Last updated on November 9, 2022
Fabian Wintersberger joins the podcast to discuss his views on the economy, inflation, and Fed policy.
Content Highlights
- The Fed will not succeed at bringing inflation down to 2%. There will be no soft-landing for the economy (2:48);
- Interest rate hikes will proceed until something breaks in the real economy, forcing the Fed to reverse course (5:04);
- Bond yields: We haven’t seen the highs yet (8:16);
- Background on the guest (14:10);
- The situation in Europe. Central banks have no choice but to follow the Fed higher (16:38);
- The situation in Wintersberger’s native Austria, which faces an unprecedented winter with dramatically higher energy costs (18:55);
- Austria has historical ties to Russia, including in its banking sector, where one institution still has business in the country… (23:27).
More About Fabian Wintersberger
- Twitter: @f_wintersberger;
- Substack: The Weekly Wintersberger.
Quick Highlight Clip From Our YouTube Channel
Transcript
Nathaniel E. Baker 0:09
Fabian Wintersberger, thank you so much for joining the contrarian investor podcast today. Joining us from Linz, Austria, the reason you’re on the podcast is because you have some contrarian views here. And the first one is that the Fed will not be successful in fighting inflation, which is kind of not what people are planning on. And they talk about inflation already coming down due to higher interest rates, etc. But you don’t think the Fed is going to be successful in this in these efforts. So tell me about that.
Fabian Wintersberger 1:12
Well, thanks for having me.
Nathaniel E. Baker 1:13
Thanks for coming on.
Fabian Wintersberger 1:14
I think that the Fed will not succeed in bringing inflation back to 2%. So I think, I think inflation will maybe get back down to 4% 3%. But in order to doing that, then the Fed I think will go up, they will break things, I think there won’t be any soft landing they will make there will be a hard landing. And the problem I see is that there is a huge debt of the countries you know, and the debt that the US has so much debt. And in order to bring inflation down, you have to crush it up. And therefore we use your crush outfit. And that’s why I think that the Fed will not succeed, and that they will blink before the job is done. And then we’ll have the real next inflation wage going on. And I expect that inflation may be possibly above 10% in the coming years or so.
Nathaniel E. Baker 2:15
Wow. Okay. And so you don’t think so you think the Fed is going to blink? At some point, I’m assuming due to fall out in markets, and maybe even in the economy?
Fabian Wintersberger 2:26
Yeah, exactly. And I think maybe we will see some problems in the real economy, because we, I mean, we’ve seen bond selling off very sharp. But the stock market, I think it’s it’s it’s holding pretty well, still now, I think not very much seven very still far away from the 2020 lows. And therefore, I think they will keep hiking and hiking and hiking. Maybe they will pass somewhat next year. The other thing is that the Biden administration dare keep spending, they’re spending money, they’re handing out checks into the economy. They’re giving, um, subsidies to this company subsidies to their company, and this will lead to serious consequences down the road.
Nathaniel E. Baker 3:12
Yeah. But you still do think that the Fed will get inflation down to see the CPI down to like 4% or so. Yeah, I think so. Will they then declare victory? Or will you think or will they then be like, Okay, there’s all these problems in the economy that we have to address and say I’m gonna cut rates again.
Fabian Wintersberger 3:29
Yeah, my hunch is that they will really hike until the break something, then we have some things some sort of left off and disinflationary trends. So inflation will decelerate. And then something in the real economy would have nothing. I think that the maybe the jobless rate will spike pretty hard. And at some point, the Fed pilot political pressure will be so hot that the Fed will have to reverse course, because the rate hikes currently are mainly in my opinion, because the Biden administration is pushing them out to fight inflation. That’s the main reason I think that they’re that they have become so aggressive in doing that. And yeah, maybe because it’s Paul’s second sermons. He wants to get into the history of books. That may be another factor that I think that it’s a political topic. Inflation is not political. And that’s why the Fed has to do something. And that’s why a lot of central banks have to do something.
Nathaniel E. Baker 4:37
Right. What do you think you mentioned employment potentially being one place where the economy breaks? What other areas do you think? Could it could we see it?
Fabian Wintersberger 4:47
That’s very hard. I think we may see some Yeah. I mean, we have not only government that we have also debt of companies. And that’s also pretty high. And we have I think about 20% in the US. So some companies. And that’s why I think that’s the area where I think things could get messy. And damn, you will have so much problem problems in the economy that I think the Fed will say, Okay. We have broke some things we will have to eat and the Biden administration will say, Yeah, we need to spend, we need to spend, we need to issue bonds spent. And that’s when I think they will pressure the Fed to ease again.
