Forward Guidance

Latest Episodes:

The Fed Is Burning Money | Harley Bassman Jun 09, 2022

Show notes

Today Jack is joined by none other than the Convexity Maven himself, Harley Bassman, who shares why he is “wildly” bullish on mortgage-backed securities (MBS) even as the Federal Reserve is in the process of reducing its balance sheet via quantitative tightening (QT).

Bassman explains why long-term interest rates have shot up by so much and makes the case that, while he is confident that inflation will continue to run hot, the sell-off in long-duration Treasurys may not continue. Bassman goes on to explain the significance of the spike in interest rate volatility as measured by the MOVE Index, his creation, and shares several investment theses on municipal bonds and equity LEAPs. Filmed on Friday, June 3, 2022.

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Bit.com is a full-suite cryptocurrency exchange launched by Matrixport, an integrated financial services firm headquartered in Singapore. Since August 2020, Bit.com has been online supporting the spot, perpetual, futures, fixed income and options products, with a particular highlight being pioneers to launch BCH options. Bit.com is the second-largest in the BTC and ETH options market.

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Referenced In The Show:

“The Water Is Warm In The MBS Pool”: https://www.convexitymaven.com/wp-content/uploads/2022/05/Convexity-Maven-MBS-Pool.pdf

“Fire Insurance - Revisited”:

https://www.convexitymaven.com/wp-content/uploads/2022/01/Convexity-Maven-Fire-Insurance-Revisited.pdf

Timestamps:

(00:00) Introduction

(01:18) Historic Bond Sell-Off

(09:48) Credit Vol

(17:14) Is There A Powell Put On Credit?

(21:56) Is Quantitative Tightening (QT) Money Burning?

(25:05) Bit.com Ad

(33:49) Yield Curve Inversion

(41:26) Outlook on Mortgage-Backed Securities (MBS)

(44:59) Pre-Payment and Extension Risk

(51:42) Will MBS Convexity Humble the Fed?

(1:00:08) Bassman's Highest Conviction View

(1:03:38) Municipal Bonds

(1:04:42) Longer-Dated Calls on Equity Indices

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao Jun 06, 2022

Show notes

Today Jack welcomes Michael Kao, retired hedged manager and private investor, on Forward Guidance for a wide-ranging conversation on liquidity, energy markets, cryptocurrency, and convertible bond arbitrage.

Kao argues that risk assets have benefited from a “liquidity lottery” of quantitative easing and low rates, and that as a result financial markets are in a huge bubble that reminds him of the dotcom bubble of the late 1990s. Kao explains why he is skeptical about the value of digital assets, and he does a deep dive into the capital structure of MicroStrategy ($MSTR). Important disclosure: Kao recently entered a short position in $MSTR.

Kao is a veteran investor with a wealth of expertise in options pricing, commodity trading, convertible bond arbitrage, and global macro. He has over three decades of investing experience at Goldman Sachs, Canyon Capital Advisors, as well as Akanthos Capital Management, his own hedge fund. Nothing in this podcast should be considered as investment advice.

Filmed on June 2, 2022.

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To get in touch with Jack Farley about sponsoring Forward Guidance, email jack@blockworks.co.

(00:00) Introduction

(00:46) Michael Kao's Background

(08:30) The New Dotcom Bubble 2.0

(22:50) The Rho Hedge War Story From 2008

(29:16) Will The Fed Pivot? Can The Fed Pivot?

(34:45) MMT

(42:05) The Energy Crisis

(49:16) The Black Swan For American Oil

(59:09) Speculative Bubbles As Inflation Capacitors

(1:02:12) How Do You Value Crypto?

(1:10:05) Housing Bubble?

(1:11:14) Will QT Steepen The Yield Curve?

(1:14:38) Digital Assets

(1:18:00) How MicroStrategy Funds Its Bitcoin Purchases

(1:28:58) "He's Not In Trouble Right Now"

Fed Hawkishness Is A “Charade” - If Powell Doesn’t Pivot, Prepare For A Depression | Larry McDonald Jun 02, 2022

Show notes

Larry McDonald, founder of The Bear Traps Report and author of “A Colossal Failure Of Common Sense,” thinks that those who take the Federal Reserve at its word are making a serious error. McDonald wastes little time to argue that the Federal Reserve’s assurances that it will tighten monetary policy (by raising rates and reducing its balance sheet) amount to little more than a “sham”: a series of promises that it can never keep, because doing so would plunge the United States into a deep recession.

