The Macro View for 2023

This week, we're going to go through the Reeds Report 2023 Market Outlook.
Note: Be sure to scroll to the bottom to watch this week's Trader Tip video.

Now, what is the Reeds Report? The Reeds Report is a monthly webinar that my partner Mark Boucher and I conduct together, in which we go through what are the top macro views and a top trading ideas for that month. It's a format that we go through it together, he shares his views, I share mine, and we open it up to q&a at the end. The Reeds Report works really well in conjunction with a portfolio strategy letter. Mark, and I have been involved in trading and asset management for over 70 years between the two of us, shows how old we are, huh? In all seriousness, we both started very, very young and we've been at this game a long, long time and I've had numerous services where I paid as much as $50,000 a year for advisory services from some of the top macro analysts in the world, people like Ned Davis bank, credit analysts, so forth. Mark is the best I've ever seen, so when I get to do the Reeds Report with him every month, it is an absolute pleasure and it's really a fulfillment of a goal for mine that I wanted to do those with him.

We come together and we share our views. Many of our views overlap, sometimes they conflict and you get to hear and see what we're thinking and then ask questions. Mark publishes the portfolio strategy letter. He's been doing this for over 30 years. Portfolio strategy letters had an outstanding track record with only one losing years since its inception. The portfolio strategy letter works really well with Reeds Report because many of our readers of portfolio strategy letter then bring their questions to the Reeds Report to get clarification on what Mark is thinking. This is important because in a similar service, you might pay $5,000 a year just to have access to the analyst. This is included in the Reeds Report. With that, I'm going to let you watch it. It's not the entire report, but it's about 50 minutes of our macro view, for the year of 2023. I think you'll find it to be incredibly informative, and actionable. Enjoy, I'll see you next week.

At a high level, we introduced this last several months now of just a simple little dashboard to show, at a high level, where do you want to be focusing and what this does is we use WAM RS, the strength, broken out by asset class of what's going on. Then, for those that have taken Chuck's complete Technical Analysis Framework, you'll see that he assigns a market environment and the market environment, if you haven't taken it, gives you a pretty good sense of what's going on as well. One of the key themes we're really seeing is generally, things tend to be like, what it does is you have this higher timeframe, either in congestion or wanting to carve out this massive range and then you have this potentially, like lethargic, lower timeframe trend. That's kind of generally what we're seeing is you'll have this, you might have like a really strong longer term bullish structure, but in the last year, we carved out this huge range and that's one of the things you're really seeing. You'll see how like, congestion entrance up, but chances are, these are markets here that, in the last quarter, really went to a counter trend move and that's what we seen a lot in currencies, specifically, certain currencies we'll get into later on the report and they formed, generally, the congestion entrance really means that you've probably entered a big range. That's kind of what we're seeing and you'll notice Mark's been mentioning this for several calls now that he's really seeing that this kind of inflation error that we're going into is kind of closer like I think is the 1970s and 80s mark, right where it's kind of you'll have like these, these mini rallies and kind of come back and these mini rallies and we're back and that's kind of what the tactical framework on the higher timeframes is really kind of supporting that kind of environment.

We're seeing that through a plurality, like the last quarter of the year, there was this, these bigger counter trend moves, that kind of really, when you get these huge counter trend moves, it really kind of damages the overall trend health, right? Like a shallow pullback for a trend that's going to keep on going is usually kind of still healthy, but you get kind of like a really, really deep counter trend move that can kind of really hurt an overall trend and that's kind of what the technical framework we're seeing through this, you'll see a lot of congestion actions and some trend divergence on the other timeframes. It just means that chances are really going to be range bound and the trends that we do see are probably going to be a little bit muted. Like they're not going to be these great, multi year, rip your face off trends. Chances are there that we're going to trend for a while, and then we're going to revert and then we're going to kind of backfill and kind of come back and back and that kind of stuff. Kind of goes back to really supports what Mark saying about these 1970's 80s kind of view. When you go back to what were the big net change movers. What moved up was really gold on fixed income, the the yen as well, right, that was a big counter trend move that we seen in the yen, and then there's also the European dollar and then the flip side of that whatever the Euro does, the DX usually does kind of the complete opposite as well and then NASDAQ as well. It was by far the weakest of the indexes, the European indexes are still really quite strong, for some reason but the NASDAQ really kind of pulled back was a counter trend move to I guess the fixed income going up as well. That's what we seen as the top three movers going forward. From the sector ETFs, again, we can see that there really isn't a plural message out there. Right, there's not really pointing in one direction or another. We do have European and SLI and the rest really isn't showing a clear wound relative strength, you know, above 80 or below 20, to really show that there is really a trend going on as well. At that high level, that's kind of what we're seeing so far and then when Chad joins us, he'll kind of go into the individual of what he's seeing through every individual sector. With that, why don't I turn it over to you, Mark?

