July 2022 – The Contrarian Investor Podcast

Big Week Ahead: Earnings, GDP, Fed Interest Rate Decision

Published July 25, 2022

The following is an amended form of the July 25 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

We are staring at a three-headed beast this week: Earnings, the Federal Reserve’s interest rate decision, and economic data.

Three-headed beast. Promo image for the original Showa iteration of King Ghidorah. Source: Toho Co via Wiki — Promo image for the original Showa iteration of King Ghidorah.
Source: Toho Co via Wiki

The Fed interest rate decision is Wednesday. Second-quarter GDP is Thursday. The most important economic data release isn’t until Friday with the Personal Consumption Expenditures, aka the Fed’s preferred inflation gauge.

The FOMC and Q2 GDP will get the lion’s share of attention. Both could turn out to be non-events. GDP is a trailing indicator and anyway this is just the first estimate of Q2 GDP. Yeah if it prints negative that will be two consecutive quarters, which technically means we were/are in recession, blah blah. Doesn’t change the fact that this tells us something which has already happened. As such it is unlikely to move markets very much.

Fed Certainty, Not Earnings, Drove Stocks Rally

Published July 20, 2022

The following is an amended form of the Daily Contrarian briefing from July 20. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Stocks put in a major rally yesterday. The Nasdaq gained more than 3% on the day and S&P 500 was up 2.8%.

The bounce is being attributed to earnings, but most of these were not that great and several companies also scaled back their outlook for the rest of the year. Then there was Netflix (NFLX), which rallied after hours despite announcing a loss of almost 1 million subscribers. The stock rallied because it had previously predicted a loss of 2 million. (Note to streaming companies: Just predict a huge loss of subscribers, more than twice what is likely then sit back and watch your stock rally).

Remember that markets hate uncertainty more than they hate bad news. The Federal Open Market Committee, or FOMC, meets next week to decide on interest rates. Talks of a 1% rate hike that spooked markets after last week’s inflation reading have given way to the far more likely reality of a 0.75% hike — and that is now being accepted as gospel. The source for this appears to be a speech by Fed governor Chris Waller, which has led the Wall Street Journal to all but declare the 1% hike to be off the table.

Oil Prices Will Rise to $200/Barrel: Salem Abraham (Szn 4, Ep 19)

Published July 18, 2022

Salem Abraham of Abraham Trading Co. joins the podcast to discuss his bullish outlook for oil, predicated on supply issues and under-investment.

Content Highlights

The shift to renewable energy is real, even in the Texas panhandle. But the transition is still in the very early stages. Oil and gas are still needed — so are investments in infrastructure (4:13);
Worldwide drilling has yet to recover to pre-Covid levels. This will lead to $200/barrel oil and $10 gasoline prices (7:07);
“I think we end up with stagflation,” but even that will not solve the supply issues (8:50);
Natural gas “is still a great investment” (14:14);
The benefits of green hydrogen (16:31);
There are more pipelines than popularly believed in the U.S. and they are actually more precarious than transmission lines (19:52);
Background on the guest (29:36);
Liquid alternatives and the need for better diversification (31:37);
The Federal Reserve has to regain credibility after the ‘transitory’ talk. The Fed will blink, eventually… (36:02);
Unrelated: Notre Dame will not join the Big 10 for football, says the alumnus (39:49).