the right and it seems like President Trump continues to get his way So that’s my wrap-up. I mean as long as I Originally thought it was really Trump induced rate cut and now I feel like it might be just the prudent thing to do for markets and The thing about the balance sheet to me that’s saying that they don’t want to do anything. That’s gonna Cause anything to raise rates in any way? Which the balance sheet tapering could do and I think that’s sort of another throw in for Trump so that he can know that they’re not going to tamper with the balance sheet And so that’s where we are now I think it might be business as usual for stocks and I’m gonna keep fighting this bond short for as long as I can so we just saw Powell speak and actually the Dow fell about 400 points during his press conference as he was talking about This may be a one and done type of a rate cut and during a mid cycle But let’s say the data does stabilize and we don’t get more rate cuts Is it back to you know bad is good good is bad. How do you see it playing out then? It goes back to listening to what Trump wants quite honestly if you ask me I mean, I think it’s I think that the sort of bounce off of the lows You know when there was some iteration of Powell saying that we may be being a one-and-done rate cut situation I think that may have been coincident sold type of thing I’m really all about where the market closes on the day. And I think that once all is said and done today It will look just like a sell the fact sell-off in stocks where it’s nothing fatal But it proves to be a reason for stocks to pull back off the all-time highs, right? It’s not like we’re having a pullback from mid. It’s not like we’re plunging to lower levels We are simply having a pullback from the all-time high so You know in as much as the president wants to keep that going Say that it that the situation stabilizes the economy stabilizes and there’s no rate move in either direction If central banks around the world continue on their dovish path and lowering interest rates, you will hear from the president Pressuring the Fed right? And we’ve also got to see what happens with trade wars, right? Because the tariff war does not look like it’s gonna end anytime soon We just spent about a half of a year in a positive feedback loop in the stock market where the stock market rallied every time there was a sniff of talks about Trade tariffs and coming to any kind of a you know negotiation situation That turned out to be completely false, right? Like there are no there is no imminent solution to the rate talk. So in as much as this is something that continues on It continues to put pressure on European and perhaps the Chinese economy They continue to lower rates in response It would not be outrageous to watch the Federal Reserve have to pivot back dovish again and say you know what? We don’t want to be the outlier here because that’s what it’s become. You know, that’s what it’s become There’s no longer a the US economy is fine we don’t need to change rates right in the FOMC statement Powell actually mentioned things like the brexit and The debt ceiling as reasons for concern and that’s when I want to you know Grab the television screen and go are you kidding me? You know, that kind of thing is that rages to me? So we’re not managing our own economy with our own interest rates or our own currency within our own borders So it seemed like we should be most attentive to what’s going on here That’s not the case anymore so that’s why you’ve got to watch and see what’s going on around the world because it seems like the Powers that be or the central banks have done a pretty masterful job at managing Coordinated currency destruction, right? We’re all lowering rates around the world at the same time and it’s everybody in the boat so the dollar has been sort of the stock absorber, that’s right in the middle and sort of does it really rally meanwhile this and Existential battle going on on fin 2 it every day about whether the dollar remains a reserve currency or not You know, so to me the central banks are making it pretty clear that it’s gonna stay exactly where it is Especially if you have you know countries like Japan pinning rates to zero, etc, etc So that’s my view from here Jake And so there is a weak global growth. We’ve seen in Europe if you across the globe Are you worried about a recession here in the United States? Yeah only because I don’t want to blow off the bond market, right? That’s that’s my thing. I don’t know. I will never know. I am NOT capable of predicting All I can do is read the signals and look at history and decide if I want to trade on them, rhyming or not Right, so I’m really I don’t look out my window and feel a recession or I don’t see one, you know It’s still tough to get a steak reservation in New York City on a Tuesday night So maybe this isn’t a good place to look for a recession, etc But I don’t really see us slipping into one The way corporate earnings have been the way you know, it feels like the economy is hanging in there It feels like the technology side of the economy is really booming And now the transport side of the economy is starting to boom again while other sides of the economy are slowing down As long as the consumer remains strong which we’ve been and we’ve got exceedingly high consumer confidence across the board I don’t see it yet. I don’t see it yet I’m not gonna say that it’s not gonna happen and my eyes are wide open and I’m ready to trade it But I don’t see evidence of it yet I really don’t so we have to watch the spread and see if the bond market stays where it is with the three-month ten Ten-year spread either flat or inverted and to see if that’s proven the same as the last two times whereas after 2000 and 2007 where a nominal tea GDP took a tumble right after that But it doesn’t seem like we’re set up for the same situation because we don’t have two crises to put us out of anymore. So Unless there’s one that I’m not catching yet. All right, Cody. Thanks for breaking it down for us We’ll see how it plays out in months to come. Thanks so much for joining us. You’re welcome Jake. That was great you You

    🔴 Defensive Investing & the History of Recession (w/ Victor Sperandeo) | Real Vision Classics
    Articles, Blog

    🔴 Defensive Investing & the History of Recession (w/ Victor Sperandeo) | Real Vision Classics

    August 19, 2019

    Victor Thanks, it’s great to sit down to people that are you know dallas-based Maybe I’ll even start just by saying that there are a lot of people that have been on real vision lately that are talking purely about the markets in kind of a broad sense full market bear market Credit bubble not credit bubble. Whereas maybe you have some kind of more nuanced views, but if we take a step back, Maybe somebody watching the interview which would say that we could possibly be from different investing generations but I think from what I know about you, we might look at markets the same way so Here, you know maybe 10 years or so into a, you know monetary experiment Just generally what do you think about markets now? And and and where we are maybe in the market cycle the economic cycle, etc. Okay. Well these two integrated parts To everything you do in Wall Street, and that’s the fundamental and the technical simple There’s also the psychological and the emotional side of it, but set up just for the point of your question We’re in a bear market it’s a hundred percent Now why do I say that perhaps a background to people listening would be important because it’s a it’s a very Solid statement so I want to give you the background Now I’ve been I started in Wall Street in 66 and I started trading in 68 Now I probably read three plus thousand books one of the books Was a book by by a fella named William Gordon Who was the CEO of indicator digests now? That’s before your time? They were a major force in The technical end of the business in the 60s and they took the ten major Indicators at the time though. They had a lot theory things that nobody even knows what that means so they and they trace that back to 1910 different indicators and then many permutations of those indicators so the one that came in first was the simplicity of using a 200-day moving average trading days and When the price? Whether you use SP the Dow was popular at the time closes below that and the moving average is Sloping downwards. It’s night and day if it’s sloping out upwards doesn’t count Sloping down which you sell and then you would buy in the reverse that concept from from 1900 to 1966 book came out sixty-eight yielded you eighteen and a half percent compounded I Took it forward. We have a trading staff research firm and We we have three PhD math professors etc. And we ran it forward and they were similar now the second the second best Technical indicator was Dow Theory came in at 18% again similar results Compounded at eighteen now The one thing that I did that that Bill Gordon didn’t do was that using real money as such? When you sold you put the money in one-year bills He didn’t add that dimension. So mine. Perhaps was a little less Than the eighteen and a half because I added to it by getting yield when I was in cash So now these two Indicators gave bear market signals one in October the 200-day moving average was the first and then lot later in early December dal theory confirmed so you’re in a bear market and as far as I’m concerned unless Something changes now, they’re not a nothing is infallible. But but I leaned very heavily that these are accurate the other Part would be the fundamentals now. You heard the expression that you know The the market is predicted 14 out of the last recessions that a lot of people use that well, that’s a very naive statement by anybody who uses that particular Phrase, why is because the market doesn’t only predict recessions it predicts Things that can occur that would make the market go down like war it predicts war it predicts Political change for example in 62 and I was young lad. I was a teenager then but I was following the markets and and JFK who’s a very well respected president at the time He attacked The steel companies for raising prices. No different than Trump today on many different aspects He attacked them well in those days it was looked at as socialism and socialism then was not