I mean, we're sort of looking at the at the backdrop here from a top down perspective and here we have the yield curves, and a top chart is the 210 yield curve on top and the three months, 10 year, as well. Both of those are as inverted as they've been in decades. What that really means is that any kind of bank is not a very anxious to lend because short term rates are above long term rates. What banks do is they borrow from depositors short term, and they lend long term. If there's if short rates are higher, that's a losing proposition. What it does is it grinds lending to a halt and that generally affects growth down the road, 6, 9, 12 months down the road. The other thing I figured is important in this chart and top chart, for example, is the green vertical lines show where the market bottomed in the last three cycles outside of 2020 and what it wants you to see is that the yield curve steepened hugely, went from inversion to just really being substantially steep before the market bottomed. Usually post World War Two, usually the yield curve steepens to at least plus 100, before the market bottoms in a bear market accompanied by recession. We're going the wrong way right now. We're going inversion deeper and deeper. That's not what you need to put in a sustainable line. You can certainly have a substantial rally, but it's not going to be something sustainable, that's likely to go to New all time highs.

The other thing that's important to understand is particularly, in the 70s, look how high real Fed Funds rates got to the top chart on the far right column. Real Fed Funds rate. Real Fed Fund rate are Fed Funds minus CPI inflation. Real Fed Funds got up to 3, 4, 7, 5. We're at we're at negative 2.6 After the point five rate cut in December, so we've got a long way to go either for inflation to come and dropped below of Fed Funds or for Fed Funds to rise above inflation, probably a combination of both, but we're way not even close to being done with tightening and generally, the Fed FOMC and Powell have said that they want to see Fed Funds rates above least PCE inflation by 50 basis points before they'll even consider stopping tightening or starting to cut rates, so we're not there. Another thing that's important is a really pretty strong plurality, like 80% of leading indicators that have done very well since the 1960s at projecting when we're going to have recession are almost all projecting recession right now. Not only do we have an inverted yield curve that's actually going to cause weaker growth down the road, but we also have a whole bunch of indicators saying, recession is likely coming very soon. The LEI dropped, the six month LEI dropped a really big negative levels, the LEI dropped below its 18 month moving average, we have services sector PMI dropping to negative along with manufacturing, and we have the new orders dropping really low. Those are all really big negatives and sign that a recession is likely to develop and then remember that when we have a recession, that impacts what the bear market is likely to do, how deep it's likely to be, and how long it's likely to be. A bear market just did avoids recession, it can be 23 24% and it can be over after a year. Bear market with recession usually lasts on average another year, and goes much lower goes at least 38%.

Assuming that we have recession and the recession, we're going to talk about why the recession is taking so long to materialize and what that means, but basically, if we go into recession, we have arguably, we've really gone already in recession, with two down quarters by the previous definition. We're really kind of have a bear market that's likely accompanied by a recession, we still have a yield curve that's killing growth down the road. We're not doing anything that's going to build a recovery yet, so we've got probably more room to go for the bear market. I've emphasized this many times, in many ways, that's another chart from someone else, but really probably more clear than some of the charts that I've done. The top chart basically shows you all the bear markets accompanied by recession and there's not one that started until the Fed Funds rates were cut.

The other thing I wanted to show you to kind of emphasize, markets right now aren't talking about when is the Fed going to cut rates, they're talking about a Fed pivot, which is when is the Fed going to stop raising rates. A Fed pivot is usually very important when you have a major correction, intermediate term correction without a recession, and not a bear market. Yes, you can get corrective lows when that happens, but what I want you to see in the lower chart, is that the Fed pivots all happen way before the market bottomed. Generally, when you have a situation where odds of recession are really high and arguably you've already started one. I realize that the NBER, who declares recessions, on average, they don't declare the recession as having started until one year after when they post in a post saying that's when it started. Generally, you don't get the NBER saying, Yes, we're in recession until it's virtually over for one year. Don't expect the government and NBER to say, yes, we're in recession. It's afterwards that they say oh, you know what, actually, we started researching last year at this time that was doing.

