"We're at a Blow-Off Top" — Tommy Thornton on Market Extremes and What's Next
Summary
Market Outlook: Tommy Thornton expresses concerns about a potential market correction or worse, driven by structural economic problems and overreliance on the Federal Reserve and government interventions.
Investment Sentiment: There is a high level of investor complacency and leverage, with significant call buying and retail investors heavily invested, which Thornton views as a major risk.
Market Dynamics: The current market is characterized by a "blowoff top," with extreme concentration in a few large stocks, notably Nvidia, which poses a concentration risk if these stocks decline.
Short Selling Environment: The environment has been challenging for short sellers, as evidenced by the Goldman Sachs most shorted basket outperforming, indicating a squeeze on shorts and potential for deeper market corrections.
AI and Capex Concerns: Thornton warns of unsustainable capital expenditure growth in the tech sector, particularly in AI, which could slow and impact market dynamics negatively.
Energy and Infrastructure: He highlights the challenges in energy and infrastructure, particularly the lack of power and water resources to support data center growth, which could lead to inflationary pressures.
Investment Strategy: Thornton is positioned net short, focusing on crowded trades and companies with potential downside, while maintaining a disciplined risk management approach.
Opportunities: Despite a bearish outlook, Thornton identifies potential in specific sectors like uranium and infrastructure, citing Golar as a promising long-term investment due to its stable cash flow and undervaluation.
Transcript
You have a lot of reliance on the Fed. You have a lot of reliance on the administration to say something to knock the market down and then say something that's going to lift the market higher. Uh I I think that there's a lot of structural problems in the economy and I think that the true outcome is probably going to be a market correction or something worse that people don't expect. That's what's kind of driving me right now. Thomas Thornton, president and founder of Hedge Fund Telemetry. It is so wonderful to welcome you back to the show. Great to see you as always, Tommy. Really appreciate you taking the time. >> Uh, well, thank you very much, Julia. Nice to catch up. >> It is so nice to catch up and I'm thrilled to have you back on. It's been about four or five months since our last check-in and gosh, it's been just crazy time in the market. So, we have to start with the big picture. What do you make of what you've been seeing transpire in markets? What has been on your radar? Take us inside that framework in which you're looking at the world today and where do you see things headed? >> Well, here's how I see things right now and it's really pretty clear. People are are all in uh investors of all types. You can go to retail uh look at every single data metric out there from Bank of America to you name it. Retail's all in. CTAs are all in. 100th percentile of being long. Uh the risk parody people are in the 100th percentile of being long. Both stocks, bonds, and currencies, commodities, they're super long. And now you have hedge funds um be begrudgingly turning long late into this. And on top of it, people have never been more levered in their life. People are long, they're levered, they're complacent. Uh you're seeing like massive amounts of call buying. Uh short-term call buying is now dominating I think 60% of the options market. Uh you see commercials and people putting out things for, you know, I'm only buying options now. I never buy I don't buy shares. I just buy options. And things can happen that those people don't want. And we saw some of that speculation in uh crypto this last week uh Friday and through the weekend all these dire stories of of people that lost everything. 1.6 million crypto accounts were liquidated. Uh which is just an amazing number. And I know it's some of the altcoins that aren't really necessarily coins that people are going to say are, you know, high quality, but still leverage is really prevalent out there across all markets right now. And I think that is a huge huge risk. >> You know, you're someone that tends to like the volatility. from what our prior conversations you do well when there is more volatility but it's also interesting hearing you Tommy you've been in the markets for 30 plus years you've been through multiple cycles in your career how do you think this moment that we're in right now compares to you know kind of previous market cycles that you know caught your attention because I'm kind of sensing from you like you're worried >> yeah I you know I'm positioned properly the way I see it. Uh so I'm not as worried, but I am concerned that uh this gambling mentality is going to hurt retail investors. And again, you saw some really dire stories about people in crypto that, you know, some influencer, you know, was found dead in his Lamborghini, which is, you know, sort of like >> hard for the course. But that's the kind of thing that happens when people are overlevered. They're complacent. They don't realize what they own and they're caught out. And that's the thing that concerns me about retail. They're buying all sorts of stuff whether it's, you know, quantum computing computer chips or things like that. I stuff that doesn't make any money. And that to me is something that um it's just pure gambling right now. And and listen, we have a gambling type mentality right now in the world. Uh you can gamble on sports, you can gamble on politics, you can gamble on just about anything out there and people are trying to get rich fast and that's usually a recipe for disaster. >> Yeah. Like as you point out like we have this gambling mentality whether it's the sports betting, the political betting, the zero DTE options that you can just do all of this stuff on your phones. Now, it does make me wonder like how how does that change the market dynamics? Again, as someone who's been in this space for decades, like how does that change the dynamics? >> Well, I think it's just a matter of generations and generations forget about risk or they don't know about risk and they don't realize it until they're liquidated or things blow up in their face. And I've been through a bunch of different market cycles. I've seen markets that have crashed. I've seen markets that have been absolutely brutal be to be in uh even when you're on the right side. Um you know our fund we were on the right side in the great financial crisis and it was really hard to watch because we had friends and brokerage firms that were you know the firms were going under or getting bought under and their life savings was wiped out a career of life savings wiped out. So I think right now this is a bubble. Uh people acknowledge that it's a bubble and some people might say well since people are saying that it's not going to go down yet. And you have a lot of reliance on the Fed. You have a lot of reliance on the administration to uh lo and behold uh say something to knock the market down and then say something that's going to lift the market higher. Uh I I think that there's a lot of structural problems in the economy. Uh specifically the US deficit which remember Doge that didn't really go far. Uh you have you know the US debt is nearing 38 trillion and it's an imbalance that is not working right now. Uh and if that becomes a bigger issue um which I think it will eventually. I'm not saying it's tomorrow, but I think that that's something that um is keeping rates high and that's not necessarily good for uh the equity market because the equity market needs lower rates. So, the housing market gets unfrozen. Uh funding u on credit gets a little easier uh and cheaper. So, I think that's kind of what people want, but we're not going to get that um artificially. And I think that the true outcome is probably going to be a market correction or something worse that people don't expect. And that's I guess that's what's kind of driving me right now. >> A market correction or something worse? I would love to hear more on that. And um do you think we're are we headed are we headed to like a blowoff top here? Like where do you see what's kind of what are the scenarios that are running through your mind right now? Well, >> I definitely think we're at a blowoff top. And usually when you have a blowoff top, there's you also have the people that say, "No, we're not quite there yet." And maybe we're not for some things, but I'm seeing a lot of evidence that uh we're getting that. Uh one of the things that uh I'll show you when I show you some uh some slides. >> Oh, yeah. Feel free to run through slides anytime. >> One of the things that I'm looking at is the Goldman Sachs most shorted basket. And this is their prime broker of of hedge funds and other institutions that they uh they manage. And and basically they can calculate the most shorted names that they follow. And that basket is up something like 38% uh year to date. And that's notably outperforming the S&P and other indices. And that basically means uh to me that uh those shorts have been blown out. And when I see that happen, um, well, I I I know what kind of market that is. And and if you don't have shorts in the market and or fewer shorts, uh, if you do have some sort of market dislocation, that natural buyer, the short is not going to be there uh, to cover their shorts, and things could get a little deeper, and it could be almost like a vacuum lower. