Submitted by QTR's Fringe Finance
On my latest podcast, I had a chance to try and channel some intellectual horsepower in a fruitless attempt to keep up with Epsilon Theory’s Ben Hunt about a wide range of topics, not the least of which was Russia’s recent invasion of Ukraine.
Ben shed a light on topics from an angle I would have never considered and, quite frankly, took me way out of my box and opened my eyes to a new way of thinking about investing. We talked about the Fed, rate hikes, the idea of narratives and faith driving investing and bitcoin.
I had just read Ben’s 2021 piece called “In Praise of Bitcoin” and so, first, we talked about bitcoin and how, when Russia attacked Ukraine, it acted more like a risk asset than a store of value.
Bitcoin is “not money”, Ben says - but the bitcoin project is “fantastic”.
It has been “not just corrupted, but it’s been transformed by Wall Street and it’s been neutered by Washington. It has become another table in the Wall Street casino.”
“But I think there is enormous value in the inspiration that bitcoin provides,” he continued. “But it’s not what most of us hoped would be the promise of bitcoin”.
We also talk about the precarious position the Fed is in and how the markets will respond to the new geopolitical conflict. Personally, I told my subscribers on the night of Putin's invasion that my game plan was to sell of some of my exposure to oil, gold and index shorts, in order to nibble at a potential M&A target I like, a retail name that I think is too cheap to ignore and two “falling knives” I continue to catch as they move lower.
I also still think it’s a great time to look at one sector I think is primed for M&A, several ETFs that I think can reduce risk and a little noticed sector I think could catch a bid as part of the “wartime” trade.
Ben told me he thought that over the long term, markets would recover.
“I think it’s long term precarious, but short term not so,” Ben says.
“What I mean by that is every time for the last 20 years I thought that political risk was going to damage markets, I’ve been completely wrong.”
“Frankly, I don’t think what’s happening in Ukraine is much different than that,” he continues.
“I think this ends up being pretty much a nothingburger for markets. The White House has to show some progress on inflation if they want any chance at the mid-term elections.”
“I don’t think what’s happening in Ukraine will deter the Fed from hiking rates,” he continues.
“Monetary policy is a barge, and whatever’s happening in Ukraine isn’t enough to turn that barge around.”
We also discussed the game theory and the market psychology of whether or not the market has already priced in the Russian invasion of Ukraine, as I wrote about days ago.
Moving on to inflation, I asked about whether or not the Fed has the spine to hike in these conditions.
“This is what I do, I research narratives,” Ben said.
“There’s a very strong narrative right now that allows the Fed to raise rates. So that’s what the Fed is going to do. Is it 5 hikes, is it 8 hikes? I don’t know. But the narrative today is so incredibly different than this time last year - when we were arguing about ‘transitory’ - that uncertainty, that narrative question, has been answered.”
“Everyone knows that everyone knows that the Fed is going to hike. Which means when they do hike, it won’t affect markets,” he continues.
We also talked about ARK’s Cathie Wood, and what the future holds for the asset manager. I wrote on Friday about ARKK, and some of the ETFs components that I found myself examining at these prices.
Questions about Cathie Wood led Ben to talk about the “two great faiths” of investing.
“There will always be a home and an audience for Cathie Wood,” Ben says, referring to her “faith” in the growth narrative.
“So much changed for me when I started thinking about these two schools of investing (growth and value) as religions. They each have their own languages,” Ben continued.
Finally, you can listen to the full interview here:
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