Then the other thing that I think is really important is what's the market anticipating right now, how does that compare to the Fed and how does that compare to history? The top chart really shows that basically, anytime we've had inflation that's gone, you know, above 6% and stayed there for six months, it's taken many years from three to more than 10 to get inflation back down below 3%. Okay, so think about that. That's historically since 1970 and that's really in all of the developing markets. Typically, with this kind of inflation outbreak, it's going to take years to get inflation back down. Now, we have had, and a lot of people talk about the analog of the post World War 2, 1946 to 49 period and they also some people are going to be talking about the analog of post World War One. In both of those situations, those are the only times where we have really high inflation, to the degree that we've had it, and it's come down very quickly. The problem is, in both those situations, we had a huge, so here, you're in World War, right, you're spending huge percents, double digits, percent of GDP on armaments, and paying for military and all of a sudden, the war's over and you bring everybody home, guess what you cut spending huge, you cut spending by over 5% of GDP. What that does, through the way they compute things, you know, government spending as part of aggregate demand. When you're cutting aggregate demand that much, it's been a really help inflation come back down more quickly. Those are the only two instances where inflation has come down nearly as sharply as markets are now anticipating. Well, yes, we had a pandemic spending, but it's not like we're cutting spending back 5% of GDP. We're barely cutting it compared to those periods. It's unlikely that we're gonna get inflation over nearly as quickly as markets project.

The Fed is also talking about, it's gonna raise rates to about five and a quarter percent this year, and then hold them there and it doesn't anticipate cutting rates until 2024, but look at what the markets projecting. The market is projecting that we're going to raise rates to about 4.9% and then we're immediately going to begin cutting them and we're going to cut them by almost 50 basis points by the end of the year. The market is anticipating a much different outcome than history or than the Fed and the problem is that it's very difficult to envision a scenario where the Fed is going to be backtracking on what they thought they were going to be doing so substantially, without a really big shock and a really big shock, really big recession, really sharply dropping inflation and soaring unemployment, all those things would be bad for the market in the meantime, before the Fed begins cutting. This sort of market right now the bear rally is still grappling with this hope for soft landing and pretty quick fed cutting after a couple more, two, three more hikes and then that's it, we're back to the normal of the period from 2009 to 2019, which is actually completely not normal at all. I just want you to understand that where we are in terms of market expectations, there's a lot of things that could go wrong with it, it's not very likely.
Now, there are some things that are sort of keeping recession, potentially at bay and for a lot of sectors. The interest rate sensitive sectors, in particular, things that are really sensitive to that potentially incredibly sharp rise in interest rates, like real estate and things like that, those things are already in recession but there are some things that aren't. It's a bifurcated economy right now. One of the reasons for that is that during COVID, we got these pandemic stimulus packages that were just way too big and they basically handed everybody checks and everybody took the checks and and put them in their savings account and so now they have this huge excess savings pool and right now they're spending that excess savings pool to pay for the fact that they can't afford the inflation levels. They're paying for basics and they're paying for some services that they haven't been able to demand when the pandemic was there and to do that that they're drawing on that excess savings and who they are now increasing credit card debt at a record pace. Both of those things are not sustainable, that if they spend at the current rate, that excess savings is going to run out completely by this summer and if the recession starts to deepen, usually, people start getting concerned about spending their savings, because they're worried about losing their job and they start cutting back on using that money for for consumption quickly. It's possible that we can delay things until maybe third quarter of the year, but all the things that are holding up parts of the economy are unsustainable.

Then the other thing, the thing that's directly ahead, potentially, that we want to really watch for, is normally in a bear market accompanied by a recession, you have earnings declines of significant amounts and that basically averages 26.5%, 23.5%, somewhere in that range, depending on when you start to measure it, whether you go back to the 30s or the 40s. The bottom line is you're talking about something on the order of 25% decline in earnings. Well, right now, analysts are still projecting around 5% earnings growth for 2023. That's nearly what you would get in a normal recession and so you have this savings pool that's kind of keeping up consumption a little bit, but you have higher interest rates, you have higher costs for everything in manufacturing, you have all kinds of supply chain disruptions, somewhere in the next quarter to we're looking at probably the period where analysts realize that they're their projections are off, and that they actually have to get in front of an earnings decline of substance, and they start projecting double digit earnings and that's when the market generally stops focusing on what the Fed's doing, and starts focusing on what earnings are doing and what the economy are doing and that's when you get the bigger lead down in a normal bear market. I don't know whether we're gonna get that in this quarter or not because we have this consumption holding up and the labor market is still strong. A lot of times it's the increase in unemployment, that really spooks people and causes them to cut back on consumption, but somewhere in the next quarter or two, we're going to get some kind of capitulation to the fact that earnings are going to be in trouble in this environment, with all rising costs, rising interest rates and demand starting to be cut off.

