Jonathan Tepper: The Myth of Capitalism

this is macro voices with hedge fund manager Eric Townsend the free weekly financial podcast targeting professional finance high net worth individuals family offices and other sophisticated investors macro voices is all about the brightest minds in the world of Finance and macroeconomics telling it like it is bullish or bearish no holds barred now here are your hosts Eric townsend and Patricks resna macro voices episode 140 was recorded on November 8 2018 I'm Eric Townsend variant perception founder Jonathan Temper joins me as this week's featured interview guest variants highly respected indicators are telling a very interesting story and we'll discuss everything from the US equity market to China to Europe to housing in Australia Canada and the United States as I mentioned on last week's show Jonathan's new book the myth of capitalism has very little to do with his work at variant perception so we'll include an overview of the book at the end of today's interview be sure to stay tuned after the feature interview when Patrick and I will be back to provide extended equity market coverage in our postgame segment we'll also have an update for you on our live event plans in Vancouver on January 19th and on Patrick's resna now Eric clearly the markets loved the results of the midterm elections the market as surges up to both the 28 20 level on the upside level we've been targeting for a little while and now today at least they on the Fed we have the markets taking a little bit stuff I mean I want to call it a sell-off and there's taking a step back we're trading near the 2800 levels the time of recording what's your take on the markets here well to be sure the bounce is on no doubt about it big question is bounce how high and does it continue because this bounce is occurring on lower trading volumes which traditionally is a sign of a weak market so is this just a short squeeze are we looking at that last squeeze before we eventually moved to lower lows or could it be that that 2600 really was he had another buy the dip moment that is going to take us to new all-time highs from there this one patrick clearly is going to require more coverage in our postgame segment but i'll tell you what's on my mind right now is i don't know for sure that this is over but it sure feels to me like the bull market is maybe ending what i would really love is a short entry on this market now that we're back above 2,800 i start to feel much better about their risk reward perspective on shorting this market but boy shorting indices is dangerous business if i'm gonna short it i want to short it with a fairly tight stop and that means i need a technical setup so i'm gonna ask you for a little bit of feedback because frankly i know that you have been nailing this market with your big picture trading members as we discussed off the air you've got so much it's probably going to have to wait for the postgame segments after the feature interview because you've got so much to say so let's save it but i really want to get your feedback i want to short this market i need some help figuring out where the entry is and how tight i can make this stop above it because boy i've been so convinced that it was finally over so many times before and been proven wrong i'm convinced again that it's over we're headed down from here what if I'm proven wrong again how do we structure a trade how do we use options to hedge risk in order to set up a short that makes sense and protects against the possibility of being wrong let's save the rest of that for the postgame sake absolutely you know this level right around here is so important on this and P and so I want to share a number of charts with our listeners with some of the levels that are going to be really important moving forward anyway let's move on to the dollar index and really a dollar consolidation was really the name of the game even in the post midterm election period but powell comes out today the the fed are still on path for the normal rate hikes that everyone's expecting but the dollar Elyse has responded rather bullish Lee with a pretty strong update big breaks in the euro and and the Japanese yen as we're speaking here what's your take can we break out in a big way on the dollar I think we can and as a dollar bowl I couldn't love this chart anymore nothing goes up or down in a straight line we were going a little too strong and for too long on the upside for a while there now we've had a nice healthy pullback exactly as we predicted on last week's show we tested down to that mid 95 handle which had acted as resistance previously now it appears to be acting as support and as we're speaking on Thursday afternoon we're back a full big handle higher to 96 51 just barely over 96 and a half so we're headed higher it feels to me like hey if you see a bull market and it's just going straight up that's a setup for a blow-off top and a big reversal what we're seeing here is a very healthy pullback it makes perfect sense from a timing standpoint you've got elections you've got the Fed minutes coming out once you get past that news it appears that the consolidation maybe is ending and that we're headed higher I'm curious to know whether you would disagree with any of that I know you've been watching this closely but my feeling is the next test is at 97 to take out that prior high from there I think we get to 9750 pretty quickly at that point there's going to be some resistance because you're flirting with that 61.8% retracement places whether you look at the contract chart or the continuous futures chart or the spot chart and so forth but once we get past that I think it's it's maybe a move back up to those prior highs at 103 and change I'm still thinking the bullish scenario is intact here I don't see any reason to think that you know the end is nigh for the dollar what do you think Eric I completely agree with you that the trend is intact and there's lots of room for the dollar to go higher for me though one of the big things is the implications of a dollar breakout I was really looking for a period where if the dollar remained in consolidation throughout November into December that could really fuel risk on and potentially even add to the existing kind of market moves that we've seen recently but if the dollar was too begin ripping higher here especially now just in the middle of November it's not like even waiting to get going I wonder whether risk assets really can continue to truck along like ignoring the fact that those dollars making such an extraordinary move so we're really it's it's gonna be very interesting what the dollar does but it's also going to be very interesting with the response the whole market is going to have to it and that's that's something that we can talk about in upcoming podcast nonetheless I want to talk crude oil with you because all I have to say is Wow we went from $77 crude oil looking like it was a bull trend brent was ripping higher on the upside and we have just had a straight line move down on crude oil from you know around the 77 level now pretty much down to 60 and it hasn't stopped I was originally saying okay it's gonna stop along its June and August lows take a break there no it rips right through that 64 65 level like it didn't even matter we're now approaching February lows down around a $60 level and it's gone they're in a straight line now if you go back and look at what happened in early part of 2017 we had a number of very steep drops in oil and each time it hits a V bottom and then rips the other way and undoes a whole bunch of the selling I need to know from you like what's your take care is that are we about to hit like some sort of a key support and the very oversold state of oil has room to admit for a deep retrace maybe back to the high 60s or is this really the start of something far more bearish well I think it could be the start of something far more bearish this thing that's throwing me a little bit is the straight-line part of this as you say we have gone just straight line down from $77 to $60 and I want to point out that's on the front month now in the past what we'd been seeing is you couldn't get the long dated contracts above 50 bucks even as the front month was pushing much higher very quickly rallying the back of the curve didn't want to follow it we're seeing the opposite because as much as we've seen this huge huge sell-off on the front month look at the December of 2020 contract that's two years out from now it's sold off but nowhere close to as much as the front month has and in fact now we're seeing significant contango at the front of the curve so that December 2020 contract that was five or six dollar discount to the market a few months ago it's at a premium to the front month now and it's really interesting to see the term structure turning itself around at the same time I think that what we saw this week as this acceleration further happened to the downside well first of all inventory helped it five point eight million barrel build on inventory Cushing Oklahoma probably more importantly two point four two point four million barrel build that's a big build for Cushing Oklahoma gasoline building as opposed to quite a few draw downs in recent weeks gasoline building almost 2 million barrels 1.9 million barrels distill it still showing a drawdown of 3.5 million barrels but compared to all of the other across-the-board builds the inventory number was clearly bearish but I don't think that's what did it Patrick it was production more so than inventory that really shocked the market US production moving to an all-time record eleven point six million barrels per day that's an increase of 400,000 barrels per day over last week's report and that 400,000 barrel move in one week is a really really big move up and it's a move to a new all-time record now there's a caveat as I tweeted about this as soon as the data came out that is a huge move up but this is e I a data which is always a little bit suspicious in my mind and you know if they just made a mistake and counted something from last week if we see a retrace where that 11.6 number goes back down to eleven point two next week I think you're going to see the price retrace as well on the other hand if this continues if we see even higher beyond eleven point six next week that really really is going to accelerate the sell-off be what we're seeing is a perfect storm of factors