One Step Forward, Two Steps Back For Markets
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A warm welcome to the Wednesday Risk Reversal Podcast. It's Wednesday, March 19th. A lot happening, Dan Nathan. We have a Fed Day, the much-anticipated Federal Reserve Day. How are you? I'm doing great, Guy. This is an interesting one because there's so much back and forth here about policy, and the question is how much of that feeds into the Fed's mindset. So the dot plot is going to be top of mind, and we know that we have a presser right after the

great decision. Guy, the volatility yesterday, the downward volatility. And again, I love that you always say that, you know, you know, people call it panic when it's selling. But when you get those sort of furious rallies, they don't think about it that way. You know, it really has felt like one step forward, two steps back. And the one step forward doesn't feel panicky on the upside. I just want to like throw that out there, which is

Definitely a sort of interesting take when you think about the last time we had this sort of out of volatility going back to 2022. It was really orderly. It took a long time to figure out where the bottom was. And this one, what, the fastest 10% sell off in the S&P 500, I want to say in decades, maybe one of the fastest in 100 years.

Yeah, you know, people will be quick to point out the panic nature. If people are selling things, they're typically panicking. And I understand the, you know, the want to say that. And it's sort of, I think it helps people sort of rationalize things. Well, people are panicking and I'm going to hold my ground. But as you just said, panic works both ways. But what I will tell you is, and this is just me, I don't think we've really seen anything that resembles panic either way.

since August of last year, that August 5th day, when obviously things were a bit panicky and that manifested itself in a VIX that traded north of 60. So here we've had a VIX that's been elevated for quite some time, somewhere between sort of 21 and 26. We're sort of at the lower end of that range, but

when you have a VIX north of 20, you're going to see moves like we've seen over the last couple of weeks, both to the upside and to the downside. But in my opinion, nothing suggests capitulation either way yet. Yeah. You know, it's interesting though, guy in a week that, you know, we've seen, um, a lot of anticipation about the fed, right. We've seen geopolitics kind of take center stage again with Israel breaking the ceasefire and, you know, uh, an apparent, um,

you know, effort to get a ceasefire in Ukraine. And neither one, you know, seemed to be going in the right direction, if you will. You know, there was a bid on oil for a little bit when Israel launched some attacks on Gaza. So there's a lot of things going on here. And then in the backdrop of this kind of trade and tariff policy, you know, what is going to be

Powell's take on this. You know, we've talked about over the last few months prior to the election, he was trying to take a very diplomatic stance on this, trying not to appear to be, you know, political by any means. Now, whether you think that 50 percent or that 50 basis point cut in September was political or not here or there. I mean, here we are, four and a half percent of the Fed funds. I just want to take you really quickly, Guy, to Danny Moses on

our main man who is the host of the On The Tape podcast that drops Wednesdays in your podcast stores. If you are not following Danny at On The Tape, please do. He had a conversation that dropped this morning, Guy, with Luke Roman. This is a guy that you've spoken to on many occasions over the last few years, Forest for the Trees. He's a brilliant macro guy. And, you know, he had this

point that he made and i thought this was fascinating i want to get your take on this so when besant signaled that they're targeting treasury secretary besant they're targeting the 10-year yield he also had what what luke said was a throwaway comment that he had also met with powell and they talked

the economy. And Luke feels like if he can basically get the Fed just with their mindset, let's squeeze out the last bit of inflation, okay, get them closer towards their target, then at that point they've

basically done some deal where they can start lowering interest rates, right? They've been running off this balance sheet. So meeting an end to QT, what do you think about that? Do you think there's some sort of grand deal? Because you've also mentioned that oddly Trump has really not mentioned Powell's name in a bit.

