Raw Transcript
What I want to go through is this piece with Morgan Stanley. I think they did an excellent job of just really nailing this. So, it's short, sweet, and to the point, but they bring up 2020. Now, in 2020, none of us ever thought oil could possibly get to negative, but yet it did. 20 million barrels a day of demand vanished overnight. Prices just fall. They went negative. This week, we are staring at a shock, but with the signs flipped. And I want to just be real clear on this. Morgan Stanley is comparing what's happening now to the inverse of what happened five and a half years ago, almost six years ago. This week we were staring at a shock comparable size. The straight, which is roughly 20 bill uh millions per barrel a day, numbers are just so staggering to me. Refined uh normally flows have been effectively closed since last week. Despite what you're hearing, it's closed. And there's a chart on it here that we'll get to. Duration may prove far shorter than COVID. The duration may prove far shorter than co but the initial mitigation impacts similar. The world is suddenly short volume in normal times with dwarf any supply. We don't know how long this lasts. We're going on these assumptions that this is days. I don't know that there's a broader point here. The last few years have been a steady exercise in market humility. Oil can't go negative. Russia will always be reliable to Europe. Uh the straight will always be too important to actually stop until it stopped. The headline itself at the speed and the stress is really what's showing up in the supply chain. So I want to just show how fast it's happening and I thought this did a great job of it. Asia is most at risk. Asia refiners among the most exposed to barrels that originate behind the straight. Science suggests some slowing operations as crude tightens. Refineries run less produ produce less or tighten gets tight tighter. But jet fuel there's a great example of like why people are asking me like why am I shorting airlines or why would I still short airlines here at jet fuel just take a look at what's happening on the jet fuel market here. Jet market is now rationing through price. The jet market, it's been a week. The jet market is now rationing through price. Earlier this week, jet fuel in Singapore reached 200 a barrel from 90 before the conflict started again. It's been a week. Now, when we look at this and you're like, well, I think it's been more than a week. Okay. Well, here's March 1st and this is a week. So, when you're looking at the straight and what's happened, number of daily transits in and out of the Middle East. Now, some of these numbers that are starting to be reported, uh, they're coming out and saying, "Well, they might just be China ships that were allowed to pass." But this is where a 10 is. So, what does that mean? You're getting a ship through. Maybe if it's got the right flag on it, maybe this does not work. Instead of just going through more data, I just want to point this out. If you stay here, you're looking at anywhere between 130 to 150 a barrel. And and only if you stay here for a couple weeks. If this got fixed immediately, you're still looking at probably 90 on average. And that's the new normal right now. So, as we go through this today, we need to understand that. Now, continued to fall out from the AI software disruption. There's just one line in here that I I really want to go over. Insurance companies, especially lifers, have moved wider on fears of exposure to private credit. We view their actual risk as more moderate and believe fundamentals do not warrant a sharp replaceing of the sector. But what you think and what's happening are two different things. And I want to post that because this is going to become really important when we start talking about private credit and we start looking at some of these charts and what's going on in a little bit here. Now, how is Europe doing on the high yield dispersion versus investment grade Europe versus the US? Well, this is what's going on in Europe. So, Europe's high yield market is really kind of getting out of hand on the higher end, meaning from from a risk perspective, way faster than anything in the US. While the US has some issues, it's nowhere near what we thought. And this is really, I thought, a really interesting piece. And this was from Deutsch Bank. Surging crack spreads. Crack spreads are the difference between what you're going to charge for gas and where oil currently is. So where oil is or where gas currently is, that spread between the oil and gas spread, it's called the crack spread. Hostilities in the Middle East are driving oil prices and more specifically crack spreads in some of the highest levels seen in decades. Again, I don't think a lot of people are getting just how fast this is. So, it's not even that it's up, it's the velocity in which it's up. Year-to- date, oil prices are up 50% while jet fuel prices are up 100% to 125%. This is one of the reasons why I'm shorting airlines. Absent near-term relief, airlines around the world could be forced to ground thousands of aircrafts. Why some of the industry's financial weakest carriers could halt operations. So, I'm just going to say that again. Absent near-term relief, airlines around the world could be forced to ground thousands of aircraft. While some of the industry's financial weakness could halt operations, US jet crack spreads. The difference between underlying oil prices and jet fuel prices for GF Coast New York Hob now range from 85 to 95 a barrel, a level that is at or above the underlying feed stock. WTI oil price currently trading at 864, print 889. The last time we witnessed this phenomenon was 2005 when the crack spread was as high as 65 a barrel exceeding 60 in the aftermath of Katrina and Rita. Significant widespread including major airlines Delta and Northwest filing chapter 11 bankruptcy. So this is the situation