On the heels of last week’s bullish turn for equities, the market got off to a mixed start on Monday. Hong Kong stocks could affect the mood with a giant slump after the Chinese leader consolidates his power.
And we are entering a Fed blackout period ahead of next week’s meeting that is expected to see rates hike another three-quarters of a percentage point. As Miller Tabak + Co.’s chief market strategist Matt Maley tells clients, we can’t go back to 2021, when many were getting richer than they should have been.
“If we had tried to maintain what we had a year ago, it would have been like getting drunk…then trying to stay drunk…to avoid a hangover. What the Fed is trying to do is keep a bad hangover from becoming a horrible hangover…but they’re also trying to make sure we don’t get drunk anymore…It’s very hard work” , he wrote.
This brings us to our call of the day from hedge fund Saba Capital founder Boaz Weinstein, who warns of a “real headwind” for investors from central bank tightening that could trigger a decades-long bear market, as seen in Japan. And he makes the best bets in this gloomy atmosphere.
“I am very pessimistic. There is no rainbow at the end of it all,” Weinstein said in a Financial Times interview published on Monday. “There’s no reason it should be difficult [economic] period will last only two to three quarters [and]..no reason to think we will have a soft landing or a shallow recession.
Weinstein may be worth listening to for several reasons. First, its flagship fund reportedly returned 73% in 2020 for its bets against junk bonds. Trading in credit default swaps, which insure against corporate defaults, remains an important part of its strategy.
The manager also reportedly won big by taking the other side of a 2012 trade by JPMorgan’s “London Whale” trader Bruno Iksil, which racked up a $6 billion loss for the bank.
As for how he plays a long bear market for stocks, Weinstein is betting his money on credit default swaps because he believes a recession will trigger more corporate defaults and lead to dramatic widening of credit spreads. . He cautions against stock market options, which he says won’t pay off unless stocks plunge dramatically.
Weinstein says the big market plunge hasn’t happened yet because too many “problematic things are swirling around, some are contradictory,” like war, inflation, the energy crisis and China’s woes. Investors therefore had time to slowly absorb the bad news and reduce risk at this pace.
“This year has been like a horror movie but with five monsters – you don’t know what to focus on, so you get out of debt.”
The steps
DJIA Stocks
SPX
COMP
are mixed, as bond yields BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
edge up and dollar DXY
slightly lower trade. CL Oil Price
are softer.
The buzz
Tesla TSLA
the stock is down 5% after Reuters reported the EV slashed Model 3 and Model Y starting prices by up to 9% in China.
Hong Kong Stocks HK:HSI
fell 6% in the worst one-day loss since 2008 after Chinese Premier Xi Jinping was nominated for a third term and unveiled a cabinet made up of loyalists who may be more focused on ideology than government ‘economy. Watch Alibaba BABA listed in the US,
JD.com JD
and Baidu BIDU,
all of which were crushed in Asia.
Data from China was mixed. The 3.9% growth in the third quarter was still the slowest in decades, house prices fell the most in more than 7 years, factory output accelerated and retail sales slowed.
JetBlue JBLU
Monday reports in a huge week for revenue, with Alphabet GOOGL,
Twitter TWTR
and Texas Instruments TXN
Tuesday, Microsoft MSFT
and meta platforms META
Wednesday and Apple AAPL
and Amazon.com AMZN
Thursday.
Lily: Big Tech Has Been a Revenue Haven for Years, But Security Isn’t a Sure Thing Anymore
Data from the S&P Purchasing Managers’ Index showed the inflation rate in the sector was the lowest in two years. The rest of the week will see housing market data, third quarter GDP and Fed-friendly inflation indicators. The European Central Bank, as well as the central banks of Japan and Canada are due to meet this week.
Former UK Chancellor of the Exchequer Rishi Sunak will become the country’s new prime minister, with UK bonds rallying as prospects for a Boris Johnson return fade.
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