market – Page 16 – 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.

Crypto’s Great Unwind and Risks to Financial Markets

Published November 10, 2022

The following is an amended version of the Nov. 9 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.

These are difficult times in cryptocurrency markets. The industry is dealing with unfolding fallout from the FTX meltdown and digital currencies are tanking. Bitcoin has dropped by about 20% so far this week.

Crypto bros' hypocrisy: 'Have fun staying poor' in 2020 vs 'don't dance on graves you POS' in 2022 — Source: Author’s work, inspired by actual tweets. Created on IMGflip.com

There is plenty of Schadenfreude (a German word you should be familiar with) to go around over this crypto meltdown. It’s been a long time coming. Some of these crypto bros have been so obnoxious on the way up (and continue to be annoying AF with their denial on the way down) that you can’t help but root for the entire industry to incinerate in a giant mushroom cloud.

That’s all fine and good, but there could (and likely will) be second-order effects that transcend the goofy world of cryptos. That’s the concern, that this could lead to a liquidity event in other asset classes. So far stocks are holding up fine. But it’s early days as they say. You figure somebody somewhere is going to take a massive markdown on their crypto portfolio that will require selling in other assets. Moves like this are very rarely contained.

Remember that investors hate uncertainty more than they hate bad news. So far all the uncertainty has remained isolated to cryptos. At current levels, that may even be justified, but does anybody think $16k is the bottom for Bitcoin? A drop of 20% is nothing for an ‘asset’ with no intrinsic value that is backed by nothing other than an algorithm and the seemingly blind faith of its adherents. So yeah, the risk that crypto just dies is real, as Noah Smith writes here.

To summarize: It’s hard to see how the crypto damage is a) contained and b) over. But that’s just one person’s opinion. Do your own research. Make your own decisions.

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).