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With monetary metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoy potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. That was one of the questions I wrote down for you is um that shorted you you wrote a note and you talked about the most shorted stocks have been squeezed higher. So when you're saying that that basket that comes out from Goldman, they do that kind of list It's up 38%. So that knocks the short sellers off. It's been a really tough environment for short sellers, but yet they play a really important role because when you do have prices that decline, they are the natural buyers during those declines. So that's an important dynamic. That's So does that mean, Tommy, when we see that correction that it's going to be more dangerous than prior corrections when you actually did have that natural buyer, if you will, in the short seller? >> Oh, absolutely. when you have shorts forced out of the market um and you lose that bid that if you know let's say things drop 5% uh if you don't have that buyer and people are all in which we have full evidence of that and levered yeah things could get a little dicey and and it it could happen soon it could happen sometime this year or next year. Uh and and really when you have a bubble and it's persisted this long without any any bit of a correction that membrane on the bubble uh gets thinner. So it really doesn't take a anything that much of a sharp object as you as I could say uh to pop that bubble. you know, back in 200 um in March, I remember it was who popped the bubble was Abby Joseph Cohen of Goldman Sachs and she just came out in her nice calm way saying, "I think stocks are overvalued." And then all of a sudden the market, you know, fell apart and then cascaded with a lot of volatility. And we had volatility in that first episode of the markets moving up you know 10 15 20% up and down uh over a period of months and then ultimately when the tech uh capex bubble burst um that's when things really you know was a final blow. Hm. You know, speaking of like the market mechanics, um, one of the other areas you've talked about and it's also come up on this show too is the passive bid and ETFs, especially when they're you're talking about like leverage ETFs. Um, how do you think about that part of the equation? It's absolutely >> it's a new dynamic because back in in other periods uh people would just use leverage um and margin debt and this is a a convenient way for people to get around that and they may be using it in you know I you can use it in retirement accounts or other types of of forms but you know if you like something why not like it double the amount and if it's works. Leverage is great when it works and liquidity is great on the upside always. Uh but when things turn uh it gets um it it it becomes something of um a problem. What can I show can I share? >> Yeah, run let's run through the charts. Yeah. >> Okay. So, first off, I I I track market sentiment. I use the daily sentiment index data. It's raw data. And what I've done on our site is we've run the S&P and then I have the market sentiment right here. And the red line is the 20-day moving average of bullish sentiment. And this is from Friday's uh I don't have um today's data up. It's probably bounced a little, but we're at 58%. and it's starting to tip over a little bit, but we're still above the August lows here. And this is still elevated. The 20-day moving average is around 75. And that's an elevated level. And when things break like this here, uh that's when you really start to see a market that is confirming uh further downside. So, let me keep going. And I want to just kind of blast through these as fast. >> You blast through and then I'm going to take notes and then we'll follow up with questions. >> You can follow follow up with me. Um, so the CNN fear and greed, I've had a bunch of people, subscribers have said, "Oh, it's it's it's it's really low. It's not overbought." And I've heard this uh on and on. And I I sort of question the methodology. They have seven inputs that go into this. And it's not it's kind of a nice index because it's showing what people are doing versus what they're saying. Uh and but I run a a little I'm looking at this and this is the first input and this was today. Um they're calculating this the S&P 500 versus its 125day moving average. This is fear to them and I I would say that this is more greed. We're not quite in fear mode. And if we I I don't know what this is. This is like I mean I guess extreme fear, but like like change your underwear fear down here, but this seems to be very bullish in my opinion. It's not necessarily fear. It seems more greed if anything. So that I just question that. And I track market sentiment. I've I've done um in the old days I did a lot of work talking to all the people that created market sentiment tools like Ned Davis and Market Bane and Investors Intelligence and and the daily sentiment index is my favorite and that's why I keep it on my site. I think it's the best and it's daily. So I I track uh demar indicators and I'm not going to get too deep into how they work, but when you see nines and 13s, uh those are sort of the issues that you want to watch for uh reversals. And uh here is the um this is a daily chart and you've had a bunch of 13s, you've had a bunch of nines. Sometimes when you see the purple nines, that means that there's two versions of the same indicator. Um, but the bottom line is this nine here, um, really saw a big pullback. This, we didn't even get to the 50-day, and I don't think we've seen the 50-day in the S&P or a close below it since April, which is almost one of the longest periods I've ever seen um of it not breaking below. And usually when you get 13s on a daily, you get a move to the 50 or below, and that gives you an opportunity to buy. So, you haven't had any really decent opportunity for any sort of short-term oversold area to buy. And it's it's frustrating for active managers like myself. But over here, uh, back in the end of the year, uh, we had this is a sequential 13, sequential 13, and we had them here in the end of 2021, and we had a, you know, pretty ugly period in 2022. I like these periods. I like volatility. I like being able to buy things lower, sell them higher, short them. That's kind of my that's my wheelhouse. Uh when you have this like straight up with uncorrected type market like this, uh it gets to be really challenging because you don't really have that opportunity and it's been very narrow. Um I'll go through some of the concentration in a second, but what we have right now is we have new sequential and combo 13s and a cell setup nine. and the the 13s are a bit more important and usually it it takes a few weeks or or it can happen immediately that you have a pullback. Uh but if anything what these mean is is it it's simply uh the market is exhausting buyers. So you you're running out of buyers uh at this point uh to buy more. And if anything, it's not necessarily that you're going to get like this massive drop which some people the unrealistically hope for after these signals or think that is supposed to happen. It's going to be a pause. So, it could be it could be a period of weeks, it could per period of months. So, let me just keep moving on. This is the Goldman Sachs most shorted basket. Uh going back into like April, you had I could go over a little further, but you had 13s at the lows. Here's one here, a higher low 13. So, this was a buy. This basically said things were probably going to go a little higher. You got some 13s here. You backed off a bit and now you have a new one here today and this is uh this line here is the wave five price target that it's a demarc u similar to Elliot wave but it's their calculated price target and that's a signal in itself. So I think that the the shorts have been squeezed out of this market um and and that's not kind of what you want to see. you want to see things where where you get these buy signals and you know the shorts are going to start to cover and we saw that that was very clear. So, this one, um, it's probably increased, but this was a few weeks ago. The 10 biggest stocks in the S&P, uh, we're going to talk about passive. Uh, it makes up 40% of the index. That's 10 stocks out of 502, I think. Uh, and that's pretty remarkable and much higher than other periods. And to me that leads to concentration risk because if all of a sudden Nvidia dropped 24 points that would be the equivalent of Cisco in 2000 at their peak market cap going to zero. So you the some people will say, "Oh, well Tom, the valuations aren't like 2,000, but the market caps are so enormous, the people are long, and we didn't have spying cues and and and the the prevalence of index funds back then like we do now where people in their retirement accounts and everything else, they're so jammed into these things and they only will notice when something really bad happens and then guess what they'll do? They're not professionals. They'll probably say, "Oh, I'm going to I'm going to sell it. I'm out." And if they sell 5% that leads to supply in the market and I think that people don't realize that um in videos I think it's like 10% of the in index now too, which is just by itself crazy. So, I just want to say one other thing. Um as far as some of the extremes, call buying extreme is extreme. uh 40 million contracts um over the last 20 sessions. This was a few days ago. That's just nuts. And and go back and we can look at that period in 2001 when we had weekly demark countdowns up here and that was call buying extremes as well. And you have again you have everybody long this market. You have retail that's pushed in so much money. I think I saw a piece and I was going to put it in this but hundred billion dollars has by retail in the last month has been added to this market and >> that was Morgan Stanley report. Yeah. >> Yeah. I think that's risky. Now here here's one of my favorites. Um this is a fiveday moving average of the equity put call ratio. And when it gets down to these low levels, you know, 0.5, that means that people are buying calls hand over fist, and it's a 5day moving average, so it smooths out some stuff. But what I like to see is when this spikes high and gets up here, I like to buy stocks. And I did in April. I, you know, I was short in Q1. uh everything sort of turned and you know liberation day and everything went lower and I was covering basically everything I had and went long like an idiot or well