Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
In this exciting series, you'll have the rare opportunity to join Michael A. Gayed as he connects with prominent thought leaders for captivating discussions in real-time. The Lead-Lag Live podcast aims to provide valuable insights, analysis, and actionable advice for investors and financial professionals alike.
As a dedicated listener, you can expect to hear from renowned financial experts, best-selling authors, and market strategists as they share their wealth of knowledge and experience. With a focus on topical issues and their potential impact on financial markets, these live unscripted conversations will ensure that you stay informed and ahead of the curve.
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Lead-Lag Live
Mike Larson on Market Cycles, Fed Actions, and Gold Investment Strategies
Ever wondered how to strategically navigate the financial market, toggling between being bold and being boring? We promise you’ll gain invaluable insights as we sit down with Mike Larson, the Editor-in-Chief and VP at Money Show. Mike shares his journey from Weiss Ratings to his current influential role, shedding light on his strategic approach to market cycles. Learn how major economic downturns differ from shorter-term market events and the implications of central bank actions, particularly the Fed's maneuvers.
Discover how market volatility, events in Japan, and the carry trade dynamic draw parallels to past crises and what that means for today's financial landscape. Mike explains the resilience of the S&P 500 amidst VIX spikes and examines whether changes in options trading are tilting market dynamics. We also discuss the shifting performance of market leaders and what this could indicate for future trends. Don’t miss Mike's analysis of gold and silver investments, with a focus on central bank purchasing trends and the potential impacts of Fed policy shifts.
Finally, gain a deeper understanding of the interplay between geopolitical risks and oil prices, and the fascinating potential for small cap outperformance during bear markets. We cover internal U.S. politics, insights from the Money Show conference, and the changing sentiment among investors. This episode is a treasure trove of perspectives on market dynamics, economic indicators, and strategic investment approaches, all from one of the industry's seasoned experts.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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My name is Michael Guyette, publisher of the Lead Lag Report. Joining me for the rough hour is Mr Mike Larson. Mike, introduce yourself to the audience. Who are you? What's your background? Have you done throughout your career? What do you do currently?
Speaker 2:Yeah sure, mike Larson, I'm editor-in-chief VP at Money Show. Mike Larson, I'm Editor-in-Chief VP at Money Show. Money Show we put together live in virtual conferences, education conferences for investors, traders all around the US and in Toronto over the course of the year. I've actually been with Money Show for about two years now, but my previous employer, which was Weiss Ratings, weiss Research I was essentially speaking at Money Show. It was going all the way back to 2005. So I've done a lot of their events.
Speaker 2:I have a long history with the company and really enjoyed. You know we were a newsletter publisher so I was writing a lot of trading updates, letters, things like that. Probably my favorite part of the job is getting out there meeting and talking to the people who are reading our stuff, you know, and answering their questions and, yeah, you know, dealing with the good and the bad. You know sometimes that you got to take the hits with the plotted. So it was a good time. I enjoy it and I'm glad to be here. Like you said, we've talked a few times in the past and obviously there's a lot to talk about in this market.
Speaker 1:As I recall, you and I went back and forth a little bit. I think you had a much more bullish stance than I did, and a lot of people now have termed me a perma-bear, which is nothing could be further from the truth, and you know this because you interact with me, you know my content. But I want to just get let's start high level. First of all, what's your take on everything that's going on volatility-wise with Japan, this first carry trade dynamic that's playing out, and has any of this changed? Maybe some of your more intermediate charges?
Speaker 2:Yeah, I mean, you know you've been doing this for a long, long time, obviously, a long history of following the markets. And you know I started back in the late 1990s and I've kind of vacillated between sort of a be bold and be boring stance it's kind of the shorthand terminology I've been using for it where you know there's times to be aggressive in the markets where you want to be invested in sectors and assets and are, you know, for more aggressive times in the economic cycle, market cycle and so on. There's times where you want to be boring, you want to be in the defensive stuff, you want to be pulling in your horns, you know owning stuff that tends to hold up better in downturns and recessions. So you know, I think that you have to be permanent nothing basically, in this market and sort of be adaptive, right. So if I go back to like 2021, 2022, after we had the big run up out of COVID, we started seeing a lot of garbage going on in the markets. I mean, you know the drill the SPACs coming out every other day, the you know profitless Internet companies that kind of look dot com-esque, are basically falling. You know dumping shares on the market and so on. So I said back then you know, this is the same kind of stuff you saw at the peak of the dot com bubble. You want to get out of this, don't own this junk rain in your horns. It was basically a time to be boring, and that's what ended up happening. A lot of that stuff. Companies went out of business, a lot of the SPACs lost 80, 90% of their value. Many of those other dot-com-like names did too, and you saw things that were defensive the utilities, things like that outperforming.