Nathaniel E. Baker 5:43
Okay, interesting. Wow. So you so you do think that the whole thing is political. I mean, ostensibly, the central bank is independent, but Powell is appointed by a president has to be approved by the Senate. But you do think that there are the the links are more intertwined than maybe we believe,
Fabian Wintersberger 6:01
maybe not exactly that. But I think that the Fed is always getting some pressure from politicians, and from the public as well. And if things get ugly and thinks turned out to be not managed death, well, then I think the Fed will listen to the politicians and to the public, and they will do something about it.
Nathaniel E. Baker 6:25
Interesting, but you don’t think this is imminent? Do you think this is still out in the future a bit into 2023? At some point?
Fabian Wintersberger 6:33
2023, 2024. It’s always hard to make forecasts. So yeah, we don’t really know. But at least that’s my hunch.
Nathaniel E. Baker 6:42
Interesting. Okay. And then also another view here that you have, which is that, and this is linked to the Fed. And inflation, of course, is bonds. And bond prices have taken a beating yields getting blown out here to the highest level. The key here, I believe, is at its highest level since the early 2000s, maybe even. And then the 10 years at its highest level in almost a decade, I believe, as well. And there’s a lot of talk now that maybe this is going to start coming in. But you don’t buy that either. You think that yields are going to continue to rise? Right?
Fabian Wintersberger 7:15
Yeah, exactly. Especially at the long end. Because you know, what, I think if you look at inflation swaps, for example, the market is still believing that the Fed is actually achieving to get inflation back to 2%. And if they will do it, then 10 years actually, yeah, pretty, pretty, pretty well priced. But if the if inflation doesn’t get back down to 2%, but stays at 4%. Dan along and we’ll have to readjust upwards, I think, in my opinion, because if you don’t get inflation back to 2%, or if inflation stays, maybe, yeah, let’s say let’s assume it stays at around 4% for the next decade, then the 3.9% that US 10 years currently, I think, and that’s too low, then you’d have to go further up. Fair enough.
Nathaniel E. Baker 8:11
But do you think that we need inflation at 2%? Or can the economy kind of go at three or 4%? without too many problems?
Fabian Wintersberger 8:21
Probably, if wages keep keep up with inflation rates, but the way I see it, you know, we had our debt levels are nearly as high or a little bit above what they’ve been after World War Two. And what happened after World War two governments inflated that away. So that’s what I think could happen. At some point. We have the government controlling a little bit, they have to feed in the money supply. I don’t know if your Russell Napier has talked a lot about it, that government guarantees help governments to issue new money into the economy, because new money gets out of the economy via bank lending. And if you know the government and guarantees to lend money to a company, then the bank will do it. And that’s why I think inflation will stay high. And maybe at some point, we will have some sort of yield curve control. But that’s so far down the road, I think I think we’ll Yeah, definitely also take some other time.
Nathaniel E. Baker 9:35
All right. So very interesting views. Not exactly confidence building if you want to be long risk assets or bonds for that matter, but a very interesting conversation. Fabiana I want to come back in a minute and ask you some more about this. Ask us about your background. And but first, let’s take a short break. If you are a premium subscriber, you will not get the break. Don’t go anywhere. We’ll be right back and fact we already are.
Nathaniel E. Baker 10:01
Okay, welcome back. Everybody here with Fabian Wintersberger, from Linz, Austria Fabiana. This is the second segment of the show where we ask our guest to tell us a little bit more about themselves, about how they came to this station in life, how they got involved with investing or economics in your case, in the first place. So yeah, tell us about that.
Fabian Wintersberger 10:24
Well, I think it was when I finished my A levels in about 2008, I think and when the when the GFC hit the great financial crisis, and their eyes, got interested into how the economy works, how things are getting produced, how I just wanted to understand how the world works. And this way, I came around the Austrian School. And I started to read many things from Fung Mises. And up till now, I’m a big fan of von Mises, because I think he understood things very accurate. And I liked his approach of doing economic analysis.
Nathaniel E. Baker 11:11
Cool. And so you still you still are subscribed to the Austrian view, the supply side economics type of stuff.