inventory is increasing as much as people thought it wasn't it's increasing and it's increasing dramatically production is increasing at the same time even with nearly record exports a 2.4 million barrels per day this week that works out to about sixteen point eight million barrels exported that would have gone into inventory if it was not exported even after that we still had a build on inventory of almost six million barrels we also had a Strategic Petroleum Reserve sale it was only two hundred and thirty-five thousand barrels though so no real big deal there there's a perfect storm of factors coming together Patrick the lifting of Iranian sanctions that came out just as we were going to press last week combined with this increase in inventories combined with increasing production it meanwhile Saudi Arabia kind of losing face over this Khashoggi murder thing now there's another journalist that they've been accused of murdering there's just a lot going on that is causing this dramatic sell-off I note again it's happening at the front of the curve primarily so far the back of the curve is not reacting and even as I see some of the news reports okay oil falling on news that we have increasing inventories then today I saw a headline oil rising this morning on record Chinese imports we'll wait a minute is China really consuming more or is China buying the dip and are we actually seeing yet another bearish increase in inventory in the form of China just buying up more oil in order to stockpile it a lot of analysts thought China was out of storage capacity a couple of years ago hey they've had time to build more I'm not really sure exactly what's going on but when I see something like oil rising on Chinese imports I think wait a minute are they importing it to use it or they importing it to store it so I really think that there's a lot of factors here Patrick that could take us lower still in price but I'm really watching the shape of the term structure more than anything else all right well let's move on to gold which has really just been pinned in a $20 range for pretty much a month right now and we've been cautiously looking for that breakout but it's not happening but a breakdown not happening either and we're just pinned in this range some point we're gonna get a resolution what's your bias yeah you know it's been really interesting for a while we saw four months actually we saw gold – doing exactly what I expected it to do which is really just be the inverse of the dollar there wasn't much to talk about in the gold chart there then October 11th we had the big break where that correlation with the Chinese yuan was suddenly broken then we've been in this range we never got to that level Charlie Miguel again as you remember told us a daily close above 12:45 you really want to watch because it's going to cause some of the algorithmic traders to change their allocations and start buying we haven't seen that yet on the other hand look at the dollar recovery today big big move up a full big handle on the dollar index did we see gold tank no just down a little bit so you know as you say it seems like the correlations that were there before are breaking down but where a lot of people were saying okay that's the beginning of the really big move up we haven't really seen that big move up either so I think it warrants watching really carefully I think that a daily close above 12:45 if you can get it quickly and buy it before it goes a whole lot above – 12:45 there's a momentum entry argument there as far as a longer-term play though I still think there's room for gold to move much lower before this is over but at the same time I can't explain what's happened since October 11th before that it was super clear to me it's just the inverse of the dollar it's as simple as that at this point it's more complicated and I don't think anybody or any commentary that I've read fully explains the action that we've seen in price since the 11th of October let's move on to that ten-year Treasury yield and all I have to say is three and a quarter we're back at three and a quarter I mean this was where we were back in October that was such a critical kind of level on the upside are we going to higher yields here or is this going to form some sort of topping formation and be the upper resistance of where yields will press what's your bias here I've been kicking myself all week Patrick remember what I said in the show last week I said all indications are that this is a perfect setup to short the 10-year Treasury here and but in the interest of full disclosure I should mention I'm not trading it myself you know there's been five times that in the last couple years I've said those words and the call was exactly right I didn't trade it and I missed the profit and what a move this was so I got it right except I didn't trade it so I guess that makes me wrong in the end you know it just it's so textbook we had a breakout beyond that critical level around three spot 12 three spot 14 wherever you want to call it we came down and we retested that as support it held his support now we're moving toward a high a higher high and I think that's the next confirmation but all indications to me are the bond bear market is on as you said earlier with respect to the dollar index what I really think about is the knock-on effects let's say that the trend is in motion the the sell-off in bonds is upon us and we're seeing the beginning of a secular bear market in bonds okay how high can bond yields go before they break other things what are the first things to break and what's the mechanism of failure how do they break and what does it entail does it result in a breakdown in the stock market it is appears to have been happening well at this point we saw this move higher in yields not hurting stocks at least not this week so that correlation is changing what's gonna break and when's it can a break and what are the levels on the ten-year and the 30-year that are going to result in other knock-on effects in other markets that's what I'm starting to think about but it seems to me like the move is on all right now January 19th is our live event in Vancouver tickets are selling fast why don't you give everyone a quick update of what's going on Patrick out of respect for our listeners who are not going I don't want to spend a lot of time on this so let's keep it really short the big news is that we have added Brent Johnson in addition to Jeff Snyder Julian Louie Vincent gab Juliet de Klerk and art Berman so we've got six fantastic speakers lined up meanwhile you've only got a week left until November 15th for our early early bird special price price goes up after that so be sure to register in the next week to get the best possible price we do have an update for those who are going or interested in going quite a few details to fill you in on let's save that for the end of the program out of respect for our listeners who are not interested we're going to save all of that for the very end of today's program thanks for the market update Eric this week's featured interview guest is variant perception founder Jonathan tapper Eric's interview with Jonathan is coming up as macro voices continues right here on macro voices calm and now with this week's special guests here's hedge fund manager Eric Townsend joining me next on the program is variant perception founder Jonathan pepper Jonathan last time that we've had you is well as some of your colleagues from variant perception on the program I've asked the question is it time to short the stock market and the answer was a resounding no but very quickly after that qualified is not yet and it seemed like the clear expectation was that's coming so I guess my first question to you is are we there yet is it time to be short is it time to get out and where is this headed a lot of people are saying okay that's it the top is in do you agree and what do you see coming next for the market yes so my colleague Ken yang was on the show and when he was on effectively the market continued rallying basically up until September and the market was going higher and his message was correct one of the key themes that we've been writing about this year was our recommendation to favored offensives over cyclical z' and if you look at for example the classically cyclical sectors of financials homebuilders and then you look at things like semiconductors all of those have drastically underperformed the index over the last few months so even within the market obviously you have the index itself which it was trending higher up until October but within that you were seeing a big rotation going on you were seeing defensive stocks starting to outperform and then you were seeing cyclical stocks really get hit and smacked and so the message that we've been giving to clients is one that's actually worked out tremendously well this year and you know what it really made your year if you were a hedge fund manager almost all of our clients or family offices and hedge funds and it's that sector rotation underneath the surface that's mattered in late September early October we turned quite negative on the market and part of that was that the market health indicators that we track had turned negative we had various sell signals that had emerged some of these were based on heightened risk in terms of cross-asset class volatility and credit spreads and others were based on just very poor internals and and health for the main indices so we did turn negative at late September early October and flag that to clients in our or weekly sort of tactical update so those obviously some of our clients or longer-term are focused you know and don't read the week leaves but for the clients you do trade to market in the shorter term and that's what we were flagging and now that we have seen more than a ten percent sell off and of course for the last ten years every time there was a 10% sell off the right thing to do is to buy the dip we're seeing at least the beginnings of a bounce if if not a full recovery what do you think from here is this just another buy the dip opportunity that you should have bought 2600 hand-over-fist or is there maybe still new lows coming well the latest sell-off has been quite interesting because it's been very persistent it's been steep in terms of price action but we haven't genuinely seen huge signs of panic so the VIX didn't go into the 30s or 40s which you'd normally think of