Shownotes Transcript
On the Tape.
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Welcome to the Risk Reversal Podcast. I'm Dan Nathan, joined by Guy Adami. Guy, how are you? I'm well. How are you, sir? I'm doing great. You know, a nice holiday weekend for all, no matter what you celebrate. So that was kind of nice. Here in New York, it was a balmy 80 degrees on Saturday, Guy.
It was a little hint of what's to come. And now today we're back in the 50s. That is springtime in the Northeast, Dan Nathan. Yeah, no doubt. All right, let's do a little market check here, Guy. It is Monday morning right after the open. The S&P is down a little more than 1%. The NASDAQ is down nearly 1.5%. The VIX is above 30 again, 32, Guy. The 10-year U.S. Treasury yield, 4.37. The U.S. dollar, let's see.
Let's just call it what it is. It is crashing. It is trading at three-year lows. If you look at the Dixie, the U.S. dollar index, it had that nice support at 100 going back a few years. We're going to talk about some of the reasons for that. We have Bitcoin raging, nearing 90,000, and gold. It's above 3,400 for the first time ever. I guess we could have said for the last couple months every print –
higher is the first time. Where do you want to start here? Because we're going to hit earnings. We're going to hit some data. We're going to hit really some sentiment changes as it relates to this tariff and trade war a little bit. But I guess the weakness today is that a president's advisor, Kevin Haston, was talking about they're looking for reasons or ways in which they could fire Fed chair
Powell, that's causing the weakness in the dollar. It's causing the weakness in equities. It's causing the rise in yields. Talk to me about what it would mean if we came in tomorrow morning and the president over Truth Social says, Fed Chair Powell, you are fired. Right. So let's shelve that for a second, because obviously that's sort of accelerated the move lower in the dollar. But this move lower in the dollar has been taking place recently.
Long before we saw that tweet or whatever the now verb is in terms of putting stuff out on social media last week in terms of, and I'm paraphrasing, I think, but President Trump saying about Jerome Powell, his termination can't come fast enough. So prior to that, you know, we have seen weakness in the dollar. And again, I think it's around confidence. The U.S. dollar trade, and to a certain extent, the bond trade is really all built upon the confidence that the rest of the world has
on our system. And when that confidence is eroded, it manifests itself in a weakening dollar. And quite frankly, what you're seeing, not only a weakening dollar in a very dramatic sense, but obviously yields going higher as well, which typically doesn't happen. And this is something that Janet Yellen addressed last weekend.
on some of the programs. So I think the market is coming to the realization that, wait a second, this isn't particularly good. Now to specifically answer your question, if we walked in and Jerome Powell was terminated via a tweet or via a truth social post or anything else,
Yeah, there's going to be huge ramifications for that. And I think the market somehow is bracing for it. I hope that there's enough people in President Trump's ear that he'll sort of steer away from that. But if, in fact, that were to be the case, I think you would see another leg lower in the dollar. And I think you would see bond yields trade up in a way that the market is not prepared for. And that's sort of...
The kettle that we find ourselves in right now. Yeah. So you've been making this point going back to the fall, right? When the Fed did a 50 basis point cut followed by that was September followed by November and Deese with quarter point cuts. And you said that, you know, if the Fed fund falls,
rates, right, come down, yields on the 10-year don't exactly have to follow suit. And we had that move back towards 5% after we had 100 basis points of Fed fund cuts. So if you think about the pace in which the dollar has declined, but let's just call the 10-year yield is kind of stuck here, right, in this kind of 435 sort of range. We traded as high as 460. We traded as low as 410, that sort of thing. Would you be expecting that 10-year yield to
to go higher if Fed Chair Powell is fired, if the notion is that whoever replaces him would agree to cutting interest rates as it relates to the Fed funds. Because that's really what you're getting at in a way. That sort of uncertainty. The uncertainty, what would happen to yields is the thing that I think is putting weakness on the dollar and it's putting weakness on equities for the very reason it's about confidence.