McDonald explains that, while he does not expect the S&P 500 to reach a new high for several years, he is anticipating a sharp rally in risk assets as the Federal Reserve tones down its hawkish rhetoric and abandons the most extreme of its measures to moderate inflation. McDonald argues that this supportive liquidity environment will drag the U.S. Dollar down and give an even greater lift to the ongoing bull market in energy as well as other hard assets such as gold.

Filmed on May 31, 2022.

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Timestamps:

(00:00) Introduction

(01:50) Can The Fed Reduce Its Balance Sheet?

(04:36) The Fed's Choice Between Stagflation and a Recession

(09:39) How High Can The Fed Get?

(19:27) Dot-com Bubble 2.0?

(24:23) Outlook on S&P 500

(27:25) Bit.Com

(27:55) The Energy Trade

(31:44) Have We Reached Full Panic Mode Yet?

(34:45) Commercial Real Estate

(36:52) Shorting The U.S. Dollar

(41:27) Inflation and Deglobalization

(45:08) ESG Investing

(49:25) Global Recession

Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young May 30, 2022

Show notes

Josh Young is the founder and chief investment officer of Bison Interests, an energy investment fund whose returns since October 2020 are ranked #1 in the HFM database. Young argues that, despite the phenomenal performance of the energy sector over the past 18 months, there are upstream producers that remain extremely undervalued relative to their current cash flows.

Young explains why he thinks many of the major oil companies are “burning capital” and why he prefers smaller producers that are not on the radar of many investors flooding into the space. He shares his views on ESG, divestment, and the idea of a “carbon bubble.”

This conversation is not investment advice.

Filmed on May 27, 2022.

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Today’s episode is sponsored by Jack Farley, the host of Forward Guidance. If you would like to get in touch with Jack to potentially become a sponsor of Forward Guidance, you can email him at jack@blockworks.co. Serious inquiries only, please.

(00:00) Introduction

(00:10) Background

(01:01) Supply Constraints

(21:38) Is Energy Investing Just A Bet On The Price Of Oil?

(33:04) Risks To The Energy Trade

(56:14) Company-Specific Analysis

(1:17:14) Is There A Carbon Bubble?

Europe and China: Already In Recession | Paul Hodges May 26, 2022

Show notes

Paul Hodges returns in a deep discussion on inflation, China, and the Federal Reserve. Paul joins Jack Farley to discuss recession and recession risk in Europe, China, and the U.S., as well as the fate of inflated hyper-growth stocks.

Paul Hodges on Twitter https://twitter.com/paulhodges1

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Blockworks on Twitter https://twitter.com/Blockworks_

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(00:00) Introduction

(13:45) Why Is Inflation Bad For Stocks?

(21:24) Fate of Hyper-Growth Tech Stocks

(23:15) Tesla

(27:23) Ben Graham's Valuation Rules

(30:03) Bit.com Ad

(30:34) Recession In Europe

(42:39) Recession Risk in the U.S.

(46:10) Housing

(49:05) The Federal Reserve

(52:14) Chemicals Market Flashing Warning Signals

(56:00) Recession in China

(1:07:07) Electric Vehicles (EVs) and Autonomous Vehicles (AVs)

Central Banks Are Scrambling To Contain An Inflationary Wage Price Spiral | Nick Glinsman & Joseph Wang May 25, 2022

Show notes

Nick Glinsman, macro hedge fund manager and author at Intelligence Quarterly, joins Joseph Wang (“Fed Guy) and Jack Farley to explore whether the Federal Reserve is at all disturbed by the vicious sell-off in risk assets, or if the carnage in equities and credit is actually in service of its mandate to control stable prices.

Glinsman argues that the global economy is on the verge of a wage-price spiral for the first time in four decades, and the central bankers will be in no hurry to reverse course on their hawkish policy. Taking from his extensive experience working at some of the world’s most successful hedge funds, Glinsman warns viewers not to “slip on a banana skin” as they navigate the macro landscape. Joseph Wang’s message to the viewers banking on a “Powell Put” is even more stark: “wake the ____ up.”

Nick Glinsman on Twitter https://twitter.com/nglinsman

Joseph Wang on Twitter https://twitter.com/FedGuy12

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Nick Glinsman's writings can be found at https://intelligencequarterly.com/.

Joseph Wang's writings can be found at https://fedguy.com/.

(00:00) Introduction

(02:40) Banana Skins In This Market

(13:14) The Fall Of The "Transitory" Narrative

(23:30) The Wealth Effect in Reverse

(30:50) Ad

(36:07) Have Central Banks Lost Control?