Speaker 2:But really, as we got towards the end of 2022, and especially for me in the very beginning of 23, I started to look like an environment where I thought it made more sense to be bold. You started to see the defensive stuff underperform, the offensive stuff start to outperform and really coming out of that environment in 22, everything was down Bonds, stocks, pretty much every asset except for gold was losing you money and even gold was just kind of flatlining. I thought it was ready for a turn in the market Some of the speakers that we have at money show events we're talking about a turn that you know, those I respect, and so on and it kind of seemed like the right thing to do so. I've been pretty bold, pretty bullish on markets since the start of 23. And obviously up until recently that's worked.
Speaker 2:Your question was about what we're seeing right now and so far what this kind of reminds me of is sort of a long-term capital management market style event, not yet a credit economic event. That's kind of like my big picture way of looking at what's going on.
Speaker 1:You're the second person that made that analogy to LTCM, so let's provide a little bit of historical narrative and context around what long-term capital management is most famously known for and where the parallels, where the differences.
Speaker 2:Yeah, absolutely. I kind of look at bear market periods, downturns, corrections, whatever you kind of the way I see it, there's sort of two buckets right. There's the big economic credit events that are, you know, big, broad, very painful, very powerful, and I would put the dotcom bust into that, into that bucket, and I would also obviously put the great financial crisis into that bucket. These were broad based downturns in the economy and the credit markets going haywire and S&P losing 40%, 50% or the dot-com NASDAQ losing 80%, whatever the total top to bottom run was. Those are big, broad trends where I had no problem saying, look, you want to get out of pretty much everything. I mean, I remember being at Weiss in the mid-2000s. Before there I worked at bankratecom, so I kind of had a close eye on the mortgage and housing markets, following what was going on in that part of the world. And then when I joined Weiss in 01, you know, and as it rolled into sort of 03, 04, a lot of the shenanigans I saw going on, I said, you know, this is going to be a disaster, this isn't going to just be some gentle downturn. You know all the well-contained stuff that you know you would hear about from Bernanke and so on, and I called it like I saw it. I thought it was going to be really really ugly.
Speaker 2:Whereas when you look at something like a long-term capital management or, say, the 2011 debt ceiling debacle, where, you know, the Republicans and Democrats pushed it to the edge and the US got its credit watch, you know, its rating put on credit watch or downgraded or whatever, that was more of like a market event. Right, that was a shorter term, acute kind of market dynamics type thing going on that ultimately didn't throw the economy into recession, ultimately could be, quote unquote fixed with the right steps by central bankers and bailouts and whatever. I kind of put what I'm seeing and again so far into that category Long-term capital management. If you weren't trading the markets or you weren't following the markets back then and you had this hedge fund that was placing all these esoteric bets on the spreads, the differences between started blowing up and there was a lot of leverage.
Speaker 2:It was sort of hyper leveraged bets that were being placed back then and ultimately, you know that tanked the markets in the summer of that year, in July, august, september the Fed had to essentially get together all the big banks that were lending and brokers that were lending to long term capital management and say you know, we're not leaving this room until we figure out a way to build these guys out so it doesn't derail the whole market. And that's essentially what happened. Greenspan cut the funds rate three times. Whatever, I forget the total number. The dollars were much smaller back then. It was like $5 billion worth of bailouts and off we went to the races. The free money thrown at the markets led to a big rally that ultimately popped in 2000.