If we get that this quarter, that we're going to start to go down pretty quickly, somewhere in this earnings announcement, the season that really officially starts Friday. If we don't, we could still get more of a bear rally until we start to get more evidence of recession or earnings recession ahead. The other thing I think this is probably, if I had to pick one chart as the most important chart about the backdrop, this would probably be it. TNX is a 10 year Treasury yield and what I want you to see is that that trend line on that top panel that interest rates have peaked at every single cycle since early 1980. That's a multi decade trendline that we have broken decisively above and what that does is that earns the secular trend of interest rates higher. Normally at this stage, if you're a macro investor, you'd be looking particularly at bonds. You'd be saying, okay, recession, we're going into recession, soon as we start to see more evidence of weakening and we start to see better technicals in the bond market. That's it, it's time to buy bonds hand over fist, because that's what does well in the recession. The problem is, when you're in a secular long term, in other words, increase in rates, that decline that happens in recession is much more muted than normal and sometimes it's actually very difficult to catch. In the 1970 recession, for example, unless you were really good on the timing, you actually could have lost money trying to buy bonds. It's not nearly the high R trade that you normally get from buying bonds in a recession and you have to be a little bit careful about that, but I think this chart on the top is the really big one that says we've just changed secular trend, we've changed a secular trend from interest rates declining to zero to now rising and that likely means higher inflation and all kinds of things that accompany that.

The other thing to understand in the backdrop and it's not anything for sure, but it's something to keep in your head, is that whenever we've had household equity exposure get to the level that we got to in 2020, it's been the start of a secular decline in the market, where it's taken a decade of big first of all, big hit, and then sideways action for a decade before you get back to new highs and so there are valuation reasons, that tells us that, there's this change in interest rates, there's this change, where we'll look at how real assets are starting to break out versus financial assets, which happened in the 1970s and is typical of higher inflation periods of time.

There are just a lot of things lining up saying that this could be a more prolonged problem for the market that you want to be aware of. Here for example, is you can see in the top chart, this is 30 year bond divided by the CRB and you can see that's been in a steep downtrend and that trend is broken and now we're basing and a little bit lower bonds and a little bit higher CRB. That'll be a base breakout after breaking the trend that would suggest a long term trend higher for real assets for commodities versus bonds. The chart below also kind of speaks to some secular concerns, right? In the long run, stock earnings and stock in s&p growth correlates really strongly with nominal GDP growth, which is that orange line in the bottom panel and you can see that what the stock market typically does is it gets ahead of GDP growth for a while and then it comes down falls back below it, but if you're kind of doing the mean to those, that nominal GDP growth is really been a very good long term meen. What I want you to understand is that in 2021, we got higher and s&p being above that nominal GDP growth than ever before, the s&p from from 2009, bottom to the 2019 peak was up 5-600%, while GDP was up only 50% and so generally, when you have a bear market, accompanied by recession, and you're way extended, in how much stocks gone up versus GDP, that's when you kind of come back to the mean.

We've looked at these before, but it's important to understand we have structural problems that are creating inflation right now and structural problems is kind of economic speak for long term takes many years to solve. One of those is that we haven't had enough capital expenditure in commodity production or energy production and so all these countries have all these plans about how they're going to create this sustainable green energy, but it requires copper and lithium and nickel and all kinds of base metals. How do you mine those? You need to have diesel and oil and coal, to provide the energy to mine those to be able to produce the factories that use solar and use wind and all those things that we want to be cleaner energy. We haven't really planned very well for having enough fossil fuels to be able to create the production of energy that we need, unless we kill demand with a depression or something like that.