we've not seen a rally in the 10-year note for example and you know we techy Goods have not fallen which is normally what you see in panics we've not seen widening corporate credit spreads and they've they've widened a little bit but not much and so we've not seen really sort of like extremes in panic which normally indicates a sharp bottom we have quite a lot of daily signals that flag to the bounce but normally what happens in major market bottoms or even intermediate bottoms like 2015 2016 is that you end up with what we call weekly buy signals where we look at things that take longer to move and we look at our asset classes trade relative each other we've not really seen that this time around and at the same time I was talking to you earlier about how the weakness in the market was evident in late September early October due to poor market health that has been persistently bad throughout the sell-off indicating possibly and you know the time will tell that we've seen any change in regime in terms of market health now obviously we're agnostic and stick to our tools and we'll follow that but we've definitely seen a turn and market health for the worse now you mentioned the 10-year yield we had big big resistance level around three spot ten three spot twelve in there somewhere broke through it very aggressively came back down and retested it as support and now seem to be moving back up is the thirty five year bond bull market decidedly over in the new secular bear market upon us as many people are saying and where do you see ten-year yields as well as thirty year yields headed from here so I think that these questions are entertaining but ultimately unanswerable and only answerable in retrospect I think that it's it's very difficult to say whether the thirty-year trend is over we'll only know long after the fact I think that given that the inflation is ticking higher in terms of core CPI and all the leading indicators we have a core inflation basically or continue to turn higher and it's a totally normal inflation lags the business cycle by about a year to a year-and-a-half you would expect that until growth turns down yields do tend to rise and it's only when growth essentially collapses or and turns negative or those the expectation of that that you start to get a rally in yields but the other issue on the structural side is the tax reform that was done has basically blown a hole through the the budget deficit and this cyclically adjusted budget deficit now is the widest ever and in the next downturn the budget deficit is going to be of horrific proportions and so I certainly think that supply is going to be an issue in terms of absorbing that and people will likely demand higher yields so you could argue that actual basis yields should trend higher given that the government is going to be running persistent deficits I mean the fact that we are where we are in the with economic growth and employment and the government's running massive deficits is deeply worrisome well since we're talking about deficits let's also touch on the US dollar index as we're speaking on Tuesday a couple days before our listeners will hear this we're just barely above ninety six again you know we had seen a test of 97 came back down and retested ninety-six seems like it to me a healthy pullback and maybe we still have higher to go in the dollar what's your outlook for the dollar index and for the dollar in general against both developed market as well as AM currencies so the dollar has a few short-term drivers and some longer-term drivers they sometimes point in the same direction and other times point in opposite directions the drivers in the short term are yield the the Fed is really the only one that's hiking not aggressively but they certainly are hiking and most foreign central banks are still at very very low rates if not zero rates and are still relatively accommodative so the support from the dollar is still pretty strong the longer-term drivers of the dollar are more negative and point to a weaker dollar and that has to do with large current account deficits and large government deficits and so if you look at the twin deficit and over time that's tend to do a pretty good job of leading the the dollar index by about twelve months and so right now we're at a point in time where the short and long term are not pointing in the same direction so I would expect the dollar to be supported in the short run but certainly there are headwinds you know what whenever you end up with a very large issuance of government debt and large print account deficits the dollar tends to weaken so that that's the sort of short versus long term outlook on the dollar and speaking of the dollar let's talk about China and China's growth situation and particularly the trade war situation between the trump administration and China we're still speaking actually on election day so I wonder if a lot of this has been for public consumption going into the election and if perhaps we're gonna see a change of course out of the Trump administration once the elections are behind us what do you think so I can't pretend to have any insight into what the Trump administration or the Chinese may do I don't live in DC you know I don't live in Beijing I don't have any contacts and the truth is I don't think it's necessary in order to have an insight into Chinese economic growth variant perception which is the company that I founded with a couple of friends and colleagues it has leading economic indices for China and these industries you know we've run them basically since we started so now almost a decade and they've done a fantastic job of giving you an advanced reiated six to nine months on the Chinese economic cycle and that has a massive impact on the pricing for iron ore for cop for the Australian dollar and for other things that are china-related and even though we don't have contacts in China the index actually does a great job and what it does is it attracts a variety of inputs that give you a good gauge of China's money and credit situation and that provides a lead so this year for example we've been fairly negative on China Chinese growth since the start of the year and that's given us an advance trade effectively on a lot of these assets but what's fascinating is if you go back to 2015 when people worried about major yuan devaluations and 2016 our index had turned down in 2014-2015 so we were negative at the time and then when everyone was maximum negative on China and emerging in January of 2016 our indicator was shooting up I mean it was like a huge upturn and we were very very positive particularly people worried about like Brazil which is exporting iron order to China so the leading index does a great job of getting you out front of some of the most cyclical profitable trades out there and so our index gives us an insight into Chinese growth and I can tell you that I'm sure the trigger is bad and I'm sure that it's gonna have some impact but the slowdown that we've seen in China this year predates trade war problems and certainly is not driven by them it's driven by domestic monetary conditions what are your indicators telling you about inflation so that depends on which country you're in we have in leading indicators for inflation in the g20 country by country and inflation lags the economic cycle so if you think about it intuitively if you let's say you're a boss at a factory you don't fire your workers you know just because you have a good month of – of sales so employment lags the business cycle just like employment if you run a supermarket you don't start hiking your prices just because you have a good or bad month of sales so unemployment and inflation or two of the most lagging indicators possible when it comes to the economy so if you know where the economy was twelve months ago you can generally get a good read of where inflation is going to be in the future one of the inputs that go into a leading indicator for inflation essentially are taking stock of where the economy was six to twelve months ago and then projecting that forward and the leading indicators for inflation on the core inflation side continue to point higher so we're going to keep saying core CPI grind up headline inflation is going to roll over a bit mainly because the rate of change of the dollar and oil has turned down therefore I think you'll see headline CPI roll over while core itself is going to keep on driving up but it is broadly similar across a lot of other countries and as growth slows down then you'll start to see inflation itself grind down to a lot of people are saying that this big move down we've seen in oil is maybe signaling an economic recession or other economic slowdown that's coming does that jibe with what your indicators are telling you and how do you see the moving oil generally so interestingly oil tends to do very well going into a recession and you might argue that it helps caused the recession by being too high so if you remember oil is normally doubled right before our sessions it doesn't mean that you always get a recession if oil devils but that frequently does happen and so oil collapsed from 2014 and then bottom that essentially early 2016 and then it's doubled since and so it's very similar to the 98 to 2001 period where oil collapsed after the asian and russian crisis and then doubled into 2000 and then you got a recession in 2001 so you could argue that we've had a similar dynamic at play oil clearly has doubled and gone up and then when you opt emerging markets everyone looks at oil in dollars but if you look at oil in turkish lira or you look at oil in Argentinian pesos or you know a lot of these emerging currencies oil is by far higher than it was in 2008 but clearly it tends to be a drag on economic growth when it takes a larger part of the global wallet and that that's fairly negative but that's just one input it's not the only input that determines recessions it's clearly negative it's a drag but you you would never base your entire investing strategy on that Jonathan let's come back to Europe where you are tell us you know some people have said this situation with Italy is we're finally seeing major eurozone countries falling apart the way Greece did a few years ago other people say it's just a flash in the pan no problem how do you see the big picture of the European outlook and is there risk of a contagion of further exits from the eurozone by major countries after