This hedge fund manager, who is making winning bets in 2020, says that investors should prepare for a bear market that will last for decades.


On the heels of last week’s bullish reversal for stocks, the market is off to a mixed start to Monday. Hong Kong shares could weigh on sentiment with a huge slide after China’s leader consolidated power.

And we’re entering the doldrums ahead of next week’s Fed meeting, which is expected to deliver three more quarters of rate hikes. As Matt Maley, chief market strategist at Miller Tabak + Co., told clients, we can’t go back to 2021, when many were richer than they should have been.

“If we tried to maintain what we had a year ago, it would be like getting drunk…and then trying to stay drunk…to avoid a hangover. What the Fed is trying to do is stop a bad hangover from being horrible…but they are also trying to make sure we don’t get drunk again……….It’s a tough job,” he wrote.

This brings us to ourselves call of the day Boaz Weinstein, founder of hedge fund Saba Capital, warns of “real headwinds” for investors from central bank tightening that could trigger a decades-long bear market like the one seen in Japan. And in this gloomy atmosphere, he makes the best bets.

“I am very pessimistic. There is no rainbow at the end of it all,” Weinstein said in an interview with the Financial Times published on Monday. “There is no reason why it should be difficult [economic] the period will last only two to three quarters [and]..There is 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 on its bets against junk bonds. Trade credit default swaps, which insure against the company’s defaults, remain a big part of its strategy.

The manager also reportedly made a big profit by taking the other side of a $6 billion-losing trade for the bank in 2012 by JPMorgan’s London Whale trader Bruno Iksil.

As for how he’s playing the long-term bear market for stocks, Weinstein is putting his money in credit-default swaps because he thinks a recession will lead to more corporate defaults and cause credit spreads to widen dramatically. He cautions against stock market options, which he says won’t pay off unless stocks fall sharply.

Weinstein says the big market drop is yet to come because there are so many “troublesome things swirling around, some contradictory,” such as war, inflation, the energy crisis and China’s troubles. Thus, investors had time to absorb the bad news slowly and reduce risk at that rate.

“This year has been like a horror movie, but with five monsters – you don’t know what to look out for, so you walk away from it.”

Markets

Shares DJIA

SPX

COMP
bond yields are mixed as BX:TMUBMUSD10Y

BX: TMUBMUSD02Y
up and dollar DXY
is trading slightly lower. Oil prices CL
they are softer.

Buzz

Tesla TSLA
Shares fell 5% after Reuters reported EV cut starting prices for the Model 3 and Model Y in China by up to 9%.

Hong Kong stocks HK:HSI
It fell 6% in its worst one-day loss since 2008 after Chinese Premier Xi Jinping ran for a third term and unveiled a cabinet of loyalists who may focus more on ideology than the economy. Check out the US-listed Alibaba BABA,
JD.com JD
and Baidu BIDU,
all of which were crushed in Asia.

Chinese data were mixed. Growth of 3.9% in the third quarter was still the slowest in decades, as home prices fell by the most in more than seven years, factory output accelerated and retail sales slowed.

JetBlue JBLU
A big week for earnings with Alphabet GOOGL reporting on Monday,
Twitter TWTR
and Texas Instruments TXN
on Tuesday, Microsoft MSFT
and Meta Platforms META
on Wednesday and Apple AAPL
and Amazon.com AMZN
Thursday.

Read: Big Tech has been a haven for profits for years, but security is no longer a sure thing

S&P purchasing managers’ index data showed the inflation rate in the sector was the most modest in two years. The rest of the week will see data on the housing market, third quarter GDP and the Fed’s preferred inflation indicators. The European Central Bank is due to meet this week, along with the central banks of Japan and Canada.

Former UK Treasury Secretary Rishi Sunak is set to become the country’s new prime minister, with UK bonds rising as prospects for Boris Johnson’s return fade.

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