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The Contrarian Investor Podcast Posts

FedEx Stock Drop: Some Thoughts

Published September 16, 2022

The following is an amended version of the Sept. 16 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Things went from bad to worse after the close yesterday, with a profit warning from FedEx (FDX). The company blamed macroeconomic weakness in Asia and Europe. Perhaps more importantly, its CEO told CNBC he expects a worldwide recession to ensue imminently. FedEx stock dropped by 20% overnight and continued to fall after the open.

What FedEx is saying is disconcerting on a number of levels. But a little perspective is required. First, it’s worth keeping in mind that companies are quick to blame extraneous factors when things don’t go their way. Okay, FedEx is certainly in a good position to speak to economic realities and there may very well be a lot of truth to them.

FedEx plane. Source: Wiki

But let’s not forget that the consumer data in the U.S. is (so far at least) not exactly confirming these reports. Maybe FedEx is in a better position where these numbers are concerned. Or maybe they’re just losing market share (like, hello, Amazon?) and looking for a boogeyman? Let’s not forget that these warnings used to be a regular occurrence from FedEx.

None of this is to say that the overall economic prospects are rosy. You have the Federal Reserve hellbent on raising interest rates to ward off inflation, supply chain issues, war in Europe, etc. etc. Those variables should come into play before too long whether we want them to or not.

As for FedEx, the company may face more secular concerns with its business. The stock appears cheap after this sell-off. But profits and cashflows appear to be a concern and yeah, market share. Is anybody even looking at that?

Not investment advice. Do your own research. Make your own decisions.

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Inflation Will Ease, Fed Hikes Will Not: Richard Excell (Szn 4, Ep 24)

Published September 14, 2022

Richard Excell, former prop trader and portfolio manager and currently a professor of finance at Gies College of Business, joined the podcast to discuss his outlook on the economy, inflation, Federal Reserve interest rate policy, and more.

Content Highlights

  • The outlook on inflation: 5% by December, but don’t expect the Fed to ease off of rate hikes (7:14);
  • Can the Fed engineer a soft landing? It has succeeded just three of the last 14 times it hiked rates… (9:34);
  • We may not see a housing price decline on a national basis anytime soon (14:05);
  • Expect a 75 basis point rate hike at the next FOMC meeting on Sept. 20 — and again at the subsequent meeting in November, even though the economy should not start to brake until next year (16:11);
  • Background on the guest (22:02);
  • Views on asset allocation: more constructive for bonds than equities at present (27:03);
  • A recession will happen. The good news: it may be mild… (32:30);
  • How much of a concern are global issues in Europe and China? (35:40).

More Information on the Guest

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MoreInflation Will Ease, Fed Hikes Will Not: Richard Excell (Szn 4, Ep 24)
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Convertible Bonds Offer Protection Against Stagflation, Other Ills Facing Markets: Daniel Partlow (Szn 4, Ep23)

Published September 6, 2022

Daniel Partlow, chief risk officer at Advent Capital Management, joins the podcast to discuss convertible bonds. Partlow is a specialist in these securities, having written a book on the subject titled ‘Convertible Securities: A Complete Guide to Investment and Corporate Financing Strategies.’

Content Highlights

  • First, the basics: What are convertible bonds and how do they work? The asset class has actually been around for more than three centuries… (3:29);
  • Some of the characteristics of converts include a maturity of about four to five years but with low interest rate sensitivity of much shorter duration bonds (6:42);
  • A typical balanced convert will provide downside protection (via the bond floor) and upside potential through the equity participation (9:18);
  • Converts have done well in inflationary environments, with less volatility than stocks (11:44);
  • The default rate for converts is a fraction of high yield and leveraged loans (20:38);
  • Background on the guest (24:59);
  • The specter of stagflation and how converts can protect against that (27:50);
  • Where might there be particular opportunities in the converts market right now? (33:07);
  • Examples of individual securities that may be of interest (37:52).
MoreConvertible Bonds Offer Protection Against Stagflation, Other Ills Facing Markets: Daniel Partlow (Szn 4, Ep23)
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