accepted as even a consideration because we were fighting with the Soviet Union cold war so to speak so The market dropped 26% in less than three months But no recession followed The reason was that JFK realized he blundered and he backed off He dropped it. So he didn’t attack the steel companies anymore for raising prices and The markets reversed. So like I say there there are many instances of that over the over the years It doesn’t mean the markets wrong. It means the market predicts many things now when you have the Fed raising rates as Jerome Powell did in September and recently on December 19th. That is a fundamental event everybody knows that’s why everybody follows the Fed that if they’re raising rates markets don’t like this and You usually you know, you’re taking away the punchbowl as the old expression and and basically you You you go into recession every time the Fed does this now? Let me just preface that I think Powell and the other nine members Voted to raise rates the extra quarter even though it was very well discounted Was a major error. This is going to go down in history as one of the worst errors the Fed has ever made including the the 29-32 debacle. So I look at that that as long as they keep on track now They’re already talking down the other cuts Kaplan from from Dallas is already saying well Maybe we should wait til after the second quarter and I mean they’re already backing off But if you change the fundamentals you change the outcomes so if they back off from right now selling QT and the rice the two more increases in interest rates You you have to consider that and that may change the trends of the markets Because the fundamentals are changing but the key is that right now it’s going to be very hard to do that and the reason is the world is Heading into recession Europe, Japan China the virtual world We were the strongest economy in the world And now this psychological switch like turning off light Changed everything. So we are weakening. The data is weakened if you looked at the Richmond Fed And you looked at the Dallas Fed results The economy is already weakening So this was this was because of in my opinion ego and perhaps even some politics Jerome Powell was adamant about what he did and There were many other people besides obviously Trump that didn’t want him to do that that it was the wrong move. So We’re in a bear market bear markets by the way, you go back to 1899 The market once it proclaims a bear market Six months is the average you’re in a recession So what the markets are saying now all things being equal in July? You’re gonna be in a recession in the United States. So from what I know about you you’ve been kind of skeptical maybe of the post global financial crisis monetary policy regime and that Maybe the manipulation of prices interest rates being the most important, you know would eventually have consequences on the other hand. We’re talking now about Powell and the Fed Making a mistake in raising at this point So again, maybe a case that our central bankers our timing cycles incorrectly But how do you square the two? Okay Originally when we had the 208 crash You what the Fed did was sort of natural and no one can critique them although pure The purest would okay But let’s let’s assume that that was the right move but to keep zero interest rates For seven years and to do three qyz, and I believe there was at least one operation twist maybe there was to you that was a again an a huge error now if they were normal and you know you May have heard this you’re a young guy the four-year cycle, right? So you go up three years into an election usually the first year is when you do all the damage because people forget So it would have been natural to raise rates in two thirteen to some degree now even think of it this way into ten when we were in a recovery the Recovery ended in June the recovery began in June of 209 So let’s say in 210. You raised rates fifty basis points a year For seven years, you know one in June one in December small steady You know, you could change your mind If you want to you you’d be at neutral rates, which is what the Fed uses Is there being a talking point these days so they didn’t do that. They didn’t raise rates in 213 They can anything the recovery would have continued whether it was a market recovery or economic recovery speakers because you remember you’re adding now Cuties to this scale qyz, so you got to put that in conjunction if you were doing QE Why not raise rates slowly and maybe in one year race at 25 basis points? And then I’m not trying to you look back and program. What should be done I’m only saying that you can’t all of a sudden Trump wins They raise rates eight times. They raise rate once under Obama to 15 December and Then they raise rates in December of 2 to 16 after Trump won and seven other times so eight times I mean not that two percent means anything it means something psychologically and it means that if you’re you’re on a almost the Heroin addict of interest rate and low interest rates and you do too much you you you pop the psychology and Pease are psychological right? There’s no I Come from what’s called the Austrian School of Economics What they would say is all value is subjective so when people start talking about value and Pease It’s subjective In the in the in the 20 in the 30s Laura lied which was a tobacco company traded at six times dividend Now that’s you can pay that to to Amazon today, there’s a big spread. So what is the difference in that spread? It’s what people think and you know a market is valid and what people think is what it is but the key is it’s Subjective. It’s not objects. Not two and two so the bottom line is is that you were They they did too much and when I can tell you because I was playing this and Everybody knew they were gonna raise rates At least that was the prediction as soon as they raised rates a market collapsed which meant they shouldn’t have done it Because even though people expected it it was the wrong thing to do and this was outlined very well by Stan Druckenmiller And and Kevin wash in The Wall Street Journal Wall Street, Journal had editorials as well But those are two prominent people and there were many other pros that that understood this So it was a very bad move. So he so III hear what you’re saying. I also like Austrian economics and another cornerstone, is that the the manipulation of prices inevitably leads to miss allocation of capital and so if if we’ve been in a decade maybe of the the most abusive or the period where we have most abused the price of money is all of this a big reckoning based on violation of those cornerstone tenants of Austrian economics yeah without a doubt and and what the what the central banks of the world 23 major ones they have abused the the mat the Wizards wand They have taken it to where if you wanted to let’s say measure Austrian school versus Milton Friedman who I loved But he was wrong about The the increasing the money supply the steady rate because politicians don’t do that So this is living proof what’s happened? You know since he died, unfortunately But the key is the Austrian school said no politicians will never do the right thing They will always use whatever power you give them to benefit themselves so The key is they they abuse the wizard’s wand here by Too many qyz, and like I said if you wanted interest rates to be a little normalized During those qyz, they should have raised rates very slowly But shrinking the balance sheet and raising rates, too. Yeah. Sure. Yeah. It’s it’s too much catastrophic. This is catastrophic Okay, so you said something that maybe leads to a good segue we talked about? politicians and their ability to use power abuse power I Think another topic that you’ve written elegantly about and that is of interest to you is how power shifts globally Are going to be an increasingly important factor in various markets, right? What what the most important thing to me is aside from as a trader. It’s what the Fed is doing Alright, but but as an investor I will look at political Trends now you very rarely heat people talking about political trends but political trends dictate what central bank’s eventually do Because they change the power structure of those central banks now Trump didn’t do that Probably his if I had to pick his worst fault. He doesn’t have a higher people I mean, he doesn’t understand ideology of who he’s hiring. So he picked pal who was chosen by by Obama He’s environmentalist you were in environmental fund. He’s an establishment guy He by nature doesn’t like Trump so That was the wrong choice. Kevin. Walsh would have been the best but needy in there he chose him and he’s chosen many other people that he Ideologically don’t fit his bill but getting back to your point the political trends around the world of moving to the term that’s used as nationalist populist and its center-right and to give you an example of the power of this if you look at Europe night to 2017 there were 946 elections within the European community 28 countries, so They lost 94% of them 94% of the center-left lost in 217 now that’s obviously we’re moving to the to the right now. What is right stand for here? less regulation low taxes less government dictates smaller government all of those have Fundamental consequences to what happens to interest rates and what happens to the economy? Trump was successful to a larger degree Because he basically put forth some of those policies and you’ll notice that Europe will never increase taxes there They’re a socialist nation. If you want to include the people who run it, but then you look at the European leaders Well any day Macron With this yellow vest protest. He’s got an 18 percent approval rate. He’s a dead man walking. He’s never gonna win another election He might be ousted at any time. This is his popularity is so low He’s he’s angered the people and you you know you France has a history of when you anger them. They revoked Theresa May same thing. She’s a globalist. She’s a New World Order globalist. She doesn’t want to do what the people voted for So she’s trying to get around it. She could get a no-confidence vote. She should be out And Allah Merkel, perhaps the the most powerful person in the world After well during the Obama administration And she’s gone she’s now just staying in