So I'll play it out with you. So let's say that happens this week. And again, this is all hypothetical. I want to be clear and you're being clear, all hypothetical. But if something were to happen this week and the woman or the man that President Trump puts into the position immediately lowers rates by 25 or 50 basis points, I think most people would think,
the 10-year yields would fall to the downside. I think the exact opposite would happen. And I think what you'll see is a continued steepening of the yield curve. I think under that circumstance or that scenario, you could see 10-year yields move anywhere from 25 to 35 basis points higher on exactly what you just said, that lack of confidence. And I think you would see a continued deterioration of the US dollar and
God help us to think what's going to happen to the stock market under that circumstance as well. And I think if you're looking at a VIX at 32 right now, I think you'd see a VIX probably either side of 45 or 50 under those sets of circumstances. Again, I hope it doesn't come to fruition, but I'm sure there are a lot of people out there that believe, and I heard it on one of the news networks over the last week or over the weekend, I'm not sure exactly what, but the lack of sophistication around this
is startling. You know, I actually heard people say, you know, we need a Fed chair to come in and lower rates to help us combat inflation. And I found myself literally yelling at the television set. My wife was sitting next to me and she looked at me like I was nuts, but I'm like, I can't even believe that person just said that. So again, there are people that believe that somehow lowering rates is a cure-all for everything. I'm not one of those people.
But this does come down to confidence. And if we sort of blur those lines between what the Federal Reserve should be and what the Federal Reserve becomes, that's problematic. Yeah. You know, you just said the lack of sophistication. I think what's really important here is that who is the president surrounded by? I think most folks have just suggested that, you know, Lutnick is a bit of a lightweight, right? Peter Navarro practices or, you know.
in, you know, sort of economics that actually don't have sound principles. Right. And he's obviously been a huge backer of this whole trade war and, you know, these kind of, you know, extensive sort of tariffs and the rates in which they are. You know, there's this Kevin Hastert that we just mentioned. He's been hanging around the rim for a while. And then Scott Besson. And, you know, one of the things that you and I have said repeatedly for the last couple of months is that
by all accounts, Scott Besson is a financial markets and economics genius. So let's just say he's made billions of dollars. He broke the British pound 20 years ago when he worked for Soros and the like. He's made not just billions for the funds that he's worked for, but supposedly at least a billion dollars in doing that for himself. So the intellectual dishonesty that
comes with Besson being there. We know that his peers put a lot of pressure on him a couple weeks ago when President Trump kind of didn't about face because the treasury market, you know what I mean, was going haywire. But my question here is that what comes next if Powell is fired, and this is again a big if, if things don't go the way that Trump thought he would,
I think Besson, you know, yeah, they can fire, you know, Lutnik, you know, Navarro is just going to be hanging around the rim. But if they fire Besson, that's a really scary situation, too. You know, if you have, you know, you know, basically sycophants in both the Fed that's meant to be independent and then the U.S. Treasury, a lot of damage could be done between those two groups. So, you know, that's, I think, the worst case scenario, Guy.
Yeah, well, I don't think Besson is going anywhere anytime soon. I could see a scenario where, I mean, again, all hypothetical, but if Jerome Powell is dismissed-
um you could move besant into the role of fed chair and then bring another treasury secretary something like that i'm not sure you know kevin warsh is a name that's been out there uh over the last i don't know a few months or so by the way that was a name that was out there under the first trump administration as well and he's pretty highly regarded i think not that there is a problem at all with kevin warsh but i think one of the obstacles might be i don't think he's as malleable
as the president might like. So we'll see how it all plays out. But to your point, I think what we're seeing, this last leg is basically built upon the notion that this is actually a potential to happen. And now you've said it for a while, and I said it a couple of weeks ago on CNBC's Fast Money, when President Trump declared an economic emergency. And again, I know what the words mean. I don't know exactly what it was in relation to or about, but
I think he was setting the table for exactly this, because in his mind, under an economic emergency, it's all hands on deck. And if he believes that lower interest rates are part of the solution and the Fed is not basically obliging, then that's grounds for termination. I don't adhere to that, by the way. I want to be crystal clear.
