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On this episode of On The Tape This week we’re going On The Tape with Dan Nathan, Guy Adami and Danny Moses. Can the Federal Reserve successfully deflate asset bubbles without causing catastrophe (2:00)? Crude oil has tumbled to erase all of its 2022 gains (10:00). Elon Musk’s bankers are considering margin loans to cut risky Twitter debt, what does this mean for Tesla stock (20:20)? The Carvana crash continues, but Danny Moses refuses to take a victory lap (28:30). Blackstone’s real estate fund has hit its redemption limit, is this a canary in the coal mine moment (33:30)? Lastly, the guys run through Danny’s NFL picks for the week (42:15). After the break, Guy & Dan are joined by Jurrien Timmer to discuss the macro backdrop for 2023 (46:30), earnings outlook and comparison to 2000-2002 (53:30). What would cause the Fed to pivot and what worries Jurrien about a potential hard landing? Jurrien also discusses the difficulty of timing the market cycle (1:12:00).
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Show Transcript:
Guy Adami: [00:00:00] CME Ad [00:00:01][0.4]
Dan Nathan: [00:00:30] iConnections Ad. [00:00:31][0.8]
Guy Adami: [00:01:21] So each week I like to start with a song lyric because that’s my want to do. Dan And Danny, by the way, you are listening to the On The Tape podcast Guy Adami, Dan Nathan, Danny Moses, the 18 and 15 quite pedestrian [00:01:35][13.7]
Danny Moses: [00:01:36] Still making money. [00:01:37][0.6]
Guy Adami: [00:01:37] Still making money. Yes, you are. But I’m going to throw something at you. Danny Moses. Here’s a lyric from a song, and I think this will resonate in a lot of ways. It will resonate with the artist, it’ll resonate with what’s going on in the market, and I think it will resonate with a lot that’s going on in the social fabric of the United States. Are you ready, Danny? [00:01:57][20.0]
Danny Moses: [00:01:58] Can’t wait. [00:01:58][0.2]
Guy Adami: [00:01:59] Your mood is like a circus wheel. You’re changing all the time. Sometimes I can’t help but feel that I’m wasting all of my time. Of course, that’s the lyric from the great Christine McVie of Fleetwood Mac. Over My Head is the song. And it’s interesting, you know, sometimes I can’t help but feel that I’m wasting my time the market, the pitfalls, the ebbs and flows, trying to navigate this. But at a certain point it is a bit of a side circus Dan Nathan. [00:02:33][34.6]
Dan Nathan: [00:02:33] Well, it is. Guy, I’m glad that you’re having so much fun doing the podcast with Danny and I try to demystify [00:02:39][5.8]
Guy Adami: [00:02:41] I’m trying Trying. [00:02:42][0.8]
Dan Nathan: [00:02:41] Big market topics, economic topics and R.I.P. there. I mean, listen, Danny, it’s funny. Guy and I were doing a piece of content earlier in the week and we were reading a quote from somebody that remember the Kobeissi guy. [00:02:52][11.4]
Guy Adami: [00:02:54] Yeah, I loved him in that movie with Kevin Spacey. I thought it was great. That was a good movie, by the way. [00:02:59][5.4]
Dan Nathan: [00:02:59] That was the greatest trick the devil ever pulled. What was it, Danny? [00:03:01][2.2]
Guy Adami: [00:03:02] It’s making people believe it doesn’t exist. [00:03:04][1.4]
Danny Moses: [00:03:04] Yeah, exactly. Kaiser says. [00:03:06][1.6]
Dan Nathan: [00:03:06] Yeah, Kaiser said. But the whole point was that there’s just so many cross-currents. He was saying, like, yields are trading like this. You know, crude’s telling us this, the stock market down 17%, is saying this. And none of it really makes sense when you mash them up all together. And so here we are, like three weeks left in a year that I think by most accounts, if you want to take out the first half of 2020 is probably the roughest sledding that investors have had since the post financial crisis days. And so trying to make sense of it Guy to your point is like the only way I think you can kind of logically just take stock of where the economy is, where financial markets are, is by thinking that this is not a one year thing which we’ve gotten used to. The only year the stock market was down during the financial crisis was 2008. The only year that we really sold off or closed lower was in 2018 after that. And that was just because we had a slide late in the year when the Fed was on autopilot raising interest rates. So I just don’t understand, like if we continue to rally the stock market in the year end, that does not portend well I think for 2023. [00:04:14][67.8]
Danny Moses: [00:04:15] If this was a game, a clue, and you’re trying to find Powell in the library with a hammer or whatever, I feel like everything is kind of falling into place actually right now. So I think there’s more clarity now than there has been in the entire year. So the month of December, I know the market’s up today, but it’s obviously started out rough. We said that may happen. Just talk about a few things here. So the dollar continues to kind of come in, overall right its had a couple of down days. But what’s interesting is the market stopped actually acting inverted to the dollar. What? I mean, the dollar was coming in, the market was rallying. Now, I believe the market stopped rallying with the dollar coming in because people are really starting to price in a slowdown and a recession. The CEOs of some of these banks have been telling us, they told us this week at the Goldman Sachs conference, the 2/10 inverted yield curve were near 85 basis point. It’s obviously telling us that right now consumer credit, consumers are extended, savings are low, credit balances are high. So a lot of things are now oil’s coming in here. So a lot of things are happening to me that are actually are setting it up and it’s actually becoming more evident of what things are going to look like. And like I said last week, I think people just want this year to be over. I think longs don’t want to have to worry about selling. And I think shorts don’t want to have to worry about covering. I just think want to plow through the rest of this year. But I actually think things are more clear now than in any point they’ve been for the year of how this thing is going to pan out. [00:05:32][76.7]
Guy Adami: [00:05:32] Yeah, I mean, in terms of clarity, I think you’re 100% right. We’re seeing the clarity that two tens inversion that we have talked about on this show for literally the last year or so is making its way to that 1% level, which we flagged. We thought it could get there in the form of four and a half percent in two year yields three and a half percent in ten year yields. Well, the ten year part is there. It’s actually below three and a half. And I think the two years are going to remain sticky. A lot will have to do with that PPI print, which comes out by the time you’re listening to this. And I think that will potentially shape the way the market trades over the next few weeks. But with that said, you’re seeing the clarity. You’re seeing the clarity in the form of energy prices which continue to come lower, which suggests a weakening global economy. You’re seeing the clarity, to your point, Danny, in the form of balance sheet here in the United States with consumer debt now north of $5 trillion, credit card debt being a component of that north of $1,000,000,000,000 for the first time ever. So all these things are rearing their heads. The only thing that I don’t think you have clarity in is the form of the stock market, which has rallied since the middle of October like we thought it would, but is stubborn here at this sort of 3950 level Dan [00:06:46][73.9]
Dan Nathan: [00:06:46] And when you think about the rally that we’ve had and the technicals, everything lines up. It’s right back at that downtrend. You mentioned PBI, that’s coming out Friday morning. We’re going have CPI. Then we have that Fed meeting the week after next here. Then we have the Fed meeting mid-next week. I mean, when you think about the stock market’s reaction and I guess more importantly the Treasury yield reaction to that CPI print, that was a little softer than expected last month. I mean, the explosion that we saw in stocks and the opposite effect on yield to the downside went from 4.3% to where we are right now, just under three and a half percent. I mean, I think there’s actually a little room left for some fireworks. I think once we get by this Fed meeting, Danny, I mean, things could quiet down a little bit. I know that there’s this debt ceiling issue and the like here. But again, I think there’s probably one more bout of volatility until we kind of get the table set for 2023, which I think we all agree, the higher we go in December is the harder we fall early next year. [00:07:45][59.1]
Guy Adami: [00:07:45] And Danny what are we waiting for at this Fed meeting? What are we listening for? Again, we’ve talked about the yield curve inversion. That’s got to be a question it’s asked of Jerome Powell. I would think that would be my first question. Question being somewhere along the lines is, what is this telling you? This is the most inverted we’ve been since 1981, seemingly going more inverted. And again, it’s not the question of whether or not they slowed down or pause. It’s the length with which rates will stay elevated. I don’t think, Danny, that’s what the market is taking into consideration. Thoughts like, what are you waiting to hear from these guys and gals? [00:08:19][33.4]
