Michael Gayed: Fed Has Destroyed All Stores of Value
Tom welcomes returning guest Michael Gayed, Portfolio Manager at Toroso Asset Management, to the show. Michael is the author and publisher of the Lead-Lag Report. He explains what most investors mean when they discuss risk on or off markets. There are historical leading indicators and his whitepapers help investors understand where volatility will occur. Everything is a leading indicator in some form and interest rates drive the entire captital system. It really is indicative of either inflation or deflation. He watches the behavior of utilities and treasauries to determine market conditions. They evaluate the signals every week and adjust their weighting and they were able to avoid declines in March 2020. They were able to take advantage of their system to get outsized returns during that period. Utilites are a very unique sector because its both highly regulated and they are often very highly levered companies. This results in utilities being highly sensitive to changes in performance. They will outperform often because everything else is doing poorly. There has been a big move toward from growth to value stocks and materials. Utilities may be beginning to bottom out and lumber may have topped out. If lumber begins weakening housing may weaken and demand may be dropping. Many people believe stimulus will continue the melt up but often the market does the opposite of what the crowd believes. There could be some sort of counter-rally that will surprise a lot of people. If we have inflation without inflation coming to wages then we will have more unrest and market uncertainty. There is very real dangers to the system considering the wage gaps. Gold from a strategic perspective makes sense since diversification in this environment is very hard to achieve. Gold may be better than bonds and this explains part of the demand for gold and crypto. Copper is about industrial demand and infrastructure. He expects to see continued upward pressure on copper and it seems like the cure for copper is higher prices. He discusses yields and credit spreads and what to watch for in the treasury markets. The Fed doesn't want rates to rise too quickly or we risk widespread debt issues. Michael argues that the most sensable thing they could do is to hike rates. Controlling yields have all sorts of negative implications. He argues that rampant money printing and excess debt by the Fed is enriching the wealthy and bringing out the worst in humanity. The very fabric of society is becoming at risk. Time Stamp References:0:00 - Introduction0:32 - Risk On/Off Strategies2:53 - Mutual Funds & Money Demand5:40 - Utility Sector Sensitivity7:46 - Current Market Indications10:16 - A Deflationary Trade12:22 - Inflation & CPI Metrics14:23 - Hedging With Gold15:55 - Copper & Commodities17:07 - Yields & Credit Spreads19:34 - Fed & Rising Rates22:47 - Banks & Lending24:15 - Australia & YCC25:30 - Convertible Bonds26:49 - 1.9 Trillion Stimulus30:29 - Unintended Consequences|\]\34:42 - Scarcity & Liquidity39:48 - Stores of Value41:52 - Concluding Thoughts Talking Points From This Weeks Episode * Risk in markets and volatility.* Utilities and Treasuries as indicators.* Gold and actual diversification* Fed actions yields and credit spreads. Guest Links:Website: https://www.leadlagreport.com/Website: http://torosoinv.com/Twitter: https://twitter.com/leadlagreport Michael A. Gayed, CFA is Portfolio Manager at Toroso Asset Management,