No, that's exactly right. And I think he's probably, I don't want to say he's been told to sort of back off a little bit because I don't think anybody can tell him what to do, but I think they've come to the realization that, all right, let's sort of back off here and let's focus on things that we think we have some control over. In terms of your question of whether there's some sort of handshake deal, I mean, I'm sure these people obviously talk with one another and, you know, just to get views and what have you, but

I think there's this belief, and I am not of this camp, that if you slow things down enough, if the economy slows meaningfully enough, then rates by definition will come down. If rates by definition come down, that will be supportive of the stock market, which, by the way, is something I think they focused on all along, although they're talking about yields. I think they believe that yields...

or somehow the salve for the market. And if they can get yields lower, that'll unlock maybe something in the housing trade, that'll help businesses, that'll help the employment picture. And then subsequently, that should help

the stock market. But I think the problem with that is getting there. What's going to happen on the road to getting there? And I think some of the permutations in the market are basically a function of what they're trying to do. So it's going to be met. My point is, I guess it's going to be messy to get to where they want to be. Yeah. And the messiness is that something Danny and Luke talked about. And again, Luke does not seem to be particularly optimistic about this kind of path towards trade and

tariffs. And he thinks that if they're trying to tamp down inflation now, and you've said this, that trade reshoring tariffs, it basically ensures the fact that on the other side of whatever policy they're trying to kind of put in place that you're going to have inflation pick up

again, which I do think is interesting. But on the economic weakness front, and again, a lot of these data points have come in just as we saw a lot of those kind of fear indices kind of hit the certain levels that would cause you to believe that the markets are about to go the other way. But unless we see some sort of change of some of this economic data, it's going to be this push and pull.

back and forth. And so at least through the lens of the stock market guy, there's not too many points of optimism if you're thinking about it like the way investors are viewing individual names or sectors. No, we should sort of drill down on some of these sectors because I think some of the most economically sensitive ones have been showing signs of weakness now for quite some time. And I think to a certain extent, the broader market is picking up on it. And when we say weakness,

as if it's a bad thing. I mean, these are just sort of normal cycles that for some reason we've tried to push off and delay or basically prohibit from happening, feeling that, you know what, it's not something that we should have to endure when the reality is that

economic cycles and the different part of the cycles are essential, I think, for a strong economy. Sometimes it's painful, but in order to get to where you want to be, sometimes you have to endure some of that pain. But to your point, I think some of the data we've seen over the last month, month and a half, suggests a slowing down of the economy, which theoretically should put the

the Fed back into the picture. Of course, the problem is you still have some inflationary pressures out there. By the way, not least of which the commodity of copper, which is probably the most economically sensitive commodity out there, not named crude oil. So there's a lot of cross currents here that I think they're trying to navigate and they're trying to sort of jawbone. But the reality is we have seen a bit of a slowdown here. And, you know, we can talk about some of these sectors, but if you look at master corporations,

card, Visa, American Express. Look at some of the travel related stocks. Look at some of the airlines specifically. I mean, they've all suggested that things are slowing down. Yeah, you know, it's interesting. And you go back and you think about through your career, Guy, when you've seen some under the surface sort of action like we saw

in the airlines or some of these other travel related names, you know, these were some of the darlings of the last year. You know, we talked about Delta, I think was up 200% off of its last summer lows until its recent highs, you know, United American, they all doubled. So some were outperformers, but the way in which they have given all of that back is

And you could say, okay, well, you took a lot of froth off the top of this. But think about it from an investor sentiment standpoint. You know, when you're buying these things up 50%, 100%, 150%, you have this notion that we are basically having an economy that's inflecting higher, right? Like that would be the only reason. Now, you could say these are cheap or this and that, but you would have to believe that

right, that the US economy was getting better, why these stocks should continue to go after the sorts of runs that they have. So when it goes the opposite way, you know, like, I don't know, like, I would think that when these things are trading this way, you could say, okay, well, maybe it's near capitulation, right, to go up 100% and then go all the way back.

But to me, I just feel like after the period in which we have been, some of the data that we've seen, you know, last year, GDP came in better than expected. But coming in this year, it looks like it was going to be down a good bit or so. Throw in the trade, throw in the tariffs and all the uncertainty about CapEx and spending alike here. It's hard to think about the economy not slowing. And through the lens of the stock market, I think we're seeing that in many different sectors to your point.