we're in and these things are trading like they don't have a care in the world. Everyone's just expecting this to go back to normal and that's really kind of scary. And what they're doing here is they're just showing the c the crack spreads in the US have soared to record levels and you have to go back 20 years to find something. And during that time you had some of these airlines go into bankruptcy. But this time it's different, right? Okay. So what we want to do is just look at what's happening, not judge it. And then you can make the decision that you think this is going to end right away or you can make the decision that it's not going to end right away. That's up to you. I'm just showing you exactly what's happening. And I don't think that people fully comprehend this. That's my sense of this. This is one of the reasons why I shorted airlines and I think airlines could have a a bad time here unless this you know they just hug it out which it's not looking very good to that is it the backwardation of oil futures first month versus six month think about the first month is higher than the six month is that levels seen in previous large supply disruptions meaning we're higher on the front and then we are in the back mean backwardation but here's what's so fun interesting about this if you look at this one two you're higher now than you were during the Russian invasion of Ukraine you're higher than the Iraqi war. The only thing that you're close to is the 99 OPEC cuts and that's saying a lot and I again I don't think people truly are getting this and it's the speed in which it was done that's also throwing people off and that takes you to the increase of inflation expectations. These inflation expectations haven't caught up anywhere near to what's going on right now. Everyone just expects this to just oh it's just going to drop down and everything will be fine. That is not saying everything is fine. That is telling you that inflation is about to kick up pretty substantially here, which again could put us into an area of stagflation. I thought this was a really interesting graph and it's exactly what we've been seeing. So cash trading is from 9:30 to 4 and the overnight market that Deutschbank did this. I just thought it was worth sharing. And the cash trading hours, you're up from January on, you're up a little bit. You're up about 1%. If you're holding things overnight, you are getting it. And if you're trading overnight, you're coming in or anything you're holding overnight, all you're doing is just waiting to come in. I've said this several times where all I'm doing is watching my swing trades or watching the day pay for my swing trades. And it's showing you real time how that's happening. The overnight market is considerably weaker. And then you're coming in during the day and then they're covering those shorts and then they're red doing it again at night. So buying the dips overnight and selling them into the cash market for futures traders probably makes a lot of sense here because it's historically what's been happening for the year. it. They even break down S&P intraday performance, which again makes so much sense here. But you can see the overnight trading. And one of the things that I'm really wrestling with, and I was just talking to a couple guys about this, is we're doing the 9:30 to 10:30 live trading in this market. And if you really look at the market, that's not optimal. So, I'm going to work on this, try to figure out how to fix it. Is it buying the last hour of the day as it usually is? Nope. They're pretty much flat as well. So, where are you seeing it? the way that this graph is is telegraphing you right now that really going long before 10:30 just on the index itself. Obviously names are names um and the names are changed but not waiting till 10:30 you're doing yourself a diss service on the long side. And if you go back and look at some of these charts it's pretty obvious but from a time standpoint you know holding overnight you're doing yourself a disservice when you look at the overnight trading. You actually should be buying. So like Sunday night when the market opens tonight, if it opens and gaps down, those people that are buying that and then selling it into the morning and getting out before 3:00 are probably doing the best historically right now. So if we look at fund flows across all categories as a percentage of assets, this will show you exactly where you are above and rising and below and below average and slowing. And this yellow came in, these didn't come in good, but this is below average and rising. And then this is going to be above average and slowing. But what we want really want to focus on are a couple things. Anything we want things to either be going up here, but you don't really want them to be going this way. So if we look at momentum here, momentum is now below average and slowing down. So they are still getting out of the momentum trades. And we'll get to that. We'll show that in a second here. If we look at the bull bear market indicator by Bank of America, you're still at a 92. Does it feel like a 92 to anybody? No. And and this is really where I'm going with this. I think that this can actually get a lot worse than people think it can because the way people are getting out of trades and we're going to cover that in the charts. But I really want to hammer some just objective data home on these and that's why I'm going through them faster to hammer the points home. Energy dependence on imports as a percentage of total energy consumption. Taiwan 90%, Japan, South Korea, Germany which is just that's just really scary actually. Um and this is where the EU is. It's really very interesting um how bad EU and Germany are reliant on what's going on right now and it's a real issue. I I really think looking at this this is why people will wind up shorting Europe when oil gets hit the way it is but really with the