just from discipline I sold things early uh but still I I you know benefited by >> oh when you went long you sold you said you sold early >> of course I always sell sell too early I'm always the first guy >> can I just give you a shout out because you were one of the guys you said that we would see S&P below 5,000 this year which we did Yeah. >> And then we had Liberation Day. So, I just want to give you credit where credit's due because you you are a trader. >> Yeah. I I I am. And I I I'm I'm pleased that you know, we got that level. Um I'm not one to do the end of the year type targets. And you know, the sell side also remember one thing about the sell side and they're all the same. They they were lowering targets um in Q1 and and early April. Uh and then you know as the markets hit new highs uh they're raising targets. So they're just always in that mode. I'm always the I'm a I'm a a buy side type where I come from the hedge fund world. I'm always looking for the next thing out there and you know I like I'm looking at uranium stocks and I I got long uranium stocks in March. I started in March and I had all these people on Twitter say, "Oh, good luck." You know, like I'm an idiot. And now they're like, I'm up 120% in, you know, the uranium ETF. I've sold, you know, most of it, but still it's just gone parabolic. Um, but going back here, um, >> but real quick though, Tom, that's probably part of trading though is like being okay with like where you're like, I'm going to lock my gains in here. Like that there's probably a psychology. >> Listen, you're not going to lose money if you if you lock in gains. Um, you kind of have a little regret. I'm not one to like look back and regret with a lot of things. I've done this long enough to where I can say, "Okay, whatever." I, you know, I move on. Um, I have that goldfish um mindset. You know, I don't forget I forget things pretty quick. Um, so here's here's I've got some risks for the AI trade. And this is what I I'm again I'm I'm buy so I'm thinking, you know, what's coming next? what you know I'm not going to be like oh you know they're gonna they're going to open up all these data centers and it's going to be you know shangerlaw for AI so our kids can make memes of homeless people in their house and scare their parents. Now, I I'm going to just talk. This is the most important chart that people should think about. And Barry Bannister of Steve, who I I think does phenomenal work, was out a while ago talking about it. And he was talking about the the rate of change for um capex spending. And it's been this huge growth going up and and you can see like, you know, massive growth on this these dark blue lines. But this quarter it might tick down a little. Not I mean when I say tick down that's 75% versus what 80 you know 80% um growth. uh you've seen these huge announcements of you know pie in the sky um prospects of what their revenues are going to be and what they're going to spend over the next 5 years and and these deals and they're circular and it's you know I mean I saw that in the dot tech bubble and that was not good because that's basically leveraging your future for something that may or may not happen. Uh but here's what I think is going to be important. uh capex growth is going to slow and it may come this quarter and in the next couple weeks if we get that if there's any sort of little down tick and it wouldn't be the worst thing for these companies to say hey we're just you know we got enough we're going to we're going to you know push this out a bit further but we're going to level it off here because it's been an it's been an arms race Julia people um and at these tech companies are spending more money than they have and assuming more return on equity or return on investment than they probably will get. And and so the other thing is energy and water. And these are very basic things that uh you know you have all these uranium stocks going crazy. These these nuclear stocks are are going nuts. And we don't have a nuclear reactor in the US in build mode right now. Um, China has, I think, 33. We need more power and we've already had uh we've seen it before, even before all this data center stuff. Uh, we've seen power outages in various states and other places that and and electricity bills are going up. So the the problem is electricity bills have been going up except in Nevada which is sort of weird because I guess you know Nevada you think Las Vegas and city of light and all these lights but the bottom line is we don't have enough power to to generate um you know the data centers that are planned. I mean I today was um Broadcom and and Open AI who they recycled something that Broadcom mentioned on their October 4th uh conference call or that that they were going to you know do a deal with Open AI stock still went up 10%. Announcements are are sort of what works in bubbles, you know. Oh, an announcement, good, bye. But we don't have enough power. 10 gawatts of power is about New York City. And I don't know where we're going to get that. And the thing that investors I think are misunderstanding is that the time to build out whether it's natural gas, uh, hydrogen, nuclear, it's going to take years to build these power generation plants and get them operational. Um, it's not China where they can be fasttracked and environmental concerns just no worries. It's going to take time. And the other thing over here is the water needs are going to be unbelievable. And I'm originally from California and I can tell you that um California is is is always going to be in a drought. There's always going to be some sort of issue as far as water and water bills are extremely expensive already. So you have electricity bills that are elevated from 2020 and they're just going to go up. And you can look at also like UK, Europe, other areas that are energy starved because they've sort of moved away from nuclear and other places um because of the green movement and such. They don't have the power to generate data centers. And I I don't see the political environment healthy for the the politicians saying, "Oh, we're going to, you know, open up these data centers." Um, they don't generate that many jobs and they take a lot of power and it's going to cause inflation with energy prices and water prices as well. So, those are like the those are the right there my little concerns that things just don't add up in AI. >> Let me ask a few follow-on questions to your charts. Do you have any other charts or can we jump into questions? >> I kind of cut it off there. Um >> Okay, perfect. just on the so Demar um the Demar signals that you're pointing to those just for folks who are watching and listening um they identify turning points um and exhaustion like I guess in the markets and you point out that because there's been this lack of corrective action that's been concerning we have these demar signals that are flashing red but the market keeps going up um it is a bit perplexing perplexing um and and why it's so scary just that we keep seeing the market rise here yet we have these signals that are flashing red. >> Well, one of the concerns I have is that that the the market has has lifted and it continues higher. Um I'm just going to run I'm just going to pull something up here real quick. I want to see um the percentage of stocks above on the S&P above the 50 days at 41%. And that to me is a bit concerning because the S&P is still above the 50-day moving average by 2% above the 50-day moving average. So, you're starting to see more stocks break below the 50-day moving average and and sort of basic stuff, but the bottom line is um markets always narrow as they go higher. And the amount of attribution that Nvidia has done just by itself is double that of Microsoft the next. And that's about 18% just by Nvidia alone uh moving the S&P 500 up. And that that average that's an like an average that I can look back to the lows in 2022 when the market made a pretty good bottom and that's a very high number for one stock. So there's so much reliance on Nvidia to continue to go higher and you know one thing that happened with Cisco which was the darling back then uh earnings continued to go higher but the growth rate slowed and the capex budget started to slow uh with the telecom companies. they, you know, they they felt they had enough switches and routers and such that uh that that sort of it it leveled off. And that's kind of what Barry Banister is is thinking and as as well I am. >> My my guess is let's like let's um let's put ourselves on the grills a bit. My guess is the bulls would say the economy is strong, unemployment is low, earnings are growing, that we're not in a bubble, valuations aren't as extreme. Um, what would be what's your response to the bull argument, the bull case? What are they missing? What why are they wrong? >> Well, look, I I there's certain things that they can say that that I would agree with. Um, one of the things that I would say is that I heard the same arguments that, you know, the the sky was, you know, the everything was going to be growing to the sky with the internet and, you know, all the stuff in the tech bubble. Um, and the backdrop of the economy being strong, I think the economy was a lot stronger in 2000 than it is now, especially when you filter in the $ 38 trillion in debt versus 4 trillion in debt. Uh, and we have a $2 trillion deficit and we had a surplus back then. Uh, things were overdone back then. And just like now there's there's a risk of of that overheating uh in the stock market causing um you know pullbacks and and that could also a stock market pullback could also affect the economy as well and that's something to to consider because it did it did so in consumer spending and that's one thing Greenspan uh talked about in his book. He he said he underestimated the weakness in consumer spending and I think it's because people were in tech stocks and they got buried in tech stocks and they lost money and that bubble burst. >> You know, everyone often assume assumes um that the