The Big Picture

2023 Toyota Prius

It is amazing to think about how Toyota blew its enormous lead in Hybrid tech, failing to launch any substantial push into EVs. The chart below shows exactly how much sales have fallen for the first hybrid EV America has fallen into — and then out of love with. The Prius today badly lags the RAV4, its sister crossover, in Toyota hybrid sales.

But the latest design is a handsome reboot, and should help sales pick up. Here are the 2023 Prius hybrid specs we know so far:

Up-to 57 MPG combined fuel
37 miles range on battery alone
195 horsepower and at 220 hp
2.0L engine,
0-60 mph in 7.3 seconds
On-Demand AWD system
2023 in LE, XLE and Limited grades

The 2023 Toyota Prius pricing is expected to range from $27,000 for LE. the  XLE ~$30,000, and the top-of-the-line Limited will be at $34,000.


Source: Car and Driver


Source: Toyota


Source: Chartr


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As we have been discussing since May of this year, there are increasing signs we have been groping for a bottom in the equity markets. This “Process” is not a single event but rather, a series of events the totality of which increasingly weighs the probability towards that positive resolution.

I use the word probability because this outcome is not pre-ordained, but rather, subject to forces from future events which have yet to unfold. When investors look forward, we (collectively) make probabilistic bets as to the impact of future events as well as the odds of those events occurring. Some are known and already priced in, more are ambiguous and are not fully priced in, to say nothing of the random surprises which by definition we know little to nothing about.

Hence, I have caveats. My thinking is any bottoming process is partially dependant on future FOMC actions. I have been fairly vocal that inflation has peaked, the Fed has already overtightened, and they run the risk of doing too much economic damage fighting a demon that has already been exorcised. But my job is not to give the Fed policy advice, it is instead to provide clients with investment advice. The best way I can accomplish that is to recognize the ambiguities created by none of us knowing if the FOMC will be very right, a little wrong or very wrong. Those three options will determine whether or not the equity and bond markets make a bottom now, at some point in 2023, or some future date beyond.

My take on these probabilities looks something like this:

1. The Fed gets it precisely right: Yay! Inflation is vanquished, the economy makes a soft landing, rainbows and sprinkles and unicorns! Inflation comes down to 3%, Unemployment never goes above 4%, GDP stays around 2%. Its goldilocks as far as the eye can see. It’s nothing but 10% gains a year forever. All hail the U.S. central bank! (20% chance)

2. The Fed gets it a little wrong: The Fed takes rates over 5% and keeps them there way too long. Parts of the economy suffers – notably residential real estate, new job creation, and consumer spending. U3 unemployment goes from its current 3.7% to closer to 5%. New job creation falls to under 100k per month. GDP is flattish to slightly positive. Given these headwinds, the overall economy remains fairly resilient, with falling savings rates and a lack of wage gains offset by falling inflation. Maybe this economic slowing results in a mild shallow recession, maybe not. Markets go sideways through Q1 perhaps even into Q2, then takes off. (50% chance)

3. The Fed totally blows it: The tightens and keeps tightening, straight through 5% towards 6%. Ignoring the deflation in goods and focusing on the inflation in services, especially rent, which they themselves are causing, they stay tight. GDP goes negative, Unemployment goes above 5%, house prices fall 15%, Consumer spending crashes. (30% chance)

Do not assume, however, that the Federal Reserve is the only significant market input:

The economy has thus far remained resilient;

Consumers are still spending;

Households and corporate balance sheets are healthy;

Profits have remained robust;

Valuations have become more attractive;

Seasonal patterns are positive.

This is why I put a 50% probability of markets finding a bottom sometime between October 2022 and March 2023.

If you are a long-term investor, I would suggest considering Value and Small Caps. Financials have held up well also, as they generate greater profits thanks to higher rates. And I never like to bet against tech, especially after it has fallen substantially. I would be more cautious with single stock risk, specifically, those circumstances where there are problematic business models, mercurial CEOs, and/or increased competition.

I acknowledge there are lots of ways it can go south. I remain — hopeful? Constructive? Engaging in wishful thinking? Perhaps all three.   YMMV.



Chart above via JC


Big Moves: Bears & Bottoms (November 11, 2022)

Groping for a Bottom (October 14, 2022)

7th Inning Stretch (September 30, 2022)

Countertrend? (August 15, 2022)

Big Up Big Down Days (May 5, 2022)

Too Many Bears (May 3, 2022)

End of the Secular Bull? Not So Fast (April 3, 2020)

Bull & Bear Markets


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10 Thursday AM Reads

Welcome to December! My morning train WFH reads, blessedly free from the SBF dumpster fire interview:

A year of pain: investors struggle in a new era of higher rates: Twelve months after Jay Powell called an end to super-cheap money, fund managers are still adjusting to a very different environment. (Financial Times Alphaville)

A Missing Piece of the SBF Puzzle: In a range of interviews and Twitter threads (see links and excerpts below), SBF explained that he approached financial decisions with little or no aversion to risk. That’s a valid personal choice, but it’s highly unusual. In our own experience, we’ve never met anyone who made important financial decisions consistent with being anywhere in the ballpark of zero risk aversion. (Elm) see also Why the Investing Pros Were Such Suckers for FTX: In the spectacular collapse of FTX, the cryptocurrency exchange, millions of fingers already seem to be pointing at Sam Bankman-Fried, the frizzy-haired boy wonder who founded the firm, drove it to a valuation of $32 billion and then took it into bankruptcy. (Wall Street Journal)

Why Isn’t the Whole World Rich? The question of why some countries join the developed world while others remain in poverty has vexed economists for decades. What makes it so hard to answer? (Asterisk)

Here’s what employers are cutting instead of your job: You may get to keep your job, but you might lose your Zoom and your desk. (Vox)

