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Yes, the Fed Can Still Engineer a ‘Soft Landing’: Callie Cox, eToro (Szn 5, Ep. 5)

Published February 21, 2023

A short clip of actionable highlights from this podcast episode was distributed to premium subscribers on Feb. 9 — almost one week ago at the time of this writing. The full podcast episode followed a day after that. To become a premium subscriber and take advantage of this and a host of other benefits (and avoid annoying ads and announcements), visit our Supercast or Substack and sign up!

Callie Cox of eToro joins the podcast to discuss her view that the Federal Reserve can engineer a ‘soft landing’ — defeating inflation while not tipping the US economy into a recession.

Content Highlights

  • It’s hard to see how the Fed will be able to combat inflation without breaking things in the economy, but this is the guest’s view (3:00);
  • This view is partly based on the job market (4:06);
  • Inflation is the major risk to the ‘soft landing’ thesis. But there are encouraging signs (6:00);
  • Still, there is a chance investors are underestimating the chances of higher interest rates from the Fed (8:08);
  • Ultimately, investors are discounting the global economy’s strength (9:21);
  • Technology has been harder hit than other sectors of the economy, which may bring second-order effects especially locally. But nationally, initial jobless claims are still low (13:57);
  • The US consumer has been a particular strong point. No reason for that to stop (15:53);
  • Background on the guest (20:12);
  • Views on cryptocurrency (24:48);
  • The concept of decentralized finance, or DeFi: not just a fool’s errand (26:43);
  • Does the VIX still matter? Maybe, but there are better options to gauge volatility (31:14).

More on Callie Cox

Quick Video Highlight From Our YouTube Channel

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The New Narrative, a lot like the Old Narrative

Published February 13, 2023

Concerns about inflation and Fed rate hikes are front and center again as focus turns to January’s CPI print…

The following is an amended version of the Feb. 13 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack or Supercast.

It’s a big week with the Consumer Price Index supplying a fresh inflation reading Tuesday.

Last week wasn’t great for stocks. In fact, it was the worst week of the year so far. Inflation was one persistent theme to emerge from earnings, which from the looks of it is getting investors to rethink the narrative that the Fed can start cutting rates later this year.

In reality that narrative was foolish to begin with. More importantly, it wasn’t due to any tangible comments by Fed officials — some off-the-cuff hints by Powell that probably weren’t even intended as such were enough to get investors to pile into risk assets, however temporarily.

So apparently the narrative has shifted again, from ‘soft landing’ to ‘higher for longer.’ From ‘don’t fight the tape’ to ‘don’t fight the Fed.’ Which means this meme can safely be unearthed again:

Don't Fight the Med MaryJane meme

Reality Check

This latest market activity is a bit of a relief to those of us who were questioning our sanity coming in to last week. Markets can stay irrational for awhile (longer than we can stay solvent, as the saying goes) but maybe this latest bout of bullish irrationality just wasn’t long for this world to begin with.

Two things we’ve been pointing out the whole way: 1) the Fed record of engineering soft landings is not good, and 2) there is a lag effect between when the Fed sets interest rates and when these are felt in the real economy.

This doesn’t make for a particularly constructive environment for risk allocation and makes the January rally look like a dead cat bounce.

Now that that’s settled, we can consider all the ways that it’s wrong. Have at it.

Podcast Excerpt

Quick highlight from today’s podcast (available in its entirety for premium subscribers) courtesy of our YouTube channel:

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A Global Economy Beset by Discrepancies, With Joseph Politano (Szn 5, Ep. 3)

Published February 2, 2023

Joseph Politano of Apricitas Economics joins the podcast to discuss his views on the various discrepancies in the global economy — and how the whole thing may play out.

Content Highlights

  • US home prices could be due for more declines, based on how housing starts and interest rates have been trending (2:15);
  • How much of the strength of the labor market is due to interest rate hikes not having taken full effect yet? (4:09);
  • Expecting a ‘mild recession’ may be as naive as anticipating a ‘soft landing’ (8:44);
  • Traditional leading indicators are out of synch, with manufacturing employment dropping precipitously but the services sector going from strength to strength (13:30);
  • The Fed may have already overdone it with interest rate hikes (14:57);
  • The ‘best case’ scenario may be akin to what happened in 1995-96 (18:15);
  • Background on the guest (22:23);
  • What to (possibly) expect from Fed policy the rest of 2023 (27:29);
  • Watch Japan’s monetary policy as well (34:17);
  • What about cryptocurrencies as a systemic risk? (39:08);

More on Joseph Politano

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