If we have non depression, sort of recovery demand, we now have chronic energy shortages and Europe and the United States in the last few years in particular, have done a lot of things to basically undermine the market. What markets naturally do is if an industry has really high returns projected, like fossil fuels do, it attracts capital and so you get more that's how the market sort of allocates capital. It's looking around saying what are the returns that I can get from all these long Term investments and the money flows to where the returns are the highest, but we've had an interference with those market processes and we've had government basically trying to go and say "fossil fuels bad, no, don't invest in it, we're going to give you a windfall profits tax, if you invest in more fossil fuel production." Well, that's great, except that they didn't allow for enough production to even get the non fossil fuel production to be going. We've got that and then the other thing to realize, if you want to expand copper production, right, Europe and the United States both independently have projected that they're going to take the world's supply of copper for the next five years to produce the kind of capacity for solar and wind energy that they need. Well, you can't double world copper production in five years, right? That's impossible and then nobody that has really ever done anything real would do that, but governments do that kind of thing. What that means is that those are unrealistic plans, they don't have the fossil fuels needed to get enough copper and we need a ton of investment into copper production, if we're going to even try to get that green energy production down the road. Well, we're not getting that.

Take a look at that top chart, as a percentage of GDP, we've never invested less in commodity production, but we've never had projections for needing it more in history. That's a lot and here's the other rub to understand, it takes four years to build a copper mine, and then two years to get it up to production where you're actually getting copper. This problem is a six year problem minimum and it's more than that because we're not increasing investment into copper mining. That's a structural problem. What that means is, every time we're not in recession, and we have normal demand, that demand is going to come up, and it's going to start to squeeze on the price of copper and energy, and those things are going to go up so much, they're going to cause inflation. These are examples of many structural problems that we have and then I want you to see in the price below, this is the return of the ebb, the CRB versus the s&p, and it got down to levels only seen before prior to the 1970s recently, and generally, when it gets really low, it starts to pop up and it's a multi year popping and we've started we've seen a base breakout in the CRB versus the s&p this year. It's likely, it's potentially possible at least that we're in a secular uptrend in real assets versus financial assets, both bonds, as we saw in the prior slide, and stocks, as we see in this slide.

All right, let's take a look at the technical picture. It's pretty much of a mess. It's kind of a sideways situation, but what you want to do with the supply and demand curves is you always want to give the trend in force the benefit of the doubt until it's clearly proven that that trend is broken and we haven't really done that yet. We can see that the supply index is above this aqua line, a supply index is in blue, it moves the opposite direction of stocks, and it's still trending up on a long term basis. It's been kind of sideways for really since August, at least, but it's still trending higher. Until it breaks that trend, we can't really say that stocks are showing any evidence that they're turning up. Now the orange line is the demand index. Demand index trends with the market. Normally you'd want that to be trending higher. It's below its falling downtrend line and it's not really doing much, this rally is about two times more due to declining supply than rising demand. Normally, in a new bull market, it's much more balanced toward demand. Demand is stronger than supply declined to usually, but they're similar in strength, we're not seeing that. The chart below is the spread of the two demand minus supply and you can see that we've really been kind of in a trading range that high in August there that hand is right next to that, really we have to move above that to really suggest that the balance of supply and demand is turning positive. Right now those are on balance, still suggesting that the main trend down is likely in force, you go to the next slide, then we kind of confirmed that with what we call the major intervals. On the top that's the nice Advanced decline line, you can see that still below its long term downtrend, and it's still below its 150 day moving average. Both of those things are saying you know, the trends down. This is a chart that's making lower lows and lower highs. Same thing with the chart below that, which is a net debt volume. It's up volume minus down volume cumulative. Cumulative net volume, also trending lower below its downtrend line below its 150 day moving average. The chart below that, the third one, is what net points. So it's taking what percentage is each stock up in the whole New York Stock Exchange and putting that all together? That's a net points index. That is basically again below its downtrend line, it's flirting with above its 150 day moving average, but really, it's going to need to break above the August highs to really be showing it as changing a trend. You look at the s&p, it's still below its downtrend line and you look at the bottom, which is the OCO advanced decline line for the New York Stock Exchange, which is that's for operating companies only. Again, it's below its downtrend line, and it's below its 150 day moving average. The plurality of these things still suggests the main trend is down.