Yeah, well, to your, you know, I think people understand that the United States economy is effectively people experiencing things or buying things. I mean, that is 70% of the economy. And as I've said many, many times, never underestimate the US consumers want to spend. They will spend under just about any circumstances thrown at them unless something scares them. And I think

the scare they're feeling, at least for the last couple weeks, has been a stock market which has been basically top of mind, not only on networks like CNBC, but when you get into sort of the other cable networks or just major broadcast news, when you lead the evening news with the stock market down a percent, percent and a half, 2%,

People sort of take notice to that, and then they start questioning whether or not they should buy that coffee or go on that trip or buy that car, lease that car. And I think that's when you see consumer spending literally stop on a dime. We've seen it before, and I think there's some hints around that.

which is one of the reasons it's so important to sort of assuage the concerns of people vis-a-vis the stock market. So if the administration or anybody tangential to the administration can sort of talk things back and assuage the concerns of market participants,

Then they start to give themselves a bit of a reprieve. But it's a tightrope that they're walking. And I'm sure that was sort of Luke's point with Danny Moses, that it's a very difficult thing to navigate, especially at this point in the cycle.

Yeah, no doubt about it. So we're going to get more detail on that. It'll be very interesting. While there's no expectations of a rate move, I think some of the commentary is what most investors are going to be keyed off of. And we've seen some massive, massive moves going back to December 18th. Remember what happened after that Fed presser? I think the S&P dropped like 2.25% or something like that in a straight line. So that'll be interesting to kind of track here. And coming into today, the S&P was implying about a 1.1% move in either direction.

by today's close right now. Shortly after the opening, we're up like 35 basis points. Imagining a better future is the first step. Investing that future with Betterment Advisor Solutions is the next. Whether you're launching your own practice, looking to streamline client onboarding, or just

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iConnections is the world's largest capital introduction platform in the alternative investment industry. They bring the asset management community together through a membership platform that lets allocators and managers meet and connect both physically and virtually. Over 3,000 allocators and 600 managers are part of the iConnections community, overseeing nearly $48 trillion and $16 trillion in assets, respectively.

They are also the people behind the alternative investment industry's largest and most exciting in-person events. To find out more about iConnections events and members-only platform, visit iConnections.io. Let's hit a couple single names here, Guy, because I think, you know, coming into this week, there was also this expectation that NVIDIA, they hold their big developers conference, GTC. Jensen Wong spoke for two hours. Kate Parts on CNBC last night told us it was fantastic.

which is absolutely amazing. You know, this is their developers conference. This is where all of the companies that do business in some way, shape or form, you know, go there, they make announcements. They want to show this sort of proximity to the company and the halo effect that they might get by announcing different deals and the like here. So coming into this,

This week, the implied move in the options market for NVIDIA by Friday's close was 6% in either direction. Yesterday was down 3.5%. Today, it's basically unchanged. Nothing material came out. I think you and I had been talking about it Monday and yesterday morning. We did not really expect anything meaningful, but investor reaction to it was going to be really interesting to us. So what do you take from the fact that there was nothing really exciting that came out of it? The stock's unchanged after. To me, that's a bit bad.

You could say, well, you know, the fact that the stock's not careening lower, you'd say, well, it's down three and a half percent yesterday. I just think that the news flow is probably come to a halt for a little bit. And I think the fever is broken. Well,

Well, there's not a lot they could have said, I don't think. And good for him being able to speak extemporaneously for two hours and good for him being able to sell out a 17,000 seat arena. You know, I'm hard pressed to understand who goes to those types of things, but I get it. There's something for everybody and he tells a great story and they do have a great story to tell. But to your point,

nothing really new came out. And again, I will go back to last quarter when you saw the contraction of margins, they sort of explained it away saying we've anticipated this. And to a large extent, they had telegraphed the margins might come in and they said, second half of this year, we will see a reacceleration. And I think that's what

bowls. That's what the optimists are sort of the hanging their hat on. And it's interesting to sort of listen to people say how there's really no meaningful competition and they sort of control the entire ecosystem around this. But now we've heard things like this before historically, and it never really pans out. And again, it's not to suggest that they're not great companies. I mean, Cisco back in the day was a great company. It's a great company today, but the valuations that the market was rewarding them with didn't make any sense in the same way, in my opinion,