But I think that's sort of the mindset. And I think that's how the dominoes, I think we're set up to nest to potentially fall. Yeah. And just two things really quickly on this and we can kind of move on a little bit, but you know, fed chair Powell has said that, you know, he will not leave.
and he will take this to the courts, you know, and I know a lot of folks in and around this situation have said that this could find itself in the Supreme Court. If this thing has, you know, goes on for months and months, that is a horrible scenario going back to the confidence. And the other thing is, to your point about Warsh not being particularly malleable, I can't imagine that Besant would either. I can't imagine that Besant would want to go into
the Fed, the way in which it would only happen is like, you know, something that is, you know, not constitutionally sound, that the judiciary would not get behind with the idea that he would be there to lower interest rates, right? And, you know, this is the Fed playbook going back for 25 plus years to get dovish when you have this sort of pressure on the economy and on the financial markets. But what's different this time, you have to go back 50,
years when we can remember the fear of inflation sticking around too long, causing weakness in the economy, causing something called stagflation, which we haven't had anymore. The playbook just doesn't work over the last 25 years. If you think about what we're facing now, which brings me guy to the idea, what is the safe area?
haven asset of choice because it used to be U.S. treasuries, right? If you buy treasuries, that would weaken yields, but we just went through this whole exercise where that doesn't happen. And my only point is I know you've been a staunch bull of gold since it broke out at 2000 in 2023. Here we are at 3400. Maybe the dollar weakness is helping it, but you've been making the point for almost two years.
that central banks have been buying it because they've been worried about this lack of confidence in the US and therefore US treasuries and maybe the selling of treasuries by China and Japan, our two largest holders, is kind of the thing that has buoyed yields right here.
But is gold the only thing that you can buy if you're looking for a safe haven asset in this environment? Well, I don't know if it's the only thing, but it's clearly a thing. And not that it's a problem at all, but over the last week or so, a lot of mainstream media has picked up on the fact that gold has been moving in a way that really hasn't moved in quite some time. And people want to give reasons why, and I'm not suggesting I know the reason why, but I think
gold going higher, it's not necessarily trying to figure out what the price target is. It's trying to figure out what it's been trying to tell you for quite some time. And I think
The story gold's been trying to tell has been basically playing out right before our very eyes. And by the way, through my eyes, I don't think it's a particularly good story. And so I think it can continue. I think there will be central bank spying will continue. And by the way, the president put out a tweet or again, a truth social, I think last night or yesterday at some point. And I think I'm paraphrasing. Maybe we can put this in the show notes, but
it said something to the effect of he who owns the gold owns all the cards or something like that. And again, I'm paraphrasing. But that sort of really took me aback because obviously, we have tremendous gold reserves here in the United States. Obviously, a lot of it ours, a lot of it other countries as well. So if there's some notion that this sort of possession is nine-tenths the law thing,
That's problematic in and of itself. And one of the things I've also said for the last few years is be aware of what's going on. Look at all these different countries looking to repatriate their gold, meaning looking to basically onshore the gold that they've had elsewhere for decades, if not longer than that. And that's going on right before our eyes. And we talked about a few weeks ago, I think, the Bundesbank being concerned about
about their gold holdings in the United States. So, you know, all the things we've been concerned about and been talking about are playing out right before our eyes. So I don't know if gold's the only asset you can buy in this environment, but it's clearly one of them. And you mentioned Bitcoin. Yeah, and Bitcoin, I think, as we're sitting here, is like $87,000 and change. And I guess it's gotten off the mat a little bit. But this is just me.
I don't think it trades particularly well. I think Bitcoin, given all that's going on, I think Bitcoin was created for the exact environment that we find ourselves in and it's performing, and this is just my opinion, but not nearly to the extent I think a lot of Bitcoin bulls would have hoped. Yeah, I'm with you. I think it trades very poorly other than it being up, you know, 2,200 bucks today towards 8,700. It's still well below that 106,000 high as, you know, gold makes new highs. The one thing I just say is like,
that gold tweet is so fucking dumb you know why because when you think about just what he had three weeks ago he was questioning whether fort knox had all the gold you know what i mean like so that's dumb okay and then the other thing that is just again we're going back to a lack of confidence in our country in our government is that if folks are like the the bundesbank
are trying to repatriate their gold, get it back from the U.S. Treasury, get it back from where it's held in New York City at the Federal Reserve. And what does that say about holding risk assets here? What does it say about foreign companies wanting to do business here? What does it say about the whole idea that we're trying to reshore all of this manufacturing when our supply chains are totally not set to do that anytime soon? And so it's just like the lack
of confidence here. Guy in my 30 years in the business, okay, paying attention to economics, paying attention to what drives markets, I've never seen so much uncertainty. I've never seen so much certainty by an administration based on very weak foundations, you know what I mean, that are being tested right before our eyes. That's a scary situation and bring it
back to where we were in 2022, man, the S&P was down 27%. The NASDAQ was down 35% when the Fed started raising interest rates, when inflation was at 9%. Think about where we are as relative to interest rates.