Alright, let's take a look at our monthly ETF list. It's pretty similar to what we saw last month, it's got a few more foreign stocks. The reason that foreign stock ETFs are coming on so much recently, it's because the dollar has had a huge decline. The dollar was super strong for most of the year than it hit 115 and has come off and it's now testing that 103 level really carefully and that's a key support level, as we'll see, but that decline of 10% in the dollar basically gives a 10% boost to foreign stocks when they're when they're counted in dollar terms. That's why there's so many of them that are showing good relative strength. We see Turkey, we see Argentina, we see Greece, we see Poland, we see European stocks, we see Irish stocks, what else we got, and Chilean stocks. So we've got a lot more foreign stocks on the had on the list before, that's new, but everything else is similar, oil services and some energy stocks. We've got Chinese internet, the Chinese stocks trying to break out. We have steel and base metals. So SLX, COPX, and there's XME somewhere on there, too. Those are all base metals producers. Those are picking up and so think about that list for a minute. We've got foreign Stein, we've got gold miners, we've got silver, that's a list that is more similar to what you saw in any type of recovery attempt in the 1970s. The first things to pick up, we're resource oriented, because there was there were basically problems was a supply shortage and that supply shortage isn't fixed by tightening interest rates. It's only fixed by investing in creating more supply. We're not doing that yet. I think this is going to be similar to what we see of any bear market the ends, it's going to probably have some resource oriented companies just like we did in the 70s that lead in relative strength terms, and that's what you really want to be watching out for him and then if you look on the bottom, we've got our very bullish and very negative list of ETFs and sectors and just you can see that we've got some energies, we've got some financials like insurance in particular, we've got some health care some biotechs we've got food, we've got some industrials, main industrials are defense and aerospace.

A lot of countries are spending money on defense. Now we've gotten materials in the form of the base metals, miners, gold miners, copper miners, and we've got some bonds short term starting to show up a little bit. We've got some value like SPYV and GCOW, and we've got some value in Europe and some European stocks, particularly like Ireland, in that regard. We've got some Chinese stocks, some Turkish stocks, and then we've got some infrastructure plans. Those are if you're going to be bullish, and you're going to try to participate in any short term rallies. That's where you want to go where the ones that have the best outlook over the next three months by a whole bunch of indicators and we have Zacks and Chaiken, and a bunch of rating services that go into those and then on the short side, the list is getting smaller, that's the red on the bottom there. Those are those are the shorts, the very negative, and you got a lot of real estate and you've got arc, which is basically innovation and you've got Brazil and Taiwan. There's also some internets and some cyber currency. So those are things that you would look forward to short when we're clear that the bear rallies. Here are some examples of some good ones here. If you're going to want to go long, you're much safer buying the longer term breakouts, longer term breakouts, don't always but generally as a whole, if you're in a bear rally and you buy a longer term breakout, it's likely to go down much less than something that hasn't done that. So here we have insurance, KIE and it's potentially breaking to all time highs ahead if it can continue going. That would be something that, if you wanted to go along and wanted to participate in short term move, would be a much safer play than a lot of other things. Same thing with defects. PPA is the ETF for defense and it's also on the edge of breaking out to new all time highs, making it a safer play if you're going to try to buy something. Then there are some oils that are close to lower base breakouts. A lot of the oil service and oil equipment starting to come in terms of relative strength and if you could clearly break out of multi year highs there of that base that would be a solid volta year base breakout that would likely give you a safer play for that which is probably a secular theme, but may also get negatively impacted if we slide into recession. Then on the short side, we've got some international talk about this is our REZ so real estate, we've got a real estate, one of the problem with selling Reits because they often have high yields, we have a stock on our list, that's a REIT that has almost no yield. That's probably good play and if you want to play it with an ETF, this is probably one and so you would be looking when you get up you know short term trend turns down again, that looks like the bear rally is clearly over. This is something that you would play on the short side or if you make a nice pattern it gives you a good reward risk on willing to break down to new lows in this ETF.