Danny Moses: [00:08:19] Yeah. So we kind of got a preview when, you know, obviously we had the, if you want to call it better than expected economic data, which got people excited that the Fed was probably about to pivot than Powell came out and squashed that. And then we had the jobs report, 60,000 jobs here and there is not important in terms of the overall decision making. But what was I guess people got concerned about on the inflationary side was the wage inflation. All right. But when I look today like used car prices right down 14% against year over year, when I see housing coming in, we know that lag effect on rental housing, we know some huge components of CPI and inflation are coming down. We can safely say again, inflation as an overall category has probably peaked. You’re going to have bits and pieces where people want to choose, Oh, that’s down a lot. Inflation is really coming down hard or Oh, that’s not down as much as I thought. Maybe the Fed keeps going, but bottom line is he’s going to be pretty hawkish I think, next week when the Fed does come out. And I think until that moment, we’re going to have kind of a zig zag market and then we’ll see we’ll see how much that volatility sets in the market from the 14th, let’s say, till the 22nd or 23rd when the markets really shut down. But I’m not saying it’s a December 2018 event, down 10%, but there’s a lot of volatility. And I think people need to position themselves for what’s going to happen next year and use the opportunity, like I’ve been saying, on selling low quality things and buying quality things and upgrading their portfolios over the course of the next 2 to 3 weeks. But I looked at Fed fund futures this morning. They’re not really moving. What has actually moved longer out is the kind of the terminal rate for Fed funds is still kind of hanging around five, maybe even a little bit lower. So I think everybody’s on board that the Fed’s almost done and that we’re probably maybe five and a quarter will be the peak. But there has been in the last kind of week people thinking, oh, it’s five and a half, oh, at six. I don’t believe that is the case. So we’ll see what happens. But I stand by that inflation has peaked. But then again, you know what, Guy so have earnings. [00:10:04][104.8]
Guy Adami: [00:10:05] Yeah. So let me ask you a question because Dan said a great call on this in terms of energy. Crude oil is now approaching that $70 level, the $70 level that the Biden administration. And by the way, you know, I was extraordinarily critical of them for releasing energy, crude oil from the SPR. I still remain critical. With that said, if they were commodities traders, I mean, they effectively sold the highs. And if they’re successful on the flip side, they could potentially be buying the low. So good for them. But with that said, you have seen crude effectively been cut in 40% move from the highs we saw earlier in this year. These equities have held in there, although the last week or so they’re giving up the ghost. What’s your thought about energy? Not necessarily the commodity, Danny, but the underlying equities which have held in until recently? [00:10:56][51.3]
Danny Moses: [00:10:57] Yeah, they’re still, I believe, if you want to see outperforming to the downside in terms of what these commodities are actually doing relative to these prices. I’m looking at natural gas. I mean, look at the zig zag on that. Five to 6 to 7. Back to 6 to 7. Right. So these are just volatile prices. Oil, I think if it stays down here, if the West Texas reaches kind of 73, 72, we start to move lower. Then I think we’ve talked about this before. Then I think the energy stocks probably followed suit, but that remains to be seen. But what is it actually telling us? I mean, it’s telling us, I think, that there’s potentially a worldwide economic slowdown. We kind of got through kind of the reopening of China because it hasn’t actually happened yet. But the euphoria surrounding kind of the end of the China feels like it’s now probably reopening, at least to a degree. So we got past that kind of euphoria. So there’s nothing there really to get oil prices up from here. But listen, I’m still a buyer for these energy stocks on weakness to a degree. The quality ones, the ones that have tremendous balance sheets that are returning capital in the form of dividends and buybacks. So because I don’t think we’re at the point yet where you can say, I don’t want to own any of them because fundamentally they’re still in decent shape Dan [00:11:59][62.3]
Dan Nathan: [00:12:00] I think this the most important point of the entire week is that China is easing some of these zero-covid policies. You saw the article in the Journal today saying that a month ago the CEO of Foxconn, right, a huge employer, sent, I guess, a letter to the Communist Party, basically saying we are going to lose this globalization battle. Deglobalization will be really, really bad for our country. That caused them to kind of ease some of these things. The fact that our stocks have not rallied off this. The fact that crude oil has not rallied off of this, despite the fact that their stocks are rallying and they’ve rallied sharply off the lows, tells you something that a lot of really smart money feels, that whenever they come back online at some point we’ve been talking about this a little bit, it’s very likely to coincide with a very weak Europe, a very weak U.S. you could call it recessionary. And I actually think that’s the tale, the fact that crude oil is right about to make new 52 week lows going back to December 2021. And the fact that our stock futures have not been bid up, you know, like 1% on those sorts of headlines overnight tells you that I think people are setting up the end of the way. You just described the thinking about trading the environment that they’re going to be in next year, not what should be happening based on some of those headlines right now. [00:13:19][79.4]
Danny Moses: [00:13:20] So, Dan, you’re right. I think that people were waiting for China to see what oil was going to do and when there was no incremental buyer of commodities there, then it kind of sold off. But there is a commodity. I’ll speak to Guy about this, not you, Dan, about this. [00:13:32][12.1]
Guy Adami: [00:13:32] Please tell me it’s gold and silver [00:13:33][1.1]
Danny Moses: [00:13:34] Has finally found its footing. Has finally found it. We won’t spend a lot of time on it. What’s interesting is that gold obviously rallied from the 1650 to the 1800, which, by the way, is a substantial rally. And now I think it’s in position, probably won’t be finally. Yes. If the dollar has peaked when the dollar comes in for the reasons of the economy, kind of slowing in the U.S., shitting to bed, and then there is a pivot. It looks like gold might be in position. I just wanted to throw that in. And then one other thing. I mean, we had two attempted coups in the last 48 hours, Peru and Germany. Granted, I think the Peru one was much closer to happening than Germany. But again, geopolitical unrest and, you know, gold. But anyway, guy, thoughts on that? [00:14:12][37.3]
Guy Adami: [00:14:12] Danny, I’m with you. If you look at silver very quietly, Silver has gotten off the mat. Silver sort of breaching this $23 level, something to continue to watch. And gold, to your point, has had this stealth rally, I will tell you that is the Chinese have been selling stealthily treasuries. They’ve also been stealthily Dan Nathan buying gold. Now, it hasn’t manifested itself in the price nearly to the extent that it should. But to your point, Danny, if the dollar does continue to come in, which it appears that it will, if rates continue to come in, which they appear, that they will as well. I think gold rallies under that backdrop. [00:14:47][35.1]
Dan Nathan: [00:14:47] Tactically, gold is at a really interesting level. It’s those kind of August highs before it just kind of fell out of bed. So let’s see if it can get through those things. One thing I would just wanted to mention, and Danny, you and I have not talked all week, but I wanted to get your take on this. Tom Lee at Fundstrat started out the week with this question mark sort of piece about why is it that the U.S. peak to trough had such a worse decline. This is equities than, let’s say, Europe and Asia. And it’s funny, this is going back to that kind of dollar conversation. The easy answer is that we were first to raise interest rates, in my opinion, which obviously dragged the dollar higher, which was obviously a headwind for U.S. multinationals in earnings growth and the like here. Your thoughts on that? Because he remains steadfast, bullish. I think he put like a 4400 to 4500 range by the end of the month anyway. [00:15:35][47.9]
Danny Moses: [00:15:36] That’s all I saw. And then I hit delete. So everything else beyond that, I’m sorry, but I mean, I’ve known Tom a long time. I respect his need or willingness to always be bullish. But I read the first part and I just turned it off. [00:15:47][11.6]
Guy Adami: [00:15:48] So you were doing a little Frank Patanjali there? [00:15:50][2.1]
Danny Moses: [00:15:50] Yeah, I don’t remember. I used to. Yeah, I don’t know. Pickle business. Yeah, I don’t know. [00:15:53][3.3]
Dan Nathan: [00:15:54] But it was funny, Danny, that morning when that piece came out. [00:15:56][2.6]
Danny Moses: [00:15:57] That was when Wilson shifted bearish by. [00:15:58][1.7]
Dan Nathan: [00:15:59] Wilson after his brilliant 15% tactical long call. [00:16:02][3.3]
Danny Moses: [00:16:02] By the way, can I just say something? One of the greatest tactical trades ever. And now he made me now I’m very excited again, obviously, because he came. But yeah, I you know, I missed 400 points on the S&P here and they’re 400 points here. So those two, I believe, then came out within either the same day or. And so I saw Tom Lee on. Top. And then I saw Mike Wallace on the bottom. I deleted Tom Lee, I read Mike Wilson. [00:16:23][21.0]
Dan Nathan: [00:16:23] And listen, this is really important because it’s kind of nuance. And so when you think about it, Mike Wilson, who I’ve known for 25 years, as long as I’ve been in the business, he’s just a really good markets guy. Like he gets it, he gets sentiment, he talks to a lot of really smart people. He’s willing to put his neck out there a little bit and make those sorts of calls. Because think about this. He’s been bearish all year long and he’s been right for the right reasons. Let’s just say the market took a crap and dropped 10% in a straight line right after he made that that he ruins his whole call for the whole year. So the fact that he stuck his neck out there, I think is brilliant. I think doubling down on a bullish equities call despite what’s going on in the economy here and globally to me doesn’t make a whole heck of a lot of sense. But again, I also have a lot of respect for Tom and the work that he does. I’ll just make one other point and we talk we use this word sentiment a lot. And this is something if you trade in you trade markets, you have to be cognizant of this. If you are just a buy and hold investor and dollar cost averaging, maybe you don’t care. Maybe that’s just the sort of things going give you a headache. But we had that conversation with Vinny and Porter and all year. What was that, Danny, like early October and all year long, if you were listening to Vinny and Porter about their view along with you, obviously we just talked about energy stocks. Fundamentally, they’ve been so right. They’ve gotten the sentiment right. They’ve got it from a macro situation. Right, all of the above. But remember when we were kind of going back and forth because they were like, dude, why are you buying tech stocks? This was like kind of earlier in the fall. And if you’d bought tech and sold energy stocks there, that’s a good trade, but that’ll reverse itself. So I guess my point is, is like tech was so beaten up, it was right after earnings, all those stocks had gapped down we had like three major names with 20% one day gaps. Those are not things you want to press. And the flip side of that is when you have a group like energy, which is less than 5% of the S&P 500 weight, there is a disproportionate amount of its earnings growth this year and they’re trading at all time highs at difficult technical levels. And it’s really hard to find anybody who wants to sell them. That’s when you want to go the other way on that. [00:18:25][121.3]
