The Breakdown - The Unorthodox Trades That Will Drive Value in 2021, feat. Tony Greer

Episode Date: January 3, 2021

Tony Greer is a macro analyst and author of the Morning Navigator Newsletter. In this conversation, he and NLW discuss how central banks continued to kick the can down the road on debt as well as unexpected sources of strength for the economy heading into 2021. Find our guest online: @TgMacro Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

People that own it don't ever want to sell it. And now we're in a situation where we've got like barbarians at the gate in corporate interest one by one filing into the markets and the headlines. And then, you know, you're hearing about more institutions that want to get into Bitcoin. Whether the path in Bitcoin is directly a path north from here, I don't know. But it does seem like it's elbowing its way into the macro picture and gaining enough traction with the right people that it's going to be with us and it's going to be a great investment. Welcome back to The Breakdown with me, NLW.

It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. The Breakdown is sponsored by nexo.io and produced and distributed by CoinDes. What's going on, guys? It is Sunday, January 3rd, and today, my final guest on the breakdown's end-of-year extravaganza is Tony Greer. Tony Greer is a macro guy through and through. He's the author of The Morning Navigator, which is an absolutely essential newsletter for the macro trading set. He's been on the show before. He's extremely thoughtful,

and I'm really excited to end this really fun two-week run of interviews with Tony. So let's kick off 2021 with a bang. Here's Tony. All right, Tony, welcome back to the breakdown. It's great to have you here. Oh, it's great to be back, Nathaniel. Thank you. So this is going to be a fun conversation, 21 minutes, the year that was, the year to come.

And so let's kick it off with the most kind of obvious and important question, I think. What was the most important economic story of 2020? If you ask me, Nathaniel, I think the balance sheet going from $4 trillion to $7 trillion is the main driver of, you know, the next phase of the bull market, the next phase of the, inflation potential trade. The next phase of the Bitcoin rally, I feel like that was the start of a lot of it. You know, that was to me an eye-opening event, kind of an Overton window type of an event for a central bank to nearly double their balance sheet in response to one event that to me was a questionable one to do such a thing for, you know, but we can go into that separate

argument. But my point is, you know, the market seemed to have changed because of that, right? We came out of the March lows rip roaring, you know, with a lot of bears thinking that it was all coming to a close because the economy was going to be in terrible shape. And then we went into that, I would call it that financial postmodernism era where we were still getting the horrible data from the lockdowns and markets were scorching higher. And now they're at a new high and we've even forgot about the financial postmodernism. because there's, you know, separate stories developing, but I want to end that answer to that question there so we can get to the next one. To me, it was the balance sheet that kicked off the

whole confluence of events. Yeah, and I think it's interesting that, well, one, I think that the use of the Overton window term is perfect here, right? There was a shift in what, it was a new normalization of this as kind of just kind of what we do. And I think one of the points that you make that's really salient and important is that this shared sort of singular genesis event is going to have like the Big Bang a lot of different ripples in a lot of different areas, right? From asset prices to the inflation trade to Bitcoin, as you just mentioned, which I guess you could probably, you know, for a lot of macro traders as part of the inflation trade. But it's, you know, I think that we're just starting to see some of those

ripples now. I'm just going to round here and kind of guess a little bit. But call it, you know, when the number one economy on the block by GDP with, you know, $20 trillion is turning to their federal reserve for an extra $3 trillion of, you know, emergency funds, et cetera, et cetera, in a blinding blitzkrieg of events that, you know, people were trying to figure out how to respond to. I mean, that changes the whole face of everything. So that's the moment for me where we had to start changing the way we look at things and be optimistic for market.

rather than pessimistic based on what that was going to construct. And, you know, we're seeing it now, you know, the kind of the Tina trade for equities, you know, all kinds of trades like that are starting to develop. In fact, there's more now on this side of, you know, the market breakdown, the response on the balance sheet, and then the response to the vaccine, there are now more available trades on this side of the election than there is capital to put in. to them. There's so many trades that line up on your screen that look good for the next couple of years. And so being in the right ones is the chore right now for me anyway. Yeah, I mean,