her place but she says she’s not gonna run again and she may get housed that early so you see these trends are really what you have to watch because The monetary policy will follow those trends. So that’s a that’s an interesting point, or maybe it raises an interesting question So we have monetary policy under let’s call them more centrist or center-left policies globally coming out of the global financial crisis and They chose or some people would say we’re forced into aggressive monetary policy We just finished talking a little bit about the US and maybe the finger trap that we’re in here Which is to say that the economy looked good? We didn’t raise it’s we start raising rates were late cycle and maybe we’re doing at all at the wrong time What does some of these what options to some of these other countries these other economies have given that you’re at? extremely low historical interest rates already Asset purchase programs and the liquidity that They have given and to the markets and supported the markets are already out Even if we have populist movements if we move to the right Do you think that the influence you mentioned on this on? The central banks will have any effect? well the the answer to getting growth Is the same as what what Trump did? You you know, look you got a lower taxes Ideally, you got a slow spending. See you never hear of Japan Who by the way has a tax increase coming in October of to nineteen? And the European Union Doesn’t even talk about tax Decreases, but its harm the people the people are basically serfs and many people in the United States are serfs they Work to survive. They get a little piece of the action. That’s what a serf does and They can’t make it anymore. And that’s why when when when macron raised the gas tax To seven and a half dollars a gallon The people revolt abyss that can’t afford it. They can’t pay it. And therefore you you know you had this Happen if you’ve seen the yellow vest movements and you know the fires of burning the cars and things that people are voting So the point is the way that you know now I’m being an economist side of me I’m saying well Why don’t you lower taxes? less regulation less spending Ideally less spending Trump didn’t do that so much spending and and you get growth and then you get interest rates I mean, you know the three-year the 2-year bond is Is yielding I think it’s – 30 basis points could be more and inflation 3% now She’s gonna drop but the point is how do you buy how do you but I think it’s excuse me It’s the 10-year. They’re too many numbers. The 10-year is minus sixty With a three percent inflation right now again As I say inflation will decline this oil is declined and that’s why again pal made a mistake in any central bank that is right, you know trying to raise rates now is the wrong move the key is they Kept that policy in Europe because they didn’t want to lower taxes They’re Global’s they want to keep the people working for the people who you know Steve bangin would call them the Davos party. So that’s who they want It’s easy to solve. It’s the ideology that’s very difficult to get over the heads of the people in power So tying this back to markets and central banks, etc It sounds to me parsing through what you’re saying that at least when we’re talking about the developed world and developed world central bank’s who who have perhaps been the most aggressive in their monetary response to Really the crisis ten years ago now might just be hamstrung even if the politics shift in the direction of Attempted market friendly behavior at least from a policy standpoint their options might be limited They are Europe is Extremely limited so is Japan because they didn’t raise rates. They should have raised rates. They were afraid now They’re in a corner. How do you can’t lower rates when you have negative rates, right? And So they’re they’re they’re toast They’ve killed themselves and I sort of mean that literally the European Union cannot survive now predicting when a You know when a son of a nation ends is a very bad thing for traders to do But you could see you know, you look at the Soviet Union they lasted 72 years So you can’t you can’t they always have tricks, you know that they put forth So, I don’t know when the European Union will break up But it will and right now it’s probably in a more precarious state than it’s ever been because the the three top countries of Germany England and France in that order and they’re all in trouble, I mean the leaders are Out already to get to be thrown out. So if we step back and take, you know view at the whole world, is there anywhere? Maybe in the emerging markets Where you think the combination of political change? less central bank Division s today leads to opportunity right now. You’re you’re in in my view What what would be the cold defense or? Preserving principle unless you want to play the short side The short side is a difficult thing to play at this level because there’s an incentive for Trump and She Xin pinned to do a deal they do a deal on trade. The markets are gonna rally. I mean, there’s gonna be a psychological Big move up, that would be the time to short but you know Not the first day of the first week of the even maybe after three weeks, but the key is that’s coming so you’re really at this stage very difficult unless you’re a trader to Put on a short position and and you know sort of go away But the bottom line is is is that the the the world is in a precarious position? So you’re gonna be on the defense we had to put your money. I mean if you’re talking about a nation right now Brazil I would look for investments in Brazil. I would do the Jimmy Rogers game, you know, I mean this guy Boston ro is gonna do good things in my opinion and Switzerland because Switzerland is is is basically a place that is neutral all the time They have negative rates because they don’t they wanted to stop people from putting their money in the Swiss franc So, you know that let’s put this way that if I were And I’m not recommending a trade but just in theory I’d be long in Swiss franc short the euro, right? That would be a trade. I’d be long The Brazilian reality short the Mexican peso although the Mexican peso technically looks very good So I’m not saying P do this now. I’m saying from a fundamental pocket Yeah, you’re just looking at the backpack. But the chart on the Mexican peso looks very good So you can’t shut the Mexican peso here the key. Is that right? now you want to look for nations that are gonna do what Trump did in theory and You want to avoid the nations that are fighting it France? Until McCrone goes is in turmoil. Yeah, right Interesting. Well, so if we bring it back then to the US because you just now you have point back to what Trump did He obviously was very vocal about his impact on the markets while they were rising and as recently I think is Yesterday I’ve talked about the correction as a glitch and really a misunderstanding by the American people Is there anything to comment on that in terms of your world, you know his weakness is? basically his insecurity he has to tell you that he’s the greatest, you know, I mean I Kind of laugh at him. It doesn’t bother me. Whatever. He says it’s his personality I don’t care about his personality. I care about his policies but the point is his weakness is He he speaks too much and to take the credit while the market was going up Obviously he called it right he said don’t raise rates the markets down because the Fed did raise rates too much too fast So he’s right but there’s been times where he’s been made very much in favor of raising rates He seems to have two views. Yes who wants a strong dollar maybe because of the psychological I Think Larry Kudlow was influential in that. I don’t know if he ever wanted really as strong. He wanted a stable now Let me see. He understands dollar goes lower. Your goods are cheaper. You sell more, but but yes he he is all over the place because He doesn’t he doesn’t have What I’ll call conscious to tional principles that never change, you know, for example, you should never Employ price controls right? That’s a principle And not that he’s for them. I’m just using that as an example the point is is that he has now gotten himself in some soup because he’s taking credit for the market increase and now it’s gonna be political because it’s not his fault that the Fed raised rates, but he’s gonna get the blame so he politically harms himself Far more than he would if he just shut up because people would would attribute What’s happening to the economy if you lower taxes and cut regulations and the market goes up? You don’t have to say well I did it, right so he hurts himself in many ways and I repeat his worst mistake is How he hires people he hires people because he thinks they’re smart Vladimir Lenin is very smart is the smartest dictator they’ve lived Would you hire would you I don’t know his ideology is Opposite yours so the key is he makes these mistakes. Then he winds up learning about the people that they’re different He fires them and he looks bad right then. There’s no continuity, right? so if we if we maybe shift back to Politics and power politics in the globe. You know, how do you as a traitor? As an investor as an advisor You know, how do you think about the next few years? Is it very much? You said you use the word defense earlier in the interview, but are your time horizons shrinking? In terms of how you look at at the markets or investments. Are you trying to be more tactical? Or is it? You know are we just waiting for the signal for a bigger trend again? Well, let’s examine two points to answer that question, but I can only do this You know by looking at the past the the the experience of the path helps guide you to the future in 1854 the Nber has a Bureau of Economic Research Started to classify recoveries and recessions and They’ve been doing it ever since now from 1854 to 209 The the average recovery Was thirty eight point seven months thirty eight point six months since 82 It’s a hundred months What’s happened is the Fed? Got this magic wand this the Wizards wand and they said, you know Why should we let them are this is a greenspan concept being too smart for zone good how extend these say I put in the Greenspan put will keep the markets going will keep the recovery going and so when