Guy Adami: [00:18:25] I want to encourage people to just take a look at an Nvidia chart over the last year, go back to November of last year, look at where it is today, and look at the bounce that we saw since the middle of October. I mean, you’re talking about a stock then that’s rallied either side of 50% from that trough low to the recent high that we saw. I mean, that’s a 50% bounce in a stock that’s still 50% lower than its all time high. By the way, all the things that we’ve broad brushed, we’re going to get a little more granular with Jurrien Timmer, director of Global Macro Fidelity, in a few minutes. I’m really curious and interested to hear what he has to say. But all these things that we talk, it is sort of a 30,000 foot level, I think Jurrien and can help get a little more granular with us, Dan. [00:19:11][45.8]
Dan Nathan: [00:19:11] And you know, what I found really fascinating about you’re and he’s not one of these strategists speaking to fancy hedge funds and huge pension funds and the like. He actually is speaking to millions of Fidelity clients who are probably a lot less sophisticated, spend a lot less time on it. They’re equally concerned about what their money is doing in the market. And he has a really simple way of breaking down, I think, the intricacies of all of this. And so to me, yes, I think he’s a great voice at a time like this because they have tens of millions of brokerage accounts and trillions and trillions of dollars of assets under management [00:19:48][36.5]
Guy Adami: [00:19:48] By the way, you should follow JT on Twitter. You should also check out some of his media on the Twitter because this is a cat that goes to that Burning Man thing, which I’m sure Danny is. But Danny you’ve probably gone to this. [00:19:59][11.2]
Dan Nathan: [00:20:00] If any one of us is a burner. It’s Danny Moses. [00:20:02][1.7]
Danny Moses: [00:20:02] I have never been to Burning Man. I’d be too stressed for that long to be in the middle of a desert without really notice. That’s not my style. [00:20:08][5.4]
Guy Adami: [00:20:08] Now, isn’t that. Don’t you play music at that thing? [00:20:10][1.9]
Dan Nathan: [00:20:10] It’s music. It’s art. [00:20:11][1.3]
Danny Moses: [00:20:12] I think you’re taken up drugs where you think you’re listening to music. I don’t even know the whole thing. But yes, it’s a free spirited, cool thing. I’m not that cool. I’m not cool enough to go to that. [00:20:19][7.6]
Guy Adami: [00:20:20] But you are. By the way, we’re going to talk about how cool you are in a few minutes. We’ve gone now without talking about something that’s near and dear to all of our hearts. Of course, that would be Tesla, which traded below 170. Dan you said it’s not a good press here on the short side, traded back up to 200, but here we are yet again, Danny pushing down to not only a 52 week low, but a multi-year low and another stock that’s been more than cut in half from its all time high. A lot of Tesla news again this week. Seemingly, I’m hearing that Elon Musk might pass the torch, although I think that’s probably folly. [00:20:54][34.4]
Danny Moses: [00:20:55] Yeah. So this is where my song comes in. So seasonally, Billy Joel kind of been around. He’s around the garden. He’s actually coming down here to Florida soon. You know, scenes from an Italian restaurant, which has to be one of your. It’s probably where you got engaged. [00:21:08][13.0]
Guy Adami: [00:21:09] Why do you say that? I mean, do you say that because of my heritage? [00:21:11][2.3]
Danny Moses: [00:21:12] No. I think you will love Billy Joel and you love it. I’m guessing you love that song, so. [00:21:15][3.4]
Guy Adami: [00:21:16] Okay, that’s fair. [00:21:16][0.5]
Danny Moses: [00:21:16] I was thinking of Cathie Wood today and with Elon. Because I kind of think of them together, right? The king and the queen that I’ve talked about before, that the king and the queen of the meme stocks. I said, and we’re going to talk about another meme stock later. But so you want to hear my rendition of Scenes from an Italian restaurant. Okay. A bottle of white wine, a bottle of red, perhaps a shot of Tesla. Instead, we’ll get a bar from the street. Everyone was wondering when he closed this Twitter deal. The banks are on the hook for the 13 billion. Of that 13 billion. There was 3 billion in debt that was unsecured. And how much did Elon sell to put towards the equity and did he sell enough? And then he sold more stock in Tesla. And I think from a Tesla perspective, shareholders were fearful that they’re going to get intertwined here and it’s actually obvious that had already happened. But now it’s really happening when you see an article run like that last night that Elon Musk’s bankers are talking about potentially lowering the interest rate on the 3 billion by substituting Tesla stock in a margin loan. So for people out there, just remember Elon Musk prior to the Twitter deal had already basically been lent out a lot of his shares for all his other entities. Right. SpaceX, whatever he’s doing to these monkeys on this neuralink thing or all these things that are occurring, he already is out on margin. I haven’t looked at the most recent proxy, but what’s the difference? Why wouldn’t he have just sold stock? So now he’s going to potentially again, just rumor pledge stock at a lower rate than whatever the 12% that he’s paying on that debt. Just to take some of the pressure off Twitter. But let’s be clear, that’s going to do nothing. The amount of debt that this company has and the amount of cash flows that they have, it’s not going to solve anything. But rest assured, he probably struck a deal when this deal was closing that if need be, this is something that he would do to do this. And so here we are. And people may say 3 billion, 4 billion Tesla’s a you know, a $270 billion company and Elon’s worth X, I don’t think Elon’s that liquid. Dan And so this again now ties in to the frustrated Tesla shareholders, the ones that actually like the fundamentals. They believe in the company, they love the macro of EV. That’s fine. But now they can’t be happy about this because this just adds another wrinkle and adds, I think, more fuel to people than want out and short the stock. [00:23:26][129.5]
Guy Adami: [00:23:26] Before Thanksgiving, Tesla traded down to 166 and change subsequently bounced up to 196, then in the ensuing couple of weeks. Now here we are effectively round trip. You’ve said, Dan, number of times that among the many sentiment stocks out there, Apple obviously being on the top of that list, Tesla has to get thrown in. And I will tell you, if you didn’t know it was Tesla, you look at this stock, this has bit of a head and shoulders formation has not traded particularly well. One has to wonder what happens to the broader market if in fact, Tesla trades down to the 150 level that you’ve been flagging for quite some time. [00:24:02][36.0]
Dan Nathan: [00:24:03] Why is this been important to us? Because just all of the unusually positive sentiment that is wrapped up around him, around this company, that at one point in the last year had 90 some percent of the entire public equity market cap of the auto space where they have low single digits market share. We’ve heard all this stuff about production cuts in China. We’ve heard about offering discounts. We’ve heard about just market share declines there. They’re less than 10% market share in EVs. And I look at this situation, the fact that Tesla shareholders are not screaming from the rooftops about what he has done over the last six months as this stock has lost hundreds of billion dollars of market cap. It’s got a $555 billion market cap right now. It’s down over 50% on the year. To Danny’s point about what he has pledged at the end of March in Leon Deming from Bloomberg Opinion had a story out today that as of the end of March had 89 million shares pledged of his, I think 440 million or so. And those shares in March were worth $32 billion, and now they’re worth $16 Billion. So we don’t know how liquid his space X position is in the fact that Tesla shareholders are underwriting his Twitter gambit and he’s alienating Tesla consumers by this alt right move and all the stuff that he’s stirring up on Twitter. This is an unholy mess. And if that stock were to go down and I’ve been saying 140, that is the level in November of 2020 when the S&P said they’re going to add Tesla to the S&P 500, the stock over the next two months doubled. That is the psychological spot you’re going to round trip to 140 and you tell me what his 14% holdings in Tesla are going to look like here, especially when he’s already probably got 100 million pledged and he’s already sold a lot of stock, Danny. [00:25:59][115.7]
Danny Moses: [00:25:59] Actually made a point to not talk about Tesla in last week’s. But you know what? It’s in the news. It’s a big company and it matters just around this out. At the end of the day, fundamentals are what’s going to drive stocks in the longer term, I don’t care what sector you’re in and the fundamentals for this company appear to be on the decline, the sales out of China, the competition that’s coming. And so I don’t need much more than. This other stuff is noise, right? And I’ve always said when the stock price goes down and I know we’re going to talk about Carvana in a second, just to close the final loop on that thing, it starts to bring out the questions and when stock goes down, people decide, oh, is this a buying opportunity? And that’s where I sit with it. Fundamentals are going to be the be all, end all for this company. Everything else is noise, all the DOJ investigations, all the stuff. So and we can move on from that. But to me, I’m still very comfortable. [00:26:43][44.2]