Robot Landlords Are Buying Up Houses: Companies with deep resources are outsourcing management to apps and algorithms, putting home ownership further out of reach. (Vice)

Anti-Woke Republicans Aren’t Making Business Sense on Climate: The GOP’s opposition to meaningful climate policy is increasingly at odds with corporate pragmatism. (Bloomberg)

Is China heading toward another Tiananmen Square moment? How a deadly fire in Xinjiang ignited a nationwide protest against zero-covid in China. (Grid)

When Visiting Michelangelo’s David, She Brings a Duster: The revered statue in Italy is not going to dust itself. That’s where Eleonora Pucci comes in. (New York Times)

‘It made me a pop star – and I’m crap at being a pop star’: KT Tunstall on Suddenly I See (The Guardian)

Naked volunteers pose for Tunick artwork on Bondi Beach: Some 2,500 naked volunteers have posed in the early morning light on Sydney’s Bondi Beach for an artwork designed to raise awareness of skin cancer. (BBC)

Be sure to check out our Masters in Business next week with Luis Berruga, CEO of Global X. The firm manages $40 billion dollars across nearly 100 thematic ETFs.


Why America Doesn’t Have Enough EV Charging Stations

Source: Wall Street Journal


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10 Wednesday AM Reads

Last day of the 11th month! Enjoy the end of November with our mid-week morning train reads:

How Much Growth Can You Expect? Imagine I present to you a magical box that can turn your money into more money. The only problem is that you don’t know exactly how much more money you’ll get from this box. You could put $100 into the box and get back $200, $400, or maybe only $150 when all is said and done. Also, there’s one final catch—you have to wait many decades for this extra money to materialize. The box needs time to work its magic after all. Given this information, would you use the box? (Of Dollars And Data)

Why going into work five days a week is a thing of the past: “You can either try to figure out flex arrangements now or you can battle your employees for the next 5 to 10 years and then pay a consultant a lot of money to help you figure out what you should have started figuring out five to 10 years ago.” (CNN) see also These Young Workers Are ‘Romanticizing’ the Return to Office: As many others chafe against employer mandates, creators on TikTok — some new to the work force — are trying to show that the office can be fun. (New York Times)

How Allocators Can Avoid ‘Secondhand Smoke’ From Illiquid Investments: Investors face a “game theory problem” in determining the optimal size of their allocations to private markets and other harder-to-sell assets, according to new research. (Institutional Investor)

What’s behind the UK’s economic mess? The war, British politics and the ‘Brexit impact’: The country is lagging behind its rich-world peers — and a growing chorus of experts blame its divorce from the EU. (Grid)

•  Why America Doesn’t Have Enough EV Charging Stations: Gas stations spar with utility companies, rural areas predict years of losses on chargers, spotty equipment threatens reliability: The U.S. EV charging network is a mess. (Wall Street Journal)

Elon Musk’s Twitter Is Full of People Swearing Off Tesla: Tesla has a sizable lead in the US market for electric cars, but plenty of would-be buyers are turned off by the antics of its iconoclast CEO. (Bloomberg) see also Elon Musk can’t afford to pick a fight with Apple: Apple is cracking down on Twitter’s content moderation shortcomings. Removal from the App Store would be costly. (Quartz)

Dumpster Diving to Shame Stores and Fight Waste: Activists are posting their hauls on TikTok to raise public awareness. (New York Times)

Is Russia losing? And if it is, when will it concede? Russia’s current negotiating position is to make claims on Ukrainian territory that it does not even occupy. (Comment is Freed)

Calling out of the blue: Why would you do this to someone you love? In the age of texting and DMs, a ringing phone can sound like nothing but bad news. (Washington Post)

Adam Sandler Brings Down the House With Hilarious Gotham Awards Acceptance Speech: Written by His Daughters: ‘F— Every Other Comedian’ (Variety)

Be sure to check out our Masters in Business interview  this weekend for a live interview at Bloomberg Invest with Boaz Weinstein of Saba Capital discussing “Whales, Tails & Fails.”

Elon Musk’s Twitter Politics Add to Pressure on Tesla’s Brand Image

Source: WSJ

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Transcript: Boaz Weinstein (Live!)



The transcript from this week’s, MiB: NAME, TITLE, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.


ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest and a funny story about how this podcast came about. I interviewed Boaz Weinstein back in May of 2022. It was one of the most popular podcasts we did this year. And when the folks over at the Bloomberg Invest Conference came to me and said, “Hey, we’re looking for somebody who’s a little out-of-the-box thinker and kind of interesting, who might you suggest as an interviewee?” That was easy, I said, “We just did this interview with Boaz six months ago. Everybody seemed to really like it. He’s very much an outside-the-box thinker, covers everything from credit derivatives to SPACs, to stocks and bonds, but from an unusual perspective, not your typical investor.”

For example, he’s been an investor in SPACs because he looks at it as a guaranteed fixed income return in a time of zero, with potential upside. So he’s done that really, really successfully. He’s one of the five largest SPAC investors in the world. In case you don’t know who Boaz Weinstein is of Saba capital, he’s the person who made the bet against the London Whale, and then went to JPMorgan Chase and presented at one of their conferences and said, “By the way, you guys, you have this person in London that’s sucking up all of the energy options. It’s a wildly lopsided bet and it’s going to blow up. Oh, and PS, I’ve bet against him.”

And lo and behold, when the London Whale blows up six months later, Saba Capital nets $300 million or $400 million on the trade. Just an amazing story and incredible ability to look at risk and figure out when it’s a fair bet, or when it’s an asymmetrical bet, where, hey, if we lose, we lose a little bit. But if we win, it’s a giant homerun. So he’s really an intriguing person.