I guess that's really interesting. Like how are you going about trying to separate, you know, short-term, medium-term, long-term? And I mean, this is maybe a way to also look at some of your thoughts on how the next year is likely to shake out. How are you rank ordering the importance of events, at least as they relate to kind of markets going into the end of the year in the beginning of next year. That's a good question. Well, I get to, I'll start with the sign that I have over my four screens that's staring me in the face that says the Federal Reserve is inflating assets, right? And so that's the sort of long-term view for me, if I may, Nathaniel, it's kind of like, okay, man, you know, no matter what is happening and what has happened to the markets, evidence suggests that

the Federal Reserve is still going to inflate assets, you know, and it's not going to be a linear path. That's the sort of view that I start from, you know, and then working into time frames, then it's really everything else is just navigating. And, you know, then it kind of all falls into the same bucket for me, which is just navigating, you know, your time frame versus your entry versus sentiment versus things like that. If that's, if that's fair to say, regarding, you know, how to get into these sectors, watching which ones are performing and and sort of figuring out by risk reward where to put your chips. And I know we're being vague, but it's kind of a broad question, you know, how do you rank this and then fit it into your trading mechanism? But I'm definitely leaning on the long term view that the Fed is inflating assets and that that's going to get the S&P up through 4K.

And, you know, it's probably going to get a rise out of gold and out of Bitcoin and out of the industrial metal space and things like that. that have been performing dramatically. And so, you know, the rest of it is figuring out which percentage-wise gains you want to hunt from those sectors that have been held down due to the lockdowns, like the airlines and aerospace and defense and the banks and, you know, entertainment stocks, cruise lines, casinos, you know, which of those that have the most upside potential from here, you know, that you want to be in. So that's my conundrum right now is trying to figure all of that out.

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coming back in your estimation. Wow. I mean, that's a great, great question. I wish I had about six days to think about that. But I'll give you my off-the-cuff thing, right? And I'm kind of going to frame this right into the markets, you know, say where the demand is going to come from, what's going to change. You know, the things in life that are going to change is, you know, nobody, we're not going back to full staff at the office ever again, right? That's not going to change. That feels like a secular thing that we're moving away from. It feels like, a secular thing that is being an offshoot of the mass exodus from the progressive liberal-run cities, right? No matter what, that is currently happening right now. There seems to be an exodus from New York

and Los Angeles and down into Texas and Florida. And so that seems to be another serious secular change that literally has just started to play out. So I've got this theory that the homebuilders are going to benefit and some of the retail sectors associated with that. So to me, that's kind of the standout right off the bat. This is what's going to be different on the, even on the vaccine side of lockdown. You know, and then, you know, I'm concerned about, I'm really concerned about when I'm going to get back, get back into a packed Madison Square Garden again for, you know, either a range of game or a fish concert. And, you know, that's my big concern now that that seems to be getting pushed further and further out on the calendar. And quite honestly, I can't tell if it is from the hysterical propaganda that's being passed out right now or if it's, you know, actually, you know, our lives and behavior is going to have to change.

But, you know, those are two of the basic things. I think in the markets, the thing that jumps out at me that this is going to be here is that, you know, that demand for Bitcoin as people are, you know, you know way better than me, Nathaniel. And I kind of follow you as my lead in Bitcoin. But, you know, my view from here is that while it's got challenges because people that trade it don't ever want to sell it or people that own it don't ever want to sell it. And, you know, now we're in a situation where we've got like barbarians at the gate in corporate interest, you know, one by one filing into the markets and the headlines. And then, you know, you're hearing about more institutions that want to get into Bitcoin. So my point being whether the path in Bitcoin is directly a. path north from here, I don't know, but it does seem like it's elbowing its way into the macro picture and gaining enough traction with the right people that it's going to be with us and it's going to be a great investment. So, you know, I don't know how that path really ends up, but I'm going to be, you know, this side of vaccine, you know, what I call Miracle Monday when we came out with President-elect Joe Biden and the first Moderna vaccine that was November 9th. Miracle Monday is

when the markets put on a different spin and a different rotation. We saw the fossil fuel. sector really take off, this maybe is a trend change that's probably, I don't know if it's got directly to do with the pandemic or factors totally outside of the pandemic, but it seems to me like fossil fuels hit a very interesting bottom coming out of lockdown and after that price hitting zero. And, you know, I figure I just want to highlight that because that's something that's really, really high on my radar screen. And for a lot of reasons, it feels like the set up and energy is really good right now. And so I feel like. like that's going to be a trade, you know, since, since that Miracle Monday, XLE is up some 40%.