Dan Nathan: [00:26:44] But hold on Danny it’s not just noise. I mean, so Elon Musk is making a fundamental situation far worse by adding leverage on leverage, right? So, yeah, for sure. So the headline that you’re talking about is this $13 billion in debt that he needed to buy Twitter. He’s basically pledged Tesla shares. And now the banks that are hung on the debt are saying we will give him more margin against his Tesla holdings to retire a bunch of that debt. So if Tesla’s stock goes lower for fundamental reasons, margin calls happen and then we know what happens in those situations, it’s a snowball effect. That stock could careen lower, especially if it matches up with a global recession and then for selling. And so all of a sudden then you have two companies, you have Twitter and then you have Tesla that are on the hook. And then you talk to me about Space X, I don’t know. I really think and I’ve been saying this all year, you’ve been saying different things about Tesla and you’ve definitely had a fundamental conviction about this. Mine has more to do with the fact that we’ve had bubbles pop all over the place and almost every major risk asset crypto, SPACs, unprofitable tech. I mean the list goes on commodity bubble pop. This bubble is going to pop too. [00:27:58][73.7]
Danny Moses: [00:27:59] Hold on Dan, just the record when I say noise, I mean there’s noise always with this guy, but, you know, someone going to come back. You know, I’ve been saying for obviously too many years that I believe we’ll know the market’s bottom when Tesla finally cracks because it is everything that’s wrong. It is the king of the memes and all that stuff. So I am 100% with you and I feel like we are as close as we’ve been. And what I’m saying, what may happen, the excuse will be, are they just miscue for mass? They that’s not noise. That’s one of us. So my point is that noise is noise until fundamentals match it and then the noise is really going to matter. So we can move on from there. [00:28:32][33.1]
Guy Adami: [00:28:32] There’s a word in the English language, it’s called etymology, and it’s sort of the foundation of where the words come from. And there’s a word that I want to throw at you, Daddy Moses that word would be kudos. I want to throw some kudos your way, because I will tell you, in the summer of 2021, I believe was August, a name called Carvana was approaching $350 a share. And you started talking about it in earnest, saying how you were looking at this as a potential huge short idea. You subsequently came on CNBC. Fast money, 5:00 Eastern time, Monday through Friday, earlier this year, when I believe the stock was either side of $160 and again voiced that same opinion, well, guess what? It traded down to $3 and change this week. Think about that for a second. Again, a name that you had been talking about on the short side for quite some time. All the sudden, media is surrounding this, talking about it in earnest. By the way, look at Upstart from Thanksgiving of last year. [00:29:31][59.3]
Danny Moses: [00:29:32] Yeah, that was the best clip ever. [00:29:33][1.1]
Guy Adami: [00:29:33] Yeah. Look at Affirm from Thanksgiving of last year. Look at where those stocks were and look at where those stocks are. Now, these are all names and all I don’t want to use the word scam, but for lack of a better word, people trying to reinvent a wheel that didn’t need to be reinvented. So, again, kudos to you. I know you have some thoughts. [00:29:51][18.3]
Danny Moses: [00:29:52] Yeah. No, I’m not going to victory lap on this at all. And this goes back to the point I just made, is that when stock prices move lower, stocks that don’t trade on fundamentals start to move lower. It brings out a lot of questions into the business models of companies, and that’s what I think will happen with Tesla. But anyway, back to Carvana. Through all this noise when they tried to raise money where they did raise money around $80 a share, I said it’s a better short now at 80 than it was at 300. Well, that’s doesn’t make sense. That’s counterintuitive. No, because things were in motion and basically they were exposed. Again, Ernie Garcia, the second the father of the CEO or Andy Garcia, the third was the guy that ran Ugly Duckling back in the nineties when I had Vinny and Steve and Meredith Whitney, as our analysts, they called it. Then he was involved in the SNL crisis. He’s a crook and all that stuff. History may not always repeat, but it definitely rhymes. And this drive time financial, which was the financing arm, a part of Carvana, people always wondered how did carvana? Wow, they really pay a lot for a used car. How did they make money? They made it through the financing side and all that jazz. It was this great model that they had until it wasn’t. And so the euphoria of used car prices going up during COVID, as soon as that kind of abated, it kind of exposed and made people take a look. And again, you guys have talked about it. We’ve talked about it. When debt on companies traded 30 to $0.40 on the dollar, rest assured, there’s a 99% chance of the equity is worthless. And that’s been right in front of everybody literally for the last 3 to 4 months. So shame on people that still own the equity that didn’t even maybe they didn’t know how to buy the debt. But I said months ago, if you like this company, go buy the debt. So as Porter and Vinny said on What Are We Doing last episode? It deserves it should go into bankruptcy and maybe they can fix themselves because they have a model that might work. [00:31:26][94.2]
Dan Nathan: [00:31:27] I want to hit this really quickly because I think it’s interesting getting you mentioned the Goldman Sachs financials conference. All the bank CEOs spoke there. And it was interesting. There seemed to be a slight change of tone by Brian Moynihan. He’s the CEO, Bank of America. And I think it’s really important to note that stock is down 15% this month. It is careening lower some of the commentary. So remember when Jamie Dimon said there was an economic storm coming? This was back in late spring. Moynihan kind of clapped back a little bit. He said, we’re from North Carolina. We know what storms look like and nothing so great. So some of the commentary he had, it was about, you know, loan growth and just kind of moderating. And so I thought this tweet from Rosy, David Rosenberg Rosenberg Research, he’s been a guest on our program. He uses sarcasm font on the Twitter. But Rosie tweeted another blowout consumer credit report for October up 27 billion year to date, credit card balances soared 130 billion double all of 2021. The surge financed about a third of the spending this year throws cold water on the view that balance sheets are in fine shape, replete with excess savings. And Jamie Dimon also this week was talking about how that excess savings is going to get burned off at some point mid-to 2023. So, Guy, you’ve been talking about this a lot. I just think it’s really important to remember that the week that we see the ten year U.S. Treasury yield break, three and a half to the downside, that was the high in August. We always thought that was a psychologically important technical level. We see the banks now after a huge rally in their stocks from mid-October, which really got things kicked off with their earnings. And now they’re kind of throwing a little bit of cold water on any positive narratives about the consumer. And we know we always have rosy there. [00:33:08][101.0]
Guy Adami: [00:33:08] Well, you just stop paying attention if you’re not looking at some of these numbers. These numbers are significant. And Dan, consumer debt in this country is north of $5 trillion. 20% of that is now credit card debt. I mean, these numbers are staggering. And you can speak about the health of the U.S. consumer and stuff. But with rising interest environment, with numbers like this, at a certain point it’s going to be problematic. And the fact that Brian Moynihan finally got his arms around it, I think, you know, I guess better late than never, but it’s been staring him in the face, in my opinion, for quite some time. I’ll tell you something else. It’s been staring a lot of people in the face, because you mentioned it, Dan, many months ago when Jay-Z. No, not that Jay-Z. Jay-Z, Joe Zito from Blackstone came on CNBC fast money and was effectively talking about the real estate market. Now, were they talking their book? Absolutely. I don’t say that in a derogatory way. I expect them to talk their book. But you push back and say, wait a second, if you think the real estate market is can continue this trajectory, you’re not paying attention. And to a certain extent, you’ve been spot on with that. And obviously, Danny Moses, what we’ve seen in terms of redemptions, again, I know Blackstone is explaining in a way I don’t think it’s a problem for Blackstone specifically, but it speaks, Danny, to putting somewhat all your eggs in this real estate basket. [00:34:23][75.1]