We did the interview at the Bloomberg Invest Conference. So when you hear the audio of this, it’s a live event. You’ll hear the audience. You’ll hear people rustling papers. It’s not the usual, hey, we’re in a studio that’s pristine and you don’t hear anything other than the two of us speaking and breathing. So this was a live event. But it was so well received, and it was so interesting. And he just is such a fascinating investor, we thought it would be perfect for the holiday weekend.

So with no further ado, here is my live interview with Saba Capital’s Boaz Weinstein at the Bloomberg Invest Live Conference.

So this is the first time I’m wearing a suit and tie, and I don’t know how long. And I’m glad–


RITHOLTZ: So we previously had a conversation. Was it early this year? Last year? I can’t even tell anymore. And there were a lot of really interesting things that came up. I think this audience would love to hear an update on what’s happened since then. But I have to start by asking, you were a highly-ranked chess player as a young kid. You have a reputation as a killer poker player and dangerous blackjack player. These involve making probabilistic assessments about an inherently unknowable future, seems like you’ve been setting yourself up for tail risk and derivatives and trading since you were a kid.

WEINSTEIN: You’re giving me a lot of credit for having planned everything since I was 5. I think the only tail risk I would think then when I was 5 was pin the tail on the donkey, to be quite honest. So you know, really, I enjoy games of strategy. And it turns out that Wall Street is the ultimate puzzle and challenge and so, yeah, I’ve been working on Wall Street since I was 15. And I think, at a young age, I’ve already seen a lot.

RITHOLTZ: So let’s talk about what’s going on right now. We’ve discussed and you’ve brought up how different this bear market has been from recent bear markets. What are the similarities? What are the differences? What makes 2022 so unique?

WEINSTEIN: Yeah. So when you think about not only what’s happened, but even the investor behavior that it engenders, a lot of the tail events that I’ve lived through, I was trading while 9/11 happened. I was at the New York Fed the weekend that Lehman was failing. A lot of those events, not all of them, but a lot of them were bolts from the blue. COVID, you’ve kind of had a month from when people knew it’s a thing before the market started falling. But there were bolts in the blue, and if you had not done anything about it, you had plenty of air cover to say who knew this would happen? What could I have done in advance?

Whereas this one has been so telegraphed, at least, the initial part of it about inflation being transitory, and then transitory and then transitory. They’re not transitory. So there was a lot of time in 2021 to get worried, and very little places to hide, to say, you know, it was not reasonable to have thought what if this 40-year bull market in bonds not only comes to an end, but does a sharp reversal. Those were things that we and other managers were talking about, where the 60/40 plans that were using Treasuries as their antidote to a sell-off, it turns out the Treasuries were the poison. And so, you know, this has been different in that respect.

It’s also been different because you have so many different problems swirling around, some of them in conflict with each other. So solve one at the expense of the other. And then the number of new things showing up, whether it’s, you know, maybe untoward rumors about Credit Suisse, or what’s happening in the U.K. gilt market. It just makes the number of balls in the air enormous in terms of things, known unknowns that could really cause more than a sell-off, but more like a crash.

RITHOLTZ: So let’s talk about that. You’ve discussed multiple problems in multiple areas taking place at the same time. How do you distinguish between what’s a genuine risk, what’s a known risk, and what’s truly an unknown unknown?

WEINSTEIN: So usually, you have your known unknown, like, something is bad, we just don’t know how bad and you can respond to it. So, you know, 9/11 happens, it’s not a good time to buy airline stocks. You know, COVID happens, it’s not a good time to buy airline stocks. ’08 happens, probably you should derisk from financials, even like the moment after it happened. And here, you just don’t know exactly what to do.

So normally, for example, European investment grade trades 5 basis points lower than U.S. investment grade. Now, it trades 30 basis points higher, 25 basis points higher. Is that enough? Europe is going to have a much more severe recession, according to those that pontificate. And so whether or not you underweight or overweight, Europe is all about what do you think happens with Ukraine? Is there a chance it gets asymmetric? What can be done to mitigate? And then at the same time, you have these other theaters, whether it’s zero COVID policy in China may be extending well past the Party Congress, continuing to cause disruption in the economy.

So really, what’s happened is people just feel risk all over. They felt it now for 10 months, and they’re derisking the things that are in their book. And that has led to some things that I don’t view as particularly risky, blowing out as much as things that I do view as risky, and that’s created some interesting distortions, interesting opportunities.

RITHOLTZ: So let’s talk about those opportunities. What has been overly derisked? What are looking attractive after investors throw the baby out with the bathwater?

WEINSTEIN: Right. So not knowing where to focus your arrows, and instead just focusing on derisking. And the comments that Jamie Dimon made about bracing for a hurricane, and another CEO said bracing for a tornado, and someone else mentioned some other weather disaster. You know, like, what did they actually mean when they do that? How do they actually brace other than like, you know, a physical brace? What are they doing?

They’re a bank. They have loans. They go to their loan portfolio hedging group, and they say, “Please increase the amount of hedging.” So what does the bank do? It looks at the loans that it’s made, often to the best companies in America or in the world, and derisks where the risk is. And so we did a number of trades with banks, where they’re coming to us to say, “In the middle of all this, we want to buy protection on Coca-Cola, on Johnson & Johnson, on Home Depot, on Walmart, you know, AT&T, Verizon,” these big companies that have a lot of debt outstanding in terms of revolvers, and not relative to their balance sheet, but relative to just the quantity of debt.

And so there are a bunch of names, in fact, I think everyone I mentioned, where if you look at where it is today, it’s above the worst day of COVID. So those names that are not even candidates for discussion about could they run into trouble as credits are above their worst day of COVID. Whereas the index that they sit in is only trading at two-thirds of the worst day of COVID. Why would those names be worse? Why would they be at the widest levels and the average be only at two-thirds? It’s because of this technical in the market, and I think technicals are the biggest force in the credit market now, much more than fundamentals, much more than any time in my career, where if somebody has something to do, which is to buy billions of dollars of Verizon one year or two year CDS, that’s going to move the price to levels that just doesn’t make sense from a fundamental point of view.