way South Korea, Japan and Taiwan were if this continues you can see why they would continue to get worse and that is something that we need to be aware of. anything in this quadrant from the 50 over, you could say UK and India, but EU, Germany, South Korea, Japan, Taiwan, this gets worse. It's definitely something that is going to weigh on those stocks. Um, if you look at the investors that are long EM EU stocks and banks, the emerging markets, they are filled with those names. They are absolutely filled with stocks and banks and those names. Like filled. And it's a problem if this continues because it can get worse. People think that, oh, that's it. can't get worse. It can always, always get worse. And I just want to show a couple key things here. I don't want to get too bogged down with things because I think it's super important for us to get just an understanding of this and I want to get into charts and I want to keep it 34,000 ft up because it's going to change a lot this week. Short dollar, long gold, long EM credit, long EM equities, long sneepers uh frontend rates, long swap spreads, just general momentum unwind in US equities. third standard deviation on one day magnitude move. You have a third standard deviation which right down here today's equity returns. It'll show past year performance deciles. You're at a third standard deviation on what you're moving and now it's showing that the day that they made this you were actually up. It's my understanding of this that you have a lot more to go. Now I just want to show one more graph. Actually that's not true. I'm going to show two more. This is Europe correlation to oil and you can see that when you have a three-month the 52- week but when oil drops it is followed by Europe and we're not seeing that yet not to that extent and I want to point something else out like people are looking at these moves to the downside for me understanding this spread of average return between top and bottom decile of performance in the top 500 market cap. All right, what does that mean? That means like how are the average names doing on the top and the bottom and the top 500 market cap names over 3 months. If you go back to 10 2010 to 16, you are in the most crowded trades that you've been in in 16 years. When they went out of momentum, it's like a golf ball through a garden hose. And that pressure is why you're seeing these names like light or co drop or GLW drop so fast. You have capital preservation and hedge fund guys and long only guys and mutual funds and everybody else that's an institution that is I am not going down on the year. So if I flip to down on the year after being up 5% I'm going to cash. I don't care if my company makes air. And when you have it crowded like this that's why the velocity of the drop is so significant because it's not one person doing it. They don't care what these companies do. They're not attached to them. They're just I'm out. I'm out. I'll come back to it. I'm sure it's a great company, but I'm sitting in cash. Too much risk. And that's exactly what's happening here. And I really want to hammer that point home before we go any further. In the spirit of making this more manageable, I'm breaking it down to the ones that I want to focus on. I think it's easier for me to show it that way. And what I'm seeing are some names that are just going to be fun to watch. ZIM, maybe they talk about the merger, maybe they don't, but it's definitely worth paying attention to. SBET, I can't wait to hear that thing on Monday morning. Um, but as always, any rally in that, I would just short it. Again, you know, that's really how I feel about it. Casey's will be really interesting because of what's going on with the gas market. Remember, they have a lot of flexibility. They can switch where they're buying from where most most gas stations can't and they make a killing off of doing this. If you go look at a Casey's chart, people always look at this chart and are just in awe where it's been and where it's going. It's just absolutely crazy. They're just cash cows. uh before the open Tuesday, NIO, it be interesting for them to talk about their inroads on what they're doing in Europe, Canada, etc. Same thing with LI down here on Thursday. Uh but then KSS, you know, some of these retailers have killed it and KSS is trading under booked still and you're in a position here where you have a huge short position and they are under booked, but you look at names like Ross Stores, Burlington, how Costco acted, that's really interesting how that's going to act. BNTX. It's just I want to pay attention to it, but I don't have any major catalyst. The one that the ones that really stand out to me Tuesday night are Oracle and AVAV. Oracle is already saying we're going to lay people off and the stock hardly moved on it. It went the exact opposite. Block says they're going to lay people off and the stock goes up 22%. I I really think that Oracle could come out here and saying, "Hey, we're slowing down capex. We have more than enough to cover all our debt. We're not worried about that at all. Uh, but we're going to slow down the capex side. We want to make sure the growth is there. You never know how this is going to go, but I don't think it's going to be an a dumpster fire. I could be wrong, but from a speculative standpoint, the way that these uh names are getting squeezed the next day in the software space makes a lot of sense to me. So, if we gap down tomorrow, the time recording this is Monday or Sunday, duh, uh, Sunday. The questions are going to get hard as the day goes on. then I really want to look at this and say to myself, do I want to start looking at buying, you know, calls out already on some kind of dip on Monday? And the answer is probably yes. I'd probably look at like the 160, something out of the money. They either work or they don't. A speculative trade is there. AVAV talking about the whole drone