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Time to Get Defensive, Avoid ‘Magnificent 7’ Tech Stocks (Szn 6, Episode 3)

Ted Oakley, founder of Austin, Tex.-based Oxbow Advisors, joins the podcast to discuss his views on markets and the economy and why this is a time to get defensive with one’s portfolio.

Content Highlights

  • The stock market highs for the year will be set during the first quarter (1:47);
  • “There are things that people don’t see” (or at least don’t publicize) that are pointing to a slowdown in the economy (3:08);
  • One of these is the US consumer, who is now borrowing to finance purchases (4:59);
  • Another is commercial real estate, which is just starting to rear its head… (6:05);
  • Interest rate cuts from the Federal Reserve may be further away than realized due to inflation risks (8:22);
  • Oxbow has been invested in ‘Magnificent 7’ stocks Microsoft (MSFT), Google (GOOG), and Apple (AAPL) for some time, but has been trimming these holdings and is certainly not looking to add more. But certain defensive sectors got cheap recently… (10:48);
  • Background on the guest (23:07);
  • What previous period in investment history is today’s market most reminiscent of? Bulls will not like this answer… (29:32).

More on the Guest

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Hard Assets the Place to Be in ’23: Kyrill Asatur, Centerfin (Szn 4, Ep. 34)

This podcast episode brought to you by Covey — Covey is designed to find, reward, and train the next top investment managers —from any background—that anyone can copy, so everyone can win.

Kyrill Asatur, co-founder and CEO of Centerfin, joins the podcast to discuss his view on asset allocation going into 2023: why he is bullish on hard assets like energy and bearish on fixed income — and why the inflationary environment is likely going to stick around.

Content Highlights

  • How Centerfin was set up coming into this year and what went into its contrarian decision to avoid fixed income (4:06);
  • Current views on the market after a tough year (5:25);
  • Centerfin’s take is to be long hard assets, including commodities and commodity-linked equities while continuing to avoid fixed income like bonds (7:44);
  • The environment is different now. There has been a regime change since 2017. Inflation can’t just be exported anymore (9:48);
  • There will likely be a recession. Once we emerge from it, leading industries will probably be different than they were in past recoveries (11:18);
  • Why Centerfin is bullish energy and how they are playing it (12:55);
  • Their chosen ETF to get exposure to clean energy (14:48);
  • There is no need to buy international (ex-US) energy stocks (16:36);
  • Short discussion on the concept of introducing different prices for different uses of energy (18:48);
  • Re-shoring from China with Apple (AAPL) moving all its production out of the country and how to potentially play that trend (20:46);
  • Background on the guest and what got him to start Centerfin (25:53);
  • Distressed investing remains out of reach for most investors but Centerfin is considering ways to change that… (30:52);
  • The bullish case for copper (39:13);
  • How best to gain exposure to uranium (40:00).

More on Kyrill Asatur and Centerfin

This podcast is for informational purposes only. Nothing here is intended as investment advice. Do your own research, make your own decisions.

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Bank of England Bail-Out and the Return of Systemic Risk

The following is an amended version of the Sept. 29 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Stocks rallied yesterday after the Bank of England said it would intervene in bond markets. The central bank will buy £65 billion worth of long-dated gilts at an “urgent pace” and postpone plans for quantitative tightening. The Wall Street Journal has as good piece that gets into the quandary the BOE was in. Apparently pensions were on the hook for holding derivatives tied to interest rates.

Bank of England logo (old)
Bank of England logo (old)

Pensions, Derivatives, Systemic Risk

The BOE move was cheered by markets but it does raise questions. If pensions are behaving like hedge funds by betting large amounts of money on esoteric (and illiquid) interest rate swaps, then that would certainly introduce a level of systemic risk to the system.

If all that sounds familiar, it’s because it’s exactly what almost brought down the whole financial system in 2008. Except then it was banks trading these things, not pensions. (Okay, strictly speaking they were different instruments. But whatever, they were still derivatives. And yes, comparisons to 2008 are cheap AF. Still, this looks like an obvious similarity). They say regulators are always guilty of fighting the last war. Well, bank balance sheets are pretty clean these days. But pensions? Does anybody know what they’re even holding? And who are the counterparties?

The derivatives in question appear to be liability-driven investments, or LDIs. The size of this market? About $1.5 trillion (not a typo). This raises the very obvious question of what other pension funds in what parts of the world are trading these things.

We’ve cautioned for some time that once the whole market starts rolling over it could unearth problems that nobody had been anticipating. This is typical of market shifts of this size. Well here we go. So nice little bounce yesterday. But it would be pretty naive to think this issue is resolved and we can live happily ever after.

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