you do that, however when the game ends for whatever reason You get far greater downsides. I mean the the declines from 1854 there were a couple of depressions one in the 1870s in 1929 thirty-two, but you had 2000 – OH – there were three years of decline. The only other time that happened was in 1929 – 30 – 29 30 31 32 actually wound up being up here not him than June and The the point is that you had to await so now You’re kind of in a difficult spot because even though we’ve raised rates of two and a half percent You’re not gonna get much Vig by dropping rates 200% you know Although it would it would definitely cause a rally but the key is is that the Fed is is in trouble because it hasn’t It hasn’t budget itself properly like Europe is in worse trouble. Japan is in worse trouble but you know, we’re the with the best of the bunch, but the key is Is that you you really have to expect? All things being equal meaning no change you can have a Horrendous bear market here horrendous because you’re starting from a high plateau of ten years up the longest bull market in history 3,000 and almost 500 days And you have two thousand five thousand year old interest rates in Europe and since America was developed Let’s call it two hundred and thirty years ago. These are the lowest interest rates in two hundred years And by the way, just for your your audience when the Fed started to raise rates December 16th 2015 from zero to a little corner. The thirty-year was 3% exactly on that day It was 297 last night so you see the long end is is having Seeing the problems. The bond market is a great for teller of future economic news So you really have an issue where? You’ve raised rates nine times, but the long end of the market is lower than when you started So now you the real curve is inverting in some respects last night that the one year was 260 and the ten year was 265 I mean, yeah You are dropping can see that the Fed is never gonna be able to complete what it said it was going to do That’s not gonna help the key is what does it do with its balance sheet? Because that is where the rubber meets the road if they continue to sell then Then we’re we’re gonna see something in the order of a thirty seven or a twenty-nine thirty now to what extent you look at, you know different parts of the market because Despite it not you know being my day job exactly never really been us focused and probably have less of a technical Bend then you have I think you’d have to have your head in the sand to not realize that we’ve had a very concentrated leadership in the US markets for a long time maybe being Tech tech heavy I think all of our all the people watching know the names and the breath has maybe been absent and Even though we look at the December that we just have we’re filming, you know now here in January We look at the worst December since the Great Depression And we might say my goodness. The markets are just falling apart You’ve had these miniature blow ups and major bear markets in different sectors in the US markets and in many global markets over the last several years perhaps foreshadowing that Ultimately the the last shoe would drop being big US tech maybe healthcare But to what extent are you looking at? The the Sub industries of the S P. And is there anything that you that you take from the price action? You know there or between them tech versus maybe the resource sector okay, first a little background the Early the late sixties early seventies. We had the conglomerate craze There were these Conkle on everybody loved conglomerates. There were many of them then in the late 70s we had the nifty 50 a von Polaroid I was a block trader for we I sold my firm to Whedon and company and they made me a block trailer as an options Expert and I used the options to hedge The block trading I did in the nifty 50 That was kind of my the glamour stocks They call them it so they all have they all get nailed if the if the market is going to come down 73 74 conglomerates died 50 50 80 81. They got killed I mean Everything when the markets go down Everything goes down. So the fang stocks are you know, the tech stocks are over bees they’re overpriced Relatively speaking. And don’t forget all these. I mean not people talk about this the Facebook’s Google’s of the world make their money from advertising right? So if you have a recession, which we haven’t seen since 208 What’s the first thing you cut? Advertiser is nobody’s buying anything So there’s a fundamental. Let’s say behind the scenes obvious to me that if you own these Internet stocks, let’s call them there They’re gonna get sold aggressively for fundamental reasons. Now if you want to call tech, you know, let’s call Microsoft and some of the some of the semiconductor stocks Let’s call that tech most of them have moved offshore South Korea, Taiwan, China Build those things so we don’t really have a big tech industry per se In the United States all those jobs are moved offshore for the same reason the manufacturing jobs are just cheaper labor So all I can say is is that you can’t hide behind? Any group and now because you have so many of these ETF indices and so many stock indices You’re really trading stocks are stocks and Being a stock picker. There are some excellent stock pickers like Lee Koopman who recently is a man I know very well and friend of mine. I would say and and he’s excellent But he’s best in bull market space a outperform But if you’re long stocks in the bear market, nobody wins, you know bees although stocks are gonna go down. Yeah Yeah, it certainly looks precarious You mentioned obviously how low rates are historical historically speaking can go back thousands of years and Europe hundreds of years in the u.s The the debt role for u.s. Corporates looks pretty Scary at the moment Particularly in this rate environment, you know, you took incorporates to talking corporates. Yeah. Sorry true He’s another you know, I’m a man. That is a researcher So I have a lot of facts and I’m losing my memory in many areas, but not in these years if you from 61 to 208 The end of to a beginning to all nine if you took the thirty-year at the 30-day t bill and the 30-year long bond you add them together you divide by 2 you compound that? From from from 26 to 19 to 2008 the interest, excuse me, in this case from 61, not from 2016 16 1961 to 208 The average interest rate adding a t-bill to the long bond divided by 2 is five nine nines. Let’s say 6% Yesterday The average was 269 That’s 2.2 times to get to six now. What does this mean? There’s not a price in the world That’s accurate Coca-cola in India is not priced correctly now I don’t know. It should be higher or lower but there is no price correctness in the world. So all prices are going to be Adjusted once interest rates go back up And that is kind of obvious. But when you say it the way I’m saying it. I want to make people pause There has been nothing but a huge distortion of real-estate prices of stock prices of paintings a painting sold for 450 million dollars I mean, I’m not in the in the art world, but I mean, you know This is all based on the fact that stocks have been elevated and people have X, you know so much money They try to diversify. So this gets back to your Austrian economics better. Right? The old value is subjective the key here is is that you you must understand that this is Going to be reset One way or another it’s going to be reset again Timing is hard to predict here when like for example, if I said well interest rate it’s gonna be 6% again on average I mean, I can’t predict that I can’t predict when but someday well the the conclusion to that is that Anything with paper money? Will not protect you so if you own if you’re wealthy and you own stocks, or you own real estate in paper-money terms They’re gonna they’re gonna be depreciated The most unvalued thing and me and many of the other people on on Your you’re the sponsor here real vision TVs gold and silver are the most the cheapest things in the world Relative to other products in the world or other objects in the world. So, you know, I’m an investor in gold I’m an investor in silver in the physical and basically I’m comfortable and you know, I’ve been an investor a long time. It’s just question of Proportions, so to me, I that’s a place to invest that’s not a place to Train very hard trading Gold and silver very hard, so I wouldn’t recommend that but you know where you put your money we talked about, you know Maybe places like Switzerland and now maybe Brazil but the key is also from from from a sector point of view The mining stocks, which if gold goes up They actually are leveraged up because costs stay the same and the price goes up so they have higher margins So mining stocks are actually better than the physical Unless the world has real problems and then the physical is better than the miner stocks I should point out that Homestake mining which was the biggest mining gold mining company in the world in 1929 was eight dollars in 1936 traded at $70 so you see mining stocks can go up button and you couldn’t own gold in those days because Roosevelt had confiscated the gutter. Have we missed anything? Well, yeah, let me let me mentioned it and I’ve been a huge researcher on debt. Everybody talks about debt and I Believe And with all due respect and great deference To mr. Dahle. Oh Maybe see he’s recently done some videos and he put out a new book I think and What most people are not aware of is that starting in 2:14? The rules were changed That have a huge Benefit to the US government when they sell debt now, we all know they got a trillion dollar deficit and you got 22 trillion on balance sheet and You got 10 trillion off balance sheet, which very few people talk about forget the unfunded liabilities If you want to know what the real deficit is you got to look at the gap way of figuring the deficit because you got to take into account on funded liabilities you Wouldn’t have a deficit of a trillion. You have a deficit of six trillion So you could see you know, there’s lots of games that are played But the key is most people are just not aware of these rules now If you buy debt as a bank This applies the banks and my let me give you the the bottom line before I explain why the government can the US government could sell all of that at once there is no Debt deficits and