Speaker 1:It's interesting to think through the distinction between an event and a process. Right, events tend to be more market driven and plenty of big declines don't necessarily result in a recession. 87 crash, ltcm didn't either, right? Um, where is the risk in terms of that? That process I mean, is if we're going to have a recession, the unadversion and all this stuff. It's kind of foretelling that. Is it as simple as saying the process comes from commercial real estate? The process comes from consumers being stretched and strained. What would cause a more traditional in quotes recession as opposed to an event-driven market event?
Speaker 2:Let me see if I can share my screen here. If it's got this slide, um, slide up, hang on one second and then I think I can do uh, this one should work. So are you seeing that? Let me just make it a full screen. There we go, I'll just slide show it.
Speaker 2:So this is what I had, um, this is what I I had at the uh, most recent event we had in Las Vegas, the symposium, and it's kind of like my bearish checklist, the five things. I'm watching that if they did become a real issue, if there was something that was going to derail this run that we had, what are those five things going to be? And essentially this was it. Number one Fed sits on the sidelines too long, arguably. Let's look at the Fed concluded its meeting on that Wednesday and then what happened? We got this jobs report that was pretty lousy two days later. I would argue there's a pretty decent chance that I think if the Fed had that data which I assume they didn't I mean, we never know exactly when they get the numbers earlier. If they do I'm not privy to that information, but you know, I think the Fed may I would certainly think they would be a lot more people arguing that we should at least go 25 at that meeting if they had those Friday numbers. Because, let's be honest, there's been a lot of data that has pointed to a slowdown. You know, not to me recessionary, but a downturn. You know, easing of the job market, tightness, whatever, loosening up. So I think the real issue is, if the Fed sits on the sidelines too long, that's one problem. You could arguably say we haven't really ticked that box. Maybe we kind of like half ticked it.
Speaker 2:Currency credit was funny. I mean, I put the slide together about a week before the conference. We were out there Thursday, friday and Saturday. Obviously, we all know what happened with the yen and what happened on the Monday after, and that was is there going to be some kind of currency events that you know? And again, I put in question mark. And well, I think you could remove that question mark if I was to do that same slide now. So we're seeing the impact of, you know, all this yen carry trade stuff, the impact of the Bank of Japan, surprise markets with a hike and people saying, oh, you know, shoot, what does this mean for a dollar yen? And blah, blah, blah. Let's get money out. So that box has been ticked right.
Speaker 2:You know geopolitical tensions, I think you know, it's sad to say, the stuff in the Middle East that goes on. You know it's been something markets have seen for years and years and can deal with it. If it's sort of this low grade issue, if there turns into a shooting war or something more serious between China and Taiwan or the US and China, that's like a whole different ballgame. So that, or the US and China, that's like a whole different ballgame. So we haven't ticked that box yet. Cre now I've heard a ton about it, I've followed it. I mean again, obviously, like I said, back in the early 2000s I was very closely on the residential real estate side and had a lot to say bearishly about that. I actually am a little bit more sanguine on the CRE issue.
Speaker 2:I tend to think with commercial real estate it's kind of like this low grade background fever thing that's going on versus you know something where you've got to run to the ER and get treated immediately or you're going to, you know, die on the table. It's one of these things. You know the government supporting them, the banks you're going to have some failures. We obviously already have. You've got these buildings that you know, instead of trading 100 cents on the dollar, changing hands at whatever 70, 60, 50.
Speaker 2:There was that one that was in the journal the other day trading for like 3 cents on the dollar or something that's going to happen. People are going to lose money, you're going to see a few institutions fail, but I look at it as one of this thing that's going to be just again sort of a chronic thing that takes a couple of years to clear out, versus something super acute. Because if you go back to the mortgage situation, a lot of that paper that underlied the mortgage, you know, was all this 228 garbage, these arms that we're going to adjust, and even if rates didn't go anywhere, it was going to blow up in your face and you know people were loaded up with that paper throughout the financial system. So that's what really caused that problem, whereas here I just think it's again kind of that low grade thing.
Speaker 2:So I would say you know people can deal with it, unless I'm wrong, unless something happens that triggers liquidation, you know, forced selling, that's much more aggressive. I'm OK with that. So maybe one and a half boxes tick July jolt is really something that you kind of have to watch. I mean, I would consider what's happened so far. Rotational. I would not consider it, you know, a rollover, but again, this is one of those things that you can't know as of today.