the Fed will save the day. They'll save the day again. Um why might not why might that not work this time? >> Yeah. Um, you know, again, I think that there's there I think the balance sheets uh on the banks and and other places that um normally the Fed cutting rates would um would benefit are are pretty full. And I also think that uh that the fact that you really haven't seen Treasury rates move lower when the Fed cuts rates uh is another sign that the Treasury market and the Fed funds market is they're totally separate. And one's real concerned about unemployment and then one's really concerned about the deficit and high debt and spending and a bit of dysfunction happening on the uh the fiscal side and and maybe on the maybe the monetary side as well. >> Just to reiterate, you mentioned throughout the conversation um that you're positioned uh net short. Can you walk us through that decision um the risk management that comes around um going net short and as a follow on too like if you're wrong um and the rally continues for like another year um what do you do or how do you change your thesis? I'm not saying you're going to be but I'm more curious about the risk management part of it. Yeah. Like take me inside like how does it work? Well, one thing one thing that I I'm I'm really fortunate is that uh I started the year off, you know, notably outperforming the S&P. When the S&P was down, I was up, you know, pretty strong. So, I could afford to take a little bit more risk and I still can to uh position myself net short. And I'm not necessarily, you know, sometimes it's important to understand that, you know, if you short the ones that look the most obvious, um, you know, the the quantum computing stocks or some of these uranium stocks or some of the meme stocks, if you short those, you you have to understand that other people are doing the same because they make no sense. So sometimes I'll I'll look for ideas that are crowded ideas uh that are super well, you know, big liquid names. Uh I'm in I'm short Nvidia. Um I again I I have my reasoning and I talked about it with the AI capex budgets and and such. Um and it's not cheap either. Uh but I I you know I size my positions properly. I don't go over 5% for any one size or one position. And a lot of them uh until they get into um into the money I'll I'll keep it 2%. I still can make you know a fine amount uh with a 2% position. I have a couple um I'm short app loving and that one ran up with the S&P inclusion. Uh I think that with the SEC uh probing them um I think that is a concern and the stock's not cheap. they're growing, but I think that there's risk um with a name like that. And it's I I like to short things that get um that trap buyers um that that get that people are long and it goes below a certain level where they bought and they get forced to sell. So, that's sort of a little trick that I like to watch. And I don't need to necessarily get out there and and try and short meme stocks or or some of the other ones that are just so obvious. Uh where they don't make any money. Uh but that's generally what I do. And if I'm wrong, I'll pivot and and move on. But I do think that um I feel fairly confident that we're going to have um a decentsized correction ahead. And that um that hasn't necessarily, you know, finished playing out. I mean, it's been, you know, two days down in the market and people are, you know, you know, crying that, you know, Trump's got to taco trade this. And, uh, I think that eventually, um, the taco trade doesn't work. And I think that's something that I'm watching right now because if that fails, um, that's going to trap a lot of the buy the dip people. And that's what I look for when I start to short things. I like to trap I like to see people trapped and forced to sell. >> Sounds mean. >> Yeah. No, I mean that's just it's how it's how it works. Um okay, so closing question here. Um it's been an interesting year in the markets 2025. Um how do you think people are going to look back on 2025? What do you think they'll say about this moment in the markets? >> That's a good one, Julia. Uh, I think they're going to look back and say the signs were so obvious and they won't say that until everything seems to to blow up in, you know, in the markets. And, uh, I think I think that's what people are going to look back on it and say, man, that was just so obvious and it was so easy to short. And it's never easy to do anything. Never easy to be long something um or short um even when you you have it working for you. I can tell you that we had a billion dollars at our fund short in financials in 200 seven and 8 and we had you know names like Bank of America go up 100% uh in our face. uh even still we were still you know profitable in them but we had to hold on to certain volatile uh names uh to ultimately get to the lows. So I think that 2025 will be a year of speculation, a year of looking back and saying man those that was so obvious. Um but it always is in hindsight. Now, what I have to do with the experience that I have is I have to find the ideas that I look at and are going to be what people are going to say, "Oh, yeah, that that was that worked on the short side." Um, but it's it's just a grind and a battle and a constant readjustment. >> I mean, if you're net short, is there anything that you're long? I was long a little some energy stocks and I'm I'm long it's like oh yeah am I long yeah I'm long I'm long some uranium still but I I that's not a buy um I have such few longs and the one long that I really like is it's an infrastructure company um called Golar and Golar is a company that has Um it's a natural gas extracting vessel and what they do is they lease out for 20 years to large energy companies around the world. Not, you know, anywhere specific, but they'll lease out a vessel and u get a 20-year contract that's fixed uh of what they make on this vessel each year. And one of the nice things this time when they're doing redoing some contracts is they're getting a piece of the natural gas that they extract. Now they're extracting natural gas from existing wells in the water and it's really an elegant solution for countries like Argentina that needs energy, wants to be energy uh independent and they um they've contracted with YPF and some and some others in in South America to tap those wells. There's a bit of volatility right now because of Mille and his, you know, situation, but uh even if the leftists win, u they're not environmentalists, so they're going to want to make money. So, I'm not really worried about that. But what's nice is you can really value the company based on the vessels that they've already procured uh contracts and they have two more vessels that they are going to contract. And I think that the stock will be a double in the next year. Uh be generous in two years, but it's a $4 billion market cap. They have locked in $16 billion in free cash flow uh for 20 over 20 years. So from a discounted cash flow perspective, uh this company's really sort of a no-brainer. And the CEO is pissed because he thinks his stock's undervalued. So, he's been buying back, they've been buying back stock, and it wouldn't shock me to see this thing get bought out. Um, a smart investor, a long-term investor could could make that happen. And again, I think it at $4 billion, I think it's it's a steal. >> I'd never heard of it. I have to say, I always enjoy our conversations. Um, it's been way too long. Before I let you go, um, Tommy, can you let folks know more about Let's Let's do this. let folks know about the work that you're doing at Hedge Fund Telemetry, how they can support that work. Um, anything that you want to plug, you can. Um, and any parting thoughts, anything that you would like this audience to think about before you go, the floor is all yours. >> Hedge fund telemetry is, uh, my site. Uh, it's a offshoot of the work that I did at a larger hedge fund. I put out notes every day uh talking about markets uh from stocks, bonds, currencies, and commodities. Uh I do some crypto. I'm I'm not I don't buy crypto, but I analyze it and the stuff that I do actually gets it pretty right. Uh but I I really love what I do. It's a subscription model, so you can subscribe. Uh I I am in the midst of launching a whole new website which I'm really excited uh about. We've been involved uh doing this for since 2017 and it's been an absolute joy. Parting thoughts. I think people should think about if they're using leverage, if they're taking too much risk, um be first. uh be first to be the one out and lower your exposures. If you've had a good year so far this year, don't tempt the gods. Um again, lower your exposures, lower your risk levels. Uh there's going to be really good opportunities out there. We're going to try and find them. When our indicators get to certain levels, and usually when those indicators are at certain levels, nobody wants to buy and they're telling me I'm crazy. So, um I look forward to that day. >> We will have you back on the show then and um then you'll be the bull when you come on. I guess >> yeah, back back in April, I put the Herb Albert and Tijana brass um the lonely bull. It's like this, >> you know, brass horn song and people were like, "What are you doing?" Um I even had >> If you are not a perma bear, people are going to say, "Oh, you're a bear." like a ferma bear. >> You know, it takes a lot for me to get really enthused on on certain things, but when I do, it usually works and it has to sort of line up. I'm I'm happy to be picky and um not change my process for the market. Um even if it especially if it's seems irrational to me. So, I I'm I'm pleased with, you know, how things are going. I've had a good year so far >> and I'm looking forward to end the year really, really strong. >> You have had a good year. Thomas Thornton, founder and president of Hedge Fund Telemetry, thank you so much for being so generous with your time, all of your knowledge, your amazing charts, and for being a friend of the show. Really appreciate you. Thanks, Julia.