The valuations that the market's rewarding in video with now don't make a lot of sense. If you think margins will contract, which is, by the way, historically what happens in this space. Now, if you say, you know what, there's no meaningful competition they controlled for the next five years. They have that kind of a moat, that kind of a head start.

Okay, then maybe some things make sense. I just don't think the world is set up that way anymore. Yeah, and when you talk about valuation, you've been making the case, I think, for a year, year and a half, that the price to sales for a company of this size, given the margin structure that they have and the pressure that it could have on investors

EPS, right? Like when you think about the revenue and the, I guess the priority on revenue growth, now that it's decelerated meaningfully, I think the kind of multiple of sales, I think, am I quoting you warmly and accurately here? That's the one thing that you're focused on. It basically 14 times this year's sales and 11 times next.

Well, I mean, at one point, and I think you probably have this in front of you, I think they were trading either side of 25 times sales, which is historically expensive. Even at current levels, it's historically expensive. And something that I've thought, and again, I'm not suggesting I'm right, but when you start to look at the math problem and all the different variables that

Now, at a price to earnings, it's actually a very reasonably priced stock. And some people say it's actually cheap. OK, that's fine. But then you take into consideration that margins were 76%, 77%. And what I've said and what I will continue to say is that they're outperforming

earning their revenue stream. And if margins start to contract that price to earnings, which seems cheap, gets very expensive very quickly, right? And that's when sort of to use a term, that's when sort of the rubber hits the road. So once margins contract in a story like this, in my opinion, it's very hard to sort of turn it back the other way. Historically, it really doesn't happen. I think there's a hope that it can happen here.

But if you see competition come in meaningfully, if you see a CapEx that's been out there now for the last six to nine months, if for some reason there's starting to be a pullback in CapEx, NVIDIA doesn't win to that, Dan. I think you know that as well. So the earnings, they're sort of out earning their revenue stream. I think very quickly you could see that sort of correct itself. Yeah, by the way, so that intraday low on August 5th, Guy, where there certainly was panic,

was $90. And if you think about if we were to go from those recent highs, 153 made on January 7th down to 90 bucks, you get a 41% peak to trough decline. At that point, if this is just a market thing, then you think about everything Jensen said. And let's discount it when he says things like, you know, the world's going to need 10x, you know what I mean, the compute power, yada, yada. But this brings me back to Fast Money last night so that on Tuesday, we had Stacey Rasgan,

The Nvidia analyst from Bernstein, very good analyst. You know, he was out there at GTC. He called in. We had a very, you know, I think a really great conversation about what he thought went on there and the excitement that he has around the stock. I made the point that there's 76 analysts that cover the stock. 70 of them have a buy. The average price target is $172. The stock was trading at 115. There's a big disconnect between what the analyst community on the sell side feel and the investor community.

And, you know, if you asked me, I'd side with the investors every day of the week. Now, you could say, well, why don't you do that when Palantir was skipping up? You know what I mean? To the upside. I think what's different here is that the story for the time being is a bit played out. We've been talking about it every day ad nauseum for nearly three years. Right. The difference with a Palantir to the upside, it was clearly became a meme stock. And that's very different, in my opinion. Does that make some sense?