Fabian Wintersberger 11:18
Yeah, kinda. I think you have to have supplied first and then tomorrow, because demand is always there. People are always demand. Thanks.
Nathaniel E. Baker 11:28
Yeah, yeah. And so now, how are you spending your time now? I know you have the substack. I’ll link to that. But otherwise,
Fabian Wintersberger 11:37
I started to study economics. I’m actually finished with a bachelor’s degree. And then started to work at my current job as a race trader at the local Austrian bank. Oh, cool. A very, and, and that’s where? Yeah, we I really got into the rabbit hole of macro economics and financial markets and interest rates.
Nathaniel E. Baker 12:07
Yeah. Very interesting. All right. Yeah. So I mean, this could lead into the next question, which is how things are playing out there with the ECB, obviously, you know, kind of trying to raise rates, but then also doing some other stuff. And then you have all the other, you know, the Bank of England now that is behind a curve with? How are things playing out there in Europe? And how do you see that?
Fabian Wintersberger 12:32
Well, I think, the ECB and the Bank of England, I mean, the Bank of England is a little bit further ahead of the curve. But in fact, I think they have to raise rates, because they want to keep pace with the Fed. The Fed really sets the tempo, and all other central banks need to follow through somewhere because you see the dollar exploding higher, the dollar gets at huge demand. And I think the dollar is poised to go even higher. And central banks want to Yeah, catch up and maybe bring down the exchange rate a little bit by raising rates. But, in fact, if our governments they hand out money to hand off subsidies, they’re fighting inflation, we are handing out checks to the consumer. And, yeah, I am not sure if the ECB and the Bank of England if they can hike rates fast enough. That’s government spending will Yeah, we’ll stop. That’s I think it’s a it’s a real problem here. Yeah. Well, I
Nathaniel E. Baker 13:43
guess there’s two different things. There’s the fiscal side and the monetary side. Right. Yeah. But you don’t see any any way for the do you think they have to follow the Fed all the way up? I mean, I guess the BOE was they preceded the Fed, I believe. I can’t remember. Might have maybe one, but they haven’t that none of these banks have any choice but they have to keep keep doing doing the rate hikes until the Fed does.
Fabian Wintersberger 14:06
Yeah, exactly. Um, maybe the I think it was yesterday, we read that there are some rumors going out around that the Old Central Banks together that will do something to react to make the dollar a little bit weaker. And to prop up the other currencies. But yeah, to me, it’s just rumors. I don’t know. And I can’t say if it’s true, or not. Maybe they will do that at some point. Who knows?
Nathaniel E. Baker 14:35
Which would not be unprecedented in the 80s. They did something What was it a Paris accord or whatever? I forget what it was, but I think they did something during that time. But yeah, but now how is the economic situation there in Austria we read a lot here a lot about the higher energy prices, mostly as it pertains to Germany is Austria in a similar bind,
Fabian Wintersberger 14:56
In a similar bind. I think we’re even a little bit more more dependent on Russian gas there is there has always been very direct connections from politicians to to Russia. Because, you know, back in the Cold War, we have been some VNS been some kind of decentral neutral film where the Russian agents and the US agents walked around and tried to get us some information. And yeah, I think Austria has some had some close ties to Russia too. And all that. Yeah. So we are also dependent on Russian gas, and very much. And when the war started, all that stopped, and I think that we’re probably will have huge problems going through the winter, not in terms of having enough gas. I think that’s not the problem. The problem is the price. And, I mean, there’s a lot of production in Germany and in Austria, too. That needs gas. And, you know, if the price of energy is so high, then the price of the stuff will be high as well. And then there could be some problems because Germany and Austria and they export a lot of goods.
Nathaniel E. Baker 16:22
Sure. Yeah, yeah. Yeah. Is there? Does Austria have any nuclear?
Fabian Wintersberger 16:29
no. No, there was plans from socialist government on the bullock syskey. But then we had a popular vote, and we voted against them. That was the birth of the Green Party, so to say, Okay, we have in legislation that we think that we are not obligated to build nuclear power plants. Oh, interesting. So that’s so that’s a problem, too. And another problem, and I think Germany has the problem as well, as well, we have, actually, we have natural gas gas in the ground. And I think we’re would be, it would last for 30 years or so. But we don’t want to frack. And yeah, we prefer to import expensive LNG from the US. And yeah, that’s also a problem.