debt does not matter at all Now it will Sunday But it doesn’t if you want to sell debt in other words The government will always be able to fund itself has nothing to do with overseas most commentators You know who went to school got master’s degrees that they’re not up on the x? So what do I mean by this Basel three? You have no capital hits to a bank they’re exempt sovereign debt is exempt this goes for you know, ECB and Japan There’s no harm done there You buy government debt you don’t have you haven’t put aside anywhere Erbs So there’s no reserve hit You buy government debt they have an account now, and this was in 214 where it’s called whole to maturity HTM accounts The other account is available for sales. If you’re a bank and you want to buy a hundred billion of US debt 30 years, which is what you want Because you get the interest on that debt You have no risk, there’s no mark-to-market Because you put it in your yet Okay, so I know enough about this to be dangerous, but I want to make sure everybody’s following you so far So we’re talking about the US government and its ability to fund itself the US government sells government bonds on the spectrum of maturities some people would sit out there saying well at some point they’ll be Absent a buyer, but what you’re explaining now Is that because of rule changes in a closed system? where our banks or global banks are able to buy sovereign debt without putting aside any capital meaning that there’s no Hit to their capital ratio owning it you’re saying there’s essentially an unlimited demand, especially given that there’s no mark to market So there’s no earnings risk, etc. Correct, and they will always be the bidder for these outside of maybe It’s a real Rothschild arbitrage The banks have put themselves in a position to purely arbitrage the interest Nothing can happen to them and a matter of fact, they didn’t get the last point but they print the money right so they come in they just write a check to the to the Treasury if They if they’re bidding in the auction is one of the primary dealers and they print the money just like banking 101 Where you print money to people, of course, there’s a reserve when you make normal loans in this case. There’s no reserve because The government will print the money and give it to you. I mean there is some logic behind it. That is not prudent, but if there is logic if if you can’t lose because The Treasury will give you the money there if you if you’re buying bonds below par You have no risk, right? So I only say that because Again, I’m not suggesting that You should buy bonds and you can’t lose I’m saying that a bank can buy bonds and it can fund something without without the normal process taking place now, by the way, if you call a central bank and you ask them about this It’s not easy to get information and they won’t talk to you. They don’t really want this Let’s say you can research it and you can find these rules about what you know what the what the reserve requirement would be if you buy a a 2-year US government bond or a note in this case and You’ll find it, but but they don’t want to Let’s say tell you easily. So if you call they’ll say well email this department. You’ll email that department. You’ll never hear from them I tried it So they really want to confirm they want you to confirm, but they don’t want to tell you so we started down this line of Talk was debt generally and we started now and we started by saying, you know, let’s talk about government debt I think that’s essentially where we’re going and our ability to fund ourselves in perpetuity and there Based on what you just explained there might be good reason to believe that as long as our banks are on board Which maybe they would be strong-armed to be at all times that in a closed system We could perpetually fund our deficits as long as everybody continued to be Incentivized to do they’re incentivized to do it now if the only question I’d have for you again, since you brought up Austrian economics, you know ends up being the definition of inflation which Often times can prick problems and deficits and in bonds and we look at or I think the market looks at Silly measures like CPI, and we believe that that’s inflation. But if you are true Austrian economists you’d say that the increase in the money supply and the growth and money supply is actually inflation, so when the government our government or any other one prints money and Whatever money aggregate you want to use starts expanding? That’s the true inflation number. Yeah, it’s it’s it’s how you Define what inflation is you’re on the right track? And by the way, avoid corporate bonds was the point of that story because this doesn’t apply the corporates corporates They got reserves and they don’t have they don’t have the same ability To not take losses as I mean if it and we’re seeing it but yeah The markets are locked up there, right a corporate bond can go out of business. The US government doesn’t want a business It just prints more money But getting back to the inflation point here is the key question and I was wrong on this So let me put myself right out there when they were when the government was doing when the film was doing qyz you would have assumed there’d be hyperinflation and the reason there wasn’t and I give the Fed credit for this one is because they they basically Took money and they didn’t give it to the people they gave it to wealthy investors insiders banks and So let’s say you worth a hundred million dollars hundred billion dollars and I come to you and I say look I want to buy your bonds and Here’s 100 billion you give me the bonds. Well, you’re not gonna go spend, you know, you can only Bible a couple of yards So taking a step back what you’re saying. Is that the velocity of money Which is the critical part? Money in printings impact on inflation never picked up velocities. It’s at a 50-year low right because you’re giving money to the people in exchange for an asset and The people who you’re exchanging that asset for are wealthy people who are not going to spend the money But reinvest the money whether it be stocks, which most of them did or or bonds But the point is you didn’t give the money to the people now Let me just put this into its context in 1920 when Germany lost world war 1 and there was this thing called reparations they have For the expenses. Well, they bankrupt the Germany. Well Germany printed the Mont printed money, but they gave it to the people So whether people do they spent it see so if you don’t give money to the people You’re not gonna see as long as velocity is dropping. That’s your key that you know, there’s no turnover, right? I mean in the 20s in 1920 the the coming into 1922 and 3 which were the bad years you had money turnover velocity of 1.5, which is About what is today in the u.s. It went to 12 so money turned over 1 see once a month the money supply turned once a month instead of One and a half times a year so you could see that’s where you get your inflation, right? So again just to to not you know Not let’s say put in context because governments have tricky ways to do things so if they want to stimulate the economy and stimulate wealth They just give it to the wealthy people who invest it and don’t spend it and you don’t see it in the CPI You see it in the stock market the art market. The real estate market is etc I don’t want to complicate things, but I think when we talk about you know wealthy people in this case the money that was printed mainly went to banks and banks Mostly put that excess liquidity back to the Fed in excess reserves, right? So the big economic Conundrum and I’m speaking a little bit above my paygrade here But I think to synthesize what you’ve been saying All of this money was printed but as you said instead of going to the people or instead of going into the real economy it ended up really amongst the banks and Because the banks weren’t lending it we didn’t have maybe some people would say would argue We didn’t have real economic growth which would come from lending it to the people which then meant spending by the people and it ended up at the Fed in terms of excess reserves or in other places where velocity of money wouldn’t take up that liquidity again really became a manifest itself in speculative activity like the market or Frankly just on the bull fed know exactly what happened, but but some of the people did get Some of the money and they like to say they invested it not spent it and and that’s a part of it But would you says accurate 100 percent? But that’s why you didn’t get inflation because the money they paid for the one of them I think may been the first time in history, but I’m not sure they paint interest on reserves So the banks didn’t have the incentive to lend it to loan out the money. That’s right. So where does that bring us today? Because again, I don’t want to make the conversation overtly bearish it’s been a long cycle of people expecting that this you know policy eventual mistake was gonna have its reckoning in the market and we haven’t Until very recently. So again, wary of crying wolf here, but when we look at all the things that you’ve talked about You know political change but political change in places where? Monetary policies already been extreme we talk about real economic activity Waning despite again the punchbowl being in front of the economy for the last, you know, 10 years and also now turning over Now we we’ve talked about velocity of money and and and why there’s been no inflation and it’s because throughout this Apparent economic expansion that we’ve had over the last 10 years Lending has actually in real economic activity as some would measure it never really picked up and now we’re potentially going into recession and there’s even Less probability that the banks are going to use that capital if they have for lending purposes So a lot of moving pieces, but but how does this filter down into? victors view of the world going forward It’s got lots of problems and unless things change Less policies change we’re back to where we started You’re in a bear market you’re going to be in a recession and by July Statistically speaking. Maybe it’ll be August maybe September. Yes Now if this major changes you have to filter the things being in all things being equal you’re in a recession in six