(41:18) The Dollar and Bonds

(50:28) Bretton Woods III

(59:55) Inflationary Hikes

The Fed's $3 Trillion Problem | Maroon Macro & Joseph Wang May 24, 2022

Show notes

Joseph Wang & Maroon Macro join me for a deep dive into the monetary mechanics driving the Fed's $3 Trillion problem. As t bill issuance dries up, reverse repo's spike & money market funds park their assets elsewhere, how will the Fed's quantitive tightening program and rate hikes effect the plumbing of the global financial system?

Luckily I have two monetary plumbing experts to answer that question, but to hear that, you'll have to tune in!

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Can Gold Withstand the Liquidity Drain? | Sean Fielder May 19, 2022

Show notes

Sean Fielder, chief investment officer at Equinox Partners, joins Jack Farley to discuss his views on gold, mining, inflation, the and Federal Reserve’s continued tightening efforts, and the sell-off in long-duration tech stocks, diving into everything from ESG investing to a mine's lifecycle and lifestyle.

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(00:00) Intro

(02:26) Emerging Markets And The Dollar

(15:32) New Bretton Woods

(17:19) How Far Can The Fed Go?

(19:07) Is Gold An Inflation Hedge?

(26:36) Bit.com Ad

(27:06) Energy, Oil & Gas

(39:44) ESG Investing (Environmental, Societal, and Governance)

(46:08) Junior Gold Miners

(53:16) Common Problems That Junior Gold Mining Companies Have

(55:56) Jurisdictional Risk

(1:05:05) Lifecycle Of A Mine

(1:06:26) The Future Of Gold

Why Fed Chair Powell is NOT Coming To Rescue Stocks | Alfonso Peccatiello May 16, 2022

Show notes

On today's episode of "Forward Guidance," Jack Farley is joined by Alfonso Peccatiello, author of The Macro Compass newsletter and host of The Macro Trading Floor podcast on the Blockworks network. Up until very recently, Alfonso was running a multi-billion dollar fixed-income book.

Alfonso joins Jack to share his outlook on the Fed’s efforts to tighten financial conditions in the hope of reining in inflation. Will these efforts crush the stock market? Will the Fed get its much-desired soft landing? Are there emerging signs of stress in credit spreads? In Alfonso's mind, one thing is for sure, Powell will NOT pivot this time. Monetary policy will be tightened until inflation is under control, Alfonso argues, and those investors relying on a Powell Pivot will be left holding the bag.

Alfonso’s writings can be found at https://themacrocompass.substack.com/, here are some of the specific pieces he and Jack referenced:

“What If?”: https://themacrocompass.substack.com/p/what-if?s=r

“A Mistaken Attempt at Sounding Dovish”: https://themacrocompass.substack.com/p/serious-ish-about-inflation?s=r

Alfonso Peccatiello on Twitter: https://twitter.com/MacroAlf

Jack Farley on Twitter https://twitter.com/JackFarley96

Blockworks on Twitter https://twitter.com/Blockworks_

Subscribe To The Blockworks Newsletter: https://blockworks.co/newsletter/

BCB is Europe’s leading provider of business accounts and trading services for the digital asset economy. With a dedicated focus on institutional payment services, BCB Group provides business banking, cryptocurrency and foreign exchange market liquidity for some of the world’s largest crypto-engaged financial institutions.

For more information, please visit https://bcbgroup.com/jack

(00:00) Introduction

(00:33) Tightening Financial Conditions

(08:17) The Macro Compass Quadrant Model

(12:08) Stock Market Time Horizons

(15:44) Shorting The S&P 500

(19:17) BCB Ad

(20:06) Surging High Yield Bonds in Europe

(22:53) Credit Spreads

(29:43) Powell Is NOT Going to Pivot

(35:42) Will the Fed Get Their Soft Landing?

(38:58) When Will Bonds Become a Buy?

(47:08) Changing Your Minds in Markets

The “Everything Risk” Is Here | Ed Harrison May 12, 2022

Show notes

Ed Harrison, senior editor at Bloomberg and author of The Everything Risk, joins Jack Farley to share his outlook on inflation, the Federal Reserve’s ongoing tightening efforts, and the sell-off in long-duration tech stocks. Harrison shares his outlook on China, commodities, the FAANG stocks, and why he sees the makings for a new era for markets.

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(00:00) Introduction

(02:36) Is The Era of East Money Over?

(04:56) Comparisons to the 2000s Tech Album

(13:30) Valuing Companies With Network Effects

(16:23) Markets Reaction To Monetary Policy

(18:46) ARKK

(22:25) Fed Rate Hikes & Credit Markets