And the last thing I'll just say, but remember when he said to me, there's no competition. Or he said to you, there's no competition. As soon as you hear that sort of stuff by a perma bull on the stock, you kind of want to go running for the hills a little bit. Well, I mean, the way the way that and this is not an indictment of Stacey or anybody, but it's sort of the industry on a whole. Like, it's very hard as an analyst. You can't miss anything.

sort of secular stories that come around seemingly maybe once every five or 10 years because there's career risks. So, you know, if you sort of pile on and again, this is just a general comment, but you know, a stock that's captured the imagination of anybody, if you're on the wrong side of that, there's career risk. And if you're on the wrong side of it, when it's going higher, there's certainly career risk. But if you're on the wrong side of it being bullish and it's going lower, then,

You don't really have the same sort of impact to your career or to your job that you would the other way. And I think the market, excuse me, I think the industry understands that intuitively. So it's very hard to be the dissenting voice in names like that because you're

you put yourself at risk. And there are very few people, I think, that are willing to do that. I mean, respectfully, but I think to a certain extent, that's what's going on as well. Yeah. You know, what's interesting about Bernstein though, and you know this, they don't have investment banking. It's just a pure research shop and asset management basically. And so for a guy like Stacey to kind of stick with that secular shift, okay, it makes sense. You stay with the herd. On the flip side of that, remember Tony Saganati who left? He was a longtime Apple analyst and

at Bernstein. He had been bullish for as long as I can remember. But on the flip side of that, he had been very bearish on Tesla. And I don't know if that was the hill that he died on one way or another, but he left after a very long, fruitful career. So to your point that you just made, which is, Guy, a pretty good segue to Tesla this morning. You wake up, the headline, the main headline, because you see the stock is trading up a little more than 2% in the pre-market. Now it's up about, I don't know, it's about

two and a half percent. It was actually trading as high as four percent that Cantor Fitzgerald, the headline that I saw was that Lutnick, OK, who is now the Commerce Secretary, is the founder and CEO formerly of Cantor Fitzgerald. They upgrade the stock. Now, let's just kind of talk about this for a second. The stock was trading at 225. The stock was down from $490 in December. If you had a hold rating on the stock, let's assume that when the stock was last at these levels back in November, he had a hold rating.

All of the negative news that we have in the stock, and there is a lot, okay? And you and I, I've been very negative on the story. I was clearly wrong as the stock just exploded, nearly doubled in November and December. But now, obviously, gravity is kind of playing on the story. It really is about fundamentals. They're bad, but there's a lot of bad news in the stock. So if you were an analyst and you had a hold rating on the stock, would you consider this

a good spot to step in, you know, assuming that you're not being pressured by Commerce Secretary Lutnick, who seems to be buddy-buddy with Elon Musk right now. Yeah, and I have no idea what's going on there. And it's unfortunate that that's obviously, that's what the elite people will make. But the reality is, in terms of just levels, this makes a lot of sense if you've been waiting for either an entry point to buy the stock, or if you're waiting for an entry point to

upgrade the stock. You know, this is about as good as one has seen in quite some time. You just said we've basically retraced the entire move we saw since election day, if you can believe that. I mean, this stock was basically, what, 210 or so in late October, traded to 488 and change, and we traded right back to about 215, 220. So, you know, this spot makes sense. So it's hard for me to cast aspersions, understanding that people will make the leap that you just made,

Maybe Cantor got pressured by Howard Lutnick to say something favorable about the stock. The reality is, though, this level makes a lot of sense. So I'm sort of torn as to the reasons why. But in terms of levels, it does make a lot of sense. And this is something we've talked about before. I mean, you can have whatever view you want to have in terms of fundamentals. And my view has been the same as yours. But along the way, even with the deteriorating fundamentals, this is a stock that can bounce

know 10 15 20 seemingly on nothing and the level that we're currently trading at suggests we might be getting set up for a move of that type of fashion yeah to your point though the last two events that we've seen the news did not look particularly great to us on the earnings front the stock rallied so um

You know, the one thing I'd also mention, though, is that, you know, these analysts, there's a bit of access to them. You know what I mean? So, for instance, like if you downgrade Tesla, you don't get a question on their earnings call. You don't get access to management, you know, that sort of thing. And so it really plays back to kind of the NVIDIA thing that, you know, a lot of those folks, it's easier to be in the herd and be in the game to get access to.