months And it’s begun. I mean the you look at the the Dallas Fed Manufacturing report and and and the other one that came out was Richmond. I Mean they look pretty terrible to me. Yeah, so You know the key here is survival, right Staying alive, you know Jimmy Rogers. I know him a long time every time I meet him Sometimes we meet in the men’s room in a restaurant. I mean he’s now moved to Singapore so I don’t see him as much but every time I see him he said oh you still solvent I said, yeah How you doing, Jimmy? Yeah, I’m still sobbing. So that was our favorite exchange of words Because you never know But things you know, I mean the markets can be up going up and many pros could be short. So I thank goodness I didn’t lose a lot of money on the upside being short. I’m short once or twice on a trading level. Where where I used the options and I lost a part of that but you know, I The market on the way up, but let me also say that I missed the bulk of the move Because I never believed the fed would continue to play the game as they did. So I’ve been very conservative for the last and so I You know This is all new to most of the old money managers who never seen things like this well I think that actually might be at least in my opinion one of the most interesting lead ends of the conversation so far because as I said in the beginning of the interview, but I’ll repeat we at least Externally from an age perspective are from different investing generations. I was very lucky To cut my teeth in the industry for a firm who was on the right side during the financial crisis also big believers in Austrian economics skeptics of extraordinary monetary policy, etc so I think I’ve always kind of carried that chip along with me that that That market scan can get very weird very fast And that there is a such thing as a bear market mentality versus a bull market mentality but one of the things that you know I’d say maybe keeps me up at night or certainly keeps the wheels and in my brain moving, is that most investors today? And getting to your point Really are just of the bull market generation Right and and you’ve done such a good job today of walking us through stats of statistics going back in some cases hundreds of years Which shed a lot of light on you know what happens in different parts of the cycle But one thing then makes me a little bit nervous here is that we have a lot of market participants Who aren’t really students of history? They aren’t even students of near-term history like 2008 or they certainly didn’t live at first hand so If everything that you’re saying is true we we Market as a whole might be woefully unequipped to deal with it Correct the PT Barnum line, you know the annual crop of suckers I mean, I don’t mean that if people lose money and downside that they’re suckers. I mean that they’ve been led to drink this kool-aid and The Fed would save them now the question yet. They ask is Why the ten members vote? to raise rates when To anybody who knows markets they wouldn’t have raised rates. Is it political? Are they now become a political I mean inflation is? one of their band-aids Price stability they’ve got two percent going out for three more years in their projections Unemployment is three point seven or whatever the way through foreign aid, whatever it is. I mean, so what are they targeting? They’re targeting growth? They’re targeting GDP. Why? That’s not part of their mandate The Trampas Trump is right. He just doesn’t express himself. Well Do you think That if the Fed had stayed on hold that the market would have had a positive reaction Yeah, I do. I think it would have been very pie because everybody was expecting it Like I said to raise rates But they didn’t believe they really would do it Because they said it see they guided you to what they were gonna do and then they did it But they didn’t change their the you know with all the editorials. Like I said of many in the Wall Street Journal aside from Druckenmiller And they still raise rates. So they they really made a Horrible error, they’re gonna be on par with 29. Now. How do they get out of this mess? Caplin eight hours ago it was saying well, maybe we should wait till after the first second quarter and you know they’re already trying to walk back some of it because they’re seeing this seem like Well, that’s all very interesting, you know, there are definitely some people in the market that that perhaps incorrectly Thought that a hold would be a signal that the wheels were really coming off. No, it’s not the way it works That that is it’s a great talking point. It’s a great excuse It’s 2 and 2 if you raise right, you know what I mean, people are paying and all those two credit cards Did I mean right now? If you get a statement and you know obviously pay off for my statement I don’t have any good but the key is you look at the same. It’s like 18.6 annualized rate There’s 4 trillion in credit card debt, so You’ve Majan with what’s happening to the people. So lowering interest rates would not look bad because the the point is The people would be paying less in interest. Oh sure and they’ve had more money to do other things with per se so that they should have how they should have stayed the the the excuses are just mind Boggling that’s why this company is doing so well versus CNBC because they’re losing viewership nothing against CNBC Perce ASA pit bulls and here people get to express and say What they what they believe yes, so One may be more nuanced question on this point just because I think we have a little bit of time But how do you as a veteran trader? Look at the kind of coincident news ie the Fed choosing to hike Stay stay on hold or cut in the moment versus what the market is pricing in terms of probability of these moves the reason I ask is because you talk about responses and maybe the way that either policymakers or Politicians will do an about-face to try and save the market And potentially prevent the recession that otherwise would come in in six months, but the futures markets and interest rates Are starting to price that in already that about-face? How do you reconcile the two you know what you? Kind of get in terms of future expectations in the futures market Versus what happens in the moment on decision day? Okay. Well You you you go back to technicals in fundamental. So you look at the charts And aside from the charts as a trader you buy extreme weakness because you know the feds going to come in at this point they have they don’t want really the markets to continue to go down they’ve stabilized them by I mean they You know look I’ve been buying things and selling things for 55 years if you want to buy something and it’s your stuff Do you really? Run up a hundred handles in the S&P. No, there’s no news that day that That’s the Fed saying look we don’t work. You know, we don’t want to cause a crash here. So we’re gonna stabilize the markets So if the markets are going down in an extreme fashion The later in the day the better You you buy some you don’t buy the full boat because again It can continue down you want to average in the feds gonna be there from here on in to stop any crash because they know The eyes are on them The shutdown has nothing to do with the markets, right? these are just to be clear we’re saying is that you do think that We will have the Fed or the plunge Protection team is that’s so affectionately known on extreme moves in the market participating Right, there’s one There’s one contingency of that When you’re a manipulator You do not buy on bad news like with this Apple news The Fed is not going to spend their money if this Apple news and I’m expanding if there was bad news across the board You’re wasting your money because people will sell to you so you can only buy When the markets are crashing and there’s no news, you know in this people are unwinding is a margin calls or whatever It might be sure so the key is that if there’s no news and it’s quiet and the markets are selling off That’s when you buy but if this if there’s news The GDP is gonna be revised down by the Atlanta Fed. Yeah to negative. Why fight? The markets gonna go down if they can’t stop that because people will sell to you right and so you have to be a Manipulator you have to do it when it’s quiet Then you buy it up and you know that’s the way that the game works does that’s a little bit of a trading pitch there about what I do, but Really right now the key is if you’re an investor you should be extremely conservative And you should be in in debt. You should be in the yen’s gone crazy here That’s just you mean government that you mean bonds government. Yeah not corporate it and you should be in In gold and silver and the mining shares which are on the they’re their bottom and as You see gold has been going up and silver been going up because people moving their money To to defensive positions. That’s why the yen went up Well, that is a lot of food for thought. I think it’s been a great interview. Thank you so much for your time You’re welcome. Thank you. Bye ask the right questions you did Until Roland grant. I appreciate you know their consideration to that They got a great business and it’s great to see the interviews that they have put forth So, it’s great that Victor. Thanks. Thank you for talking

    Animals Worth a Ton of Money
    Articles, Blog

    Animals Worth a Ton of Money

    August 18, 2019

    In no particular order, here are animals worth
    a ton of money! Wait until you find out why that liquid in
    the thumbnail is so valuable! 10 – Bear
    Bear Gallbladder?! Wait what! Yes, we’re in the same boat as you. We had no idea bear gallbladders are expensive. In places such as Korea, they were at one
    point selling for $15,000 dollars. In 2009, the market price for legally sold
    gallbladders in Hong Kong had risen to between $30,000 and $50,000 per kilogram! So why are gallbladders from bears in high
    demand? Unsurprisingly, it’s for medicinal benefits
    that science kinda backs up. Inside of a bear’s gallbladder is a whole
    lot of ursodeoxycholic acid, which breaks down molecules containing cholesterol. Apparently, this is an effective non surgical
    treatment for gallstones in humans. It also has shown promise in the treatment
    of Alzheimer’s disease. It’s kinda a big deal, but the thing is,