breaks it what do you see coming and what's the outlook so in the case of Europe what's quite interesting is that the Euro itself I think is a completely flawed currency badly designed it took them quite some time to get the central bank buying peripheral bond markets the countries themselves did not understand the implications of the euro so for the first seven or eight years inflation basically proceeded as it did pre Euro even though the central banks in Spain and Portugal and Greece and Ireland and Italy didn't control monetary policy the way they used to and so once the downturn happened then suddenly not only did you have an epic collapse in Spanish and Irish bubbles but then you basically had peripheral countries that had vastly overvalued currencies like a Spanish euro was very overvalued relative to a German euro and they've had to try to adjust their unit labor costs and then they couldn't have a central bank by their own government bonds and also they couldn't inflate away their debt in the government bonds and after that basically what's the ECB started buying they were helped in the short run and it brought down borrowing cost and Spain and Italy what we're now seeing is that the market itself is repricing where the Spanish and Italian yields have been very high they then went absurdly low being priced near Germany and now they're starting to widen again when there is a the next downturn in Europe and there there will be it's a matter of when now if then people have to worry about the level of Italian debt and Italy can't devalue the euro the way that it did with the lira in the past and they have to hope that the ECB will buy the debt so this is clearly causing a conflict I don't pretend to have any knowledge about the Italian political situation or about what might happen in Italy I'm reassured by Italians I know the economists that they won't accept euro I think that normally it's the strong currency that leaves currency unions would be more likely if the Euro breaks up it's because the Germans get fed up with the situation in the same way that the Russians got fed up with the ruble zone and ended it it wasn't the stands you know that exited so I think Europe basically what we're likely to see more trouble and Italian bond markets and repricing but I think it's unlikely based on history that Italy would be the one leaving the euro area I think it's more likely that eventually the ECB buys all periphery debt and the Germans get tired of freeriding and in the same way that the Czechoslovakian currency was broken up it was because the Czech Republic got tired of the Slovak s– and normally that's just the way it works when currency unions break up another topic that we've had quite a bit of interest in on this program has been housing we've talked about US housing which seems to have rolled over but particularly Australian and Canadian housing and I know that you did a boots-on-the-ground tour you were on 60 minutes doing a special about housing give us a little bit of background but from there I'd really like to hear the update of what you see on the horizon now as current economic events are unfolding in the case of housing obviously housing markets are national and even local in terms of City but speaking specifically of Australia where I was on the ground with a very good friend John Hampton who's a brilliant hedge fund manager and we were going around just checking out the housing market speaking to bank managers to mortgage brokers to potential buyers going to the auctions it was truly crazy and what we realized was that the level of the standards for lending were quite poor and there was not a lot of verification of costs in terms of you know how much people were spending on children's education or rent or anything housing related and then at the same time there were almost no verification running income and so most of the mortgages that at the time over 40% of them were interest only mortgages so people were really not paying repaying principal they were essentially speculating on the increase in the price of the houses Howard Marks said that if you're too early you're effectively wrong so I would say that I was wrong in the sense that I was too early but in Australia over the last year they've had what they call a Royal Commission which is essentially a independent body to look into the behavior of banks and everything that they've uncovered has corroborated the work that John Hampton and I did and pointing out that the the very poor and lacks lending standards that were at play due to this pressure the banks in Australia are now having much tighter checks on income and costs and the credit has really turned down and is drying up and so what you're seeing is declines in prices at a national level and then within specific postcodes you're seeing instead of 10 to 20 percent declines particularly at the high end in Australia so we are seeing a downturn in Austrian housing building permits have rolled over the entire economy is massively geared towards the real estate sector and that's created an enormous wealth of fact which is fed consumption car purchases and and retail purchases so there is very much a slow down and downturn at play in Australia and as you said this is a very national in to some extent regional and local market what do you see at Canada so Canada what's interesting Australia is there was quite a lot of building in Australia and if you remember the Spanish and Irish examples there was an enormous building going on in those and generally that's quite toxic for prices because excess supply is the worst thing possible for prices Canada does have excessively high valuations particularly in Vancouver or the craziest Toronto is closely behind so Canada unlike Ireland or Spain or the US or even Australia has not seen a tremendous increase in supply in terms of building permits and new houses it's gone up a bit but nothing crazy and while the Canadian housing market is overvalued you know particularly in Vancouver and in Toronto you could argue that that's much more of a affordability or valuation issue certainly like any bubble of there's signs of fraud but it's not as worrisome from a supply standpoint as in some other countries and I think that it's probably much more that if you're investing in Canadian real estate it's not a good deal you're paying too much for it but I don't see like rampant oversupply and the way that I've seen in other countries and what about the United States the u.s. is very interesting I was extraordinarily negative on the US housing market and almost all my personal portfolio was betting against mortgage lenders and home builders in the financial crisis those trades worked out pretty well and what's interesting because I became so familiar with the data I turned incredibly bullish on US housing essentially in 2011 and early 2012 and we dedicated an entire monthly to the is calling for housing bottom in the US and long housing in early 2012 and that was because you'd seen a complete collapse in new building and at the same time household formation and had continued to pace so in the case of the US the housing supply demand dynamics are fairly positive everything's local was still across the board it's still pretty positive the problem right now in the u.s. is that 10-year yields gone up mortgage rates have gone up and on a cyclical basis that reduces volumes and building permits and so it's a headwind and I think that's really what what we're seeing and so variant has been writing about this for clients for most of the year and flagging the slowdown in housing and if you look at specific stocks that are housing related you know and I mentioned earlier we were talking about this earlier in the program the cyclical is versus defensive trade building stocks and housing stocks are the most cyclical stocks around and they've cratered very much in line with what we were talking about so are our clients who were reading our research were forewarned about the housing downturn Jonathan I want to switch gears now and talk about a completely different subject our listeners are used to smart finance guys like you writing books and usually the book is going to be some kind of basically marketing campaign for whatever business you're in you've written a book that has absolutely nothing to do with what you do at variant and I know from talking to you off the air that you have become extremely passionate personally really completely aside from your career and what you do at variant in this look that you've written called the myth of capitalism so before we even get into the book what's going on with Jonathan Tepper why you're a very successful guy your research is very well-respected most people would assume if you're gonna write a book it's going to be in line with the work you're doing it variant what has motivated you to get involved in a project that has nothing to do with your career really in this book that you've written yes so the book is titled the myth of capitalism I'm extremely pro-capitalist despite this being a critique of capitalism I love competition I think that's the problem of capitalism is G K Chesterton said is not there too many capitalists but there are too few and the book really came out of some discussions I was having over beers with friends in London where pick ADIZ book had come out and Piketty talked about there was this fatal flaw on capitalism and when growth is low you end up with high returns on capital to holders of capitalized shareholders and low returns to workers to labor and I thought that just doesn't make any sense I thought if they're very high returns on capital you know like if you've got a business that's doing really well I would see that and say you know what I want to be in that business I'm going to compete with you and Jeremy Grantham said the corporate profit margins are the most main reverting series of finance and if they don't revert then something's wrong with capitalism and I think that we haven't really seen a reversion in corporate profit margins over the last couple years and something is very wrong with capitalism so I started to investigate why a lot of this does tie into my day to day job at variant perception and is directly related to investing because if you start thinking about it one of this impacts corporate profit margins if they are on now in a permanently high plateau and not mean reverting does this mean that UK up do