And so what we’ve been doing is going long those names, selling that insurance to fund protection on companies with a history of blowing out, if actually there is a real recession or some other kind of crisis. And so that would be found usually in consumer finance companies, economically-sensitive company, cyclicals, steel, shipping, paper. And so we found it very interesting in the middle of this problem to be able to find attractive long/short trades because of the technical distortion.

RITHOLTZ: So are you looking at the fundamentals of these equities? Are you looking at the technicals of how they’re trading? Or are you looking at the credit spreads and saying, hey, people are way too frightened beyond what they should be?

WEINSTEIN: Yeah. So we probably more than most, on the credit side, do look at equities for clues. And sometimes there is one market above, faster or slower than the other. But we’re sourcing the tail protection that we provide our investors, which is one of the main things we do through the credit market. And we’ll get to that I’m sure. And we’re paying for it because there are many investors that want it paid for. They don’t want to just leave the negative carry through some of these, I view as ultra-low risk trades in Verizon or Coca-Cola.


RITHOLTZ: So do we want to get more specific? Is it strictly an equity bet, or is it equity combined with some derivative? How are you putting together these paired trades?

WEINSTEIN: So you could look at their history. And first, you could use common sense and say, is this the kind of company that could run into trouble? Is it not? And the price is not efficient compared to the past, where fundamentals were the biggest driver. We’re looking at the credit, a little bit about the fundamentals, but the fundamentals are sort of not in question on the long side. It’s really, have these served us well and investors well as tail hedges in the past? We look at ’08 and 2000, 2012 and say, is this the kind of company that regularly blows out from 100 basis points to 400 basis points?

Take General Motors, for example, they defaulted in ’08, problems with the UAW behind them, they’ve still been enormously volatile as a credit, as a company, super exposed to the U.S. economy and global economy, and pressures. The credit in 2020 went from 100 to 700 back to 100. And it’s had that kind of roller coaster. And so we looked at and said, that’s a really volatile credit. And when it’s low, that’s really asymmetric. You could buy protection. And if things change, it might move out a lot. Right now, it’s at 250. It has moved out a lot more than the index.

And so we’re looking at histories to give us a clue. We’re looking at forward-looking models, equity, vol, fundamentals. But what we’re, at the end, also doing and I should make sure I say this, is we’re providing liquidity to the banks that need it. And if they come and say they want to buy protection on Pepsi, or LVMH, or Nestle, that’s amazing. You’ve now given me the ammunition I needed to go and fund protection and companies that really may run into trouble.

RITHOLTZ: So let’s talk a little bit about history. You mentioned ‘08 and 2020, we can also mention 2000 in the same sentence, that were fairly rapid and disorderly dislocations. Maybe 2020 might be the exception. You’ve described 2022 was sort of a slow motion implosion, and yet it’s still been very orderly. What makes this year so unusual compared to previous collapses that really seem to make a bottom and snapback pretty abruptly?

WEINSTEIN: Yeah. So first, the market is still trying to figure out what it should most worry about. And so, you know, it’s like just when you think of something, maybe we’re at peak inflation past us, maybe the supply chain problems are coming down, but then you have new things. And so there’s just been this sell-off that continues to find new rationale. And then you have the Fed leaning on the market, actually. And when Powell sounded too dovish, you know, first, all of his peers came out to say, “No, no, you know, the market, we’re going to keep going.” And they’ve continued to say that, Kashkari, most recently.

So you have the Fed kind of intent on showing that they mean what they say. And so they’re probably liking that the market is going down on an orderly way, even if it’s created some disorder in other markets. Look what’s happening in the U.K. And so I’m used to, and we’re all used to sell-offs that are fairly quick, that we know even ’08 was five or six months from Lehman to the lows of March ’09, where at the end of it, you can kind of wonder, is there an all clear sign? We have the Fed behind us, quantitative easing.

Now, we don’t really know who the savior is because at the end of all of this, we’re still going to have quantitative tightening and shrinking the balance sheet. Whereas a lot of sell-offs were just a prelude to a bull market one or six months later, you know, this has the feeling to me, like, we’re going to be worried about some number of these things, or new things for potentially quarters and maybe even years to come.

RITHOLTZ: So no capitulation yet, no flash which gives us that all clear signal. How much of that is based on truly not knowing what the Fed is going to do? Or is it we don’t know which potential problem is real and which is fake news?

WEINSTEIN: These things are so hard to predict. I even want to be cautious about, you know, opining too much because it’s just such a confusing market. And there hasn’t been a single thing to say, okay, this is why 20% is not enough, it should be 40. Let’s take inflation, if you look at its forward inflation, it’s expected to come down a lot. So you could look at tomorrow’s CPI print, if it comes in a 10th or below or high, and get excited about it. But the market is still telling you inflation is not going to be the problem that it is one year from now. Now, if a few months from now, that conviction is shaken, then we’re going to have a real strong sell-off. If somehow Russia, heaven forbid, becomes more asymmetric, we’re going to have a real problem.

And so we just don’t know we’re in a fog, and we should not rely on the lessons that people learned maybe incorrectly for this environment, that we’re good between ’08 and 2022, which was the Fed is your put, don’t fight the Fed, and dips should all be bought, and being short is fighting the Fed. You know, this really does not feel like that environment, in particular, because of where the central banks are versus then.

RITHOLTZ: But the one lesson that should carry through sounds like continue not to fighting the Fed when the Fed reverses their position.