Think about where we are relative to inflation. Think about where we are at 4.2% unemployment. I mean, things aren't that bad, except the stock market is reflecting something that we haven't seen in a while, and it hasn't even started going down, in my opinion. And I'm not trying to be hyperbolic, but
Things could go really haywire in not so much time here, and it wouldn't take much to kind of really light the flame, in my opinion. Well, I mean, what you're speaking about is all true. It is a confidence game. And what's also part of this, a huge part of it, just getting back to the math portion of things, is earnings are not going to come in nearly as robustly or robust as the market has expected.
anticipated. And again, I think at one point we were looking at about $274 expected earnings for the S&P 500. I've said for a while, as you have, that that's a bit of a pipe dream. I think that's going to continue to come down significantly.
And then on top of that, I mean, the multiple that the market is putting on those earnings, in my opinion, is still too high. So even if you just give the market historical multiple, and I'll be generous at sort of 18 or so, and you talk about $250 of earnings, and I'll be generous with that as well. And again, I understand people say, guy, it's not that simple a math problem. And it's not.
But you can start figuring out where the S&P should be trading at. And in this environment, even with the sell-off that we've seen, obviously, we've seen the subsequent bounce off of $4,800 to about $5,450, $5,500 as well. And we find ourselves right in the middle. Market's still too expensive here, in my opinion. ♪
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A couple things here that I think is interesting. The Chinese appear to be digging in. They're basically making threats to other countries that cooperate with the U.S. that is going to disadvantage the Chinese and basically, you know, kind of cut deals that will be negative for China.
for the Chinese, you know, it doesn't really seem, and I think Trump has made this point a couple times over the last week or so that he's getting ready for a big conversation with Xi. A conversation with Xi, President Xi, doesn't guarantee, you know what I mean, any sort of
of agreement there to kind of work on these sorts of issues. These are, in my opinion, again, they're based on not particularly sound economics. They don't seem particularly realistic that anything, even if agreed upon now, could be put in place and change a whole heck of a lot between now...
you know, and, you know, the midterms are after that. So it just seems like, you know, Trump is putting his party in a very precarious situation, especially if the Chinese know that they just have to hang out, right? And for, you know, another year and a half or so. So which brings us back to,
Why are they doing this? Because in going back in my last 30 years, I've never seen such a situation where, you know, things could could go south very, very quickly. And they're not going to be that easy to turn around with a tweet or some sort of summit, you know, that a lot of folks think is going to happen and really put this whole thing to bed.
Well, the answer is I don't know why, because the way I think it doesn't make a lot of sense. I think the reasons why are to sort of reestablish or recreate or reform or whatever word you want to use, sort of the global economy where the United States, again, and I want to be clear, I don't adhere to this, but the United States is no longer being ripped off by various trading partners and various counterparts. Now, I have said this on the show. I've said it on this podcast.
It's hard for me to make a cogent argument about being ripped off when at 5% of the global population, which is what the United States is, we represent 30% of the global economy. So that math suggests we're doing something right. And if we're taking advantage of around the edges, but still sit in that sort of pole position, that's sort of a favorable place to be. But obviously, through the eyes of some people, not so much, and it could be better.
I don't know. But to answer your question, these trade deals do not take weeks. They typically take months, if not longer than that. Things, you don't just snap your fingers and things sort of manifest themselves overnight. So this period of uncertainty vis-a-vis the VIX is
And something we've said since the fall of last year, that the VIX will be a story. And by the way, that goes back to what Vinny and Porter and Danny were saying in the summer of last year when they put out that mantra, make volatility great again. We're just in for a prolonged period of volatility index a lot higher than people are used to.
