QuickHit: Market unknowns and apprehensions
A returning guest joins us for another QuickHit talking about how the current market unknowns are affecting the economy, and what are these “unknowns” anyway? Independent trader Tracy Shuchart discusses with Tony Nash about the “buy-everything” market and why is it happening despite the worries and crashes of economies because of COVID. We’ve also looked at the crude oil market and whether it will recover or not and how? She also shares what she thinks about the regionalization and shifts in supply chain.
Tracy Shuchart is a trader portfolio manager and all-around high-profile, social media person on markets. We did the first two QuickHit episodes with her with the recent one on “Oil companies will either shut-in or cut back, layoffs not done yet“ last May.
This QuickHit episode was recorded on August 14, 2020.
TN: It feels like the markets have taken a breather this week. Is that what you’re seeing and also what are we waiting for?
TS: You notice all this entire summer, actually, that it’s been a buy-everything market. Bonds are up, equities are up, gold’s up, crude oil’s up, across the board, everything was up. Commodities, equities, fixed income, and then just starting in August about a week, week and a half ago, we started seeing some of that error let out of those sales.
Equities are still grinding higher but gold futures reached 2,089 dollars, and then came off to 200 dollars really quickly. It has stalled out over the last couple of days.
Crude oil in general, this summer has been stuck in a range. So, I guess you could say OPEC did their job. They wanted to stabilize the oil market. They did that.
Then this week we’ve seen some of the air come out of bonds. So I think, right now, it was kind of buy-everything. We had all this government stimulus, we had central bank stimulus and now we’re at the point where the government stimulus is out. The extra unemployment, PPP loans, there’s no more checks things like that. And then we have the election come up. The markets are waiting to see what’s going to happen.
TN: And RobinHood closed their api. So, we don’t know what the Robinhood traders are doing anymore.
TS: Yeah, so it just seems like there’s a lot of things that are unknown. If you look at the vix curve structure you see the kink in that November area. So, the markets are forward looking at that as an unknown. So, these next couple months might be either going to be flat until we find out or it’s going to get really volatile.
TN: Right, the one that really told me that we are in a pause is when gold turned around. When we started to see gold turning around and we’ve seen it paused where it is now, that’s really what showed me that things have changed or things have at least slowed down. And so, are we waiting for clarity around stimulus? Because I don’t think it’s earnings or anything like that that we’re looking for. It really does, as you said, kind of a stimulus-driven market. Is that really the next thing that we’re looking for?
TS: I think it’s a combination of things. Fed purchases have curtailed a tiny bit. We still have an unknown about what’s going to happen and congress just adjourned for recess without a decision. So, we won’t find out what a decision is really probably until September. That leaves a whole unknown, especially, when you’re talking about that extra unemployment.
The big thing is the election because we don’t know what the market’s going to do. If there’s a Biden win, that will only be a sector rotation in my opinion, because of what their agenda is. Everybody’s just very apprehensive right now. They are pulling back on, their involvement in the market being that there are a lot of big unknown factors out there right now.
TN: It’s really one of the only recessions where incomes have actually grown during the recession, which is weird. We’ve seen retail sales and industrial production in recent months come in and they’re actually okay. It seems like the breaks are put on that with stimulus stopped as well. The question really about being stagnant or rising? Or is there a possibility that we tip over and start to decline if stimulus isn’t forthcoming by the end of August or early September?
TS: That’s a possibility that we see a pullback in the markets absolutely. I don’t think you’re going to see anything, like we saw obviously back in February. But I could definitely see a market pull back just on people’s apprehensions of the unknown.
TN: As you mentioned OPEC and that crude oil has settled and it’s been horizontal for the past couple months. What would move that either way? Do you see airlines coming back online? Do you see major events happening that would really push the oil price up? Or do you think we’re just also in a waiting pattern there?
TS: We’re in a waiting pattern. But from what I’m seeing, the fundamentals are improving. Even though people don’t really want to see that. I look at driving patterns not only in the States but driving patterns in the world. I look at airlines and things of that nature and we are seeing a slight improvement. Everybody’s looking for a big crash in oil prices again but I don’t foresee that at this point. Unless, obviously, something fundamental changes, like the whole world goes on a lockdown again or some unforeseen event happens. But right now, the crude oil market looks pretty strong. We’re still over supply but we’re working off that oversupply. Especially going forward into 2021, when that supply really starts to be worked off, then we have a Capex problem. We’re gonna have a supply problem. I can forsee the oil prices even going higher into next year. But right now, I would say we’re stable to drift higher at to the end of the year. We are hitting that soft season. But again, I don’t see the oil market really pulling back that much at this point.
TN: Is the back-to-school factored into your expectation of rising oil prices or would that accelerate it?
TS: I believe that people will be apprehensive to send their kids on a school bus. So they’ll probably be driving them to school. That’s actually oil demand positive for me.
TN: Our view is to see oil grind higher into the end of the year. As of August 1st, that was our view as well. I’m also curious about your views on the dollar. Do you see any dramatic movements either way in the dollar or are we in the low 90s for the next few months?
TS: The market is so oversold at this point and everyone is so leaning bearish. I wouldn’t be surprised in he next couple of months if prices don’t go lower that people start to unwind those short trades and we could see not a huge spike in the dollar. But just a general unwind of that shortness.
TN: Great, okay, is there anything out there that you’re seeing that’s really interesting that we should know about? It’s late summer. People are tired. They’re not really all into work. Is there anything that you’re looking at that we’re not really paying attention to?
TS: The lumber market. I sent out a few tweets about that. I think that’s definitely something to watch because the housing market is doing better than anticipated. However, we don’t need things like extra ten twenty thousand dollars added on housing costs for new home builds. So, that’ll put a very big strain on the market and on home builders. So that’s definitely something to watch at this point.
TN: I noticed if you go to home depot, the lumber section is empty. That’s not where home builders go, but that’s what I see as a consumer is. It’s just empty. There look to be seriously obviously. There’s demand pulled but there really seems to be some sort of supply issue there as well.
TS: Yeah, there’s a supply issue. A lot of the mills have been closed like they’ve been closing for the last couple of years because the demand hasn’t really been that high, well at least in British Columbia. But with this new surge, I’m hearing that tons of mills are back up and running shifts 24/7 now. Even smaller mills that you used to do little to no business are back up and running. So, I think that looking forward October, November, we should see some more supplies.
TN: What we’ve seen since COVID from toilet paper to meat processing to lumber is real stress put on supply chains. And from your perspective as a portfolio manager and a trader, do times like this make you concerned about the stability of the U.S. economy or do these tests make you feel like the people participating in that economy are making their supply chains more resilient? Do you think people are actually investing to make those things more resilient or do you think they’re just getting through and they’ll forget about it within a few months?
TS: No, we are seeing some improvement on supply chains and moving forward. There are companies that are diversifying out of China. It’s in supply chains closer to the U.S., Mexico, Latin America. This particular incident, this COVID really made people rethink and reassess things and I think we are seeing changes. It’s not easy to move supply chains obviously, right? So, it’s just going to take some time but I definitely see in the markets where companies are changing.