WEINSTEIN: I’m glad you said that, Barry, because about nine years ago, I had a prospective investor in my own office. We’re long vol funds. One of our main products is long volatility. And I don’t know if he didn’t quite know that because he kind of wagged his finger at me and said, you know, he’s like, “Sonny, didn’t someone ever tell you don’t fight the Fed?” Just to be long volatility, when Mario Draghi said, “Trust me and I’ll do whatever it takes.

But that psychology of don’t fight the Fed, don’t be short is, in my opinion, a lazy person’s way of saying, “Let’s always be long.” Because if that person was around today, I don’t exactly remember who he even was, to make that call back and say, “If you really believe in don’t fight the Fed,” how much of your risk did you take down when the Fed said that they really meant business and we’re going to be selling assets for years to come? And plus all of these problems that when you add up the number of problems in different theaters, I can’t think of a corollary that, you know, to me, it does feel worse in many respects than any other experience in the market I’ve had.

RITHOLTZ: So you hinted at U.K. gilts and what’s going on over in London. The strength of the dollar is another factor. How do you think about those when you’re considering tail risk and volatility?

WEINSTEIN: So we’re not experts in foreign exchange. But I look at the gilt market, for example, and you see like the U.K. half a percent bond of 2061. Somebody, you know, in 2021, bought a 40-year bond that was going to pay, not someone, a lot of people is going to pay half a percent a year for 40 years. And at the end of all, that the most you could possibly make was half a percent times 40, minus some inflation. And so that would be 20 points without discounting, without inflation, the thing is down 73 points.

So when you think about boundary conditions, you know, and what I like to do in the derivative markets is look at boundary conditions and say, how much can I make? How much can I lose? And where is there some asymmetry? And by the way, we were not short any U.K. bonds, to be clear. But there are a lot of trades that looked like this kind of, I can only lose a little bit. But just in case, it’s not transitory, or just in case, there’s an unknown unknown that is really problematic. You might be able to make 8 to 10 or 20 times when you might have lost. And to see this move, and it may continue of higher rates, whether it’s the U.S. or Europe, where the investor loses three or four times what they could possibly make, at the end of the day, with bonds.

I think it reminds me of how investors don’t really think about fixed income and equities in the way that I do, which is, you know, equities give you this unbounded upside. So it could be Tesla. It could be Faraday Future or Fisker. But you know, you’re minus 100 and you’re plus 20,000 and that’s the range. But in fixed income, often there’s so little to earn that when I see my peers talk about high yield at 5% is amazing because it used to be at 3%. I feel like, wait a second, how many defaults do we expect this year? There’s a lot of companies in that index that are going to run into trouble. So how excited can we really get just because high yield has, you know, widened by 2 percentage points. And so I think fixed income can end up effectively being an option, but people don’t look at it as an option. And I view it often as asymmetric short, and that’s one of the guiding principles of our tail hedge strategy.


RITHOLTZ: So let’s talk about another credit-related issue. A couple of weekends ago, people were talking about the widening credit defaults on Credit Suisse. And surprisingly, you came out and said, “Everybody, catch your breath. Credit Suisse isn’t Lehman Brothers. Just look at various ratios.” What made that so attractive to shorts and what led you to the conclusion that Credit Suisse was more or less okay?

WEINSTEIN: Yeah. I didn’t start out thinking I want to say something public. I basically have zero Twitter followers before this. Then all of a sudden, you know, it became a thing. I noticed that people with hundreds of thousands of followers were saying Credit Suisse spreads are out there decade high. It’s an imminent default according to secret sources. And when you see like people with 100 followers saying that’s fine. But, you know, kind of at the same time, you could almost read that it was the same person sending it from accounts or team with hundreds of thousands of followers, that this sounds like scare-mongering. It sounds like someone is trying to make something about it.

And well, what do I know? I know that this quote, it’s a decade high, you know, can be used as fake news to say, therefore, it’s going to default. But if you look at the spread at the time the five-year credit spread of CS was 2.5%. Now, if it defaulted back to our boundary conditions, it could go to zero, it could go to 50. You’d be like 2.5 to lose or make, to make or lose 50 to 100. It’s still priced like 25 to 1, right? And–

RITHOLTZ: Low probability.

WEINSTEIN: Very low probability, but it’s discussed as something that’s about to happen. And so I kind of took offense to it. I am supposed to know a thing or two about CDS. So I wrote a little bit about it, and then I posted, “Coca-Cola, by the way, also a decade high, better stock up on Coca-Cola.” And you know, articles come out saying that I was saying Coca-Cola may go to business, which, you know, reminded me about sarcasm and how it doesn’t naturally translate to at least some of the users. But this point of, you know, some things that a decade widest level, therefore crisis, I took offense to it. And I don’t have any special connection to Credit Suisse, but I felt like weighing in.

RITHOLTZ: And so far, Credit Suisse is still hanging around, right, has yet to default.

WEINSTEIN: I did get some very nice messages from the fine folks at Credit Suisse. So, yeah.

RITHOLTZ: So since we’re talking about tail risks, let’s talk a little bit about that and hedges. Why have equity puts or VIX calls so disappointed this year as insurance?

WEINSTEIN: Oh, that’s a brutal question, actually. Because there are people, you know, it’s like if you say, look, I didn’t study hard for the test. I didn’t do well on the test. Okay, mom, dad, whatever, study harder. But when you study hard and you say, I’m going to be prudent. I’m going to buy tail protection. I was there, I was there in January to buy it. And then it doesn’t work. It’s like, you know, tail hedges have to be reliable because they serve a greater purpose. It’s not just how did this manager do unto themselves? It’s, “I was counting on this tail hedge to do me some great service in my portfolio.”