Danny Moses: [00:34:24] So these private REITs, as they’re known, are really available to high net worth individuals. You’ll find them if you have an account at Morgan Stanley or Jp morgan, you’ll be able to kind of invest in these things. And again, these private REITs have been around for a long time. They traditionally price at ten bucks a share. This was conceived and began in 2017. And Guy, make no mistake, it grew exponentially shocking during the low rate QE environment from 13 billion in 19 to 21 to 54 to 69 billion in 2022 at the peak year. And they obviously have debt on top of it. So it’s $69 billion now, but it’s over 125 billion when you kind of throw in the debt. But here’s what’s interesting. These things work until they don’t. So there’s nothing wrong with that. There’s nothing illegal. But let me put this in perspective. The selling fee, what does that mean? The brokers, they are putting on a platform, what do they get? They get 9% spread out over seven years. What’s the management fee, Danny? 1.25%. You’re paying Blackstone for this. Hey, Danny, what’s their performance fee? They get 12 and a half percent of the gains above 5%, what we call a hurdle rate. Right. So very expensive. So it better work. So what do they also have, Danny? They have a mechanism where redemptions. This is not they didn’t have to quote gate. This was an automatic thing that happened when they get redemptions equal to 5% of the of so let’s call it 70 billion, let’s call it 3.5 billion. That’s all that they will redeem out. They’ve been selling properties. They sold some casinos in Las Vegas, obviously, maybe for good reason. Maybe they wanted to meet some of these redemptions, but probably not a bad. But here’s the thing. If you’re a public markets investor, you can achieve it a much cheaper way by buying a Prologis PLD or a Mid-America Communities Air and get the industrial and apartment exposure because they have basically for no fees and receiving the dividend. So it’s not a gimmicky product, it is what it is. But rest assured, from a mark to market perspective, the public REITs, however you want to look at them, whether it’s the ETF, I think it’s V and Q, whatever it is, is down 20% this year. This Blackstone is marked up monthly. So when I said it priced at ten years ago, it’s at 15. That doesn’t include the dividends they be paying out. So bottom line, guys, is this was a product of easy money for a long time. And yes, it’s safe and yes, their debt is fixed and all this other stuff. But this is now you’re getting a glimpse. You know, Starwood has this product also that’s out there. It’s not as big, obviously, but it’s there. So people should pay attention to this. And listen, this is not going to get better. This is we’re in a higher rate environment. And I don’t think this is necessarily a canary in the coal mine, but it’s a big wake up to who has been buying all these rental properties, who isn’t buying all these industrial property. [00:36:56][151.4]
Dan Nathan: [00:36:56] Blackstone. All right. So listen, Danny, we spent some time talking about this on CNBC this week. And so Guy had brought this up that in May, this guy, Joe Seidl, who’s the head strategist or whatever and it’s funny, I was on the desk that day. I wasn’t paying much attention as I sometimes don’t do. And I was hearing things about their house view on the economy. So again, this was May a lot of people were still, you know, didn’t think the Fed was going to have to go as far they did. They were still kind of hanging out of the transit story stuff. They were still kind of wrapped up in Ukraine, Russia and was going on there or whatever. And so I kind of look up and I’m thinking, I’m listen to this guy talk. He’s down on the set and he’s talking about how he only thinks housing gets hit if unemployment starts to tick up. Was not concerned about the rise in mortgage rates. He wasn’t concerned about this kind of consensus. He basically pushed back on a consensus that there’s we’re on the precipice of a recession. And he actually said between three and six months or maybe even 9 to 12 months, he doesn’t see any meaningful headwinds to economic growth. So a longer runway. And so I kind of pick my head up and I actually even called him BlackRock. I was like, I don’t know how any of that what he just said makes sense in an environment where we know rates are going up and they’re going to stay up. We know that unemployment is at 40 year lows and that’s going to go up. So that’s a really important thesis of why housing could roll over, but you don’t see it. It made no sense to me. I will say this lastly that David Faber came on our show the other day. Guy, when you were on, we spent 9 minutes talking about Blackstone and Danny. You just used that term canary in the coal mine. I think that was the kind of set up for it. Is it a canary in the coal mine? We talked about it. We went through it. We talked about what it meant for Blackstone. And I think John Gray, who’s the president and company, I think he was on the horn ASAP, meaning like he was on Faber’s show yesterday. Schwarzman, the CEO of the company, was on another show yesterday pushing back against this thesis. What did they say? What’s that expression that the English say about protesting? [00:38:50][113.6]
Guy Adami: [00:38:51] They’ll protest too much. That’s a Shakespeare thing. [00:38:53][2.8]
Dan Nathan: [00:38:54] Yeah, well, I don’t know. I just think it’s kind of funny because all of a sudden, B, B, B read. I just kept on thinking Be real because I know my kids are down with that social app when something like bubbles up like this and then you have the management so aggressively pushing back on it. And Danny, I got to tell you, when I hear the term gates, I got the Bill Gates is other Gates gates in investing. It usually gets your antennas up a little bit. [00:39:16][22.3]
Danny Moses: [00:39:16] Well, just to be clear, that obviously they need to talk their book. They’re talking in the book. And let me just say, the gates they didn’t have to put up because they’re automatic. I’m sure they would rather have not dealt with that. But more importantly, what does it mean to Blackstone stock? And you guys have talked about this before. I’ve seen you talk about it on air. Obviously, this is going to be a massive overhang for the company. It’s a huge fee generator. They have the other BDC that they have the B cred, the BCD or whatever it is. Right. So they have 22 billion there as well. So this just highlights in general the market’s exposure to fixed income and what has happened in this easy money period for so long. And it’s just it’s going to be a tough sled going forward. [00:39:52][35.8]
Guy Adami: [00:39:53] The lady doth protest too much, methinks. That’s from Hamlet, by the way. Hamlet, who probably smoked a lot of weed. Danny, what’s going on in your world? [00:40:01][8.7]
Danny Moses: [00:40:02] We did a quick podcast on Monday with Brady Cobb and , Emily Paxhia here from Poseidon and Brady, who obviously is the CEO of Sunburn Cannabis. And there was a lot of hope that the Safe Bank Act, which was had been passed out of the House seven times, it would finally clear the Senate and be attached to either the NDAA, which is a defense authorization bill, or potentially which could still happen. The omnibus and Senator Mitch McConnell blocked it at the end. But just to take a step back in the middle of all of that, President Biden signed this medical research bill. And remember, if cannabis, which is a schedule one drug, along with heroin and LSD, gets rescheduled to, let’s say, a schedule three drug, then this doesn’t matter because the banking system would open up regardless and that’s in motion anyway. It’s just disappointing that it just hasn’t happened yet. And so the stocks obviously ran up into the excitement that this bill may pass. And as Vinnie Porter and I used to say, when we would count on things like in sub prime financials in the CFP, the Consumer Financial Protection Bureau coming down on payday lenders, and we’re hoping there’s going to be a ruling against them. And we’re short all the payday lenders. When legislation is your theme, investors were redeemed. We used to kind of joke about that. So the fundamentals of the company to me are still intact. It’s disappointing near-term, but over the long term things will still be fine. But yeah, so somewhat of a head fake. We’ll see if something happens in the year end, but definite disappointment from where we sat just. Three days ago, guy. [00:41:19][77.0]
Dan Nathan: [00:41:20] All right. Little housekeeping here. This is really important. We appreciate you as our listener. We are doing a live stuff on the tape. Live on the tape collab. That’s going to be guy. It’s going to be demo. It’s going to be me with the compound podcast that is TRB the reform broker that would be downtown Josh Brown and Michael Batnick. We love those guys. We love their pod. We’re doing it December 16th. It’s going to be live at the Nasdaq marketsite in Times Square. We have a limited amount of tickets we are selling and we’re not selling it to put the money in our pockets. We’re selling it for No Kid Hungry and it’s amazing charity. This was Josh Brown and Michael bad idea and we are flattered that they asked us to do this with them. So it’s next week, Friday, December 16th. We have a pin tweet @ on the tape pod where all the details you can buy tickets if you can’t make it give to no kid hungry you can donate there to our sponsors are going to be giving we’re personally going to be giving our podcasts going to be giving and the tickets that go to this event are going to go to No Kid Hungry, all of it, 100% of the proceeds. So please come join us at the NASDAQ. Limited tickets. You know where to find the deets on our Twitter. [00:42:33][73.6]
Guy Adami: [00:42:34] May I ask a quick question? Of course. So you’re telling me the reform broker and Josh Brown will be there at the same time. [00:42:39][5.4]
Dan Nathan: [00:42:39] Same Guy? I know that you have not same them both in the same room at once. Yes, yes. [00:42:44][4.6]
Guy Adami: [00:42:44] I like trv. He’s the I like saying the t r b because the T in TRB is the. [00:42:48][4.1]
Danny Moses: [00:42:49] I’m excited. I’ll see you in person next week. [00:42:52][2.8]
Dan Nathan: [00:42:52] I’ll be looking for these. Join us guys. Sincerely, we’re trying to raise a lot of money for no kid hungry right before the holidays, and this is a great way to do it. So thanks to our friends, it’s. [00:43:00][7.5]
Guy Adami: [00:43:00] A great cause and it’s going to be a lot of fun. I’m actually looking forward to it and I look forward to a lot of things. One of the things I do look forward to, though, are Danny Moses, his picks in the league where they play for pay. Now, this year, I’m not going to use the pedestrian word because that’s not fair. But you’re 18 and 15. That’s 54 and a half percent. You will correctly say that if you’re 18 and 15 each year, you make money. Yes, that’s true. But I’ve come to expect so much more of you. I also know you well enough to say you’re done with this and you’re going to chase meaning that you’re probably going to pick a handful of games this week Danny. [00:43:32][31.8]
