economy – Page 14 – The Contrarian Investor Podcast

China Unrest: A Synopsis

Published November 28, 2022

The following is an amended version of the Nov. 28 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.

This weekend saw numerous protests in China as anger spread over the country’s strict Covid lockdown policies. The catalyst was a deadly fire at an apartment building in Urumqi, in the country’s far-western Xinjiang region. Apparently the Covid policies hampered rescue efforts. It quickly spread to other regions. Demonstrators in Shanghai clashed with police yesterday. In Beijing, protests apparently went all night and took demonstrators near the infamous Tiananmen Square, where officials still insist nothing happened in June 1989.

Economically, the damage has been pretty limited so far. The People’s Bank of China said it would cut the reserve ratio for banks (effectively the country’s interest rate). The Chinese yuan weakened against the US dollar. Stocks in Shanghai, Shenzhen, and Hong Kong all sold off but not terribly (down ~1% each).

The Latest Round of China Protests

Protests are nothing new to China. Nor are protests over the country’s Covid policies. What is new is that Xi Jinping is being specifically targeted and even urged to step down. Some talk of how this is the biggest deal since Tiananmen, but pretty sure we’ve heard that before. And Tiananmen didn’t just materialize overnight like this, but followed what were literally months of protests. So the safe bet here is probably that this will fade away in a few days or weeks, tops.

It still bears watching of course, especially on a day when there is little else in terms of known events that will move markets. Friendly reminder not to believe everything you hear on Twitter or in the western media. Yes, the regime in Beijing definitely has its friends in the western press (cough) but there is just as likely to be disinformation; for example about this being pro-democracy protests that will bring down Xi and the CCP. Both are extreme long shots, at least at this point.

Prepare for a ‘Long Slog’ in Stock Markets as Fed Hikes Continue: Bob Elliott (Szn 4, Ep. 31)

Published November 9, 2022

Bob Elliott, chief investment officer of Unlimited Funds, joins the podcast to discuss his views on the Federal Reserve, inflation, the midterm elections, and why stocks have entered a long ‘slog’ for the foreseeable future.

Content Highlights

Investors have been conditioned for recessions to feature a fast decline in equity markets followed by a rapid recovery. This time around those dynamics are different (3:44);
There is no chance of a ‘Fed pivot’ coming anytime soon (7:58);
What about infighting at the Fed and within the FOMC? (11:03);
Yes, you need unemployment to increase for there to be any progress with inflation. Higher prices are no longer due to supply chain issues (13:57);
The Fed will raise either 50bps or 75bps at its next meeting and rates could easily go up to 6% (21:22);
Background on the guest and his ETF, the Unlimited HFND Multi Strategy Return Tracker ETF. Stock ticker: HFND (26:19);
The growing disconnect between hedge fund positioning and retail investors: Hedge funds are short bonds, long commodities, bullish gold, and are sitting on a bunch of cash… (36:21);
The Fed’s target rate for inflation is 2%, but that could change. That would bring a myriad of issues… (38:24);
It’s hard to get bullish about longterm bonds: right now and for the foreseeable future (40:54);
Investors continue to look for reasons that the economy is slowing and the Fed needs to reverse course. There is virtually no evidence of this happening (42:44);
The midterm elections are likely to lead to a split government. This brings tail risks that few people are talking about (44:50).

More Information About Bob Elliott

Website: UnlimitedFunds.com;
Twitter: @BobEUnlimited;

Quick Video Highlights From Our YouTube Channel

Powell: Hope for a ‘Fed Pivot’ at Your Peril

Published November 3, 2022

The following is an amended version of the Nov. 3 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.

Stocks cratered yesterday after comments from Federal Reserve Chair Jerome Powell that dashed hopes of a ‘Fed pivot.’ It was at least the second time this year that Powell has popped the ‘hopeium’ bubble; at Jackson Hole in August, his succinct speech caused a similar sell-off.

Weirdly, this month’s Federal Open Market Committee meeting got off to a bullish start. The Fed raised interest rates by 75 basis points as expected, but added new language to the policy statement, that it would take into account “cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Jerome Powell quote: "It is very premature to be thinking about pausing" — Source: Author via IMGflip.com

Investors initially took this wordy statement as the long-awaited ‘pivot’ signal and bid up stocks. That lasted for about an hour until about halfway through Powell’s ensuing press conference when he announced it was “very premature to be thinking” about pausing rate hikes.

“People when they hear ‘lags’ think about a pause,” Powell said, an apparent direct reference to the new sentence in the policy statement. “It is very premature, in my view, to think about or be talking about pausing our rate hikes,“ he added. “We have a ways to go.”

Hopeium: A Helluva Drug

Investors have been playing a game of chicken with the Fed for some time, periodically acting like a pivot is imminent despite (let’s face it) little evidence. It seems whenever these hopes get too pronounced and stocks start rallying for real that Jay Powell comes out and dashes all hopes. That was certainly the story at Jackson Hole. The scene repeated itself yesterday.

Will investors learn from this? Will they now take Powell by his word that things need to ‘break’ in the economy before there can be any progress on inflation?

Probably pretty unlikely.

At least we now know exactly how the scene will unfold: Some dovish Fed officials will make public comments about pivoting or ‘stepping down’ and the market will rally. It will be helped along by commentary from ‘Fed watchers’ on the sell side (or in asset management. Cough, Blackrock). The rally will intensify, then Powell will come out and kill it again.

The only way we can realistically hope for a Fed pivot is if inflation starts to ease. That isn’t happening yet. Nobody knows when it will. Most guesses on this have so far proved wide of the mark. A reminder to watch the data, not the commentary.

Tag: economy