You know, one of the things I wanted to highlight when we talk about the whole idea of reshoring the regulation, again, export bans and the like here, you know, over the weekend or this morning, it came out that Huawei readies new AI chip for mass shipment as China seeks NVIDIA alternatives. And, you know, we've talked about this a lot, you know, since DeepSea came out January 27th. A lot of this, you know, regulatory action or expert bans has caused the Chinese to innovate in a way. So the chip that they're talking about is kind of a workaround for some chips
that Huawei already had. But when they put some other processors together with a GPU, it's much faster than the prior ones and it should be suitable enough. And again, I agree with the export bans as it relates to China for this high-end technology. I think that it obviously should be the
core of this trade war, you know, but I think there's different ways, obviously, they could have gone about it without causing so much economic sort of distress, not just here and in China, but ultimately the ripple effect around the world. Jacob just shared this guy. This is a truth from
President Trump, preemptive cuts in interest rates that just came out at 9.41 a.m. are being called for by many with energy costs way down, food prices including Biden's egg disaster substantially lower, and most other things trending down. There is virtually no inflation with these costs
Trending so nicely downward, just what I predicted they would do. There can almost be no inflation, but there can be slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates now.
Europe has already lowered seven times. Powell has always been too late, except when it came to the election period when he lowered in order to help sleepy Joe Biden, later Kamala, to get elected. How did that go or how did that work out? I mean, this sort of stuff, every time he puts out a tweet like this, it will weigh on the stock market. It will cause yields to go higher. It will
cause the dollar to go lower. We don't have to go into it too much more. But I guess my point is, is like, here we are, we're a half an hour into the market open. And those are the sorts of headlines. That is not a calming headline. That's the exact opposite.
No, you're right. And I'm not pushing back, but I actually take some solace in that because maybe he's at a point where he understands that he can't terminate Jerome Powell. So with that understanding, he'll choose to sort of eviscerate him in social media, which
which doesn't have obviously the same impact, but it has an impact. So maybe that's the only thing he's left with. Again, that's just me sort of trying to read the tea leaves. But listen, I think your point is well taken. I mean, the market does not like those types of things, nor should the market like those types of things, because historically-
We are in we are in an area that we've never been historically in terms of, you know, president talking about a sitting Fed chair just doesn't unless I miss something in history one day. I've never really witnessed it. Yeah, we're going to get out of here in two minutes and we'll hit some earning stuff over the next couple of days on the market call. It's Monday through Thursday, 11 a.m.,
on our YouTube page. So there's going to be some good stuff there. I know we have Google and Tesla this week. Gene Munster of Deepwater Asset Management is going to be in the pod tomorrow morning in this very spot here. We're going to go over some of that tech stuff and all of the Fed stuff and a lot of the kind of economic outlook. You're going to have a conversation tomorrow with who you have in there. She's Danielle DiMartino Booth. She worked for Richard Fisher in the
Fed in Dallas, I think. I'm pretty sure I'm right. But she's written books. I think the one book that everybody should read, and it's called Fed Up, which is a great title. Wish I thought of it myself. But she's as well-versed into the inner workings of the
Federal Reserve is anyone. I'm looking forward to talking with her. Yeah, no doubt. And then you and Danny Moses are going to have a conversation on Thursday that drops on Friday. So looking forward to that. But one last thing here, Guy, this kind of got sent to me last night by a few folks. So Joe Rogan, which he's the podcaster, Joe Rogan Experience, you know, he got a lot of play over the course of the election. He had President
Trump on, you know, they were calling this like the podcast election. Trump did a really nice job going to these sorts of places and reaching a certain, you know, demographic that certainly helped him win the election. You know, in the video that was being sent around, and I think it was over the last few days, was Joe Rogan really going off about this whole idea of no due process for, you know, the rounding up of some of these supposed
gang members, MS-13 Venezuelans and sending them to El Salvador without hearings, without being accessed to lawyers and being put on these planes and being sent to what a lot of folks are calling a gulag. El Salvadorians say that
the only way that you get out of this prison is in a pine box, that sort of thing. And so it is interesting to me that Joe Rogan is speaking this way. Obviously, he's had leanings towards Trump. And those are the sorts of things that kind of happen on the edges, right? And we go back to what happened two weeks ago, where Trump, you know, did that about face on, you know, pushing out a lot of these tariffs. I mean, some of these influential voices can have an impact on
on policy, right? Or at least on how Trump thinks about it. And I just want to go. And so the Daily Mail, which is owned by Rupert Murdoch, which obviously is a very conservative sort of guy. He turned on Trump at one point. They also own the New York Post and they own the Wall Street Journal.