you pay higher p/e multiples for companies because profit margins aren't going down what does this mean for workers because obviously high profit margins generally come at the expense of workers right the biggest expense that companies have his workers wages and part of the reason why profit margins are high is the the Labour take of GDP has never been lower so while the reason I was interested in this subject it was very much from a personal standpoint it does overlap somewhat with the work I do on a day-to-day basis and so I was able to then bring some of my insights or tools to bear but I really did loads and loads of reading to try to figure out like what's changed why we have less competition why our profit margins not mean reverting and it was really when I started digging that I realized the main reason for this is that an industry after industry in the US we've seen merger wave every decade since their days and the the merger wave has basically it's like this of you know the u.s. sweet 16 in the NCAA basketball or the World Cup where you start out with 16 teams and you go down to 8 and then 4 and then two and then one and what's happened is we moved from like an open economy with lots of competitors essentially down to oligopolies and monopolies in many industries and that has an impact it affects the way everyone lives whether it's in the US or Canada or the UK if you you know and the Canadians know this particularly when they pay for their you know phone bills the US people know this when they pay for the cable bills or they pay for medical bills when there's no competition the prices are very high and this clearly means you get higher prices it also means that wages are lower and overall because barriers to entry tend to be very high I have a chapter on regulation that you just get fewer competitors coming in and so it leads to collapse and startups and so a lot of this talk about a fatal flaw in capitalism and secular stagnation I think goes straight back to the loss of competition and that's really what the books about the book is titled the myth of capitalism monopolies in the death of competition I read the book cover-to-cover and quite enjoyed it and I recommend it but let's go back to this particular focus that you have on competition and that being where the breakdown is because it seems to me that the monopolies that you speak of in the book feel like they're in a different category when I think of monopolies of yesteryear you know going back to 19th century monopolies and I know this is one of the stories that you tell in the book the railroad barons were buying up tracts of land to make it impossible to build an oil pipeline so that they could protect their monopoly on moving oil with railroads so it was literally impossible to compete with them now I think that somebody looking at some of the monopolies that you focus on in the book such as Google would say wait a minute there's nothing that stops someone else from building a better search website and coming in and you know offering a better version of Google so where is there a monopoly in that how would you address that objection so they're there two responses to that one is the nowadays when people talk about monopolies they're generally talking about Facebook and Google the book goes into dozens of industries that are perhaps even more relevant to people's daily lives where there's outright monopolies at the local level or certainly duopoly Xand very tight oligopolies and this this is ranges for everything from like medical care to fun bills to cable bills and all these things drive prices higher and reduce choice and there's almost no competition for those but getting back to Google and Facebook what's interesting is that people somehow seem to assume the Google has reached this stage because it's just so good at what it does and therefore you know just doesn't have any competition but if you look at the online ad market and you know talk to people who have been in it for decades a very good friend of mine actually remained nameless but he works at Google he worked at double-click beforehand and Google was allowed to buy double-click so Google does search ads double-click did display ads and what's extraordinary is that the FTC allowed for this merger to go through even though Google was essentially taking out its main competitor and in terms of online ads and Facebook likewise bought Instagram and whatsapp where they were able to merge whatsapp with Facebook to the point where you can't get a Facebook account without a phone number and so now Facebook in I know thousands of sites across the web functions essentially is your digital passport you can't get an account on various apps or websites without a facebook login all your listeners probably know that they you can't be on tinder Bumble you can't date as a young person in 21st century unless you have a Facebook account you can't get an account on either one of those two so there are loads of different well basically now you've got a duopoly with Google and Facebook that are dictating essentially the rules of the game and then Tim berners-lee he is the essentially creator the world wide web he established these standards and protocols that Netscape and other browsers then used in the 90s and he thinks that the Internet itself is dying so beyond whether Google or Facebook can charge higher prices to advertisers and consolidate the industry it's leading to a loss of innovation and a loss of diversity so before 2014 if you had a website and I had a website I could link to you you could link to me and we might link to you know a third party the internet was this sort of open anarchic free-for-all where everyone linked to each other and that was the way I was supposed to be it was supposed to withstand a nuclear bomb going off and you know it was very decentralized now after 2014 basically over half of all traffic is going through Facebook and Google and today it's closer to 70% and what we've ended up with rather than an open decentralized system is essentially a highly centralized system that goes through two companies and I don't think that's good for anyone for innovation in the book I discuss previous historical examples where monopolists it may have often come up with an interesting idea is whether it was AT&T with Bell Labs or Xerox with Palo Alto Research Center Park they never really capitalized on their ideas it was other companies that did and generally it's the sort of smaller upstarts and creating a lot of the innovation and R&D is the percentage of revenue goes down as companies become more monopolistic and dominant so the book is very much about the collapse and startups that we've seen in the US and about how it's harming productivity and innovation and I think it actually answers a lot of these big questions that Larry Summers and others and you know Gordon 't Northwestern are talking about in terms of this secular stagnation I think has roots in the loss of competition when you talk about some of these acquisitions where Google literally takes out its biggest advertising competitor and there's no resistance from regulators they allow that to go through what do you think the your problem is is it the high-tech stuff is confusing to regulators and they don't get it and they don't understand why it's a conflict of interest and shouldn't be allowed or is it a case of corruption well what is going wrong that I mean the things that you're describing sound to me like things that are already covered by antitrust laws so it doesn't sound to me like we need new laws or maybe you think we do but it sounds like for some reason we're not enforcing the ones that are already there what's the cause here the problem is twofold one is that we do have existing laws which could work so in a way we don't need new laws but in the 1960s Robert Bork in particular and others at the Chicago School were saying that preventing mergers prevented economies of scale a preventive fishin C and all these wonderful efficiencies could be passed on to consumers and so what we needed we were more mergers and more scale and that way you'd end up with enhanced consumer welfare and so this sounded wonderful and it may have in fact been good you know at these are the early stages of you know the 1980s but when you fast-forward for decades basically what we're looking at is now very little competition and in many industries and there's overwhelming evidence just across the board and I go into dozens of studies in my book the concentration leads to higher prices so what happens is companies may encounter some increased efficiencies generally when they make more money and they have a higher return on assets what's happening is that they are able to have power over the consumer which Buffett calls pricing power and then they have power over suppliers ie they can under pay suppliers so the wave of mergers is driven by essentially an interpretation of antitrust laws that's called the consumer welfare standard and unfortunately because the Reagan merger guidelines of 82 and then subsequent Court decisions have all interpreted the entire antitrust laws in this light I think it will require a new law to state exactly what the aims and goals of antitrust are and that I think is what's necessary I think we're going to get it I think that this subject is really the hot topic of our time I didn't set out to write a Hot Topic I think that you can't do that if you're a writer or a movie maker or any content creator in the sense that you know movies and books or labors of love and they take a long time to write and to think about and so if you're chasing whatever the hot topic today is like by the time of your book comes out it's gonna be two or three years from now and the hot topic might change and so I never set out to chase the hot topic it just turns out that this is what people are talking about and I think that it's gonna be the big story for the 2020 elections in the US because monopolies and industrial concentration are only gonna get bigger one of the things I really like about the structure of your book is it's not just whining about what's wrong you have a whole section that is dedicated to your prescriptions for how to fix it you've already alluded to parts of that just now but give us some perspective on the rest of what your prescriptions are for how to fix this situation I don't think it's in any way a criticism of capitalism it's