"We're at a Blow-Off Top" — Tommy Thornton on Market Extremes and What's Next
Summary
Transcript
You have a lot of reliance on the Fed. You have a lot of reliance on the administration to say something to knock the market down and then say something that's going to lift the market higher. Uh I I think that there's a lot of structural problems in the economy and I think that the true outcome is probably going to be a market correction or something worse that people don't expect. That's what's kind of driving me right now. Thomas Thornton, president and founder of Hedge Fund Telemetry. It is so wonderful to welcome you back to the show. Great to see you as always, Tommy. Really appreciate you taking the time. >> Uh, well, thank you very much, Julia. Nice to catch up. >> It is so nice to catch up and I'm thrilled to have you back on. It's been about four or five months since our last check-in and gosh, it's been just crazy time in the market. So, we have to start with the big picture. What do you make of what you've been seeing transpire in markets? What has been on your radar? Take us inside that framework in which you're looking at the world today and where do you see things headed? >> Well, here's how I see things right now and it's really pretty clear. People are are all in uh investors of all types. You can go to retail uh look at every single data metric out there from Bank of America to you name it. Retail's all in. CTAs are all in. 100th percentile of being long. Uh the risk parody people are in the 100th percentile of being long. Both stocks, bonds, and currencies, commodities, they're super long. And now you have hedge funds um be begrudgingly turning long late into this. And on top of it, people have never been more levered in their life. People are long, they're levered, they're complacent. Uh you're seeing like massive amounts of call buying. Uh short-term call buying is now dominating I think 60% of the options market. Uh you see commercials and people putting out things for, you know, I'm only buying options now. I never buy I don't buy shares. I just buy options. And things can happen that those people don't want. And we saw some of that speculation in uh crypto this last week uh Friday and through the weekend all these dire stories of of people that lost everything. 1.6 million crypto accounts were liquidated. Uh which is just an amazing number. And I know it's some of the altcoins that aren't really necessarily coins that people are going to say are, you know, high quality, but still leverage is really prevalent out there across all markets right now. And I think that is a huge huge risk. >> You know, you're someone that tends to like the volatility. from what our prior conversations you do well when there is more volatility but it's also interesting hearing you Tommy you've been in the markets for 30 plus years you've been through multiple cycles in your career how do you think this moment that we're in right now compares to you know kind of previous market cycles that you know caught your attention because I'm kind of sensing from you like you're worried >> yeah I you know I'm positioned properly the way I see it. Uh so I'm not as worried, but I am concerned that uh this gambling mentality is going to hurt retail investors. And again, you saw some really dire stories about people in crypto that, you know, some influencer, you know, was found dead in his Lamborghini, which is, you know, sort of like >> hard for the course. But that's the kind of thing that happens when people are overlevered. They're complacent. They don't realize what they own and they're caught out. And that's the thing that concerns me about retail. They're buying all sorts of stuff whether it's, you know, quantum computing computer chips or things like that. I stuff that doesn't make any money. And that to me is something that um it's just pure gambling right now. And and listen, we have a gambling type mentality right now in the world. Uh you can gamble on sports, you can gamble on politics, you can gamble on just about anything out there and people are trying to get rich fast and that's usually a recipe for disaster. >> Yeah. Like as you point out like we have this gambling mentality whether it's the sports betting, the political betting, the zero DTE options that you can just do all of this stuff on your phones. Now, it does make me wonder like how how does that change the market dynamics? Again, as someone who's been in this space for decades, like how does that change the dynamics? >> Well, I think it's just a matter of generations and generations forget about risk or they don't know about risk and they don't realize it until they're liquidated or things blow up in their face. And I've been through a bunch of different market cycles. I've seen markets that have crashed. I've seen markets that have been absolutely brutal be to be in uh even when you're on the right side. Um you know our fund we were on the right side in the great financial crisis and it was really hard to watch because we had friends and brokerage firms that were you know the firms were going under or getting bought under and their life savings was wiped out a career of life savings wiped out. So I think right now this is a bubble. Uh people acknowledge that it's a bubble and some people might say well since people are saying that it's not going to go down yet. And you have a lot of reliance on the Fed. You have a lot of reliance on the administration to uh lo and behold uh say something to knock the market down and then say something that's going to lift the market higher. Uh I I think that there's a lot of structural problems in the economy. Uh specifically the US deficit which remember Doge that didn't really go far. Uh you have you know the US debt is nearing 38 trillion and it's an imbalance that is not working right now. Uh and if that becomes a bigger issue um which I think it will eventually. I'm not saying it's tomorrow, but I think that that's something that um is keeping rates high and that's not necessarily good for uh the equity market because the equity market needs lower rates. So, the housing market gets unfrozen. Uh funding u on credit gets a little easier uh and cheaper. So, I think that's kind of what people want, but we're not going to get that um artificially. And I think that the true outcome is probably going to be a market correction or something worse that people don't expect. And that's I guess that's what's kind of driving me right now. >> A market correction or something worse? I would love to hear more on that. And um do you think we're are we headed are we headed to like a blowoff top here? Like where do you see what's kind of what are the scenarios that are running through your mind right now? Well, >> I definitely think we're at a blowoff top. And usually when you have a blowoff top, there's you also have the people that say, "No, we're not quite there yet." And maybe we're not for some things, but I'm seeing a lot of evidence that uh we're getting that. Uh one of the things that uh I'll show you when I show you some uh some slides. >> Oh, yeah. Feel free to run through slides anytime. >> One of the things that I'm looking at is the Goldman Sachs most shorted basket. And this is their prime broker of of hedge funds and other institutions that they uh they manage. And and basically they can calculate the most shorted names that they follow. And that basket is up something like 38% uh year to date. And that's notably outperforming the S&P and other indices. And that basically means uh to me that uh those shorts have been blown out. And when I see that happen, um, well, I I I know what kind of market that is. And and if you don't have shorts in the market and or fewer shorts, uh, if you do have some sort of market dislocation, that natural buyer, the short is not going to be there uh, to cover their shorts, and things could get a little deeper, and it could be almost like a vacuum lower. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With monetary metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoy potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. That was one of the questions I wrote down for you is um that shorted you you wrote a note and you talked about the most shorted stocks have been squeezed higher. So when you're saying that that basket that comes out from Goldman, they do that kind of list It's up 38%. So that knocks the short sellers off. It's been a really tough environment for short sellers, but yet they play a really important role because when you do have prices that decline, they are the natural buyers during those declines. So that's an important dynamic. That's So does that mean, Tommy, when we see that correction that it's going to be more dangerous than prior corrections when you actually did have that natural buyer, if you will, in the short seller? >> Oh, absolutely. when you have shorts forced out of the market um and you lose that bid that if you know let's say things drop 5% uh if you don't have that buyer and people are all in which we have full evidence of that and levered yeah things could get a little dicey and and it it could happen soon it could happen sometime this year or next year. Uh and and really when you have a bubble and it's persisted this long without any any bit of a correction that membrane on the bubble uh gets thinner. So it really doesn't take a anything that much of a sharp object as you as I could say uh to pop that bubble. you know, back in 200 um in March, I remember it was who popped the bubble was Abby Joseph Cohen of Goldman Sachs and she just came out in her nice calm way saying, "I