And I think the really interesting thing is that the VIX is cited all the time as the barometer of fear. Well, so I remember and probably many of you remember that in the period, let’s say, 2012 to 2019, we even talked about there was a single digit day for the VIX. It went below 10. It was often between 10 and 12 in good times. But something happened after 2020 which is, you know, we had COVID. And that enormous volatility, it actually destroyed the people picking up nickels in front of the steamroller, aka the short volatility crowd. They were no longer there after March 2020.

And then came a new breed of investor that love to buy options, whether it was options on meme stocks, and you saw the volatilities go nuts there. SoftBank set up unit to buy options on short, you know, in tech stocks. And culturally, I think in this country, on the investing side, things became fast. Think about, you know, when someone, when your friend, because it wasn’t me, would tell you that some NFT went up by 10x. And you’d say 10x, I would like 1x in five years. I’d be really excited about that. And everything became fast, and options are way to get there fast.

So the long-winded way to say when we came into 2022, the VIX, by prior measures, was already at a 4 alarm fire. We were at like 22 to 28 on the VIX, and that kind of number would have been a bear market, the prior decade. But we were at the peak for the S&P. So tail protection through equity options was incredibly expensive and it has served investors very poorly. Whereas credit spreads came into the year near the lows that they were pre-COVID. They’ve widened and they’ve done their job, even if there’s still a lot of widening potentially to come.

RITHOLTZ: So let’s dive a little deeper into that. So the end of 2021, peak bull market and the VIX very, very high. So how are investors supposed to put two and two together? What did that signify?

WEINSTEIN: It meant that if you said I’m going to spend a certain amount of premium, like you think about with your car insurance or home insurance and say, I have this much premium, I’m going to buy a put, struck 5% out of the money or 10% on the money. If I’m right, if this insurance was good to buy, what kind of payoff profile would I get? And you were getting nothing like you would get not just pre-COVID, but, you know, over the past let’s say 20 years, you were getting pretty miserable payouts for a bull market. When times are rough and vol is high, you understand why you have to pay a lot.

But coming into this year, vol was stubbornly high, and so equity options were extremely expensive. We did a webinar for our clients, where we showed that basically across assets, a bank, Bank of America put out some neat research that had the S&P and the Nasdaq as literally out of 50 assets, the two worst you could get interesting payouts from. And so those things are not necessarily undecipherable. But credit in every sell-off, credit has blown out, whether it’s the credit crisis, of course, but even the flash crash. I remember being surprised that the flash, I was trading during the flash crash, May 2010, maybe I’ll get the date wrong by a little bit. And credit spreads, because of a glitch in the New York Stock Exchange, moved that day almost as much as they did the day of 9/11.

So credit is an option. This low spread thing can move a lot. You can get an option like payout being short, or be exposed to the loss being long. And it is, in my view, a much more reliable tail hedge that’s been backed up in academic research. And it also stands to reason that, you know, credit as an option, whether you look at an emerging model, or you just think about, I’m taking this little spread in return for exposing myself to a wider credit spread environment or defaults. And this is why I feel very fortunate that my sandbox where I grew up in the credit sort of market, you know, is a really viable forum for tail hedging.

RITHOLTZ: So I have the last question before we go to audience questions in the last few minutes. Given where we are, how wide have credit spreads gone? And if the put side wasn’t attractive on equities at the top in the market, how does the call side look on equities today?

WEINSTEIN: So credit spreads today are like in absolute terms, they’re slightly elevated. Like, let’s say it this way. Remember December 2018, Trump and Xi were having a skirmish. The Fed was, you know, was being tough on the market, while growth was faltering. That seems like a walk in the park compared to now. And credit spreads then were roughly the same as they are today. So maybe they shouldn’t have been that wide then, or maybe they’re too low now. But spreads now are elevated, but in my view, nowhere near what the risks, the hidden risks and observed risks are in the marketplace now.

In terms of call options, you know, there’s moments where credit falls enough that it isn’t asymmetric, that it’s symmetric, or it looks like if you locked it away in a box, you’re going to get a high return compared to defaults. We’re not near that yet. And I still believe equities are much more attractive long, even though there’s going to be this sort of technical of people looking with loving eyes at a, you know, 5% yield or 6% yield. And you can find in some investment grade corporates, 7% or 8% yields if you go out far enough from the curve. And so there will be probably some people saying I want the certainty of that yield. But that also comes with plenty of interest rate risk.

RITHOLTZ: Yeah, to say the very least. All right, a couple of questions from the audience, starting with, where do you see the largest realignments of capital coming in the next 5 to 10 years? I don’t know if that’s really your sort of question. But–

WEINSTEIN: I don’t even know what’s going to happen in the next five months, so five years, with respect, I really don’t know. But what I do believe is that the QT world, when all this is behind us, there’s still a giant balance sheet. There’s a headwind to the market. It’s going to be really brutal for investors that have survived the QT.

RITHOLTZ: Meaning $4 trillion in Fed assets that have to come off the balance sheet?

WEINSTEIN: Just in the U.S., and maybe they’ll go slow or less low. But I think this is going to be a period of much higher volatility than the last decade was.

RITHOLTZ: So future volatility is going to increase; whereas it was modest, but not low over the past decade?

WEINSTEIN: Yeah. There were punctuated moments, but there was a long period of very low volatility. And it seems like that may be behind us because even if some of the problems go away, you still have the undoing of QE, which is more than just no QE, it’s the opposite of QE is I think a really underrated continuous headwind.

RITHOLTZ: And final question and I’m going to modify this, given where 10-year Treasury yields are today, what does that mean for future GDP growth? What does that mean for the possibility of a recession, either mild or more significant?