We saw everybody bail out of the fossil fuel sector with Joe Biden looking like he was winning the entire time in the polls. We had that ESG phenomenon where everybody was filing out of the terrible, terrible fossil fuel names that caused all the pollution, you know, and into the alternative energy sector getting ready for Joe Biden. And then all of a sudden, Joe Biden got elected, rig count bottomed below 200 rigs and the Baker Hughes rig count and everything turned north dramatically. So, you know, I guess I want to end my answer to that question saying that the trends I see developing and they're correlated to the markets or centered around that exodus from the cities and there's a home builder and some kind of materials trade associated with that. And then, you know, the Bitcoin trade and the energy trade are two things that jump out at me that are going to be vastly different on this side. and I'm not smart enough to know what the societal differences are going to be

because I can't tell where anybody really stands on this vaccine just yet, to be totally honest. Yeah, no, it's fascinating. I think that's a good way to put it. I tend to agree that the way that people live, we have opened up Pandora's box and people are not, there's enough of a force of people who want to be working from home, be doing things differently, plus the cost savings to companies that can retrofit to not have to do so much business travel, that that one feels really, you know, shift in kind, not just shift in scale. It's fascinating. So Chimoth was on Howard Linsen's podcast a couple weeks ago. And obviously

Chimoth has been in Bitcoin since 2013. He wrote a famous essay about it, or earlier actually, but he wrote about it in Bloomberg in 2013. He called it Schmuck Insurance. And he was actually talking about how his take on it has changed a little bit. And the way that he put it on that show was we're not going to have the hangover of all of this asset inflation for probably another decade or more, you know, in his estimation. And because of that, he's he's extra interested in Bitcoin along the way. And I think, I mean, it's similar to in some ways what you're saying where you're talking about and describing a lot of very pro-exciting, like dynamic things happening, right? Like when you're looking at, you know, home construction, shifting the way people live,

there's a lot of opportunity there and a lot of excitement, right? But at the same time, what it's based on could be so fragile that you also have the corresponding rise in these hedge trades, you know? That's well put is that, you know, just like, you know, the market ebbs and flows on the stimulus and the vaccine, you know, your attitude on what life is going to be like on the other side of it ebbs and flows, you know, it's like, I could tell you now, you know, there's a set of extremes out there where it's like, okay, we may never be, you know, elbow. to elbow on the floor of a dead show again or something like that. And the other extreme, we're probably not going to be putting on those stupid suits that the media is trying to push. That's going to be the new concert, hazmat suit, right? Like, to me, that takes the experience to zero. And I don't think anybody's going to buy that.

So somewhere in the middle is probably reality, you know, and if the middle is reality, then really we've got to find, what are the trades and what are the trends. And I like what you said about how, you know, corporate costs change people's, behavior changed permanently, and we'll see where we shake out on the other side. If we get back to any sort of point of rationality, I think that the nice middle spot is, you know, people will have to take concerted risks and concerts that matter to them might be a part of that. So I'm a big live music fan too. Okay. So another question that's kind of almost a variation on the first one. What is the most important economic story that people didn't pay enough attention to. That is a hard question, man, for just a ham and egg trader like me, man.

Well, it's interesting because I think, I mean, you know, part of what makes it a hard question is that so much of what we do now is we discuss it out in public, right? Like, you've got a newsletter, you're on Twitter all day. And so it's hard to find things that actually, you know, people didn't pay enough attention to because we're paying attention to everything constantly. In fact, we're kind of paying attention too much to everything. Yeah, I feel like, like I almost have the opposite answer. I feel like people paying too much attention to Tesla this year, you know, if anything else. That was my next question. So let's go with that one. What's an economic story from 2020 that people paid more attention to than they should have?