think stocks are overvalued." And then all of a sudden the market, you know, fell apart and then cascaded with a lot of volatility. And we had volatility in that first episode of the markets moving up you know 10 15 20% up and down uh over a period of months and then ultimately when the tech uh capex bubble burst um that's when things really you know was a final blow. Hm. You know, speaking of like the market mechanics, um, one of the other areas you've talked about and it's also come up on this show too is the passive bid and ETFs, especially when they're you're talking about like leverage ETFs. Um, how do you think about that part of the equation? It's absolutely >> it's a new dynamic because back in in other periods uh people would just use leverage um and margin debt and this is a a convenient way for people to get around that and they may be using it in you know I you can use it in retirement accounts or other types of of forms but you know if you like something why not like it double the amount and if it's works. Leverage is great when it works and liquidity is great on the upside always. Uh but when things turn uh it gets um it it it becomes something of um a problem. What can I show can I share? >> Yeah, run let's run through the charts. Yeah. >> Okay. So, first off, I I I track market sentiment. I use the daily sentiment index data. It's raw data. And what I've done on our site is we've run the S&P and then I have the market sentiment right here. And the red line is the 20-day moving average of bullish sentiment. And this is from Friday's uh I don't have um today's data up. It's probably bounced a little, but we're at 58%. and it's starting to tip over a little bit, but we're still above the August lows here. And this is still elevated. The 20-day moving average is around 75. And that's an elevated level. And when things break like this here, uh that's when you really start to see a market that is confirming uh further downside. So, let me keep going. And I want to just kind of blast through these as fast. >> You blast through and then I'm going to take notes and then we'll follow up with questions. >> You can follow follow up with me. Um, so the CNN fear and greed, I've had a bunch of people, subscribers have said, "Oh, it's it's it's it's really low. It's not overbought." And I've heard this uh on and on. And I I sort of question the methodology. They have seven inputs that go into this. And it's not it's kind of a nice index because it's showing what people are doing versus what they're saying. Uh and but I run a a little I'm looking at this and this is the first input and this was today. Um they're calculating this the S&P 500 versus its 125day moving average. This is fear to them and I I would say that this is more greed. We're not quite in fear mode. And if we I I don't know what this is. This is like I mean I guess extreme fear, but like like change your underwear fear down here, but this seems to be very bullish in my opinion. It's not necessarily fear. It seems more greed if anything. So that I just question that. And I track market sentiment. I've I've done um in the old days I did a lot of work talking to all the people that created market sentiment tools like Ned Davis and Market Bane and Investors Intelligence and and the daily sentiment index is my favorite and that's why I keep it on my site. I think it's the best and it's daily. So I I track uh demar indicators and I'm not going to get too deep into how they work, but when you see nines and 13s, uh those are sort of the issues that you want to watch for uh reversals. And uh here is the um this is a daily chart and you've had a bunch of 13s, you've had a bunch of nines. Sometimes when you see the purple nines, that means that there's two versions of the same indicator. Um, but the bottom line is this nine here, um, really saw a big pullback. This, we didn't even get to the 50-day, and I don't think we've seen the 50-day in the S&P or a close below it since April, which is almost one of the longest periods I've ever seen um of it not breaking below. And usually when you get 13s on a daily, you get a move to the 50 or below, and that gives you an opportunity to buy. So, you haven't had any really decent opportunity for any sort of short-term oversold area to buy. And it's it's frustrating for active managers like myself. But over here, uh, back in the end of the year, uh, we had this is a sequential 13, sequential 13, and we had them here in the end of 2021, and we had a, you know, pretty ugly period in 2022. I like these periods. I like volatility. I like being able to buy things lower, sell them higher, short them. That's kind of my that's my wheelhouse. Uh when you have this like straight up with uncorrected type market like this, uh it gets to be really challenging because you don't really have that opportunity and it's been very narrow. Um I'll go through some of the concentration in a second, but what we have right now is we have new sequential and combo 13s and a cell setup nine. and the the 13s are a bit more important and usually it it takes a few weeks or or it can happen immediately that you have a pullback. Uh but if anything what these mean is is it it's simply uh the market is exhausting buyers. So you you're running out of buyers uh at this point uh to buy more. And if anything, it's not necessarily that you're going to get like this massive drop which some people the unrealistically hope for after these signals or think that is supposed to happen. It's going to be a pause. So, it could be it could be a period of weeks, it could per period of months. So, let me just keep moving on. This is the Goldman Sachs most shorted basket. Uh going back into like April, you had I could go over a little further, but you had 13s at the lows. Here's one here, a higher low 13. So, this was a buy. This basically said things were probably going to go a little higher. You got some 13s here. You backed off a bit and now you have a new one here today and this is uh this line here is the wave five price target that it's a demarc u similar to Elliot wave but it's their calculated price target and that's a signal in itself. So I think that the the shorts have been squeezed out of this market um and and that's not kind of what you want to see. you want to see things where where you get these buy signals and you know the shorts are going to start to cover and we saw that that was very clear. So, this one, um, it's probably increased, but this was a few weeks ago. The 10 biggest stocks in the S&P, uh, we're going to talk about passive. Uh, it makes up 40% of the index. That's 10 stocks out of 502, I think. Uh, and that's pretty remarkable and much higher than other periods. And to me that leads to concentration risk because if all of a sudden Nvidia dropped 24 points that would be the equivalent of Cisco in 2000 at their peak market cap going to zero. So you the some people will say, "Oh, well Tom, the valuations aren't like 2,000, but the market caps are so enormous, the people are long, and we didn't have spying cues and and and the the prevalence of index funds back then like we do now where people in their retirement accounts and everything else, they're so jammed into these things and they only will notice when something really bad happens and then guess what they'll do? They're not professionals. They'll probably say, "Oh, I'm going to I'm going to sell it. I'm out." And if they sell 5% that leads to supply in the market and I think that people don't realize that um in videos I think it's like 10% of the in index now too, which is just by itself crazy. So, I just want to say one other thing. Um as far as some of the extremes, call buying extreme is extreme. uh 40 million contracts um over the last 20 sessions. This was a few days ago. That's just nuts. And and go back and we can look at that period in 2001 when we had weekly demark countdowns up here and that was call buying extremes as well. And you have again you have everybody long this market. You have retail that's pushed in so much money. I think I saw a piece and I was going to put it in this but hundred billion dollars has by retail in the last month has been added to this market and >> that was Morgan Stanley report. Yeah. >> Yeah. I think that's risky. Now here here's one of my favorites. Um this is a fiveday moving average of the equity put call ratio. And when it gets down to these low levels, you know, 0.5, that means that people are buying calls hand over fist, and it's a 5day moving average, so it smooths out some stuff. But what I like to see is when this spikes high and gets up here, I like to buy stocks. And I did in April. I, you know, I was short in Q1. uh everything sort of turned and you know liberation day and everything went lower and I was covering basically everything I had and went long like an idiot or well just from discipline I sold things early uh but still I I you know benefited by >> oh when you went long you sold you said you sold early >> of course I always sell sell too early I'm always the first guy >> can I just give you a shout out because you were one of the guys you said that we would see S&P below 5,000 this year which we did Yeah. >> And then we had Liberation Day. So, I just want to give you credit where credit's due because you you are a trader. >> Yeah. I I I am. And I I I'm I'm pleased that you know, we got that level. Um I'm not one to do the end of the year type targets. And you know, the sell side also remember one thing about the sell side and they're all the same. They they were lowering targets um in Q1 and and early April. Uh and then you know as the markets hit new highs