Speaker 1:Right, and I guess I'm glad you said that, because I, like, I've been having a lot of people high-fiving me around this right and I actually am not. I'm not that confident uh, I'm somewhat confident not super confident that uh, the process is underway, because we've seen this kind of behavior before and the market just snaps right back right now. Maybe this time it's going to be different, but the point is like we do need some time to see how it plays out, and that's the tricky thing, because by the time time passes it could get a lot worse very quickly and be quite painful. I myself said at the start of the week I think the whipsaw is coming, yeah, so actually. So, on that point, let's talk about that, because if you, you put out in, uh, the market minute, you noted, just from a news perspective, what's going on BOJ's JITA backtracks, after global market tantrum Tantrum's a good word to explain what's going on with Japan.
Speaker 1:Nikkei rallies on the sorry about that stance, and this is the whipsaw. Right, I said that they will intervene, which is a form of intervention using moral suasion Fools will rush in and then I think they're going to hit it again. Are we at a point now where central banks are the source of volatility because they themselves are changing entire policies based on market movement. I mean, or has it always been like that?
Speaker 2:on market movement. I mean, or has it always been like that? You know it's funny because I always look at markets as what I think the ideal world would be how central banks and markets should interact and what central banks should do. But you know, you got the word should in quotes, right? Because in our business you have to trade the markets you have and as they are, versus what in an ideal world they would be. So if you're short the market, if you're betting on downside, you have to take in the quote unquote risk factor that the central banks are going to work against you. Or if you're long, whether we call it a Fed put the old Greenspan put, that's now gone through, like four other central bank heads since then. It is a reality that I think, especially after the great financial crisis, I mean the central banks realize and treasury departments realize the mistake, or not the mistakes, but the danger of letting the markets do their work. I mean that's you know what ended up happening in 08. And again, rightly or wrongly, we may think that that's sort of intruding in the free market, but that's what they're going to do. So I think you clearly saw that. I doubt the BOJ policymakers expected, you know Japanese stocks to have their worst day since the 87 stock market crash on Monday. I think they might have expected some volatility, but not anything like what we got, whereas now they've come out and said okay, we've gotten slapped around, we're sorry what we did. Like I said, forget about that.
Speaker 2:I think arguably the Fed. Are we going to have more weakness? Is this going to kind of be the catalyst for, you know, at least a seasonal downturn in August and September? I think that you can't. It's hard to argue that we're just going to snap right back to new eyes and keep going. I do.
Speaker 2:You know some of the people whose work I follow on seasonality. You know they highlight that August and September tend to be kind of lousy periods for the market from time to time anyway. And now you've got the situation where you've got a catalyst. You've got people a little scared, you know. You know the VIX spiking to 60 and round tripping back to 25, whatever. You know that's not what again, what should happen in a normal world. And when it does, it makes people respond. You know you're going to have some. You know people being less aggressive. You're gonna have people taking money off the table just because of the volatility and trying to let it settle out for a while. So I'm kind of I kind of think you know, we're probably in for some seasonal weakness here. I think the Fed most likely throws out a signal in Jackson Hole that, hey, listen, we got the message too. We realized. You know, they're not going to come out and say we screwed up, but let's be honest, that last jobs number kind of coming two days after they did what they did, makes them look pretty stupid. So they're going to, you know, they're going to kind of try and massage the messaging and then cut in February, excuse me, cut in September. So I wouldn't say we've lost the plot here. I would say we're probably in for some volatility.
Speaker 2:But again, like I said, the whole July jolt thing, you know, rollover versus rotation, I'm certainly watching the markets. I think that it's interesting. Before we had all this Japanese driven stuff. You know, you did have small caps and breadth and you know, pick up where big tech and mag seven left off, you know, and as long as you get rotation not full on throwing in the towel, that can be healthy. I mean, what were we all complaining about six, eight months ago? It was, oh, it's just mag seven. It's just, you know, these seven stocks that drive the market. Nothing else is moving. Well, in July you saw that change. You saw other things start to move. So again, rollover versus rotation. I'm still in the rotation camp but you know markets do what they do and you got to pay attention. You know, eventually you're going to know whether you're wrong and to keep telling the market it's wrong versus and you're right, that's a losing proposition in the long term.
