Ripping gold reversal. Underappreciated Meta risks?
17:49 Share

Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hello, everyone. It is Friday, the 16th of May with your final Saxo Market Podcast episode.

For this week, a lot to talk about today. I started off this morning thinking it was a rather quiet day and things just kept gathering and gathering. So I'll try to get through all of it.

But I think some very interesting stories I really feel like I need to cover today to keep you informed. But let me start off by first saying thank you so very much for those that did so for posting those five-star reviews on the Apple podcast for this podcast. It's very meaningful to me also to hear some of your direct feedback that you sent to marketcallatsaxobank.com.

I really appreciated that as well. I asked some of those that wrote to me to just give me an indication of their years of experience in the market and what they traded, and you generously shared that information. It just gives me a sense of who our audience is and who our most intense listeners are, and I really appreciate that. And it's great to get to know some of you

better. So any further feedback, again, you can always reach out. MarketCall at SaxoBank.com. MarketCall at SaxoBank.com. Okay. Gosh, there's a lot going on. I guess we'll start off on the

Geopolitical front, of course, we have Trump doing his tour of the Middle East, being showered with gifts as a very clear signaling here from these Middle East powers, Qatar and Saudi specifically, that they are very much buying full in to the U.S. sphere of influence, which will mean that they will not associate with China in any meaningful way, I would guess, at all.

I think that's how we should read it. And as Michael Every positions this in his very succinct way, this deal, what Trump is doing in the Middle East, these deals are the intersection of energy, defense, AI, and global financial architecture.

And something that the EU lacks power in all four. So I think that's a pretty scathing criticism there and shapes how we should be looking at how Europe is going to bid to correct that, especially on defense. And on that note, we do have some more significant signaling from Germany that it wants to

vastly increase its defense spending. It says it wants to be – or Metz said yesterday that he wants Germany to have the most powerful military in the EU. And the German foreign minister is saying that he would – that the aim here is to look at the proposals from NATO General Secretary –

I guess it is from Netherlands that we should move spending to 3.5% of GDP by 2032 with one and a half percent on top of that with related infrastructure, uh, and cybersecurity spending. So that's a, that's a 5% number. That's pretty interesting. Uh, I think, but, um,

Besides the defense issue, which is really key for, I think, getting off the ground at all with the Trump administration, will be trade. And I suspect that's going to drag on for some time with the EU looking backward at multilateral institutions and not wanting to really engage fully with this bilateral trade.

approach and deal-making approach that is the preferred methodology for, of course, the Trump administration. And on that note, Japan as well, proving perhaps a bit more difficult than was initially anticipated. They were supposed to be the first in line, the first to strike a big deal with the U.S. The FT ran a story talking about Prime Minister Ishiba having to slow things down because the auto industry interests in Japan are against making anything that looks too generous or

to the U.S. side, as well as farmers who are extremely important in Japan and enjoy very good protection from prices, et cetera, and also carry a very heavy weight in the way the voting districts work, a little bit like the U.S., where rural voters in Wyoming have far more power in the electoral college in U.S. presidential elections than California voters have because of the way the representation works. So,

It just means it looks like we're dragging on a little bit here. And then finally, on the geopolitical front, this Trump signaling that India, he claims, is ready to remove all tariffs against U.S. imports. And then this very interesting, I think, specific skating criticism of Apple. He doesn't want Apple to just pick up its production out of China and move it to India. He clearly wants that production to be happening in the U.S.,

And then looking at some economic data releases we got yesterday and a little bit on the market impact, I'll get mostly to the macro markets looking forward at the end of this pod. But we had the retail sales out yesterday. No massive surprise. Actually, I was a little bit confused by this because we did have the very strong March data, which made sense, the front running before the tariffs. But I had heard anecdotal evidence of very strong March.

At least early in April, also very strong retail sales activity. But this, I guess for the balance of the month, it was much weaker because we saw a weak month overall. First signs of a little bit of a hangover after the rush. How long will this hangover extend will be the key question, of course, in the coming month or two. The so-called control group of key retail sales at minus 0.2 and the overall headline was plus 0.1.

The jobless claims once again coming in in range. This is the indicator that refuses to sort of cooperate with the recession call for now. So again, non-news there. And the first two regional manufacturing surveys, a mixed bag. Empire was very weak, but Philly improving a lot more from the insane minus 26.7 in April to a minus 4 in May. And minus 11 was expected. But those are very volatile surveys and don't have a strong bearing on the U.S. economy.