uh they're raising targets. So they're just always in that mode. I'm always the I'm a I'm a a buy side type where I come from the hedge fund world. I'm always looking for the next thing out there and you know I like I'm looking at uranium stocks and I I got long uranium stocks in March. I started in March and I had all these people on Twitter say, "Oh, good luck." You know, like I'm an idiot. And now they're like, I'm up 120% in, you know, the uranium ETF. I've sold, you know, most of it, but still it's just gone parabolic. Um, but going back here, um, >> but real quick though, Tom, that's probably part of trading though is like being okay with like where you're like, I'm going to lock my gains in here. Like that there's probably a psychology. >> Listen, you're not going to lose money if you if you lock in gains. Um, you kind of have a little regret. I'm not one to like look back and regret with a lot of things. I've done this long enough to where I can say, "Okay, whatever." I, you know, I move on. Um, I have that goldfish um mindset. You know, I don't forget I forget things pretty quick. Um, so here's here's I've got some risks for the AI trade. And this is what I I'm again I'm I'm buy so I'm thinking, you know, what's coming next? what you know I'm not going to be like oh you know they're gonna they're going to open up all these data centers and it's going to be you know shangerlaw for AI so our kids can make memes of homeless people in their house and scare their parents. Now, I I'm going to just talk. This is the most important chart that people should think about. And Barry Bannister of Steve, who I I think does phenomenal work, was out a while ago talking about it. And he was talking about the the rate of change for um capex spending. And it's been this huge growth going up and and you can see like, you know, massive growth on this these dark blue lines. But this quarter it might tick down a little. Not I mean when I say tick down that's 75% versus what 80 you know 80% um growth. uh you've seen these huge announcements of you know pie in the sky um prospects of what their revenues are going to be and what they're going to spend over the next 5 years and and these deals and they're circular and it's you know I mean I saw that in the dot tech bubble and that was not good because that's basically leveraging your future for something that may or may not happen. Uh but here's what I think is going to be important. uh capex growth is going to slow and it may come this quarter and in the next couple weeks if we get that if there's any sort of little down tick and it wouldn't be the worst thing for these companies to say hey we're just you know we got enough we're going to we're going to you know push this out a bit further but we're going to level it off here because it's been an it's been an arms race Julia people um and at these tech companies are spending more money than they have and assuming more return on equity or return on investment than they probably will get. And and so the other thing is energy and water. And these are very basic things that uh you know you have all these uranium stocks going crazy. These these nuclear stocks are are going nuts. And we don't have a nuclear reactor in the US in build mode right now. Um, China has, I think, 33. We need more power and we've already had uh we've seen it before, even before all this data center stuff. Uh, we've seen power outages in various states and other places that and and electricity bills are going up. So the the problem is electricity bills have been going up except in Nevada which is sort of weird because I guess you know Nevada you think Las Vegas and city of light and all these lights but the bottom line is we don't have enough power to to generate um you know the data centers that are planned. I mean I today was um Broadcom and and Open AI who they recycled something that Broadcom mentioned on their October 4th uh conference call or that that they were going to you know do a deal with Open AI stock still went up 10%. Announcements are are sort of what works in bubbles, you know. Oh, an announcement, good, bye. But we don't have enough power. 10 gawatts of power is about New York City. And I don't know where we're going to get that. And the thing that investors I think are misunderstanding is that the time to build out whether it's natural gas, uh, hydrogen, nuclear, it's going to take years to build these power generation plants and get them operational. Um, it's not China where they can be fasttracked and environmental concerns just no worries. It's going to take time. And the other thing over here is the water needs are going to be unbelievable. And I'm originally from California and I can tell you that um California is is is always going to be in a drought. There's always going to be some sort of issue as far as water and water bills are extremely expensive already. So you have electricity bills that are elevated from 2020 and they're just going to go up. And you can look at also like UK, Europe, other areas that are energy starved because they've sort of moved away from nuclear and other places um because of the green movement and such. They don't have the power to generate data centers. And I I don't see the political environment healthy for the the politicians saying, "Oh, we're going to, you know, open up these data centers." Um, they don't generate that many jobs and they take a lot of power and it's going to cause inflation with energy prices and water prices as well. So, those are like the those are the right there my little concerns that things just don't add up in AI. >> Let me ask a few follow-on questions to your charts. Do you have any other charts or can we jump into questions? >> I kind of cut it off there. Um >> Okay, perfect. just on the so Demar um the Demar signals that you're pointing to those just for folks who are watching and listening um they identify turning points um and exhaustion like I guess in the markets and you point out that because there's been this lack of corrective action that's been concerning we have these demar signals that are flashing red but the market keeps going up um it is a bit perplexing perplexing um and and why it's so scary just that we keep seeing the market rise here yet we have these signals that are flashing red. >> Well, one of the concerns I have is that that the the market has has lifted and it continues higher. Um I'm just going to run I'm just going to pull something up here real quick. I want to see um the percentage of stocks above on the S&P above the 50 days at 41%. And that to me is a bit concerning because the S&P is still above the 50-day moving average by 2% above the 50-day moving average. So, you're starting to see more stocks break below the 50-day moving average and and sort of basic stuff, but the bottom line is um markets always narrow as they go higher. And the amount of attribution that Nvidia has done just by itself is double that of Microsoft the next. And that's about 18% just by Nvidia alone uh moving the S&P 500 up. And that that average that's an like an average that I can look back to the lows in 2022 when the market made a pretty good bottom and that's a very high number for one stock. So there's so much reliance on Nvidia to continue to go higher and you know one thing that happened with Cisco which was the darling back then uh earnings continued to go higher but the growth rate slowed and the capex budget started to slow uh with the telecom companies. they, you know, they they felt they had enough switches and routers and such that uh that that sort of it it leveled off. And that's kind of what Barry Banister is is thinking and as as well I am. >> My my guess is let's like let's um let's put ourselves on the grills a bit. My guess is the bulls would say the economy is strong, unemployment is low, earnings are growing, that we're not in a bubble, valuations aren't as extreme. Um, what would be what's your response to the bull argument, the bull case? What are they missing? What why are they wrong? >> Well, look, I I there's certain things that they can say that that I would agree with. Um, one of the things that I would say is that I heard the same arguments that, you know, the the sky was, you know, the everything was going to be growing to the sky with the internet and, you know, all the stuff in the tech bubble. Um, and the backdrop of the economy being strong, I think the economy was a lot stronger in 2000 than it is now, especially when you filter in the $ 38 trillion in debt versus 4 trillion in debt. Uh, and we have a $2 trillion deficit and we had a surplus back then. Uh, things were overdone back then. And just like now there's there's a risk of of that overheating uh in the stock market causing um you know pullbacks and and that could also a stock market pullback could also affect the economy as well and that's something to to consider because it did it did so in consumer spending and that's one thing Greenspan uh talked about in his book. He he said he underestimated the weakness in consumer spending and I think it's because people were in tech stocks and they got buried in tech stocks and they lost money and that bubble burst. >> You know, everyone often assume assumes um that the the Fed will save the day. They'll save the day again. Um why might not why might that not work this time? >> Yeah. Um, you know, again, I think that there's there I think the balance sheets uh on the banks and and other places that um normally the Fed cutting rates would um would benefit are are pretty full. And I also think that uh that the fact that you really haven't seen Treasury rates move