space I think is interesting. Campbell has been pretty active. So that Wednesday pre-market seeing if there's some kind of turnaround there. Path sticks uh Stitch Fix Bumble Wolves. These are just fun names that are worth watching. Again, the real drivers for me are Tuesday night where we could see some real action. I'm really curious how Oracle acts. I I think that if you look at how these names are acting, Workday and all these other names, I mean, the one that started the entire selloff of IGV was Oracle. So, I find that pretty fascinating. Uh well, what could happen there? Now, if they come out and earnings are bad and they're saying we're not changing capex, it could be a dumpster fire. That's why I'm not so sure you do it with equity. I think it's options. It works or it doesn't. If we look at something uh going into Thursday, super interesting names with Dicks yet again, Dollar General. So, the the retail names have been doing really well. LII, you'll get some feeling from that on NIO. Futu, what are they going to say about the stabilization in in coin market, the stable coin market? I think that's going to be interesting as well. And then Thursday night, you have Ulta, NKTR with that new promising drug, RBRK. I put this one in here because you guys like to watch that. And Adobe. I I don't think Adobee's going to zero. But, you know, they do have a lot of risk with what they're doing. So, they're not a onetrick pony, but it's definitely something worth paying attention to. Again, what I'm doing here is getting away from showing you 72 different names and showing you the ones that I think are most interesting, that have the most potential to be the most impactful names of that particular area, whether it's before the market or after the market. You guys can always comment on this, but I think that this is much cleaner way for you guys to look at earnings and and then focus on which ones you might be interested in or might not be interested in. Economic data on the week, so I scrubbed it and this is what I came up with. And I will say this, you're really driven by news headlines right now, but some of the stuff we still want to watch. I do want to watch the 3-month, six-month auction and see how much demand there is for short-term paper right now. I don't know that consumer inflations would have and expectations would have moved based upon what's going on, but I do want to watch it. Uh business optimism I put in there because I want to watch, but ADP employment change on the weekly down here on Tuesday. And what you're going to have to do with all these dates because we have the time zone flip, just shift them all one hour. So, this is really instead of 10:30, 11:30, the site didn't update yet. Uh, so 10 a.m. existing home sales. We're going to want to watch that. The 1 p.m. 3-year note. I want to watch that as well. If we get into this with Wednesday, 1 p.m. you have a 10-year note auction. We're going to want to watch that. Um, this they're saying 8:30, which might be right. And that might be why they changed it to red. Uh, I hate when they do these the daylight savings time, spring ahead stuff. It It throws everything off. But CPI, this is a really weird week because you get CPI this week and you also get PCE this week. So, it's pretty weird. Uh, very rare that that happens, but the data has just been a mess since the shutdown. So, it is what it is. Some of these numbers look they could come in. I think they can come in a little hotter than people are expecting. And, you know, does that happen because of February? It could because we did see oil start creeping up ahead of this. So, it's definitely it's definitely out there. And I think Wednesday is going to be a a big day. I think Friday is huge. Uh and then we have the claims 213. As long as we're not over that 250 continuing claims used to get over 19, not doing that anymore. Balance of trade will be super interesting. It's just interesting because they adjusted some of these dates but not all of them. Uh 30 years 100 p.m. on the bond auction. So we're going to want to watch that as well. PCE 8:30. Uh core PCE 830. GDP growth 8:30. Jolts jobs openings. Yes, on a Friday because why not? At the same time, we're going to come out with Michigan consumer sentiment. So, we just have a ton of data this week. Friday seems the most deadly to me because there's so much that that has to go right. Uh and if you go back to really Wednesday, you have CPI that day and yeah, people are going to really want to watch that and you don't have a lot more ahead of that maybe the employment change, but do I need the weekly employment change if I don't have non-farm payrolls? It was already a dumpster fire. So, I do think the economic data is getting worse. It's not getting better, but it's so scattered and it's so erratic uh that I don't know how much faith is being placed into it until we get back to standards. So, you know, a lot of people don't that follow this stuff know that the standards changed in Jan 25 and then they went back to it, but then you had to reset everything because the government was shut down. So, there was no data collection. So, a lot of this stuff's really thrown off. So, it's being taken more with a grain of salt than anything else. But, I do think that you Yeah, I do think Wednesday is a big deal. I'm not going to say it's not, but I think Friday is huge between the PCE numbers that are coming out, the GDP that's coming out, Jolts opening, consumer, Michigan consentiment. Uh, you know, maybe we have more clarity as well on the war and which way it's going by Friday that there'll be more focused on the economic data. Between the war and the conflict, I should refer to it that way. The earnings this week and the economic data, I I expect a lot of headline risk and a lot of gap up and gap downs as I've stated earlier in this video. So, let's just keep our head on a swivel and go from there.