This is our long list watch of stocks, again, a lot of oils, get some some health care some foods, et cetera.You can see we haven't had a lot of recent breakouts, LW is is a food that broke out recently. So when you can look out if you want to buy something that's that's running, but really the main thing to look at is the potential basis, which is the in red down below. That's where you can go ahead and look through that list. You can put alerts on for when they're going to break out and if they break out that's something to consider purchasing. We've got some examples of this. This is LW you can see it just broke out to new all time highs above multi year highs on a nice gap, you can figure out a low risk pattern it consolidates and continues to move higher, could be something to participate on the upside. Then our shorts, which again are longer than our Long's, are the most heavily in software, autos, internet, biotechs, credit card pairs, consumer loan and real estate and we've got a couple examples that we like below, got coin, right. We've talked about cyber currencies, etc. Here we have Coinbase, which is the cyber currency exchange, has broken to new lows. Okay, it's just very feeble rally so far. If we clearly term trend back down would be something to watch if it leads in terms of relative strength, and if not watch for to break to new lows and if it does that, then that's something you can look to short. Same thing with DBRG which is basically a REIT. That's a digital REIT and it only has a point 4% yield. Most REITs have yields that are in excess of 5%. When you're short the REIT or the ETF, you have to pay that dividend and so it's a cost. This has really low yield, and it's breaking down, you can see it's very weak, it's just broken down multi month dates and when the market turns lower, this is one to watch for relative weakness and if it's relatively weak and makes a good pattern, you can short it or you can wait for it to break to new lows, and sell it at new lows with whatever the high that it makes intervening to participate in this, which is still the weakest group. It's a weakest group, largely because it's very sensitive to interest rates and interest rates are still going up. One more, which is dash, Door Dash. Okay, so this is an internet, which is one of the weakest groups. Again, this is a company that has larger losses every quarter, the last year. It's just losing more and more money, it's underperforming and again, when we turn back down towards short term models have turned lower and that looks like the bear market's coming on again, this is one to watch if it's underperforming, or if it makes a good pattern as it makes no lows.

This is really key, we are trying to break down today below the 103 level in the US dollar, if we can clearly break down see that uptrend channel how we're testing that corporate support, which also was the high at the very beginning of the chart, that was a breakout of a multi year breakout. It's really important support level, if we break through close below this and then continue lower, that suggests that the dollar really has peaked for a sustained period of time and that will change the environment somewhat from what we had in 2022 when the dollar was up so strong. You could look for Australian dollar, but we liked gold as sort of the best currency to basically be an anti dollar. Gold has had a much bigger run up than any other currency really, and it's up and it's sort of punchy, the top of this HVN that kind of has extended to 175. If you were to break down in the dollar and continue lower and break out in gold and close above 175 would kind of be an addition signal or if you haven't bought gold yet a signal to buy, you can put stops down under under the 161 or something like that.

Then we talked about last time how the third quarter have the largest expansion of purchases of gold by central banks of any quarter in history and that's continuing. Russia just announced that it's raising its gold as a reserve asset from 20 to 40% of reserves, China's raising its percentage of gold as reserves, and the BRICS are all increasing their purchases of gold reserves, and they're planning a currency based on gold in order to denominate their international trade among themselves to get out of the dollar. The reason they're doing that is largely because the US really and the West really overstepped what they should be doing in sanctions against Russia, they basically seized the So Russia had, you know, hundreds of billions of dollars of US bonds as part of its reserves, and the US seized all the dollar assets of the Russian Central Bank. No one has ever done anything like that before. What that tells other countries is holy shit, they can seize our reserve assets with the stroke of a pen. Dollar assets are not safe reserves and that's why countries around the world are dumping dollars and buying gold instead, because gold is something that if you hold it, it's yours and you can trade it with anybody, it has intrinsic value. It's actually the only real currency out there. That's one reason why gold could stay up, normally gold slides going into recession with stocks and maybe bottoms four to six months before stocks do. It's possible that this strong a degree of purchases of gold can hold it up into the recession much better than it has been previously.

Gold is something to really watch if you want to be buying anything and if we look on the next chart, this is the Dalio quadrants of what asset classes should be outperforming depending on the environment for inflation, inflation rising or falling or growth growth, increasing or decreasing, we're going into something where inflation is slowing and growth is slowing at the same times and you can see that the only real asset classes that meet that are cash, which is the best and bonds and gold. Those are the things that you want to be watching tactically for clear trends developing to kind of accumulate in this environment.

This is Bitcoin, again, Bitcoin is not outperforming its negatively, you know, some sort of horn relative strength in have a lot of problems and follow on problems from FTX that are still developing, and that's really hurting the whole industry and so we've got sort of this pattern where you've broken down to new lows below the October lows and now have had kind of a base on base below we break down or if this market turns lower, clearly and you see that Bitcoin and cyber currencies are underperforming, you can sell this on a break down and BITO, we really liked because if it's buying derivative instruments that basically it has to roll over and so it's got an embedded decline of about 10% a year and its asset base.