Danny Moses: [00:43:32] All right. Week 14, 18 and 15. Not up to my standards. All right. I mean, run to this quickly. Minnesota getting two points in Detroit, not a believer in Jared Goff. I think Minnesota stays hot getting two points in Detroit I’ll take Minnesota Bengals minus six at home against the Browns could have a letdown since they just beat the Chiefs. Burrow is 0-4 against the Browns. The Browns are awful with Deshaun Watson. They did nothing last week on offense. It was all on defense against the worst team. I’m going to take the Bengals minus six here. I’m going to lay monster wood with Dallas -17 at home against the Texans after what obviously they had a huge night this past week at home as well but I just think they’re trying to show off for OBJ to the -17 Seattle at home against Carolina Carolina is off of the bye week I get it but I’ll take Seattle minus four at home. They’re in the playoff hunt. And lastly, Chiefs minus nine and a half in Denver. Denver stinks. Chiefs off the loss against the Bengals. They’re angry. I like it. Those are my five picks. I need to go four and one and maybe five. No, who knows Dan? [00:44:32][60.7]
Dan Nathan: [00:44:32] All right, so, Guy, what do you think it goes? I think it goes one in four, I hope. [00:44:37][4.4]
Danny Moses: [00:44:37] Please, please. Dan bet on all five games. Please come out of retirement. I’m begging you. Just please do. I know I’m going to win. Do it. [00:44:43][6.2]
Guy Adami: [00:44:43] Let me say this. [00:44:44][0.8]
Danny Moses: [00:44:44] I dare you call me. Say one in four. After all the shit between us. [00:44:48][3.6]
Guy Adami: [00:44:48] I am not a student of the NFL the way you are. But I got to believe this is the first time in the history of a league that a ten and two Minnesota Vikings team are going to be underdogs to a five and seven team. They are begging you to take the Vikings, which leads me to believe this Lions team is for real. [00:45:06][18.2]
Dan Nathan: [00:45:07] All right. He’s going to be two and three this week. All right. Let’s wrap this up. This was a fun conversation. Dan, we’re going to see you lot. [00:45:11][4.5]
Guy Adami: [00:45:12] Early this week. I love the exercise world when we come back, by the way, our conversation with Jurrien Timmer, director of global macro at Fidelity. CME Ad. [00:45:22][10.0]
Dan Nathan: [00:46:02] iConnections Ad. [00:46:02][0.3]
Guy Adami: [00:47:31] FactSet Ad. Jurrien Timmer is the director of Global Macro at Fidelity Investments in this role. He is part of Fidelity’s Global Asset Allocation Group, where he specializes in asset allocation and global macro strategy. Additionally, he’s responsible for analyzing market trends and synthesizing investment perspectives across asset management to generate market strategy insights for the media as well as for Fidelity’s clients. Jurrien welcome to on the tape. So with here with Jurrien Timmer and it’s an honor to have you on board I’m just going to go JT for the rest of the show, if that’s okay with you, because that’s sort of how I roll. But before we even start, I want to hearken back to September 6 of this year, your Twitter account. I quote, the year I took my kids to something called Burning Man. From here on, they will be taking me. And I guess that’s like a smiley face emoji. But I’ve got to tell you something, if you’re that dude in the middle, the next Indiana Jones film should cast your ass because you look like a total stud in that picture. Get the scarf going. You got the shorts, you got the hand on the hips. Just talk to us briefly about this [00:48:39][68.0]
Guy Adami: [00:48:40] That actually, you know, I don’t know. I’ve never heard of, but I’m sure I have. But it’s too cool for me, cleary. [00:48:44][4.4]
Jurrien Timmer: [00:48:44] That actually is is was my son in the picture. But I work I try to look cool as well. But that that’s his own. He’s got the Indiana Jones vibe. But, you know, Burning Man is something I fell into in 2017. I run a camp there where our mission is to feed the artists, because what happens, Burning Man is a lot of things to a lot of people. But first and foremost, it’s an arts festival, for lack of a better word. And during the week before, what we all see as Burning Man with Elon Musk and Paris Hilton and all that stuff, these artists are out there building, you know, incredible art. And so our camp basically feeds them while they do that. And then we we hang out for a little bit after that so. [00:49:26][41.9]
Guy Adami: [00:49:26] That’s amazing. That sounds pretty cool. You should have Dan and Ike come out there. That’ll add some color to September 23. Burning Burning Man for sure. Yeah. Before we get into it, obviously, it’s a huge job that you have at Fidelity. Fidelity is there. The New York Yankees of our industry, without question and macro is top of mind for everybody. And where I’d like to start is what is going on. There’s so many crosscurrents, I think, for the bears. They have something for the bulls, they have something without question. I think people see and hear what they want to hear, sort of that line that Danny Moses use of some Simon and Garfunkel. I look at Tuesday tens probably headed to an inversion somewhere around 1% and say that’s dramatic if not potentially catastrophic. But other people say it’s different this time. What do you what are your thoughts on just the macro backdrop right now? [00:50:14][48.0]
Jurrien Timmer: [00:50:15] Yeah. So if we can kind of rewind a little bit, you know, the last two and a half years, almost three years have been obviously very, very unusual. We had a pandemic that caused a 35% crash in the stock market over five weeks. It ushered in an almost unprecedented amount of coordinated fiscal and monetary policy response. I say almost unprecedented because the last time we saw something of that of that order of magnitude was World War Two in the 1940s, which is a parallel I often rely on. And that policy response, I think it was needed at the time, but I think we can probably all agree that the Fed kind of overstayed its welcome and I don’t want to lay that blame on the Fed. I mean, is it easy for us to to criticize the Fed? But they’re trying to do the best they can, but also the fiscal policy, maybe we got more of it for longer than the economy needed and then everything overheated. And then we got inflation not only because of that for other reasons as well, you know, Russia, Ukraine, etc. at that period during the second half of 2020, first half of 2021, all of that policy stimulus. And again, it was a very potent cocktail, right? So we’re used to the Fed kind of going at it in the absence of the fiscal side. And then a lot of that QE that printed money sits around on bank balance sheets. It doesn’t get deployed. You don’t get that money multiplier. But this time with the help of fiscal, we did. And so, you know, the Fed pushed rates way down to unsustainably low levels in terms of nominal but and negative levels in terms of real. And when you plug that into an equity valuation model, you know, discounted cash flow model, you’re calculating the present value of future cash flows or earnings using an interest rate. And if that interest rates goes way down, the present value goes way up. And that’s what happened in 2021 is we got basically an asset bubble. I don’t like the word bubble. It’s overused, but we got asset price inflation on both the bond side and the stock side. And I certainly didn’t think a year ago that the Fed would reverse that so quickly. But it has. And so we got a big. Valuation reset both on the 40 side of the 60, 40 and the 60 side. And that’s what this year has been all about. It’s been a valuation reset. And as you said, the yield curve is now significantly inverted. It’s the most inverted since 1981. I think it’s at the 99th percentile of all inversions. We have a sense of what that means for the economy. And the reality is, or the likelihood is that we will have a recession next year. And that means, in my view, that the bond side of that 60 40 has some real value. Again, the value proposition has returned to the bond market. Presumably it will provide that port in the storm if the 60 doesn’t work for a while. And on the 60 side, we’ve had the valuation reset, right? The PE was close to 30 using trailing earnings a year ago. It was at 23 earlier this year. It fell to 15 in October. It’s around 17 18 now. So the valuation reset I think is kind of behind us. But the thing we don’t know yet is about what will happen to earnings. Right. So we do know that if you get a recession, earnings generally decline, at least in real terms, not always in nominal terms. We could see next year produce negative earnings growth. That doesn’t necessarily mean the market has to go to new lows because the market anticipates that. Right. And so if we if earnings, which are currently at $220 a share and are expected to go to 230, which I think is maybe some wishful thinking, but those are the consensus estimates. If instead they go to 200, which would be a 10% drop, it certainly wouldn’t be out of the realm of possibility in a recession. Then you apply some kind of fair value to that. Let’s say at 17 you get to 3400, I think 18 you get 3600. That brings you back to the October lows, but it doesn’t bring you to lower lows. So my sense is that 2023 will be a year where we will need more patience on the 60 side, but we’ll get some protection on the 40 side. [00:54:35][259.8]
Guy Adami: [00:54:35] So I am totally with you in terms of the earnings picture. You know, I think you’re also going to see negative earnings, too. Whatever that’s 200 or 2010. I think that’s probably where falls into my pushback would be under those circumstances. Why would the market still be paying, you know, a I guess a fair valuation? It’s 17 when historically we’ve traded lower in similar environments. Does that not make sense? Or, you know, can you see both an earnings contraction and a multiple contraction? [00:55:06][31.0]