WEINSTEIN: So, you know, until March, there really weren’t any banks calling for a recession as the most likely case. It was around then, maybe one or two banks. Obviously, Larry Summers and others did speak out. I think that these kinds of forecasts are really folly. Literally, we’re standing in a thick fog, trying to like play tennis and we can’t even see the ball. And by the way, that’s a great question you asked. But, like, when people answer it, I kind of shutter, so I’m going to try to not shutter on myself and say who knows, but what I know is that we should be aware that this is not the market we were in.

And still, I can feel this thinking of, you know, as soon as CPI misses, as soon as we come in at 7 something, okay, it’s going to be off to the races with the market. Firstly, I think it’s a sell the rally market because people are not yet accustomed to all of the issues hanging over us. And anyway, that’s my two cents.

RITHOLTZ: Thank you, Boaz, for being so generous with your time. We have been speaking with Boaz Weinstein, founder of Saba Capital. If you enjoy this conversation, well, be sure and check out any of the 400 previous ones we’ve done over the past eight years. You can find those at iTunes, Spotify, wherever you find your favorite podcasts.

We love your comments, feedback and suggestions. Write to us at Follow me on Twitter @ritholtz. Check out my daily reads at I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohamad Rimawi is my audio engineer. Sean Russo is my head of Research. Paris Wald is our producer. Atika Valbrun is our project manager.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.





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10 Tuesday AM Reads

My Two-for-Tuesday morning train WFH reads:

It’s not your imagination: Shopping on Amazon has gotten worse:  The first page of Amazon results includes an average of about nine sponsored listings, according to a study of 70 search terms conducted in 2020 and 2021 by data firm Profitero. That was twice as many ads as Walmart displayed, and four times as many as Target. (Washington Post) See also How Amazon Become Ordinary: Amazon was never going to maintain a 50% market share of the growth in online retailing forever. The firm’s decision-making in terms of advertising, third-party sales, pricing, and general user experience is hastening a loss of that market share growth. You can no longer assume Amazon has the best selection and the lowest price, you must also look elsewhere. This is a major shift in consumer behavior. (The Big Picture)

There’s a Job-Market Riddle at the Heart of the Coming Recession: Tech giants and banks are already cutting workers, but many employers seem desperate to keep hiring. (Bloomberg)

FTX And The Rise Of Investment Scams: How To Guard Yourself: The collapse of cryptocurrency exchange FTX has triggered investigations. Aspects of the scandal are reminders that complaints of investment swindles are soaring. The good news? You can protect yourself by taking five precautionary steps.(Investor’s Business Daily) see also She Was a Little-Known Crypto Trader. Then FTX Collapsed. Caroline Ellison, who ran the cryptocurrency trading firm Alameda Research, has found herself at the center of Sam Bankman-Fried’s collapsed crypto empire. (New York Times)

Robot Landlords Are Buying Up Houses: Companies with deep resources are outsourcing management to apps and algorithms, putting home ownership further out of reach. (Vice)

DCG, Multicellular Organisms, and Fed Minutes: Silicon Valley has aged, Big Tech has become people who *do* want worklife balance and time with their families, and I think most people would agree that’s an okay thing. But I would also say that VCs and investors have completely skewed the incentives for what to work on, creating some of the complacency that we see. (Kyla’s Newsletter) see also The Myth of the Tech God Is Crumbling: Believing that startup founders possess extraordinary powers harms wide swaths of society, particularly everyday workers and investors (Wall Street Journal)

Get Big Tax Breaks for 2022 by Acting Now: From the timing of charitable donations to the unloading of money-losing investments, there’s still plenty you can do to reduce your taxes for this year. Here are key factors to consider before it’s too late. (Wall Street Journal)

How VCs can avoid being tricked by obvious frauds A guest post by Rohit Krishnan: The tech world is still reeling from the collapse of the crypto exchange FTX. Unlike in the cast of the fraudulent biotech company Theranos, FTX managed to hook lots of the supposedly most savvy investors in the space. So when venture investor and former hedge fund manager Rohit Krishnan offered to write a post about how venture capitalists can avoid being tricked by companies like FTX, I took him up on it. It’s a good sequel to Benn Eifert’s post on bullshit in the investing world. (Noahpinion) see also “That’s Our 2 Satoshis” — DCG, Genesis, and Grayscale Leave More Questions Than Answers: The digital assets market is reeling right now. Many retail investors have their money trapped or liquidated, while some institutional funds are unwinding. Reporters are out for blood, and the “I told you so” crowd is louder than ever. The rumor mill is nonstop, and even without merit, you’d be foolish not to at least take each rumor seriously enough to investigate. And as often is the case when an extreme event happens, many are trying to make heroes out of the few who saw these events coming. (Arca)

How Do Fireflies Flash in Sync? Studies Suggest a New Answer. Field research suggests a new explanation for the synchronized flashing in fireflies and confirms that a novel form of “chimeric” synchrony occurs naturally. (Quanta Magazine)

Twitter’s CEO is now Twitter’s main character: Elon Musk’s disaster month at Twitter has come to a close. Let’s discuss. (Vox) see also I Was the Head of Trust and Safety at Twitter. This Is What Could Become of It. (New York Times)

This Is Where Most of the World’s Soccer Balls Come From: Sialkot, a city in northeast Pakistan, produces about 70% of the world’s supply—including Adidas’s Al Rihla, the official ball of the 2022 FIFA World Cup in Qatar. (Businessweek)

Be sure to check out our Masters in Business interview  this weekend for a live interview at Bloomberg Invest with Boaz Weinstein of Saba Capital discussing “Whales, Tails & Fails.”


Fed’s Aggressive Rate Hikes Are a Game Changer

Source: Wall Street Journal


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Coincident State Indexes (October 2022)

Source: Federal Reserve Bank of Philadelphia


The Coincident State Indexes for October 2022 snuck out last week right before Thanksgiving. You might have missed it during the holiday week, but it’s worth reviewing.