Speaker 1:I'm glad you mentioned the VIX spike because there's something that's been nagging me about the way that played out, and you've been in business pretty much as long as I have. If I were to ask you in January or say to you the VIX is going to hit 60, 65 intraday right, I'll ask you a question what would you guesstimate? The S&P would be down Hundreds of points.
Speaker 2:I mean, you know, like that is not a small move. I mean that's.
Speaker 1:It's not a small move, right, but that's my point. What's nagging at me about this is that I would have expected, with that type of a magnitude VIX spike, the S&P would Right. Instead, it's like the magnitude of the VIX spike was not really commensurate with the actual decline. It was still a big down day, but it wasn't anywhere near like that. I wonder if the signaling part of the VIX meaning, you know, buy when the VIX is extremely high if that's somewhat I don't want to use the word broken somewhat, I don't want to use the word broken. But if it's being diluted somehow because of zero DTE and all the options trading, that's just somehow throwing off the magnitude point of VIX spikes versus the actual drawdown in equities.
Speaker 2:I mean it's you know. Again, I don't pretend to be so deep in the weeds and sort of the quant, you know mathematical genius that can go into a lot of that, but I do think you know you've got a point there where, again, you would have expected more equity market carnage if you just were shown nothing else other than where the VIX was on Monday morning. So what's causing it? I don't know whether that's a signal that things could get worse. I'm not sure, and you know, and I'm going to admit, when I don't know something, rather just try and cook something up off the top of my head. I will say again, I think that if this was more of a you know, something worse is going on in the US markets or the US economy other than, hey, the Fed might have missed the pivot point by a little bit, then things would have been worse. This was sort of a US centered you know, some US bank or fund blew up over the weekend versus this is coming out of another country and another central bank screwing something up. I think the situation would have been a lot worse if it was like the government having to rescue Bear Stearns over the weekend because the futures were going to start trading on Sunday evening, that kind of thing, that would be more severe.
Speaker 2:So I think the general Wall Street consensus and whether or not this is actually right, but I think the consensus was okay. This is Japan's problem. Okay, that impacts our markets, but no, that doesn't mean, you know, us corporate profits are going to be terrible, the US economy is going to fall apart. So we're at that stage where I think people you know God, I hate to use the word people think, oh, maybe it's contained, is it Again? I don't know, but I mean that's. I think that if I had to summarize why Wall Street was in less sort of up in arms than foreign markets, that's pretty much it.
Speaker 1:A question about gold and silver on YouTube and the question is what's going to happen to them? From Murat Osman here, samar so I have been on this kick you know for some time that he's saying all right, gold is sending a warning. I think he clearly was sending a warning when you know, in the lead up to the first intervention and also what looked like war between Iran and Israel, which it's weird to me, it's like suddenly that's also not in the headlines as much anymore. It's almost like people can only focus on one crisis at a time, and the crisis du jour now is Japan. I want to get your take on gold, silver, but do it by timeframe Because, at least the way that I tend to look at gold, it's a short-term risk off play, but from a long-term, I think it's more of a cycle play.
Speaker 2:Yeah, look, I've actually spoken at a couple of precious metals focused conferences before, but when I've been invited I said, look, I'm not a gold bug per se. There's times I love gold, there's times I hate it. There's times when I don't really care what it's doing because there's better opportunities in other parts of the market. That being said, I've been bullish on precious metals since the second half of 2018. I saw enough coming together there that I thought kind of the cycle was turning with precious metals. You know, we had a big rally off that point and then we basically did nothing. For what? 12, 15, some odd months or whatever? And it was like waiting for Godot, you know, waiting for gold to do something.