basically capitalism is broken and we need to fix it so we get working capitalism give us the rest of the prescription of how to fix what's wrong so I think that there are a couple solutions and we have them in the last chapter or the book a book that simply points out their problems it's not particularly useful I mean it's a starting point but it's incomplete and so what I've tried to do in the last chapter of the book is provide a couple simple humble recommendations the first one being there's extensive evidence showing that when you get below six players in the industry you get price increases and so rather than have complicated court cases working out whether conduct is bad or not an even simpler solution is this aid you know what the FTC and the DOJ should not sign off on mergers that reduce an industry down to fewer than six players and I think that's like lawyers call that a per se rule which is essentially black and white rule rather than sort of judging each one on its merits and it makes complete sense it's very easy to administer rule that's the first one the second one is that we need to break up companies that have merged to become big and reduce competition so previous bad decisions have to be undone if we want to move forward and progress that's the second one the third one is essentially regulation itself acts as a very significant barrier to entry in many industries to the extent that we have too much regulation and to the extent that regulation serves the benefit of the regulated companies we need to reduce regulation and have more sensible principles rather than rule-based regulation and that will promote competition so that is one of the main things that I recommend and I have an entire chapter on that and so those are like very simple obvious solutions and they're not the only ones and I certainly hope that the book is able to spur a greater debate and to make people think about the main themes that are covered in this book because I think that it matters to everyone whether it's left and right the book is not partisan in the slightest I want to pick up on that left and right aspect because as a new author myself I'm not only envious Jonathan I am in awe of the endorsements that you have managed to get for this book and the extreme left you've got Yanis varoufakis the Greek politician on the right you've got Neil Ferguson you've got Kyle bass you've got Nobel laureates you've got Harvard professor Ken Rogoff you've got huge huge names of famous people what in the world happened how did you get the attention of so many people that are all endorsing this book and telling people to read it so I was very pleasantly surprised and did not expect to get the reception that the book got you know I'm just realistic I'm not cynical but I'm realistic and I thought I loved the book I think it's important I think it's interesting but you know will everyone else like it the way I do I don't know and what's fascinating is that a lot of economists teach someplace so therefore they're accessible you can find their email address and their website and I just sent a very very simple note saying look I've written a book it's about industrial concentration monopolies I think you might enjoy it would you like to read it and I suspect that they're bombarded with thousands of the book requests per year because that's just the way the world works but what's interesting is that I didn't know when I started sending these emails out that the theme of Jackson Hole the central global Central Bank conference this year was on industrial concentration and so clearly this is the topic of our time and people are writing about it and so in a way I don't know almost anyone who endorsed the book but when I sent it to them essentially I was saying hey here's the topic of our times I've got a book on this would you like to read it and fortunately they one liked the book they universally told me they thought it was a great read they basically read it cover-to-cover and which i think is a good sign because it's quite rare for an economics book to be a page-turner but also essentially I think it's it's an important book in the sense that this matters to workers who are wondering why they're not getting a wage increase it matters to consumers wondering why they're paying for rhiness medical bills and you know essential medical bills are the main reason for bankruptcy in America and it matters a tremendous amount from the standpoint of democracy meaning that are we going to have crony capitalism or are we gonna have capitalism that serves the many and not a few and whether you're on the right and you want more competition to make capitalism actually work or whether you're on the left and you think that you know people should have a fair shake and we need a slightly more egalitarian society the book appeals to both which is why you end up with sort of hard-nosed hedge fund managers like Kyle Bass and Paul Marshall in London recommending the book and then Yanis for facts on the Left recommending the book this is a book that people should find something in it for themselves you know whatever their political beliefs are Jonathan we're gonna have to leave it there but before we let you go please first tell our listeners who are interested in variant perceptions research services where they can find more information and also when is the book going to be released and where is the best place to buy it thank you so the book starts shipping from Wiley on the twelfth which is next week amazon has the date a little later but they ship when they get it and Amazon is a monopsonist meaning of the only buyer of books and they are essentially a monopolist in many ways and so I do recommend ordering it from your local book store if you can ordering it from Barnes & Noble but our website myth of capitalism com has links to order from loads of bookstores and then in terms of variant perception people can find more information about the company very perception at very perception calm and you can sign up to we have like a newsletter that goes out we've also got the blog there's the Twitter account and if you work at a hedge fund or family office very perception provides research to institutional investors please do get in touch and I think that a lot of these tools that we've been talking about and help clients navigate markets and so I hope you will enjoy the book then I certainly hope they enjoy the research Jonathan thanks so much for a fantastic interview Patrick so resna and I will be back as macro voices continues right here at macro voices calm macro voices is a listener driven program please email requests or specific future interview guests to requests at macro voices comm you can email questions for the program to mailbag at macro voices comm and we'll answer them on the air from time to time in our mailbag segment we also welcome your suggestions for how we can improve the program now back to your hosts eric townsend and Patricks resna eric it was great to have Jonathan back on the show in the past when we've had him on he's always talked about Australian and Canadian housing and we're always looking for his play-by-play as to how things are developing and in those different markets I just thought it was really interesting that he is really just not that bearish on the Canadian real estate market the way he is in the Australian one I'm always curious as to how the Canadian market will play out but clearly his his bearishness lies in the land down under anyway well what did you take away from the interview well I agree with Jonathan on that last time I was in Australia I remember talking to people there and it was astonishing to me just how much denial existed about the housing bubble and you know the thing is unlike Canada really so much I think the figure at least it used to be 47 percent of Australian GDP was exports of iron ore and other commodities to China so if you think there's risk in China there is risk Australia and if you have a housing bubble that's looking for a catalyst and you also have Chinese and you also have risk of the Chinese economy being affected whether it be just by its own forces or by this trade war with the the Trump administration it really creates a lot of risk on Australia so I agree with him on that front we forgot to mention at the end of the interview but we have a link in your research roundup email to a free sample chapter of his book myth of capitalism and I have to tell you you know when I first is Jonathan's writing a book okay I assumed it was going to be a book about the work they do at variant perception so when he sent it to me to read it I only intended to skim it and as I started to get into it I'm like hey this is this is really good like this ended up reading it cover to cover which was not my plan so I thought it was a really an interesting book it's not about what you know selling his services it really is Jonathan's passion for what is wrong with the world and how we need to re embrace capitalism and get it right because the system that we're using is not capitalism it's cronyism in any case the free chapter is linked in your research roundup email Patrick at the end of the show we're going to have an update on our Vancouver event for anyone listening who's coming or already signed up or thinking about signing up please listen because you need to hear the update at the end of the show but patrick i want to get to your chart book next because clearly we have more to talk about in equity markets then we had time for in our market rap and particularly i know you guys have been just nailing it at big picture trading for your members you've been cleaning up in this market so i'd like to go back a couple of weeks and just step through the way that you followed this market what you've seen at each step of the way how that's worked out and what you see coming next so starting on page two of the chart book let's go back to october 20th when you wrote your weekend review which is something you send out to all of your members at big picture trading each week so what was your prediction on october 20th and how did that prediction end up playing out in the market alright well what i did here was just we're going back actually to october 18th on the chart itself that was the chart that we shared with our listeners in this very postgame chart book back then and we identified a couple key levels that I was watching also for my members as