You know, maybe that's not the one. I don't know, it feels to me as a trader that like that sucks up way too much oxygen, right? Just because it's got a crazy CEO and it's a totally eccentric stock and story. And, you know, it's amazing to see that the bears had such a good story and a good picture on it and then got utterly run over and they got run over through a split and then run over through an S&P inclusion. And it's like, okay, if there's something that's going to take Tesla down, I'd love to see it. At this point, I'd love to see it. We've got the CEO tweeting, you know, dick jokes, if I may, you know what I mean? Like totally driving you crazy and saying what on earth is going on with this thing. So, you know, I feel like it's such, it's conundrum that has

drawn, that has taken up too much attention. If it's something that an economic story that hasn't been widespread through the media channels, it is, you know, the Federal Reserve adding $3 trillion to their balance sheet in one year. And the wealth gap that is utterly, you know, it just got a spike driven through it to widen it out this year. And the wider it gets, the faster it widens, you know, and there's nobody shining enough light on that story to the, to the masses, Nathaniel. Now, that's a story that you and I as, you know, people in the financial industry and especially as a, you know, follower and supporter of Bitcoin, you know, you kind of, that's the driver that gets you to Bitcoin. But there are a lot of people out there that really don't

know, you know, that they're not getting enough color on that the wealthy are getting wealthier, and the poor are getting poorer. And the masses of poor are getting large. and the starving are getting larger. And yet the whole world is still focused on where the freaking NASDAQ is trading, right? And that's a little bit of the offshoot of Scott Galloway's call recently. And, you know, it's a little bit of a, you know, whatever. It's a little bit of a societal observation. I don't really like having acts to grind telling people what to do either way.

But I feel like a story like that is being consistently covered up, you know, for obvious reasons that the Federal Reserve is going to have to come up with another set of tools if all of a sudden there's enough public pushback to say, hey, hey, what are you doing in my kid's future with the currency here where, you know, you're taking the balance sheet to $7 trillion and then to God knows what number, you know, and it would almost be unfair not to mention to talk about, you know, the Grant Williams Felix Zulov podcast where you want to talk about Overton Window. That was where Grant asked Felix Zulov where he thought the Fed balance sheet could go. And everybody was like waiting in this pregnant pause and Zulov comes out in his Swiss German accent with

40, 50 trillion dollars. And every, you know, and Bill Fleckenstein goes, oh, and Grant goes, oh. And, you know, everybody that's listening is like, what in the world does the financial markets look like with a 40 trillion dollar Fed balance sheet? Try to conjure that, right? Where's the price of gold? Where's the price of Bitcoin? Where's the S&P? What is unemployment? You know, like what does the world look like with $40 trillion Fed balance sheet? Now, we're not there yet. But, you know, if you want to start thinking about trades to get ahead of, that was something that I listened to this year that certainly whacked me in the head like a frying pan.

And so maybe I keep coming back to the same theme. But I think that, you know, this is a theme that, you know, I'm kind of studying along the year and I will continue to study into next year to see, you know, exactly what the results of this lockdown and ensuing. stimulus are going to be because there'll still be another trade coming out of it. And right now, like I said, it seems like there is more good trades available than there are capital to put in them. So we'll see if 2021 turns out to be as fruitful as it looks to be for the markets. Yeah, I mean, listen, I think it's a completely reasonable position that so much of the analysis

of this year comes back to that singular kind of event and this singular shift. And I share a concern that our lack of discourse about this, and we can do it without even kind of blaming or trying. Basically, I worry that we were spent so little time on talking about second order implications of these policies, intentional or not, that we misdiagnosed them from a political perspective and instead inequality gets shunted into very traditional political discourse. So if it's this or that, right? the left-right dialectic about inequality doesn't actually account for this type of policy. And so people