All right, and some specific company news, and this is where I think I've got a couple of interesting things to say for you today. Walmart, maybe not so much. It reported strong earnings, but it's still interesting to note that they're talking about, quote-unquote, pretty extreme range of outcomes from here that they're going to have to price. They're going to hike prices because of tariffs.

And this is going to, of course, impact CPI, but without impacting the strength of the economy, as we've talked about. You'd have higher prices, but not more money. So you have lower volumes. The CPI goes up, but it's not because the economy is necessarily growing unless there's some other source of injection of or growth of money in the system. So clearly, 30% level still means something, obviously, with Chinese tariffs at 30%. And that has to be considered here.

Another small data point just on the sort of the very – at least the very low end of incomes suffering here in the US economy. The markets don't really care about this, but I just think it's an interesting sign. You've got some signs of this in delinquencies on auto loans, on credit cards that are getting to considerable highs. But it's this company called –

Now, I'm forgetting a bit. Affirm Holdings, I believe it is. In any case, the ticker is AFRM. Interesting name, by the way. A massively growing business. The profitability looks like it could be quite volatile. And there's certainly cyclical risks here because what they do is they lend money for pay-as-you-go, buy-now-pay-later services. Slightly different from how credit cards work.

So companies and stores are willing to do this even though AFRM or a firm gets a higher cut because apparently they get higher so-called conversions than credit cards do. In other words, if you're offered buy now, pay later, the customer is more likely to buy now than if they're just simply holding a credit card. But in any case –

Interesting business. They've just signed up with Costco, which is, of course, a massive retailer. So that's good news for the company. But they noted that 41% had made a late payment. So you have a fixed payment schedule with these buy now, pay later loans versus only 34% last year. So again, that lower end of the spectrum income-wise apparently stressed here in the U.S.,

And then a certain company we need to talk about just because of the spectacular nosedive that it suffered, UnitedHealth, not a trader's favorite. This is a company that has gone from a stock price of something like 20 in the global financial crisis bottom to 600-plus.

by late last year or early this year. And it's now trading at a price of 274. A couple days ago or three days ago, the CEO resigned citing quote unquote personal issues or whatever personal – for personal reasons and

The creating of this company is just something truly spectacular. It looks like, according at least to Reuters, the company could be getting investigated for fraud in Medicare. Absolutely huge consequences. If so, could its whole business be at stake here? The CEO walking out like that has a feel of Enron's Jeffrey Skilling walking out. This is a company that long ran business well.

which it was seen as the company that was most likely to reject care relative to some of its peers, which of course drove profitability in a sort of a not very nice sounding way, of course. But with charges of outright fraud, with the CEO walking away, this is just a really ugly situation. You know, shades of Enron or Arthur Anderson in terms of people

Arthur Anderson, the people just not wanting to do business with the company if it's seen as a bad look. And let's recall, this is also the company whose CEO was murdered on open streets by someone who sort of plotted that assassination. It's a Dow Jones component, not for long, but it is affecting the Dow Jones relative to performance as well.

And then finally on this specific company news, Meta, a very interesting one to talk about right now. There's a couple of things here. One of these is what actually doesn't interest me that much right now, and that is that its price was down slightly yesterday, the share price, on an otherwise positive day for the markets on the delay in its so-called AI behemoth model, showing apparently the difficulty of companies to tweak and tune these models and improve on them.

I think that is a warning sign, by the way. Also, we've talked about whether some of these AI models are getting commodified in general. But to me, the more interesting thing here and that I think is just an unrecognized specific risk to this company has nothing to do with AI. It is on the fraud front. There is an absolute fraud.

a pandemic of fraud happening across Metis platforms. Sharp operators going in, who knows whether it's via AI-driven strategies or if they're doing this manually.

But I know one of my colleagues and one of my former colleagues that has had these very devious impersonators that come in and do peer-to-peer reaching out to people to get them to transfer money to take advantage of, for example, some promised hot stock tip or the like. And I've heard of other instances of something similar to that elsewhere.

And considering I've seen this in two cases so close to me and people I know, I can only imagine how widespread the phenomenon is. There's a Wall Street Journal article out there. The title is Meta Platforms. The parent company of Facebook and Instagram is increasingly a cornerstone of the internet fraud economy.