um to the company you know one way or another so again i'm with you you know tesla their q1 delivery is going to come out at the end of the month and again we've seen headline after headline how bad they are when they come out and they're not that much worse than you don't even so you know does the stock rally those sorts of things so i think you and i have both been in the camp um that pressing a short like this is not great but i actually think there's going to be a bomb to be dropped i don't know if it's this quarter or next quarter but they have so much

You know, so many pressures in China. They have so many pressures on the price point. They have so many pressures as it relates to tariffs. They have so many pressures as it relates to the brand, you know, and maybe that's it. Maybe just because I listed them all. You know what I mean? It's that bad. But you will got to go back to the financials and you go back to their their.

you know their margins and this is going to be a tough one to get out if you don't have demand for this product and you don't have pricing pressure well i don't think it's going to be very hard to see improvement in margins and given what's happening i think in terms of the economy here and oh you know abroad as well things are slowing down so

I can't see there being a margin acceleration, especially with the competition as robust as it's become. So that story, I think you can check that box. Like the margin story is out there, but we heard about that last quarter. The delivery story is probably similarly out there. I mean, I think people understand that it's going to be disastrous, but, you know, it's one of those things, if it's just in line with expectations or even slightly better, you know, you can see relief rallies in this name. And that's sort of,

when you try to figure out levels and where things can bounce from or sell off from, those are the types of things you're taking into consideration. So obviously the last few weeks, the news cycle around Tesla has been extraordinarily negative and the stock has acted in kind, but it does get to certain levels where

you're pushing against a string in terms of what you're looking for on the downside. Now, there might be an inevitability to that. I mean, that downside of sort of 150, which I think is where you think this thing could sort of sift into. I mean, we might see that by the end of the year. The question is, is it going to be a straight line there or is it going to be a bounce along the way? And I would submit there's going to be a bounce along the way. And I think we're setting up for one now. Yeah, that makes sense. I just said if you don't have pricing pressure, I meant to say pricing powerhouse.

which they certainly do not have. And I did think it was interesting as they relaunched this new Model Y, which is their best-selling car in China. They're actually raising the price. So that'll be interesting to see how that shakes out. All right, we got Fed Day, Guy. We have expectations for volatility. It'll be really interesting to see what Fed Chair Powell says if they go from a hawkish pause to something that feels like

bit more dovish if they can't rally stocks on that i think that'll be very telling because it'll make you know me believe that investors are most focused on what does the outcome to these sorts of uh trade you know tariffs what that means in april 2nd everyone's kind of you know waiting to see what happens if there's going to be a big deal at least with canada and mexico and maybe the eu before that but but but who knows take us out man

Well, I think the Q&A on the back end of this is going to be really interesting to hear what types of questions people ask in terms of the political pressure you're feeling to the extent that that's even answered or addressed. I think that's going to be interesting.

The role that tariffs have, if any, on your thought process, the clear slowdown in terms of some of the data we've seen over the last couple of weeks, how is that playing in? So I think there's a lot to digest in terms of the presser. And then obviously what happens with yields,

but more importantly, you know, what the reaction of the market's going to be. But to your point, you know, given the sell-off we've seen over the last couple weeks, you know, if there's something that comes out of here that's interpreted as dovish and the market sort of looks past it and doesn't react, I think that's going to be a pretty interesting tell for the next few weeks. No doubt. All right. So check out Danny Moses on the tape podcast with Luke

Groman. Guy, you and I have Jeff Richards of Notable Capital. We're speaking to him this afternoon. That's going to drop tomorrow morning. A brilliant tech investor in both private and public markets. And then tomorrow afternoon, you and I sit down with David Rosenberg, Rosie of Rosenberg Research. We're going to get his take on everything the Fed said. That'll drop on Friday. Guy and I are going to be on The Market Call, 11 a.m. You know where to find us on the YouTube page.

We have the newsletter guy, the Risk Reversal newsletter. You can sign up for that at riskreversal.com. So we got a lot going on here. So we will see you tomorrow.