lower when the Fed cuts rates uh is another sign that the Treasury market and the Fed funds market is they're totally separate. And one's real concerned about unemployment and then one's really concerned about the deficit and high debt and spending and a bit of dysfunction happening on the uh the fiscal side and and maybe on the maybe the monetary side as well. >> Just to reiterate, you mentioned throughout the conversation um that you're positioned uh net short. Can you walk us through that decision um the risk management that comes around um going net short and as a follow on too like if you're wrong um and the rally continues for like another year um what do you do or how do you change your thesis? I'm not saying you're going to be but I'm more curious about the risk management part of it. Yeah. Like take me inside like how does it work? Well, one thing one thing that I I'm I'm really fortunate is that uh I started the year off, you know, notably outperforming the S&P. When the S&P was down, I was up, you know, pretty strong. So, I could afford to take a little bit more risk and I still can to uh position myself net short. And I'm not necessarily, you know, sometimes it's important to understand that, you know, if you short the ones that look the most obvious, um, you know, the the quantum computing stocks or some of these uranium stocks or some of the meme stocks, if you short those, you you have to understand that other people are doing the same because they make no sense. So sometimes I'll I'll look for ideas that are crowded ideas uh that are super well, you know, big liquid names. Uh I'm in I'm short Nvidia. Um I again I I have my reasoning and I talked about it with the AI capex budgets and and such. Um and it's not cheap either. Uh but I I you know I size my positions properly. I don't go over 5% for any one size or one position. And a lot of them uh until they get into um into the money I'll I'll keep it 2%. I still can make you know a fine amount uh with a 2% position. I have a couple um I'm short app loving and that one ran up with the S&P inclusion. Uh I think that with the SEC uh probing them um I think that is a concern and the stock's not cheap. they're growing, but I think that there's risk um with a name like that. And it's I I like to short things that get um that trap buyers um that that get that people are long and it goes below a certain level where they bought and they get forced to sell. So, that's sort of a little trick that I like to watch. And I don't need to necessarily get out there and and try and short meme stocks or or some of the other ones that are just so obvious. Uh where they don't make any money. Uh but that's generally what I do. And if I'm wrong, I'll pivot and and move on. But I do think that um I feel fairly confident that we're going to have um a decentsized correction ahead. And that um that hasn't necessarily, you know, finished playing out. I mean, it's been, you know, two days down in the market and people are, you know, you know, crying that, you know, Trump's got to taco trade this. And, uh, I think that eventually, um, the taco trade doesn't work. And I think that's something that I'm watching right now because if that fails, um, that's going to trap a lot of the buy the dip people. And that's what I look for when I start to short things. I like to trap I like to see people trapped and forced to sell. >> Sounds mean. >> Yeah. No, I mean that's just it's how it's how it works. Um okay, so closing question here. Um it's been an interesting year in the markets 2025. Um how do you think people are going to look back on 2025? What do you think they'll say about this moment in the markets? >> That's a good one, Julia. Uh, I think they're going to look back and say the signs were so obvious and they won't say that until everything seems to to blow up in, you know, in the markets. And, uh, I think I think that's what people are going to look back on it and say, man, that was just so obvious and it was so easy to short. And it's never easy to do anything. Never easy to be long something um or short um even when you you have it working for you. I can tell you that we had a billion dollars at our fund short in financials in 200 seven and 8 and we had you know names like Bank of America go up 100% uh in our face. uh even still we were still you know profitable in them but we had to hold on to certain volatile uh names uh to ultimately get to the lows. So I think that 2025 will be a year of speculation, a year of looking back and saying man those that was so obvious. Um but it always is in hindsight. Now, what I have to do with the experience that I have is I have to find the ideas that I look at and are going to be what people are going to say, "Oh, yeah, that that was that worked on the short side." Um, but it's it's just a grind and a battle and a constant readjustment. >> I mean, if you're net short, is there anything that you're long? I was long a little some energy stocks and I'm I'm long it's like oh yeah am I long yeah I'm long I'm long some uranium still but I I that's not a buy um I have such few longs and the one long that I really like is it's an infrastructure company um called Golar and Golar is a company that has Um it's a natural gas extracting vessel and what they do is they lease out for 20 years to large energy companies around the world. Not, you know, anywhere specific, but they'll lease out a vessel and u get a 20-year contract that's fixed uh of what they make on this vessel each year. And one of the nice things this time when they're doing redoing some contracts is they're getting a piece of the natural gas that they extract. Now they're extracting natural gas from existing wells in the water and it's really an elegant solution for countries like Argentina that needs energy, wants to be energy uh independent and they um they've contracted with YPF and some and some others in in South America to tap those wells. There's a bit of volatility right now because of Mille and his, you know, situation, but uh even if the leftists win, u they're not environmentalists, so they're going to want to make money. So, I'm not really worried about that. But what's nice is you can really value the company based on the vessels that they've already procured uh contracts and they have two more vessels that they are going to contract. And I think that the stock will be a double in the next year. Uh be generous in two years, but it's a $4 billion market cap. They have locked in $16 billion in free cash flow uh for 20 over 20 years. So from a discounted cash flow perspective, uh this company's really sort of a no-brainer. And the CEO is pissed because he thinks his stock's undervalued. So, he's been buying back, they've been buying back stock, and it wouldn't shock me to see this thing get bought out. Um, a smart investor, a long-term investor could could make that happen. And again, I think it at $4 billion, I think it's it's a steal. >> I'd never heard of it. I have to say, I always enjoy our conversations. Um, it's been way too long. Before I let you go, um, Tommy, can you let folks know more about Let's Let's do this. let folks know about the work that you're doing at Hedge Fund Telemetry, how they can support that work. Um, anything that you want to plug, you can. Um, and any parting thoughts, anything that you would like this audience to think about before you go, the floor is all yours. >> Hedge fund telemetry is, uh, my site. Uh, it's a offshoot of the work that I did at a larger hedge fund. I put out notes every day uh talking about markets uh from stocks, bonds, currencies, and commodities. Uh I do some crypto. I'm I'm not I don't buy crypto, but I analyze it and the stuff that I do actually gets it pretty right. Uh but I I really love what I do. It's a subscription model, so you can subscribe. Uh I I am in the midst of launching a whole new website which I'm really excited uh about. We've been involved uh doing this for since 2017 and it's been an absolute joy. Parting thoughts. I think people should think about if they're using leverage, if they're taking too much risk, um be first. uh be first to be the one out and lower your exposures. If you've had a good year so far this year, don't tempt the gods. Um again, lower your exposures, lower your risk levels. Uh there's going to be really good opportunities out there. We're going to try and find them. When our indicators get to certain levels, and usually when those indicators are at certain levels, nobody wants to buy and they're telling me I'm crazy. So, um I look forward to that day. >> We will have you back on the show then and um then you'll be the bull when you come on. I guess >> yeah, back back in April, I put the Herb Albert and Tijana brass um the lonely bull. It's like this, >> you know, brass horn song and people were like, "What are you doing?" Um I even had >> If you are not a perma bear, people are going to say, "Oh, you're a bear." like a ferma bear. >> You know, it takes a lot for me to get really enthused on on certain things, but when I do, it usually works and it has to sort of line up. I'm I'm happy to be picky and um not change my process for the market. Um even if it especially if it's seems irrational to me. So, I I'm I'm pleased with, you know, how things are going. I've had a good year so far >> and I'm looking forward to end the year really, really strong. >> You have had a good year. Thomas Thornton, founder and president of Hedge Fund Telemetry, thank you so much for being so generous with your time, all of your knowledge, your amazing charts, and for being a friend of the show. Really appreciate you. Thanks, Julia.