well and so on the weekend when I send out my week in review I just copy and pasted the excerpt of what we were watching and just like we were sharing during that episode back then we were talking about those key levels at 2750 and 2720 more importantly it was about what we would expect if the market broke those levels and all along even back on the 20th we were looking for a washout that if those levels broke we would see a drop down to about the 2600 to 2650 level on the downside and so we were there's techniques we use that were measuring out where we were looking for these different moves to happen and that was a key target for us even going back you know three weeks okay and then you did another weekend review that you published October 27th how did that one play out absolutely and so on October 27 that was over the weekend as well obviously that following Monday was pretty big key day in the markets and now we re emphasized on that to October 27th that we were still watching our key level as this 2602 2650 and while we acknowledge that there was a number of people talking about those 25 50 levels from February and April other where the lows that our methodologies still demonstrated at being at this moment an incredibly poor risk reward proposition to keep shorting the market so we were using the weakness down into that 2600 to 2650 zone to do most of the covering of our short sells during that drop subsequently what we were looking for at that time back on the 27th was that we said look at some point the Bulls are going to drive a 50 to 7 the point rally in the markets probably targeting something near 27 20 on the upside and we were basically saying what will happen at that level is going to tell us everything we need to know which is these the sellers just hammer a rally of that magnitude the moment it pops then the selling is not done but yet at the same time if we see that that won't happen then we're looking for a target up towards 2800 on the up side okay so moving on to page four where are we today what do you expect what are the numbers to watch and what are the important levels on the S&P that are going to be indicative of where we're headed from here absolutely so over this past weekend we sent out a note to our members that we were basically watching that 2670 2680 level and so long as the Bulls can hold the line in there that we were looking for this market advance to come to 2800 220 850 and right after those midterm elections that mark had just ripped up there and we find ourselves here around the 2800 we were obviously we're as high as 28 2000 but we're in this kind of 2800 zone more or less right now and so this is a really interesting moment in the markets because we have pretty much retraced a more than half of the entire decline and so neither is this screaming by anymore well it could arguably be a screaming short well we'll talk about that in just a moment but I think the most important thing is we approach this level around this 2800 to 28 50 it's what the market decides to do up here at this very level is going to decide the fate of the market for probably even the next six months and this is what we're watching and so I want to move on to page 5 which is really what I wanted to kind of set up so we had this big rally we faded it off the low but how does this play out from here and rather than me just pulling out random scenarios I wanted to kind of overlay three past scenarios to kind of give us a roadmap of what the market would do if it was acting like a move in the past and so what I wanted to do in this on this page 5 was to compare this to a what if this was the same scenario as at the beginning of the 2007-2008 bear market – what if this was the same as what happened in February in April earlier this year the third scenarios what would this look like if the was the very similar to the 2016 Jamie Dimon bottom and then the market was just roaring up for a big rip higher in a new bull phase and so what I wanted to do was draw out the three different scenarios and what's interesting is both under the scenarios well first of all let's start off with the more ominous bear market scenario one that I think that both of us have at least it would be very interesting to see if it develops we certainly have our biases to what we think will play out but if this was to play out the same as 2007-2008 and this was that kind of November rally we saw back in 2007 then this rally should already start fizzling out here in the next few weeks we should see the Bulls that gain no further real traction maybe will might see you know 28 50 at best on the upside we should see selling and then failed rallies the distribution becomes far more active and then by December into January we should already see heavy new selling coming in that's what would have to happen for that kind of 2007 scenario so your thinking is that what you think is gonna play out well I am so torn on this thing Patrick because in so many ways I feel very very strongly convinced that this entire move up since 2009 has been fueled by artificial factors it's not real economic forces its central banks applied liquidity and now that we have the Fed unwinding that and starting to shrink its balance sheet it logically makes sense that it's time for everything to go in reverse this should be over and we should be headed lower in markets I have very very strong conviction in that opinion the thing is Patrick I've had that strong conviction quite a few times before and the market has just pressed higher and it I can I can tell you with absolute 100% surety that if we move to new all-time highs I will be astonished that's a 100 point zero percent probability I will be astonished if it happens doesn't mean it won't happen just means I'll be astonished so I don't know if I couldn't find a technical setup that I really have confidence is a great setup so that it enables a tight stop I really feel like there's a good case for this is it and that we're headed lower and that a bear market is upon us but I don't want to take a lot of risk on that I want to look at either option strategies or a setup for a tight stop above so that my downside is limited if I'm wrong yet again on this crazy market right and so what I want to do is just speak to our listeners that are bullish right there not everyone agrees with us and in fairness that's what makes a market is the different opinions and so what I wanted to do is to give the scenario as well here what would it look like if this was very similar to 2015 and 16 so just to kind of go back we had the 2015 market plunge to the downside that was driven by that China drop it was like the August 3 day little flash crash and then we once again in January of 2016 got hit hard with the market with another massive sell-off very reminiscent of two sell-offs that we had this year and after that sell-off in in January of 2016 it's nicknamed the Jamie Dimon bottom where he came in and did a huge buyback of his own stock or bought bought a whole bunch of stock as an insider and the market just reversed on the news and then just went higher from there and so what I wanted to just share was this idea well what would it look like if it played out like 2016 well in that scenario we should see throughout November in December the the sp500 make it back to 2,900 22950 right right along those September highs and even though then the breakout should probably not happen till next year but but we should consolidate along those highs and then sometime in probably January or February the SMP would break to an all-time new high and rip so that would be the scenario if that was to play out that way that's not my favorite scenario but I always say the unfolding reality before us trumps everything and so while I can build all the bear scenarios I want if the Bulls are winning the tug-of-war I I'm going to have to just change Allegiance is right okay Patrick so what are you and your members at big picture trading actually doing here what's the trade because you've given us a lot of scenarios how do I actually play this well really in my mind I feel even if this plays out to being a big shorting opportunity and downside I actually my intuition is that the selling doesn't just start from here I think that anyone who is aggressively short selling here will have to be very patient with their shorts because it might take another month for this to properly start to roll over for the selling to come in at least that's my first instinct with that said what will be really the test is how the dips are being bought and how much momentum the Bulls have on each thrust higher so right now I I'm not doing any new buying in the market as far as I'm concerned if you didn't buy with us a week ago that you're right now just chasing in the risk/reward justice and isn't good at this level with that said if we have like a 50 or 70 point SMP throwback and and it's bought on dip properly that's probably the next reentry on the long side of this market but I think for my bear operations to downside up probably I'm going to reserve it to either late November or early December to kind of see how the market is developing the big thing for me though of course as an options trader I want to see that VIX come right down I want to see a volatility and normalizing a little bit even if it was just in the mid to low teens that way we don't have a huge Vega risk on putting on with too expensive of options that way it really is easier to build a good risk Award proposition to set up a trade and so with the VIX still you know north of 15 here it'd be great if the market just calmed down for three you know two three more weeks the volatility kept contracting for a really good set up in a late November Patrick let's move on to gold as we discussed in the market wrap it seems like we've had this reset where some correlations have changed and we're in a different market than we were before October 11th but at the same time it doesn't seem like there's really any conviction in the move in either direction what do you see next year and how are you playing it well we remain bullish ly positioned just the way we mean you been talking about it for the last month but the one thing we've been looking for is that Charlie mikela got level of like that 1245 that level were the CTA's will start covering their shorts and then we could have a liquidity search a drives gold prices higher but let's be realistic we