Jurrien Timmer: [00:55:06] I think we will or have seen that they just don’t happen at the same time. Right. The price is always ahead of earnings, both at peaks and at bottoms. Typically, a cyclical bottom happens about two quarters, maybe three quarters ahead of an earnings bottom. And so, you know, that happened in 2020, right? The price bottomed in March. Earnings bottomed in the third quarter. It happened in 2009 after the financial crisis. And so that’s why, you know, I tend to see people like on Twitter applying a trough to a trough EPS. And that’s not how it works because they don’t bottom at the same time. So the PE side is of course driven in part by earnings, right? During bear markets. Investors don’t want to they don’t feel confident that earnings are going to be there. So they they pay less for every dollar of earnings. But the rate side is also very important, and that’s been the driving factor this year. But you’re right, like if we had at some point undershot the fair value based on where interest rates are going because that would have indicated that investors were overly cautious about earnings then that would have been a really juicy kind of contrarian opportunity to get in. We didn’t really see that at all. Right. So if you look at interest rates, real yields, nominal yields, that was a constantly moving target this year for the PE. And the PE has now bottomed because rates have peaked. Right. I mean, the ten year went from 4 3 to 3 4 and just in the span of a month. So rates are down. That means the present value of future earnings goes up. But the E and the PE is kind of the next shoe that still needs to drop. But again, it’s not it’s not as binary as saying the is going to drop. Therefore, I’m going to sell today and ask questions tomorrow because the two don’t move at the same time. [00:56:52][105.7]
Dan Nathan: [00:56:53] So you just use the example of 2020, in 2008, when we had these cyclical bottoms. And I guess what was really different this time is that for the markets to bottom, in both of those instances, monetary policy had to get really easy. Fiscal policy got really easy. And we have the exact opposite. And you just mentioned, yes, we have seen the ten year go from 4 3 to 3 4 but it’s very likely to stay well elevated, you know what I mean, for a period of time relative to those other two bottoms that we saw. And so, you know, we also have quantitative tightening going on. So I guess my question would be, could it be. This time in 2023, where maybe we do see a trough multiple meet a trough earnings environment because, you know, I think back to these other periods in 2008, that was the only year the stock market was down during the financial crisis. And think of the absolute devastation we saw across the financial space. You know, risk assets go to 2020. We weren’t even down in 2020 and we had the sharpest 35% decline in the history of the S&P 500. So it really feels like we’re only down 17 and a half percent on the S&P 500 right now. The Dow Jones Industrial Average is down less than 10%. It feels like we could have a multi year sort of bear market. That reminds us maybe a little bit more of 2000 to 2002. [00:58:14][81.4]
Jurrien Timmer: [00:58:15] The way the market is priced right now, I think more things can go wrong than right. 2000, you know, the bursting of the dot com bubble price actually bottomed after earnings in part because nobody knew what earnings were hurting more because that those were the Enron days. So nobody knew what whether earnings could be believed or not. There was also a large valuation bubble, etc.. When you look at the markets trading at around 17 and a half times expected earnings of 230, it’s kind of priced for perfection. It’s almost like it’s priced for the Fed to pivot, but without producing a recession. And maybe that’s wishful thinking because when I look at the yield curve and I look at the forward curve, right. So you mentioned a pivot like we saw 2020, 2009. You look at the Sofr curve or the Fed funds curve or the LIBOR curve, you know, the terminal rate is expected to peak at 4.9 sometime in the spring of next year. And then the Fed is expected to drop rates by two percentage points in in the following year. Now, why would the Fed drop rates two percentage points other than if there was a recession or if inflation just disappeared? And Powell can pull a Greenspan like, you know, Greenspan in 95. He gave back some of the rate hikes and it was one of the few soft landings in history. And so you think about the risks. One is that earnings fall and that we have a year next year where we constantly have these downgrades. And that doesn’t provide very good news flow for the market. But the other one is that inflation, which is falling now, at least on a rate of change basis, it peaked at 9% in June. It’s around seven and change now and it’s likely on its way to 4% next year. But if it doesn’t go all the way to two, then the Fed will not be able to pivot anything like the market. Is pricing in, right? If a neutral rate is three, three and a half, the Fed wouldn’t be able to return to a neutral policy if inflation remained sticky. And I think one of the things that we need to appreciate from the Fed is that it’s not enough for inflation to go from 9 to 4. The Fed’s not going to rest until it goes all the way to two or at least two on the PC. That would be two and a half on the CPI. And, you know, I recently spoke to a former Fed official who said that the name Arthur Burns is still very much resonating in the halls of the Federal Reserve, all the way from the chairman to to the janitor. Everyone knows who Arthur Burns is. Who, by the way, was the Fed chair during the 1970s, and that they will not repeat that mistake. So one of the risks to your point is that the Fed may pivot somewhat next year as the economy weakens or even goes into a recession, but it won’t be able to go all the way to something resembling a response like we saw after the GFC. [01:00:58][163.2]
Guy Adami: [01:00:58] Well Jurrien let’s talk about the 1970s because everybody’s looking for an analog. What does this look like. There’s some 19, 19, late 1920s, early 1930s here you got some definite mid eighties, 99. There’s something for everyone, but there’s also some semblance of 73, 74, which is something you’ve tweeted about. And can you speak to that? I mean, does this line up in similar fashion as we saw some 50 or so years ago? [01:01:24][25.2]
Jurrien Timmer: [01:01:24] There’s definitely an analog to the 73 74 bear market. And that was a bear market that the stock market peaked in January 73. It ended up falling 47% to October of 74. What’s interesting about that cycle is that the Fed was raising rates throughout the bear market and earnings kept growing throughout the bear market in nominal terms, of course. And of course that’s partially an illusion based on inflation. And then the market bottomed and earnings peaked, but the Fed, you know, was able to to to lower rates. And so it was a weird cycle in that sense where price really bottomed about a year before earnings. And so the early seventies was an unusual bear market in that sense because usually the Fed is not pushing rates higher throughout the entire thing. You know, towards the end when the Fed pivots, oftentimes the damage is done and earnings start to fall and price falls. I actually recently did a study which you’ll see in my Twitter feed probably next week, that of the. Five cycles since 1950 where you had the last tightening of a Fed tightening cycle. About 11 or 12 of them produced a bear market. Some of them did not. The market was able to rally right away, but but the seventies kind of stuck out. But the other analog that I’ve been focusing a lot on, even though that era was in many ways totally different than today, was the 1940s, 1942 to 19, late 1940s. That, of course, was the period where the U.S. entered World War Two course. We don’t have a World War Today, thank God. We also have a completely different demographic makeup, right? That was the start of the baby boom generation. We’re kind of on the baby bust side. But 1942 to 46, as the U.S. mobilized to enter World War Two, there was this massive fiscal response, right? Because that’s what the government was doing to get the country ready, that the GDP tripled from 40% to 120%. And the Fed, which was not yet independent at the time, was tasked with monetizing that debt. So the Fed increased its balance sheet tenfold and capped bond yields at two and a half. Now, the Fed isn’t doing that today, and the policy response was presumably not explicitly coordinated. But, you know, who knows? But that one two punch of fiscal and monetary, the last time we’ve seen that before COVID was the 1940s. And then when the war ended in the same way that COVID sort of ended or at least became an endemic instead of a pandemic, you know, the GIs returned to the economy, had to be restarted for that purpose. You had supply chain bottlenecks. Inflation went to 20% in 1946, 47. You had a 28% bear market just like we’ve seen so far, 28%. But to your point about kind of this frustrating sideways reset period was that it took three years for the market to finally start a new bull market. And it’s interesting that earnings didn’t skip a beat, but in part because inflation was 20%, but it was all valuation, the PE went from 22 X to five x. The market, after falling 28% had several 15 to 20% rallies, but they were all given back. And then the lows held and you had this kind of several year long trading range. And I’m not predicting we’re going to have a seven several year long trading range, but it is an example where rather than this binary bullish or bearish outcome, you had something in between where the market just has to digest a changing landscape, whether it’s from low inflation to high inflation, lower rates to higher rates or higher PS to lower PS, or even just the leadership change from the faangs to everything else. And in that sense, 2000 is actually not a bad analog because that had a very concentrated leadership and the late sixties is not a bad analog because as few people know this, but the left, the rally from the 66 low to the 68 peak was rife with speculation. It was all these space stocks, these early tech stocks any company what the word Tronox and it went to like 50 times earnings and it was it was a speculative frenzy that that unraveled during the 1970 recession. So there’s always little things we can pick up of various cycles. No cycle repeats. Exactly. But we can certainly learn from from history. [01:05:50][265.9]