end up fighting the same tired battles over and over again when they're kind of divorced from reality a little bit. And that's a concern for me, too. That's right. I mean, look at the message, Nathaniel, this year more than ever, it's right in our face while the Federal Reserve is doing this to the balance sheet, while the wealth gap is exploding, we aren't having an adult conversation in the public form about it. We're being told we're racist, right? And it's like, you know,

and I'm not saying me or you. I'm saying, you know, the racism that's, you know, apparently, you know, the systemic racism in America, that's the conversation they want you to have. You know what I mean? That's what they want you talking about. They want you focused on that. They don't want you sharing with people, you know,

telling the story like, hey, you know, these Federal Reserve guys are fixing this. problem, but they're going to make it really, really potentially bad for your economic situation if you aren't positioned properly, right? There's nobody's saying that. And then, you know, you've got how much, what a humongous chunk of the nation that doesn't even have a slice of the S&P that is getting left out of this, you know, and we should be explaining to something to them or offering some type of consequence, but it feels like we're trying to become to create

an Uber dependent nation, you know, from the Federal Reserve on out during this lock. down and it's kind of spooky to me. Yeah, I think this is a thing that people are going to be spending a lot of time looking on, at least probably from this listener base. There's been a super fun conversation. You know, we need to do this more often. But I want to wrap up maybe with a question that I've been asking everyone that is kind of a way to just get into your head a little bit. But what's one prediction that it feels like only you have? You know, this is difficult. I don't know if this is publicly acceptable, but in a lot of my talks with clients who, and I'm talking about clients at big banks and relative places with research departments, you know, are not really,

you know, I can't claim to be a loan dollar bear or inflation bull. I will tell you that at a lot of places that I talk to, they're pretty sure that we're not going to see headline inflation and that the dollar is not going to go much below kind of where it is now. Like the dollar, move has happened. And so I feel like that's kind of becoming a little bit of a consensus trade. And I'm fading that saying that the dollar is going to go much lower and that we are going to see headline inflation because I'm leaning on this commodity trade. But this is this trade is aging with me now. I have to say I was ahead of it, you know, kind of watching this transpire. And so I don't know if I'm as alone now in the sort of idea that commodities are going to go

much higher and that oil is going to go much higher. But, you know, because, you know, because because I've had that view since it bounced off zero. I was like, okay, that was the end of it. And I am a gung-ho bull until further notice and absolutely undeterred. And I'm still pretty much the same way. That's kind of a fun, lonely, you know, trade idea to have with everybody throwing rocks at the oil market, saying that demand is going to be lower next year and et cetera, et cetera. I mean, I see structural deficits potentially in the price going a lot higher. So that leading to headline inflation.

I don't know that I'm necessarily alone there. But I'll make some calls that I think names like Peloton is something to be really, really wary of the way that we should have been wary of Amazon. I feel like there's a chance that way that all fitness goes through Peloton as in that we start going to the Peloton instead of going to the gym. So this is just one that I'm calling out because I was early to. I liked it from the IPO. I own the bike. I live on the bike. Everybody in my family is on the bike.

and I'm dying to get their treadmill and I'm dying to see what they come out with next. So they're kind of a company to me that is way ahead of the curve. The fact that Apple and Amazon are kind of eyeballing or had their success from a distance and figuring out how to undercut them is really important to me

because if Peloton can fight that off, forget it. Then I know that everybody's fitness mode will be via Peloton in the future. I think it's that big. I think that everybody, Instead of going to an equinox or a sport, New York sports, the whole thing will be a Peloton. And you're going to go there to do every bit of training that you've got from CrossFit to marathon training to weight training.

And it's all going to be centralized around a screen. Right. So anyway, that's my idea. I don't want to drag through it. But I'm insanely bullish that stock from a fitness perspective. Fun. I love it. Well, Tony, this is awesome.

Always great to have you on the show. Really appreciate you taking some time to share these views. And happy New Year. Yeah, man, I'm honored, honored, honored that you consider me in that light and Daniel. So thank you for asking. I'm honored to be here and have a great new year yourself, man. We're going to have plenty to talk about, eh? Yeah, absolutely.