Nathaniel E. Baker 17:26
Yeah, yeah. So the things probably will not be good there for a while. Where do you see that happen? That heading all because all these higher energy prices cutting into growth? It cuts down it just?
Fabian Wintersberger 17:38
Yeah. It’s really hard to say because apart from Yeah, I feel the high inflation at the grocery store. So at the gas station, but regarding electricity, I don’t feel anything and I pay the rate that paid some months before. And I think that, yeah, it will probably take two after the winter till I get my new new contract. And so yeah, the people do not really feel the pain right now that I think we’re maybe going through so.
Nathaniel E. Baker 18:18
Oh, is that is that because so your energy bills? Are they are they somehow back? Right? How does that work? Is it are they? It doesn’t fluctuate every month?
Fabian Wintersberger 18:27
No it doesn’t fluctuate every month. They are fixed for one year, and then you you get a you get A a fixed rate at some don’t really know executives get some kind of a fixed price and then variable depends on their on the usage and how many energy use but the price I think is fixed. And then afterwards, you you have either pay some money, because you needed more energy, or you get some money back.
Nathaniel E. Baker 19:00
Okay, that’s a lot different than here, here. You just get a it’s all every month based on you. So that’s it.
Fabian Wintersberger 19:08
I think it’s time for companies it could be some things some sorta like that. Partially. But yeah, that it really depends on the contract. You, you monitor.
Nathaniel E. Baker 19:21
I see. I see. Interesting. Now Austria, you mentioned the ties to Russia. And I’m curious if the Austrian banks probably also had had a lot of business in Russia. And I say this because I did a panel about it right after the outbreak of the of the war. And the guy said that it was Casper, not Casper Weinberger. I forget the guy’s personally about whoever he was. He said he said that he expected that the bank in Europe could blow up over the Russia the fact that they had had Russian bonds or some some kind of thing in Russia. And he mentioned there was actually a lot of speculation by by being Deutsche Bank or a German bank, is it possible that Austrian banks have have have ties to Russia and could be on the hook there for some stuff?
Fabian Wintersberger 20:10
There is one bank that is very active in Russia, which has been Raifeissen international. But I think in the last earnings, report them if I can remember correctly, the Russian business did very well.
Nathaniel E. Baker 20:27
They still do business in Russia? They don’t have to get out.
Fabian Wintersberger 20:33
Yet. They didn’t get out. That, I think, yeah, they decided to do that. I don’t know how this will play out in the future. But, yeah, I think that that was the aim of saying of the sanctions in the first place. In my opinion, I think that that the goal was that you freeze rationally if extra serves, and then the ruble collapses, and then they come to the table within a few weeks or one or two months. And that’s not how it played out. Yeah,
Nathaniel E. Baker 21:06
right. Right. Oh, that’s interesting. So I guess there, I guess is the EU company, you can still do business in Russia.
Fabian Wintersberger 21:13
My company is only regionally active. So we are only upper Austria.
Nathaniel E. Baker 21:19
Yeah. But I mean, as the other the Raiffeisenbank. The fact that Yeah, yeah.
Fabian Wintersberger 21:25
Yeah. I don’t know exactly how they’re doing. But I think they do some business in Ukraine as well. They have the Ukraine branch and the Russian branch and Yeah.
Nathaniel E. Baker 21:39
And they kept those open. That’s wild. Okay. Interesting,
Fabian Wintersberger 21:42
I think. Yeah.
Nathaniel E. Baker 21:47
So, yeah, so you’re close to that. Do you have any thoughts on how that might play out? The Russia Ukraine thing?
Fabian Wintersberger 21:54
I’m not really not really try to. Yeah, I read something about it. But uh, stay away from it. Because I’m not an expert in geopolitics. And I want to leave that to the experts. And just think about how certain things might play out. Yeah, and the economic tech.
Nathaniel E. Baker 22:16
So fair enough. Very interesting. All right. Fabiana. Maybe in closing, tell our listeners how they can find out more about you. I know you’re active on Twitter, follow you there. And I’ll put all this information in the show notes as well.
Fabian Wintersberger 22:30
Yeah, you can follow me on Twitter and F_Wintersberger. Or you can just subscribe to my substack, which is FWintersberger.Substack.com.
Nathaniel E. Baker 22:44
Very good. Awesome. Well, with that I thank you for hopping on for coming on the podcast. Thank you all for listening. And we look forward to speaking to you again next week.