6/30/2022 12:00:00 AM

A Message from Mike: On the watch for a Fed pivot

We are staying defensive until the Fed pivots

We’re at the halfway point for 2022. So let’s take a look at the scores on the doors. It has been the worst start to the year for equities since 1970. It has been the worst start for a balanced portfolio since, well, ever. The superlatives keep piling up. US$23t of value has been lost in stocks and bonds, dwarfing the US$9t of losses in the Global Financial Crisis (GFC). And I hear what you are saying, the world economy was smaller back then. Yes, it was, but the GFC hit what was 13% of global GDP. 2022 = 27%, in six months! Tech has been decimated. Here is a list of household names and their performance in 2022:

Coinbase: -81%
Shopify: -77%
Netflix: -71%
Etsy: -67%
Paypal: -63%
Meta: -52%
Bitcoin: -60%

And the list goes on and on. So what is going on? Covid-19, the Ukraine-Russia war, inflation, supply and labour challenges, weak consumer confidence, and rate hikes. That’s the backdrop and that’s why we are where we are. What do the next six months look like? Will any of those problems resolve themselves by the end of 2022? Let’s take a quick look.

Covid-19: I think the impact of Covid by year-end, absent  a new deadly strain, will be muted.

Ukraine/Russia war: I’d like to think this will have been resolved, but Putin is a dictator, so anything is possible.

Inflation: If oil stays where it is or even falls, I think inflation will be heading rapidly lower and some parts of the economy will be experiencing deflation.

Supply chains: I’m picking these will be resolved.

Weak consumer confidence: Not resolved. I think this remains weak as the economy slows.

Interest rate hikes: Central banks over-stimulated and now I think they will tighten too aggressively. They will not come to the aid of the markets in 2022. Rhetoric has been inflation first, then growth and employment. However, I think by year-end the market will be pricing cuts in 2023.

The key in all of this? Watch the Fed and don’t fight the Fed. We will be retaining our cash and remaining defensive until the Fed pivots. In addition, I will utilise shorting again to hedge the equity exposure when appropriate.

The bubble that existed in asset prices, from stimulus and low rates, has well and truly deflated, just take a look at the ARK Innovation ETF. Now earnings are the focus, and they are the key for Pie’s portfolio managers and analysts. While I cover the macro, the rest of the team is focused on bottom-up stock picking and constantly reviewing our holdings to assess what is at risk.

A relief rally?

On the positive side. I don’t want to jinx it but, for the past 14 years, the Nasdaq has traded higher in the month of July every year (see chart on next page). For the S&P500, we are entering the best two-week period of the year (e.g. 1H July), dating back to 1950. 

So if ever there was going to be a relief rally, now would be the time.

A testing time 

These conditions are testing my skills to the limit, but I am relishing the opportunity to dive deep to understand market dynamics so I can provide the best possible outcome for Pie’s investors. I’m working now as hard as I have ever done in my career to test, probe, and anticipate what might be next to, above all, protect your investments. As they say, the proverbial is on the line here and if markets remain against us, rest assured I will be focused on capital preservation as much as I am on ensuring we capture the eventual recovery.

Volatility in new extremes

The investment team has worked extremely hard since March 2020 as conditions and volatility have rocked markets to new extremes. Another takeaway from these last two years has been the trends. At the time, it feels like they have longevity but often don’t. Think pandemic winners, AI, biotech, crypto, Covid recovery names, bonds, then not bonds. Now perhaps commodity prices will be next. No trend has really lasted more than 9-12 months. This certainly leads to the conclusion that while more pain is ahead, we are at least halfway through.

Per cent change for the Nasdaq index during month of July for past 14 years 


Source: Bloomberg

Thank you again for your support. If you have any questions please don’t hesitate to email me on

[email protected]    

Mike Taylor,
Founder, CEO and Acting Chief Investment Officer

Information is current as at 30 June 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.