Press "Enter" to skip to content

The Contrarian Investor Podcast Posts

What to Make of the Latest Hope of a Fed Pivot

The following is an amended version of the Oct. 24 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Stocks had another big rally on Friday to conclude their best week since June and first three-week winning streak of the year. Major US indexes were all up multiple percent on the day. The apparent catalyst was a Wall Street Journal story that the Fed officials are “signaling greater unease with big rate hikes.”

Fed pivot injection meme
Source: Author via IMGflip

The Fed appears to have coordinated this latest injection of hopeium. San Francisco Fed President Mary Daly had the most succinct comments on Friday, saying “the time is now to start planning for stepping down.” The talk is that there will be another 75bps rate hike at the Fed’s next meeting and then 50bps in December.

Markets have taken all this as a clear sign that the Fed is indeed going to blink and back off of raising rates aggressively for much longer. There may be good reason to suspect the Fed will indeed go this route as there are indications that things are starting to break in the global economy. The UK is the main illustration for this.

The market may very well be correct in this assessment this time, but we’ve seen this movie before. The fact remains that with inflation high it is going to be very difficult for the Fed to justify moving to a neutral interest rate policy. When things do break it will very likely get ugly. It always does. That will bring inflation down for sure — along with create a bunch of other effects we haven’t begun to see in the US yet.

So yeah, Fed officials may be getting scared of the monster they have created (which interestingly was done to fight another, earlier monster of the same Fed’s creation). Doesn’t mean they’ll be able to do anything. Talk is cheap. We’ll see at the Fed meeting next week whether this goes anywhere. In the meantime we’ll get a fresh inflation reading on Friday with the PCE deflator.

Leave a Comment

There’s Still Time to Hedge Tail Risk — At Least for Stocks: Kris Sidial (Szn 4, Ep. 29)

Kris Sidial of The Ambrus Group joins the podcast to discuss tail-risk hedging: how it works, why it’s important, and how investors can still take advantage of volatility mispricings to protect themselves against further downside — at least in stocks.

Content Highlights

  • What is tail risk hedging? (3:19);
  • Traditional hedges haven’t worked, starting with the 60:40 approach. How might investors hedge stock and bond exposure? (6:15);
  • There are numerous options for investors to protect against downturns. But it’s not always as easy as buying put contracts on indexes (8:24);
  • Variance swaps, one way to compound returns on movements in volatility (10:25);
  • Thoughts on UK pensions and what might have caused issues in that segment of the market (15:27);
  • What investors are doing in this environment in terms of tail-risk hedging — there are still opportunities to hedge (20:02);
  • Background on the guest (30:08);
  • Discussion of systemic risk as a result of the layers of options trades and counterparties: “There is a systemic hazard taking place right now in the derivatives market” (39:32);
  • Speaking of risk, what about the regulatory environment? Are regulators asleep at the switch? Reasons to believe Dodd-Frank is perhaps not as effective as people think.. (43:37)
  • Thoughts on cryptocurrencies (50:01).

More About Kris Sidial

Quick Highlights From Our YouTube Channel

Leave a Comment

The Fed’s Inflation Battle Is Doomed to Fail: Fabian Wintersberger (Szn 4, Ep. 28)

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

Quick Highlight Clip From Our YouTube Channel

Leave a Comment