    it can be made synthetically. So people don’t need to harvest it from
    bears. And honestly, it’s way easier than getting
    it from a bear. 9 – Ambergris
    While we’re talking about waxy substances, let’s talk about Ambergris. Would this whale waste ever cross your mind? Probably not! The highest-quality ambergris is sold for
    a whopping Twenty thousand dollars per kilogram! Sperm whales produce an intestinal waste that
    bobs around the ocean for a while. Then it hardens, floats to the surface and
    some of it ends up on shore. This rock like substance it’s actually a
    super important part of the fragrance industry. High end brands such as Chanel use this substance
    to help make their fragrances. In the U.S, Ambergris is banned in the fragrance
    industry because Sperm Whales are endangered, but other countries such as France seem to
    be cool with it. Fresh ambergris is useless. Fresh ambergris is jet black in color, and
    it has a pliable, sticky texture. That and it basically smells like manure? So why would anyone want this in their fragrance?! Well, it lightens and smells better with age
    because of oxidation from the salt water in the ocean. Well, the smell is subjective, but hey, experts
    at Chanel think so. And that’s why, the lighter the color, the
    more valuable it becomes! 8 – Pangolin
    Before we get into how much the scales of a Pangolin cost, let’s talk about what a
    Pangolin is. Found in parts of Africa and Asia, they hold
    the distinction as the only mammals in the world with scales! And those scales are surprisingly valuable. Or maybe not surprisingly, because people
    will always want to grind something rare into a powder, cross their fingers, and hope it
    works for whatever problem they have! Pangolins are one of the most trafficked animals
    in the world because of the demand for their scales, which go for roughly $600 per kilogram. Some people believe their scales contain healing
    powers. Do we need to tell you guys that pangolin
    scales work about as good as healing crystals do? In some countries such as China, and Vietnam,
    they’re considered a delicacy. In southern China, a whole pangolin can go
    for up to $1,000 in restaurants! While most countries ban the Pangolin trade
    in an effort to conserve their shrinking population, it’s a tough task. Their scales look similar to fish and snakes,
    and the scales are often packaged with them for disguise. 7 – Cobra
    As one of the world’s most dangerous snakes, Cobras have some of the most toxic venom in
    the world. And the theme seems to be, the more venomous,
    the more valuable! And that’s totally true of the Cobra. Cobra venom is used to make life saving anti-venom. Making this anti-venom can be complicated. Typically it involves using a donor animal
    such as a horse or sheep. These donor animals get injected with the
    venom, and then their bodies produce antibodies. And that’s what’s given to someone that’s
    been bitten by well, a snake! So with that in mind, Cobra venom can cost
    roughly $153,000 per gallon. Of course, no snake is producing anywhere
    near that amount. We’re talking milligrams at a time! Aside from producing anti-venom, many different
    types of snake venom have a variety of different applications. For example, cobra venom has a compound that
    can be used to make a pain reducing medicine roughly 20 times more powerful than the strongest
    ones available on the market! 6 – Stag Beetle
    We bet you didn’t know that there used to be a Stag beetle price bubble! Back in 1999, a Japanese man paid NINETY THOUSAND
    dollars for an unusually large stag beetle! Of course, the bubble burst on the stag beetle
    market and nowadays, stag beetles don’t nearly go anywhere for that much. However, in Japan, there’s a Stag Beetle
    named Spike that’s extremely valuable. And it’s not for his size! It’s because he makes art that his owner
    sells! Spike’s art can sell for more than $1,100
    a pop. He even has his own twitter following, with
    more than 120 thousand followers! Spike lives with his owners in Japan and can
    hold all kinds of objects with his mandibles. This includes pens and markers, which he uses
    to draw. Now, this isn’t exactly Monet or Van Gogh
    level work here. But considering that it’s a stag Beetle,
    people are willing to cough up some cash for his work! Spike’s owner is an English teacher named
    Mandy. She first learned of Spike’s abilities when
    she was playing around with him one day by giving him various objects to hold onto. When she gave him a marker, to her surprise,
    he began drawing patterns! So she went on Twitter to tell her story,
    and soon after, Spike began gaining a following! Before you know it, he’s selling his own
    artwork. Whose with us on starting a Stag Beetle art
    factory?! 5 – Rhinoceros
    Rhinoceros are in high demand, and to be specific, it’s Rhino horns that people really want. Rhino horn can go for up to $60,000 per kilogram! The South African government placed a ban
    on the trade of rhino horns back in 2009 but that hasn’t stopped anything. Rhino horns have been sold on the global black
    market for years. One interesting little tidbit about these
    horns is that they’re made of keratin, which is the same material as human fingernails,
    so there’s no real use. But what’s driving the demand? Medicinal and recreational use of rhino horn
    comes mostly from Vietnam. Even if it’s just the same stuff as fingernails! The South African government lifted the ban
    on trade in 2017 in an attempt to reduce poaching and help save the rhino population. There are actually huge stockpiles of legally
    harvested horns. Some of these come from conservationists who
    have dehorned Rhinos to protect them. Plus, the government has confiscated a whole
    lot of horns from poachers that might as well be sold anyway. Aside from government regulations, there have
    been plenty of campaigns in Vietnam trying to stop the belief that rhino horn does anything. 4 – Totoaba Fish
    The Totoaba fish bladder is a delicacy in China! The bladder averages about 20 thousand dollars
    a kilogram! Found in the Gulf of California in Mexico,
    the Totoaba can grow up to six and a half feet long and weigh up to 220 pounds! Their meat is sold on the black market and
    can also be used to make soups. This market is partially driven by the false
    belief that bladders can cure skin, circulatory, cholesterol and fertility problems. In reality, it does none of these things. Since 1975, there’ve been laws against fishing
    Totoaba. In recent years, the Mexican government has
    been proactive in protecting these fish. But because it’s extremely expensive, only
    super rich people buy it. Enforcement is very weak because the issue
    isn’t a top priority to China and probably because it involves such rich and powerful
    people. The hunt for Totoabas has practically driven
    another species extinct. The vaquita is a rare porpoise that keeps
    getting caught in nets intended for totoabas! Watch our rarest animals video to find out
    more. 3 – Deathstalker Scorpion
    Generally speaking, Scorpion venom seems like a good thing to avoid. But it’s actually extremely valuable! So much so that scorpion venom can cost $39
    million dollars a gallon?! We’re supposed to believe that?! Well…….maybe. Say hello to the Deathstalker scorpion. Native to desert regions in North Africa to
    the Middle East, it’s considered to be one of the most venomous and most dangerous scorpions
    in the world. So why’s their venom so valuable? Their venom contains some compounds that are
    helping scientists develop breakthrough medicines. Chlorotoxins in the venom, for example, can
    be used to identify the size and locations of tumors. Also, the venom is rich in Kaliotoxins, which
    may help cure bone diseases. So that $39 million price tag we were talking
    about really isn’t relevant nor practical. A single scorpion produces just two milligrams
    of venom at a time. No one is exactly selling the stuff by the
    gallon, because to get the venom, the scorpions have to milked by hand. $130 will get your a droplet smaller than
    a grain of sugar! 2 – Horseshoe Crab
    Did you know Horseshoe Crab Blood is blue? That’s because of high levels of copper
    in their blood. And as weird as that is, it’s not even the
    most interesting fact! It can be used to detect bacterial contamination
    in small quantities, making it vitally important for the FDA! So how expensive is it? Try 60 grand a gallon expensive. It’s used to make a gel called LAL, which
    is used to detect bacteria. Before horseshoe crab blood, scientists had
    no easy way of knowing whether a vaccine or medical tool was contaminated with bacteria. However, drop a minuscule amount of LAL on
    a medical device or vaccine, and the LAL will encase any gram-negative bacteria in a jelly
    cocoon. While it can’t do anything to bacteria,
    it basically sets off an alarm alerting scientists to the presence of them! An estimated 600,000 Horseshoe crabs are caught
    each year and have about 30 percent of their blue blood drained. 1 – Elephant We’re pretty sure you guys aren’t surprised
    that Elephant ivory are in high demand. Demand has been consistently rising for illegal
    ivory. Poachers risk punishment in order to cash
    in on ivory for about $1,500 per pound. And a single tusk can weigh over 200 pounds
    for the largest examples. It’s estimated that poachers took out nearly
    a third of the African elephant population between 2007 and 2014. Historically, many cultures have prized ivory. It’s up there with gold in some cases. People make ornaments, jewelry and art out
    of ivory. In the US there’s already pretty much a
    complete ban on ivory. But other countries haven’t exactly followed
    suit. For example, although it’s technically illegal
    in China, ivory is still culturally valued and the black market is rampant. Politicians have promised to crack down on
    illegal trade, but we don’t think anyone is exactly holding their breath for that promise. Existing bans just aren’t enough to stop
    the poachers. Watch this next video to find out about facts
    you had no clue about rattlesnakes!

