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Szn 3, Episode 27: Forget Inflation — Deflationary Forces Are the More Vexing Issue

Published November 16, 2021

Content Highlights

  • The market is pricing in a series of interest rate hikes for the coming 24 months. But the Fed has backed off of a tightening schedule before (2:18);
  • Bonds have been selling off, but investors will find themselves on the wrong side of this trade when Fed backs off of tapering (4:07);

  • Inflation is a supply-side problem that the Fed doesn’t have control of. Markets are too fragile to handle rate hikes (5:06);The latest FOMC meeting where tapering was announced “was probably the most dovish taper you could come up with” (9:20);

  • Deflationary forces, starting with China, are a major issue the market is overlooking. This despite the best (non-publicized) efforts by the Chinese government (10:49);

  • It’s not just China though; demographics and debt are part of the longer-term trend toward deflation (19:19);

  • Background on the guest (22:33);

  • What about potential headwinds, from China or elsewhere? (24:58);

  • Unwinding Evergrande: Where is the exposure? (29:05);

  • How much longer can the Fed taper before their hand is forced to back off? (31:17);

  • What indicators should investors keep an eye on to monitor this situation? (34:35).

MoreSzn 3, Episode 27: Forget Inflation — Deflationary Forces Are the More Vexing Issue
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Season 3, Episode 26: David Hunter on the Coming Stock Market Bust

Published November 8, 2021

David Hunter of Contrarian Macro Advisors rejoins the podcast to provide updates on his prediction that stock markets are in the final stage of a parabolic melt-up that will be followed by a global bust.

Hunter’s initial targets for the S&P 500, Dow Industrials, and other U.S. stock market indexes have been breached, causing him to provide new, even more bullish, targets.

The bust will likely start with a ‘second-quarter swoon’ next year, caused by the Federal Reserve overreacting to inflation. The deflationary meltdown will then cause another overreaction by central banks and government fiscal policies.

Not intended as investment advice.

Content Highlights

  • Hunter’s new targets on the S&P, Dow, Nasdaq, and Russell 2000 (2:50);

  • Oil and oil stocks have peaked for this cycle (6:50);

  • The bust should happen about mid-way through 2022 and result in oil prices back in the mid-$20s range (8:25);

  • The cycle will end because the Federal Reserve tightens interest rates due to inflationary pressures (10:28);

  • Central banks around the world are withdrawing quantitative easing and some have even started to adjust interest rates higher. This will affect things and force the Fed’s hand. Resolution of supply chain issues would increase the pressure (15:54);

  • China will definitely play a major role in the bust, though Evergrande is probably just the tip of the iceberg (19:27);

  • What happens after the bust is an unprecedented flow of liquidity. Yes, even more than COVID. There will be bank failures, though more in Europe and Asia than the U.S. (21:17);

  • Central banks only have one tool to combat this, which is quantitative easing. They will be matched by fiscal stimulus. It will be “March of 2020 on steroids, basically. Multiple steroids” (26:07).
MoreSeason 3, Episode 26: David Hunter on the Coming Stock Market Bust
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Season 3, Episode 21: Dangers Lurk in Market Structure’s Changing Dynamics (Updated)

Published September 14, 2021

With Michael Green, Portfolio Manager and Chief Strategist, Simplify Asset Management

(Updates with transcript below. To get the transcript earlier, sign up to become a premium subscriber and take advantage of this and other benefits).

Michael Green, portfolio manager and chief strategist at Simplify Asset Management, joins the podcast to discuss the changing dynamics of market structure and how these are creating the potential for havoc.

Content Highlights:

  • Market structure: what it means and how it has changed (3:30);

  • How passive investing pools are changing the equation (6:26);

  • How Tesla (TSLA) is the perfect case study for this phenomenon (8:39);

  • The Fed’s impact when it comes to the bond market. This has ripple effect (13:02)

  • The interest rate and inflation outlook in the U.S. (15:34);

  • Background on the guest (20:55);

  • Passive investing has caused a host of confusing signals where the market cycle is concerned (24:37);

  • Business cycles are still alive and well, and this can of course impact the market. Where that stands today (30:05);

  • Market ‘skew’ is dramatically higher and chances of a collapse are increasing. “The market senses something is wrong.” (34:31).
MoreSeason 3, Episode 21: Dangers Lurk in Market Structure’s Changing Dynamics (Updated)
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