Dan Nathan: [01:05:50] So let’s assume that the best case scenario for 2023 on the economic front is a soft landing, you know, some sort of kind of mild recession. And I think that seems to be like the consensus right here. And when you think about rates have peaked here, the dollar has is basically peak for this cycle. And we look at this Fed balance sheet that’s gone from pre-pandemic to just about 4 trillion to 9 trillion at the start of this year. It’s rolled off a little bit here. So on the flip side of, let’s say the best case scenario, a soft landing in 2023 and we know risk assets, we’ll start to discount that ahead of time. What worries you on the other side of that? Because, you know, when I think about, you know, what our obsession was prior to the pandemic, it was, you know, disinflation. It was the lack of wage growth. It was, you know, all the disinflationary effects from technology and globalization and all these things. And a lot of these things have come undone. And then when you throw in the fact that the Fed’s not going to meaningfully be able to kind of roll off this balance sheet. Right. And so is that a drag on growth and do we go into a disinflationary spiral? [01:06:54][63.6]
Jurrien Timmer: [01:06:54] I mean, it certainly would be good if Goldilocks returned. And in a way, that’s how the stock market is pricing itself right now. But I do think that if we have a recession, it may very well be a mild one. Like, you know, the PMI has already rolled over from 66 to 49. The business cycle, which tends to be about four or five years long, would suggest that the PMI doesn’t bottom until early 2024. Earnings revisions are highly correlated to the PMI cycle, so that would suggest that all of 2023, even if there’s not a big drawdown in EPS, it will at least have. Kind of, you know, headwinds in terms of revisions and estimates coming becoming downgraded. But, you know, you look at the corporate sector, you look at the household sector and you look at what’s happening to interest rates, you would think that, my God, this whole thing is going to come crashing down because the economy is so lever to low rates. But on the other hand, you look at credit spreads, they’ve really haven’t budged. Well, why haven’t they budged? Because everybody termed out their debt because rates were so low for so long. So high yield issuance. Yield. They have long term debt at low rates. So they’re solvent. You look at households, right? I mean, unless you’re buying or selling a home today, chances are that most homeowners have locked in a 3% mortgage because rates were that low for that long. So it’s possible that the economy has turned out. It’s it’s enough that Fed tightening has less of a of a bite than it otherwise would. But there’s the other side of that coin, which is that that also means that the Fed cannot pivot as quickly, because if the economy is not as responsive to higher rates as it used to be, that means that inflation may not roll over as much as the Fed might like. So I think when you ask about risks, I don’t really see kind of like a bolt from the blue type of risk where the market crashes because earnings implode. But there are more subtle risks. So I think a transition from a high PE regime to a lower PE regime because maybe higher rates means less financial engineering, fewer share buybacks, or because the leadership has moved from the mega-cap growers to a broader market which which is good, you know, in terms of an actively managed fund, but it also suggests maybe lower PES. Finally, you know, that ability for the Fed to pivot from restrictive, you know, 2 to 3 percentage points above what we call our star or the natural rate of of interest to 2 to 3% below it. That’s how the past few cycles have worked. Well, that’s generally how all cycles work, right? That’s the pendulum swing. It’s about 5%, 2 to 3 above, 2 to 3 below. Maybe we go from 2 to 3 above, which is where we seem to be heading in early next year. But we can’t really go below because inflation is now or presumably will be above the Fed’s target. So it doesn’t mean the system implodes or we get, you know, a 50% bear market. But it does suggest that valuations might not be able to recover to where they were a year ago. [01:09:59][184.4]
Guy Adami: [01:09:59] It’s interesting you mentioned credit. You know, this is I would submit this again, I’m not suggesting I’m right. I’m curious to see your thoughts. But historically, we’ve had economic cycles which to an extent are somewhat easier to predict and understand and get your arms around. We’ve transferred or sort of gone from there to two credit cycles, which I think we’ve seen now over the last couple of decades, which I think are much more difficult to navigate. Can you speak to that? Because in the credit cycle that we seemingly of find ourselves in these move in interest rates, again, given a consumer that now has a debt of about 5 trillion or so dollars here in the United States, credit card debt north of a trillion within that 5 trillion. There are a lot of variables here that can be somewhat scary. [01:10:42][42.7]
Jurrien Timmer: [01:10:42] Yeah, I mean, there certainly is a question of hidden leverage. You know, the financial crisis, of course, in oh eight was a massive credit cycle and it was for the private sector. Right. Households, corporates, financials, you know, banks were leveraged 40 to 1 back then. That all got wiped out during the Great Recession. And the government, the federal government kind of almost assumed the debt, not in an explicit way. But as the private sector balance sheets improved, the government sector balance sheet got worse. And of course, we’ve seen that again play out during the pandemic. And so I don’t know that there is a credit event necessarily because households or corporates or banks are levered to low rates. And when they move up, you know, they get the squeeze. Because as I said before, I think enough of the economy has turned out and the banks are still squeaky clean. You know, they’re well capitalized. They don’t have a lot of junk on their debt, at least in the U.S. maybe Europe is a is a different story. But I think the bigger question is what happens to the government’s balance sheet? Will the Fed ever be able to exit QE by shrinking its balance sheet when the Fed is the buyer of first and last resort in the bond market? You know, when when your debt is 120% of GDP and rates go from 1% to, let’s say, four or 5%, that’s going to cost some money to service that debt. That money comes out of the pocket of other programs that need to be funded. And this is what happened again in the 1940s. And what Japan has been doing for the last almost ten years now is that it capped rates. You can have all the debt you want as long as rates are low, you can service it. You know, everyone is solvent at low rates. So I’m less worried about the private sector and wonder more out loud about if. Rates were to resume their advance, which right now, of course, they’re coming down. What would the next five or ten years look like in terms of the Fed coming back into the bond market, reversing cuts and keeping its heavy hand in the bond market because otherwise rates will rise and especially during the last 11 months or so with the dollar advancing. All of a sudden, the Fed’s former allies in the bond buying department who are the Bank of People’s Bank of China, Bank of Japan, turned net sellers because they were trying to support their own currency. So I think the question of who’s going to buy the bonds is an important one, and it makes me wonder whether the Fed will ever be able to really exit the market. [01:13:07][145.2]
Dan Nathan: [01:13:08] So Jurrien one last thing before we get out of here. You know, you just mentioned a lot of data in your Twitter feed at Timmer. Fidelity is a wealth of knowledge on a daily basis with a lot of great data there. What are some things that some of our listeners should really be focused on that give you a sense of kind of how this market cycle ends? I just thought that the explosion higher in equities and implosion of yields after that CPI print that we saw a few weeks ago was a kind of interesting tell. The Way All Goes traded immediately after Fed Chair Powell. His statement was released last Wednesday was interesting. But again, you know, we’ve had a big reversal since having a slightly hotter jobs number know just last week or so. So what are some of the things that you’re most focused on that our listeners should kind of keep an eye on over the next few weeks, two months, and trying to figure out how this market bottoms? [01:13:58][50.1]
Jurrien Timmer: [01:13:59] I would say, you know, beware of the noise. There’s a lot of machines buying and selling these days. You look at the at the percentage of of options in the S&P that that have much shorter maturities than they used to. I think something. Don’t quote me on this, but I think something like half of the options outstanding expire within 24 hours or 48 hours. It’s crazy. Like, you know, you guys are old timers. We never we never saw that in the past. Right. So you think about all the money moving around that is not economically oriented, right? They’re not buyers or sellers like you and me buying because evaluation and this and that, you’re going to get these outsized moves. That’s one thing. So don’t don’t feel compelled to chase every move because they’re just a lot of it is just machines. The other thing is that timing, the market cycle is an impossible task. I’ve been in this business 37 years and I haven’t figured it out and I’ve got all the resources I can swing at. It’s really hard and even if you sell the top, chances are very, very high. You’re going to miss the bottom and bottoms. Are these V-shape things right? You’re a week early, you’re off by 20%, you’re a week late, you’re off by 20%. And price bottoms before earnings. Generally speaking, it’s a highly non-linear exercise. So unless you’re a trader and that’s what you enjoy doing, I would say for most investors have a diversified portfolio. Diversification did not work this year for sure, right? Neither of the 40 nor the 60 worked. Nothing else worked. I think the only two asset classes out of the two dozen that I tracked were cash and commodities, and even commodities were a hell of a ride. But I think that that will change in in 2023 and that at least the the risk off types of assets will will provide protection. So take the long view. Don’t try to time the market and don’t have the FOMO. Fear that if something moves, it’s all your friends being smarter than you. [01:15:52][112.8]
Guy Adami: [01:15:52] At Timmer Fidelity on the Twitter. At Indiana Jones, at the Burning Man, at Director of Global Macro at Fidelity. JT, thanks for joining us here on the tape. [01:16:03][11.5]
Jurrien Timmer: [01:16:04] Thank you, gentlemen. [01:16:04][0.3]
Guy Adami: [01:16:44] CME Ad. [01:16:44][0.0]
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