    Mutant Fish Taking Over Waters Around the World
    Articles, Blog

    Mutant Fish Taking Over Waters Around the World

    August 18, 2019

    – [Narrator] Behind
    running, fishing is the most popular outdoor activity
    for adults aged 25 and up. It’s largely a totally innocent,
    wacky-event-free venture, even being described as relaxing or fun. But all around the world, bizarre creatures are being reeled in, and it’s doubtful that their captors would describe their catches
    as normal or relaxing. Here are 10 mutant fish taking
    over waters around the world. Number 10, cyclops shark. A bizarre discovery was
    made in La Paz, Mexico, in the Sea of Cortez. A pregnant bull shark was
    caught, and its fetuses removed. One of them was an albino with one eye. Pictures of the cyclops
    shark were posted online, and some experts thought it was a hoax. Filipe Galvan, a well-respected
    Mexican scientist, inspected the shark and
    wrote a paper about it, which is under review. Lending further merit to the
    authenticity of the incident, Tracy Ehrenberg, the general
    manager of Pisces Sportfishing, conducted an interview with the fisherman who made the discovery. The man said that the pregnant shark was dead when they pulled it up, and that during the process
    of filleting the shark they found ten fetuses. The other nine fetuses were fairly normal, both in color and the amount of eyes. And, although it’s sad to think that someone still fishes for sharks, even though many species are endangered, and that they caught a pregnant one, this little albino cyclops
    shark is almost cute enough to star in his own Disney adventures. Number nine, mutated two-headed dolphin. A two-headed, mutant dolphin washed up on the shore of Ismire on
    the west coast of Turkey. It’s believed to have only been around a year old when it died, as it was only a meter long. It was discovered by a schoolteacher, who watched in horror
    as the mutant dolphin washed up on the shore. He then called the police, who took the dolphin’s
    body away for testing. Preliminary eyewitness reports said that the eyes and blow hole of one of the heads weren’t open, which may mean that there were further deformations in the creature, other than the glaringly obvious one, which could have contributed to its death. No one knows whether this is a
    rare case of conjoined twins, a natural type of deformation, or deformation caused by contaminants. Another incident of a
    two-headed dolphin-like creature was reported in the Netherlands. They reported the first ever case of conjoined harbor porpoises. It was thrown back into the ocean because the fishermen
    thought it might be illegal to have it in their possession and generally thought it was
    a good idea not to risk it. They did take pictures before
    throwing it back, however. There are a lot of things that indicate that the creature died
    shortly after birth. It’s tail had not stiffened, which is something that
    porpoises need in order to swim, its dorsal fin had not
    become vertical yet, and it still had hairs on its upper lip, which porpoises shed after birth. Conjoined twins are rare, even in humans. But they’re even more rare in cetaceans, a group of animals that include porpoises, dolphins, whales, and
    other similar creatures. In fact, the porpoise was only the 10th conjoined cetacean case at
    the time of this writing. Many people have a soft spot
    for dolphins and porpoises, so the thought of having two times the fun of a dolphin-like creature
    in one animal is exciting. It’s very unfortunate that this story turned out the way it did, instead of resulting in one
    of the coolest animals ever. Number eight, pug nose striped bass. This mutation is fairly
    common in striped bass. They’re called pug-nosed
    because the mutation causes them to have a large, lumpy head. One recent incident involves
    one being caught in Maryland. The mutation doesn’t affect
    whether you can eat it or not, and doesn’t have any
    harmful effects on the fish, other than making it look really weird. Number seven, fish with horns. A fisherman in Siberia was stunned when he reeled in two pike that had horns on the tops of their heads. He referred to them as underwater dragons because of their appearance. The fish, which were identified as pike, had been pulled from the
    River Irtysh in Russia. Locals blamed nuclear debris from Russian missile launch
    experiments for the mutations. The fisherman dried and preserved the fish’s heads and keeps them in his garage, which is probably a good thing because the last thing we need is horned, nuclear dragon fish swimming about. Number six, mutant fish in Russia. A gigantic fish had been
    terrorizing locals in Siberia for months before it was finally caught. It had been attacking and trying to bite anyone who came near it. With a giant head, piranha-like teeth and a broad tail that resembled an oar, it’s not surprising that
    the locals were freaked out. However, It didn’t turn
    out to be a mutant. Experts say it was a wolffish, a type of endangered
    bottom-feeding predator. But, with the amount of attacks, its appearance and just
    the fact that a giant, massively aggressive fish was attacking anything that came near the water, it’s really no surprise
    that locals thought this was either some sort of
    mutant or monster fish. Before I reveal the next example, you should subscribe if
    you’re enjoying the video. We upload amazing fact
    filled list videos daily. Also, make sure to click that
    bell icon to stay updated, or you’ll regret missing out
    on some amazing knowledge that could have filled your brain. Now let’s get back to it. Number five, giant fluorescent blue fish. Residents in Gaston
    County, North Carolina, are trying to figure out
    what this huge fish is and where the video was taken. It was uploaded on Disclose
    Screen’s YouTube channel and simply said that the fish was from a lake in Gaston County,
    but not which one. The fish appears to be
    around four feet long and Disclose says it’s around 30 lbs. Many are speculating that
    it’s some sort of carp, but they have no explanation for its fluorescent blue coloration. About one in a million
    times a rainbow trout will be blue to due to
    a rare genetic variant, but that occurs in approximately
    one in a million cases. If this is what the fishermen saw here, they stumbled across an
    extremely rare creature. Still, its a pretty large fish, and although its coloration
    makes it appear to be some sort of wild Pokémon
    that’s appeared in the lake, it’s most likely not. So, don’t go wasting balls on it. Number four, Russian fish with two mouths. This fish is simply terrifying! It has one mouth on its face, one on its neck, and a bizarre tail. It has a weirdly round body
    that shouldn’t belong to a fish. But even more creepy is the
    fact that it has an odd, bulbous protrusion that appears to be filled with some sort of liquid. The fisherman who caught it speculated that the liquid could be eggs, meaning that there was the possibility of more of these creatures. This isn’t the first fish of
    its kind to be caught though. A Reddit user posted a video that appeared to show a two-headed fish. For a bit, speculation
    was all over the internet about what it was and
    how it had come to be. It wasn’t a conjoined twin, and it hadn’t grown up
    near a nuclear plant, as neat as that would be. Experts said it was a grass
    carp that had been deformed. The second mouth was
    actually a large hole formed because the gill arches
    weren’t connected to its mouth. There was also a fish caught in Australia that had two mouths. Garry Warwick, the fisherman
    who landed this bizarre catch, caught the fish in Lake
    Bonney, South Australia. He told ABC “Both mouths are
    actually joined together. “The top one opens and closes, “but the bottom one
    looks permanently open.” Although he’s been a commercial
    fisherman for over 30 years, he says he’s never seen
    anything like this. Facial deformities in which
    the creature or person has more than one of a
    particular facial feature, in this case two mouths,
    is called diprosopus. It’s commonly associated
    with conjoined twins, although it’s not the result
    of two embryos fusing together, nor is it the result of
    them not fully separating. It’s caused when facial
    patterning acts abnormally. Unfortunately, creatures
    with two faces don’t usually survive because they
    usually have some degree of deformation in their
    internal organs as well. Number three, fish with human teeth. An emperor fish was
    caught by a schoolteacher in the West Papu region of Indonesia. The teacher was astounded
    to find that the fish had flat, molar-like
    teeth that looked human. He gave the fish to a student, who took it home to his family. They were all equally shocked when they discovered its teeth. Rather than eat the fish, they decided to freeze and preserve it. That’s probably a good thing because whatever unholy alliance
    that was forged in order to create this fish is probably
    not safe for ingestion. Number two, the monsterous
    fish from Thailand. A Thai fisherman was out fishing and hoping to catch
    something worthy of a meal. Instead, he pulled in something
    that is pure nightmare fuel. This fish has a long body
    that looks a bit like an oar, a giant mouth filled
    with sharp-looking teeth, and, probably most notably,
    it doesn’t seem to have eyes. No one knows quite what it is. But, the bigger mystery here is where are its eyes and how does it see? Number one, bird fish. This bizarre fish was recently
    caught in a river in Guizhou. It looks like a completely
    normal fish on the bottom half, but the head is where things get mad. Some people say that it looks a bit like the face of a pigeon. Others say it looks like
    the face of a dolphin. What it definitely does not look like is the ordinary head of a
    carp that matches its body. Some people blame its apparent deformation on water contaminants. Others think that this is
    some sort of hybrid creature, but those in favor of the hybrid theory are not in agreement with what animals parented this bizarre creature. Unfortunately, testing cannot be done to shed light on its parentage, either, as the fish was released back
    into its natural habitat. What exactly is a bird fish’s
    natural habitat anyway? Did it fly away or swim? Most of the entries on this list died, either before or after discovery, which makes for an alarming mystery. What entry did you think
    was the most interesting? Let me know in the comments down below, and thanks for watching.