Speaker 2:What I actually found kind of interesting is it held up pretty well, relatively speaking, even in 2022, when the Fed was on a rate hiking rampage for gold to basically unchanged, in an environment where short-term rates went from around zero to five plus percent. That's pretty impressive, considering the knock on gold from mainstream is that it yields nothing. Now, what we've seen more recently, obviously, with gold hitting new highs, getting up and tagging and then pulling back from 2,500 in the futures market and silver getting up to the low 30s I think it's telling you a couple of things. It's telling you that, yes, there's some insurance need, there's bigger picture, geopolitical longer term, just more tensions than we've had in the past. I think that's part of it. I think part of it is just asset managers looking for something that hasn't moved yet. You can't just own big tech forever, so maybe there's something to do with adding some precious metals exposure as the next thing to move. And then you've clearly seen central bank buying it in the precious metals market. I mean China. It was adding gold to its reserves, for I forget what the number of months in a row was 16, 17, 18 months, something like that. You've seen a lot of central bank buying, so that's part of it.
Speaker 2:I would also add that, with the Fed clearly shifting from rate hiking to rate stable, to rate cutting, that's bullish for gold because it removes that yield argument. If all of a sudden, short-term rates are going from five, five and a quarter, whatever, and if you look at the forwards market for interest rates, they're looking at the Fed cutting all the way to somewhere around 300 basis points in the next year, year and a half, well what happens? And the yield competition from gold goes away. And finally, I would argue, unlike other times when sentiments, when you've had big runups in gold and silver and sentiment has gotten wildly bullish, that hasn't really happened this time. If you look at things like ETF fund flows and what have you, there hasn't been a bunch of whatever you want to call it dumb money plowing into the market, just chasing highs. You've seen those fund flows pretty subdued. So from a sentiment standpoint, that argues to me that there's more room for this thing to go because you don't have every Tom Dick and Harry throwing money at that part of the market.
Speaker 1:I'm glad you mentioned that, because I've used that line before. It's like trends die on conviction, they persist on skepticism. And it's actually interesting because I've noticed that too. I remember that time period in 2011 when the gold bugs were the Bitcoin maxis of today. Yeah, absolutely. It was the exact same type of sentiment. They would be aggressive, it's a hyperinflation. Gold is the answer. The exact same narrative in 2011, with that fervor, is what I see from the Bitcoin maxis. And, to your point, all the demand and all the conviction is there and gold, despite it breaking out and despite it looking really quite strong as an alternative asset, just is not getting the love.
Speaker 2:Yeah, and yeah, I mean so I think of all the assets. When I look at it. You know, what do I want to invest in, what do I think is overextended, what do I think still has room to run? I mean that's probably one of the things I've been most bullish on and I have remained that way. I mean, you know, and I don't remember exactly what gold's up now 18, 19% of the year, somewhere in that ballpark. I mean that's a great performance. If that was the S&P, you'd be pretty happy at the end of the year and I think that's what you're going to likely continue to see as we get to that pivoting.
Speaker 2:Because again, it's not just the Fed that is going to be in rate cutting mode before long. You have central banks and other major economies and minor economies already cutting rates that you sort of flip big time from that global hiking cycle to a global cutting cycle. The only question is kind of how far down rates are going to go, and that obviously depends on the economy and the economic situation here. But I think that arguably you removed I used to think of it, you know, in 22 with gold it was like the dollar was the governor on the engine. Right, you had a lot of earnings going for gold. But, just like when you have a governor on a car engine, you can't get over a certain speed. It's going to put a lid on it, whereas now you've removed that big governing factor. So there's a lot of reason to think that that's going to be an investment that will have room to run.
Speaker 1:Let's talk a little bit about silver and other commodities. I mean silver in particular. I often get questions on it as it relates to gold, because of the old poor man's gold. You know there's a relationship. Silver runs. It seems like silver is going to be more dependent upon China and industrial pickup. Like other commodities, gold will probably stand alone in the commodity space. But what do you think about silver in particular?
Speaker 2:Yeah, I mean, you're absolutely right. It's tied to silver's heavier use in the industrial space. So if you've got things like copper going down, which we've had for a little while now after a big start to the year, yeah you're going to see silver tethered to that to some degree. I mean, you know, with silver you're almost in sort of a 50-50 monetary and growth or industrial type metal, whereas gold is almost all monetary and insurance and everything else. So you know I like silver, I do else. So you know I like silver, I do.