haven't seen that break and gold's been in for a month just consolidating sideways so really while I'm remain bullish ly positioned every day that gold doesn't break out increases the likelihood that this is a false start and that there's a potential downside risk and so on this chart but I'm just trying to show is that you know a failure to break out on the zone and particularly if we saw a selling pressure on gold break down below 1200 in that kind of 1190 area on the downside the next measured moved to the downside at Gold is that area where most gold investors don't want to hear but is that down in that 1,050 to a 1,100 level on bullion now I'm not forecasting and going there but the question of course is how do you hedge yourself if that became the unfolding reality what if that was the scenario that was developing what can you do to do this and this is where you know when I was out in the San Francisco area for the silver and gold summit the other week I was doing a presentation there talking about all the different ways that gold investors can hedge including collaring gold futures or building all sorts of calendar straddle trades on bullion what's really nice about the the gold markets and and gold miners is that their SKUs are very nicely u-shaped so while we have these really weird skews in the standard markets which you usually force puts being considerably more expensive than calls it's not the same environment in the gold market which actually makes it very unique for the types of strategies that you can do with options in gold it's gonna be really interesting but if gold here rips higher we're positioned for but the question is how do you hedge how do you generate income off of your gold holdings that gold is going to be struggling for another half year and you know how big of an influence with the dollar have on this right we were talking about that dollar rally potentially ripping to the upside if that really got underway that's a pretty big head win for gold to make any real progress isn't it it sure is and you know for that reason primarily I've been looking at this same target zone that you have in red here around a little over a thousand to me I think there was a really very strong argument before October 11th that it looked to me like that's where we were headed if the dollar continued to rally and the thing that's shaken my confidence in that downside view a little bit is just that this move since October 11th has been very strange there's a lot of correlations that just aren't working the way they were before frankly the gold bugs are gonna hate me here but I would love to see the market sell off to a thousand because boy that's a buy I want in on that one back the leverage truck up at that point as you get down below about 980 or so you're not only below break-even cost but you're starting to move below cash cost of production on some minds and it doesn't necessarily mean that there's a floor there because most of the gold that's traded was mined years and years ago it's not like other commodities in the sense of there being a hard floor at the cost of production but you start getting down a cash cost of production where mines will be shut in and that really puts a lot of support under the market so if we do see the dollar rally and gold move back down to a thousand bucks it's gonna be a real buying opportunity I thought we were headed there Patrick and my bearish view has been shaken by this move since October 11th so it's gonna be very interesting to see how this plays out but Patrick I want to move on to slide 7 on November 9th that's tomorrow morning as we're speaking on Thursday afternoon you are producing a gold and gold miners options boot camp now that is something that you were producing with live participation in that event was restricted to people who attended the silver and gold summit in San Francisco but you are making that available after the fact to anyone who joins a big picture trading and that that one is not a freebie that's now included in your $99 starter package at big picture trading for anybody who doesn't want to commit to that $99 price for the starter package they can also get a free trial of big picture training which does not include the gold and gold miners options boot camp but it does include an introduction for a week to the rest of the service information about all of that is it big picture trading dot-com but I want to move on to our macro voices live event in Vancouver in January that's January 19th for the big event but the day before January 18th you're doing a four hour options trading class which will be working in live markets so the idea is people bring their laptop computer to the classroom and you're actually going to be looking at live markets and teaching tell us a little bit more about what that is going to entail what's it about who's it for who's it not for who should come and so forth over the vast majority of things that are available to to listeners is all things like PowerPoint presentations or a quick explanation on a board but there's nothing like learning in the live real markets and looking for trading opportunities then sizing up how you're going to put on your risk how you're going to size your trade how are you going to execute go through the whole process of trading and so we're looking to do is spend four hours with whichever of our listeners join me and we're going to trade everything from stocks options ETFs futures we're going to look at the whole markets see what's going on the day before the show is just be a great way to start your weekend when you're out there in Vancouver so that is Friday morning in Vancouver and you're gonna have your trading program set up with your projector so that people are going to be able to actually see live trades in the actual market place that's Friday morning then the big event macro voices live comes Saturday but the feedback that we've gotten from our attendees in Toronto was they particularly valued the networking opportunities to both meet and talk to other listeners as well as to meet our speakers face to face so we've planned two receptions and meet-and-greet events for the Vancouver event on Friday evening from 6 to 9 p.m. the Hyatt on the top floor with a spectacular view of the waterfront in Vancouver we're going to have a reception there again with our speakers which is Jeff Snyder Julian Britain Juliet de Klerk Louie Vincent Gavin and now we've added Brent Johnson to the program then Saturday we've got that lineup of speakers as well as our Town Meeting forum then Saturday evening we're going to do another reception meet-and-greet which is an opportunity to network with our speakers and other attendees I want to give everybody an update though we've had a couple of snafus with the registration system at hyatt it's come to our attention that some of you may have been overcharged for your hotel rooms you should not be paying any more than 205 dollars Canadian per night that's about 156 US dollars per night we are going to get to the bottom of this and make the Hyatt fix this but you need to be on our group discount code it's very important in order to get the best price on your room and also for the event to be credited for your room night because that helps us to be able to negotiate the next event so it's real important to us that everybody be credited the Hyatt screwed up with their registration system it's been fixed now so hopefully nobody should have any difficulty if you have had any difficulty if you have been charged more than two hundred and five dollars per night or if you've not been able to book under the grip code please email us at info at macro and we'll get to the bottom of it for you so we are going to solve these minor problems with the Hyatt but we're really looking forward to meeting you and for this event and of course your admission also includes admission to the Vancouver resource investment conference Bri C which is the following two days Sunday and Monday Patrick and I will be speaking at that event as well and we hope to see you there so it's going to be a really fun weekend and we look forward to meeting everyone and Vancouver again don't hesitate to email us info at macro voices comm if you have any difficulty whatsoever with the Hyatt and the reservation system meanwhile folks we need your help as usual please tell your friends and colleagues about macro voices forward your research roundup email and most importantly register your free account at macro voices komm doesn't cost you a penny and you'll get our free research roundup email each week Patrick tell them what's in this week's research around us well this week you're going to find the transcript for today's interview there's also a link to the first chapter of Jonathan's new book myth of capitalism there's also a link to the chart book that we discussed in the postgame there's a great article from Jeffrey Schneider as well on harmful modern myths and legends and an interesting article on uranium asking the question is this the beginning of a recovery or just short-term noise so you'll find this and so much more in this week's research roundup so that does it for this week's episode we appreciate all the feedback and support we get from our listeners and we're always looking for suggestions on how we can make the program even better now for those of our listeners that write or blog about the markets and would like to share that content with our listeners send us an email research roundup and macro voices comm or tag it with the NVR our hashtag on Twitter and we will include it in our weekly distributions if you have not already follow our main Twitter account a macro voices for all the most recent updates and releases you can also follow Eric on twitter at eric s townsend and myself at patrick's resna on behalf of Eric Thompson and myself thank you for listening and we'll see you all next week that concludes this edition of macro voices be sure to tune in each week to hear feature interviews with the brightest minds and Finance and 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  1. Suggestion to short the S&P at 2800 was spot on. $$$

    Edit: also, call to short the 10 yr US Treasury bond was spot on. Today is down to 3.05

  2. Credit Art Berman–he said the recent highs in oil were unsustainable and prices would fall. Good fundamental analysis on his part!

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