The specifics are noteworthy:

-Over the past month, the indexes increased in 20 states, decreased in 22 states, and remained stable in eight, making a one-month diffusion index of -4.

-Over the past three months, the indexes increased in 36 states, decreased in 11 states, and remained stable in three

-The 3-month diffusion index is 50 (breakeven)

The economy is slowing, and some states are doing great, some okay, some less so. The coincident index can show you exactly where:

Texas, North Dakota, Pennsylvania, New Jersey, and Massachusetts are all booming. California, Washington, Utah, Colorado, New Mexico, South Dakota, Louisiana, Florida, Georgia, North Carolina, and Virginia are all expanding.

The down states: Montana, Wyoming Oklahoma, West Virginia, Maryland, Connecticut, and Maine are all contracting; slowing (a little less) are Kansas Arizona, and Mississippi.

The FOMC increases are having an impact.



Signs of Softening (July 29, 2022)

Why Recessions Matter to Investors (July 11, 2022)

Soft Landing RIP (July 25, 2022)

Coincident Index by States (May 22, 2008)


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Rich Yamarone CUNY Scholarship


5 years ago, a dear friend unexpectedly passed away. Once his crew recovered from our initial shock, we decided to establish the Richard Yamarone Memorial Scholarship in Economics at Brooklyn College.*  The driving force behind the scholarship was TBP Invictus.

Art Cashin shared a reminder today:

“Many of us were deeply saddened (5 yearsa go today) to learn of the sudden passing of Rich Yamarone at age 55 of complications of a cardiac event.

Rich was a key economist at Bloomberg and years ago served as chief economist as Argus Research. Not only was he a brilliant and articulate economist but a witty and talented man.

He was a key feature at Camp Kotok, the celebrated annual meeting of economists and journalists in Maine. He would charmingly debate economic issues into the evening and then reach for his guitar and entertain the crowd with his rich baritone voice.

His resume looked like it was written by a novelist. Economist, raconteur, guitarist, vocalist, opera singer, a ranked athlete, gourmet chef and accomplished pilot.

But, with all that Rich was humble and said he hoped that people saw him as just a kid from Staten Island that they would like to have a beer with. In my case, it was several glasses of Dewars.

In review, I am reminded of the point in Shakespeare’s Julius Caesar where, upon the death of Brutus, Mark Antony says, “His life was gentle and the elements so mixed in him that nature might stand up and say to all the world “This was a man!

So was it with Richard. Ave Atque vale (Hail and Farewell)

Lots of the Yammy scholars have shared their experiences. This one is typical:



If you want to make a donation, please use this link: Yammy CUNY Brooklyn Fund. *Memorial Gift needs to be toggled with Richard A. Yamarone as “in memory of.”




RIP: Rich Yamarone (November 29, 2017)

Richard Yamarone Memorial Scholarship in Economics at Brooklyn College (April 17, 2018)


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10 Monday AM Reads

My back-to-work morning train WFH reads:

•  What H-A-P-P-E-N-E-D? Sam Bankman-Fried pitched himself as a humanity-saving crypto genius. Then he spent other people’s money to save himself. It’s possible that you don’t fully understand what Sam Bankman-Fried did or what transpired at his company, FTX. This may help. (New York Mag)

Holiday scam email season is here. Don’t fall for it. Sorry, no one is actually going to give you a free Yeti cooler. (Voxsee also If the Price Ended in 99, You Probably Overpaid: The age-old practice of prices ending with a 9 now serves to camouflage bad deals. (Wall Street Journal)

Quantum Computing Will Change the World. How to Play the Stocks. Investors finally have ways to play the first radical shift in computing since the 1950s, but you’re better off waiting before jumping in. (Barron’s)

The S&P 500 is Not the Economy: Technology stocks make up nearly 24% of the S&P 500. And that number is probably understating things since many of the biggest companies aren’t technically in the tech sector. Amazon and Tesla are two of the biggest holdings in the consumer discretionary sector. (A Wealth of Common Sense)

What the Latest Crypto Crash Means for ETFs: The implosion of FTX may have set digital assets back by years, and the fallout is still expanding. (Bloomberg)

The future of Twitter: Four scenarios: Bankruptcy, a company with a much smaller staff that does little content moderation and allows extremist speech to spread, a company that suffers serious technical problems, or a company with a smaller staff that adds innovative new products and survives the bumpy start. (Brookings)

Are you addicted to Investment Porn? The hidden dangers for your portfolio: What is Investment Porn? It’s media statements that make investors believe that anyone can become a millionaire in a short time, even with a small amount of start-up capital. From my point of view, however, the statements aiming in the opposite direction also belong to this area, particularly those of the Crash-Prophets. You rarely get rich quick on the stock market. And then only by taking high risks and having a lot of luck. (Onveston Letter)

The Death of the Key Change: One of the key changes—pun intended—to the pop charts in the last 60 years is the demise of key changes. What happened? (Tedium)

The Ukraine War in data: After 9 months of war, what the data tells us Facts and figures cannot convey the horror of the war in Ukraine. But they offer perspective and a sense of scope. (Grid) see also For Ukraine, So Much Unexpected Success, and Yet So Far to Go: Ukraine is on the offensive along most of the 600-mile front line, and the Russians are in a defensive crouch. But about one-fifth of Ukrainian territory is still occupied by Russia. (New York Times)

Why Big Business Can’t Get Enough of the World Cup, Scandal and All: The World Cup in Qatar, which started this week, has been plagued by controversy — and yet companies and countries are tripping over themselves to be part of the show. (Dealbook)

Be sure to check out our Masters in Business interview  this weekend for a live interview at Bloomberg Invest with Boaz Weinstein of Saba Capital discussing “Whales, Tails & Fails.”


Trend-Following: Why Now? A Macro Perspective

Source: AQR


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