Investor Advice in Fractured Times

By Matthew Piepenburg

Partner

October 12, 2023

In Part II of his conversation with Wealthion founder, Adam Taggart, Matterhorn Asset Management partner, Matthew Piepenburg, transitions from the broader (and increasingly unsettling and fractured) macro themes of Part I to addressing specific portfolio approaches and viable asset classes for concerned and informed investors.

Taggart reminds that despite Piepenburg’s longer-term expectation of debilitating inflationary forces, that nearer-term deflationary or dis-inflationary forces from falling markets and recessionary economies are expected. This view provides a needed context for portfolio preparation today.

Piepenburg, like many clear-eyed portfolio managers, argues that further Fed liquidity, and hence further market support/tailwinds, won’t emerge until after risk asset markets in general, and equity markets in particular, experience at least a 30%-40% mean-reversion/drawdown.

In short, the Fed won’t pivot until markets inevitably puke.

This means investors currently falling for the “soft-landing” narrative and chasing stock market tops are doing so at unacceptable risk.

Piepenburg further reminds that investment advice does not come in a one-size-fits-all package, as there are clear and legitimate differences between those seeking (understandably) to grow wealth and those seeking (understandably) to preserve wealth.

Furthermore, there are those who have the experience to invest on their own; whereas the vast majority rely on third-party advisors. To this later group, Piepenburg underscores the importance of vetting and selecting sober portfolio managers who: 1) prioritize risk management over lofty projections in these topping markets; 2) understand the importance of cash equivalents and short-duration sovereign bonds as an allocation and risk tool; and 3) who have the proven ability to hedge, both long and short. This final skill of active, rather than passive management, is admittedly difficult for even seasoned portfolio managers as volatility twists and turns dramatically.

Overall, Piepenburg aggressively warns against the consensus-think faith in traditional risk parity portfolios of de-worsified equities and de-worsified credits. Given unhinged, post-08 monetary policies by all the major central banks, both stock and bonds are simultaneously over-valued. This means bonds, once designed to hedge stock risk, are now correlated assets and hence correlated risks.

Naturally, Piepenburg addresses his preference and style of wealth preservation through real assets in general and precious metals in particular. Although everyone claims to buy low and sell high, nearly no one actually does this. Toward this end, Piepenburg prioritizes longer-term investing and preservation goals, as well as tracking commodity cycles against stock cycles. In the end, the next many years will reward those who understand these relationships.

The conversation briefly returns to, and ends with, current political and financial leadership and the implications going forward, both optimistic and pessimistic.

Watch part 1 here.