So this is kind of loose and who knows what can develop from here, but you can kind of imagine the outlines of something like class action lawsuits if this is so widespread and ends up in the courts, et cetera.

Having read most of, not quite finished with it, the biography, it's not a biography, it's a coverage of a Facebook executive's time at the company, sort of meta executive's time at the company up to something like 2017, 18 and from much earlier days than that for multiple years. Just an up-close look at sort of the leadership at the top of the company and their attitudes towards many things. Those attitudes are highly important.

I would say amoral or morally ambiguous at best and much more nefarious at worst. I highly recommend that book. It's quite interesting insight there.

And I wonder if this is a case of profitability before thinking about the consequences and needs to shore up on the risks of this kind of fraudulent behavior across platforms. In any case, just want to put it out there as something that could be a risk for the company. All right, a little bit back to markets, and especially macro markets. We saw the weak US data yesterday, at least to a degree, that was what drove it. I think also to a degree, it was the news that the

FT ran with that the Trump administration and regulators in general are potentially looking at changing the rules for the large commercial banks to allow them to hold more treasuries and even that carve out potentially of the SLR, but also just the biggest banks and the leverage on their balance sheet more broadly speaking, allowing them to hold more treasuries and therefore, of course, as a way to find new buyers potentially.

And the concern is that the appetite will not be sufficiently large given the scale of incoming deficits and the need to roll $8 or $9 trillion, whatever the number is, of U.S. Treasuries in the coming year. But linking that to a very interesting story, we have – I think I'll put the link in the podcast description. Michael McNair is a new follow of mine on Xtreme.

He's got some interesting thoughts on this in a rundown. He even specifically referred to some Bloomberg story. There's a little cutout there on one of the posts he had. But he says basically it's just the beginning of capital controls, not linked so much to what I just said there before, but linked to this story and the general speculation that the Trump administration is looking at ways to tax

tax foreigners on the income from their treasury, so the interest payments on treasuries. So if you think about a foreign holder, and there are many foreign holders, of course, of U.S. treasuries, when they get the interest, they are not taxed in the U.S., they're taxed by their local taxing authority, whereas a U.S. domestic holder is, of course, taxed by the U.S. government.

Which means with these very high interest levels and very heavy foreign holdings of U.S. debt that the U.S. is simply transferring very large amounts of money abroad and would probably look for ways to limit that.

there's a lot of other considerations as well. Could this spread to equities? Could this, there's a whole framework of issues anyway around this and something I'll be getting a lot sharper on, attempt to anyway, but if you want to get a leg up on what is going on potentially in this space, Michael McNair, and again, I'll provide a link to a tweet or a post on X for you to, if you would like to go get into the weeds on this.

All right. Elsewhere in market action, again, really key to see the U.S. Treasury yields reversing back lower. I think now we have a local high there that's quite interesting and quite pivotal for whether the U.S. Treasury market is becoming more important for destabilizing markets if those yields were to go above the highs we just saw.

But as well, things like the gold rallying after breaking those key levels, so the 3,200 plus former low and then the 3,165 area were taken out. And then just that sell-off was really brutally rejected yesterday in a nice reversal for the bulls with $120 off of the low. So we have at least a risk-reward level for those that are looking to get involved in gold again after yesterday's tremendous reversal.

Might encourage as well the dollar bears, though that dollar bears picture is not really there just yet. Dollar yen does look like it wants to reverse. I wrote an FX update today. Lots of information in there, and I'll post the link in the podcast description as well. Dollar yen does look like it's reversed, but it's not fully there quite yet either. And I'm also noting a euro yen. It's a very interesting technical setup in the very big picture while we're waiting for this dollar direction to emerge.

Risk sentiment seems to be firing on all cylinders. I certainly will not be personally standing in the way of that. The crypto indicator is kind of flat to relatively supportive as we've bounced off a minor sell-off. Yeah, so keeping an open mind on the direction of risk sentiment here, as one person said, the most hated rally ever.

We've seen in a long time the sentiment is still very negative, even though we've pulled back up close to the highs, even at the highs in the case of some European indices. And we're only a few percent off the highs in the case of the U.S. All right. Hope you found today's podcast informative. Thank you again for all of your feedback. Really appreciate it. And I hope you all have a very wonderful weekend. Please stay careful out there. And we'll be back next week with the Saxo Market Call.