Okay, here are four headlines from the Wall Street Journal yesterday. Trump's trade offensive threatens America's financial primacy. Trump is everywhere except in the economic data. That's actually suggesting that it's going to start showing up in the economic data.
Trump administration. I rated Harvard plans to pull additional $1 billion in funding, but to me, the most interesting part about that, that's just retribution. Boston at risk of wealth spiral at Harvard fight ripples through the economy. And there was three other ones that I could have put on here. So that's the Wall Street Journal, owned by Rupert
And so once you start seeing a little bit of a change, is this the sort of thing that might actually kind of ring fence a little of this policy sort of stuff if it's starting to seep through to some red states and some Trump voters that have actually turned because of the egg prices, because of the economy over the last few months or so? Yeah, look, I mean,
it's obviously a difficult man, I think, in terms of once he digs in with something, he's seemingly pretty steadfast. I will say, whether you want me to use the term to his defense or to his credit or whatever, but when he saw the bond market melting down, this is President Trump a couple weeks ago, and then subsequently heard Jamie Dimon speaking with Maria Bartiromo, I think he was
clever enough to sort of at least try to hit the pause and bit of a reset button there, because quite frankly, what we're seeing in the United States bond market, I think a couple Tuesdays ago was as scary as scary I've seen since the financial crisis. But to your point, I mean, can he be swayed by people that have historically been in his camp? You know, I guess that's true. I will say this about Joe Rogan. I'm not a fan. I've never listened to his podcast, but
I've read enough. You know, I think he's somewhat of a free thinker. Like, I don't think he's as dogmatic as some people might like to think. And I think he sort of calls it as he sees it. So if that is, in fact, the case, you know, I do respect people like that. Yeah. And my only point is that if you just see these sort of subtleties working up in a right leaning press, right, like it does have the potential to have an impact because, you know, we're not even 100 days in this administration and things feel different.
fairly chaotic. And it's not just through the lens that you and I look at the markets and what's going on with the economy. You know, sooner or later, Wall Street will hit Main Street. Right. And I know that the administration, or at least Scott Besson, I've heard him and Lutnick talk about this is like, you know, we're doing this for Main Street. We don't care what happens on Wall Street. And you mentioned this probably a thousand times as long as I've known you for nearly 20 years.
is that Wall Street or the S&P 500 is merely an overlay of consumer confidence or vice versa. And when you start to lose confidence in the markets, then you see that play out on Main Street. And I guess that's the only thing that I would make. And, you know, we'll just reiterate, this seems not particularly great, despite the S&P only down 12% in the year. It really feels like it has the potential, you know, to move lower fairly quickly. And I don't want that to happen. I know you don't want that to happen.
We don't want to see the bond market go haywire. We don't want to see folks who've been sitting on their hands and trying to kind of, you know, really just kind of see this one out a little bit because cooler heads are going to prevail. It really feels like the potential to the downside is far greater than the upside. And we've seen one step forward, two step back. And I don't know how we get better clarity to give investors, but also customers.
companies and consumers more confidence about where they are from purchasing to CapEx to R&D to investing in the stock market and going out there and just buying goods and services that keep the economy afloat. Well, I mean, that's a good way to end it. And that's an excellent sort of
You know, just a final few thoughts as to what exactly is going on. And we're tasked to sort of look through the lens of the market. But these lines are being blurred with a VIX north of 30. You know, the moves you see that you think are extraordinary are just normal in this current environment. I think, unfortunately or fortunately for some people.
that are able to trade this. I think it's going to last for a long period of time. With all that said, sets up for another fun, interesting, fascinating week. We'll be here each day at 11 a.m. to do market call. Dan pointed out the people that are joining us on the Risk Reversal podcast, but obviously thanks for joining us and we'll talk to you real soon. Thanks. Thanks, Biebs. Bye.