Bob Elliott, financial expert, joins The Compound and Friends to discuss the eruption in the market, what to watch for in 2024, the outlook for regional banks, the stupidest piece of research, and hedge fund strategy ETFs. They also explore the impact of interest rates, bonds, and prospects for regional banks, as well as the stability of deposits in small and large banks. Finally, they discuss Netflix's power law structure and strategic promotion, comparing it to traditional cable systems and recommending non-finance podcast Hidden Forces.
Deposits in small and regional banks have remained stable and experienced growth, indicating no significant credit risk or panic among depositors.
The recent rally in regional banks and interest rate-sensitive sectors can be attributed to the easing of monetary policy and investor confidence in their stability and profitability.
Concerns about potential inflationary pressures are rising, primarily focused on wage growth and its impact on the pace and extent of future rate cuts.
Deep dives
Deposits remain stable despite concerns
Despite concerns at the beginning of the year about a potential deposit flight, deposits have remained stable and have even seen some growth. While large bank deposits have fallen, this was offset by increased deposits in small and regional banks. The stability in deposits indicates that there is no significant credit risk or panic among depositors. The rise in deposits in small banks can be attributed to their higher interest rates compared to large banks.
Rally in regional banks and sectors sensitive to rates
The recent rally in regional banks and sectors sensitive to interest rates, such as utilities and homebuilders, can be attributed to the easing of monetary policy. The decline in long-term bond yields, driven by expectations of rate cuts, has benefited these sectors. Additionally, the shift in investor sentiment towards these sectors indicates that investors are more confident in the stability and profitability of regional banks and recognize their higher interest margins.
Concerns over potential inflationary pressures
There are growing concerns that the economy may be at risk of overheating, leading to potential inflationary pressures. The focus is primarily on wage growth, as higher wages could lead to increased inflation and create challenges for the Federal Reserve in fulfilling its mandate. If wages start surprising to the upside consistently, it could indicate an acceleration of inflationary pressures and potentially impact the pace and extent of future rate cuts.
Debate on Fed's inflation mandate adherence
There is ongoing debate regarding the Federal Reserve's adherence to its inflation mandate. Some argue that the Fed is not adequately meeting its 2% target and is comfortable with inflation remaining above that level for an extended period. This raises concerns about the potential for higher inflation expectations becoming entrenched, impacting consumer behavior and negotiating power. The market is closely watching the Fed's actions and communication to gauge how it will address the mandate and potential inflationary pressures.
Replicating Hedge Fund Strategies Using Technology
The podcast episode discusses how the hosts and their co-founder left the hedge fund business to build technology that can monitor and replicate hedge fund strategies in real time. They use technology such as ring cameras in hedge fund buildings and keypad loggers on computers to approximate the returns of different hedge fund strategies. Their goal is to provide this information to investors in the form of an ETF, making hedge fund strategies more accessible and affordable.
The Rise of Actively Managed ETFs and the Changing Landscape of Investing
The episode touches on the growing popularity of actively managed ETFs and how they are challenging traditional mutual funds. The hosts highlight the power of Netflix in promoting certain shows and draw parallels to the ability of Netflix to elevate certain shows to popularity and that of the ETF industry to promote active ETFs. They discuss how the operational efficiency of running an ETF and the lower fees associated with it are attracting more active managers to consider the ETF wrapper. Additionally, they explore the potential impact of ETFs in the retirement space and the anticipated shift towards integrating ETFs into mainstream 401(k) platforms.
On episode 122 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Bob Elliott to discuss: the eruption in the market, what to watch for in 2024, the outlook for regional banks, the stupidest piece of research, hedge fund strategy ETFs, and much more!
Thanks to Kraneshares for sponsoring this episode. Learn more about the KFA Mount Lucas Managed Futures Index Strategy ETF (KMLM) at: https://kfafunds.com/kmlm/#
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