Speaker 2:I don't see any problem with with both of them running, and I've had some of the people again that I speak to in interview and some of the people that speak at money show events where it's like they're more bullish on silver than gold. So whereas I'm kind of in the maybe tilted toward towards gold category so you know you can have different opinions there, but it is worth paying attention to the fact that you know if copper goes down, if people think China is going back into the soup, if there's worries about global growth and this, that and the other, that's going to impact silver, whereas gold might not necessarily have that kind of anchor around its neck a little bit. So I like both. I'm tilted a little towards gold, but again, plenty of smart people that are more metal specialists than I am are saying look, silver probably has the best potential upside going forward.
Speaker 1:You mentioned geopolitical risks, tensions, a little bit earlier, and whenever I hear geopolitical tensions, my mind immediately goes to oil, more than any other commodity. Part of my thesis around Japan is about oil priced in yen, which is why I kept on saying they're going to panic. Yeah, how do you view oil here? I mean, if you're bullish and, let's say, china has bottomed and starts to reaccelerate, it seems to me like oil is going to run higher. I saw some headline before we got on around Trump saying we need to refill the SPR. Now it seems like there's a real bullish case. Even if you hit a recession, oil could actually hold up stronger than others. What's your take on that?
Speaker 2:You got a lot of things going on there. I think Some of it is politics. I'm not a big politics guy, I like to focus on markets and economics, but there's times, obviously, where politics are going to impact. You know what stocks are doing, what some commodities are doing. I think there's definitely some thought that look, if Trump gets in there, regardless of what you think of him, he's drill, baby drill. And what does that mean? That means you know you're going to have US output and everything go away and therefore, while maybe bullish in terms of the actual operations of some of these energy companies, ultimately it's going to keep a cap on the price of the underlying commodity and or maybe drive it down. So that's one thing you've got going on.
Speaker 2:And, of course, on the bullish side, you've got concerns about geopolitics. Like you said, we haven't sort of seen the missiles fly, so to speak, in the Middle East. Given the upping intentions we've had with Iran and Israel and Hezbollah and so on. Depending what happens there, that could be a factor that really spikes the price. But sort of arguing against that again, the US, the SPR, may not have as much oil as it should have at this point, but you also have a USS output that's at multi-decade highs. So we're in a much better shape now as a country in terms of being able to deal with Middle East tensions, from an economic standpoint and an oil price standpoint certainly than we were in the 1970s. So a lot of things going on out there and of course, russia is finding ways to get its oil to market despite sanctions and all of that.
Speaker 2:So I think that's part of the reason why you maybe haven't seen as much juice to the upside from geopolitics and part of the reason why I think you know you've just sort of seen a relatively stable market there for quite some time. Oil, after all the gyrations we had a couple of years ago, where it got traded down in negative territory after flying above 100. Before that, you know it's been sort of in that 70 to 85 range give or take for quite some time. I tend to agree with you, though, if we, you know, if we can get just a little bit of more optimism or less pessimism even out of growth in places like China, if Trump were to lose, for example, and you remove that sort of political cap of drill, baby drill and worries about that, then that's, you know, that's your catalyst for maybe some gains there. I don't. I'm not wildly bullish on the sector of the commodity, but I'm also not super bearish. I think that you know it's probably as a gentle glide path to the upside is probably my most likely scenario.
Speaker 1:So you have some big name guests when you do the Money Show, and I'm going to share one of the big name guests who I've had on my own podcast as well. That person is Mr Jim Bianco, and I'm a big fan of Jim's. I know you get a nice variety of speakers for the Money Show, but in the most recent one, what were some of the major concerns? As you're talking to people that are coming to the conference and wanting to learn and hear different opinions, was there some overwhelming theme that you were coming across from attendees?
Speaker 2:Sure. Well, first off I'll say, yeah, jim's great as an independent researcher. He's kind of not holding anybody and call it like he sees it. His stuff he puts even that he shares publicly on X and so on, is fantastic. He puts great charts out there, commentary that's very useful and obviously, having him on the podcast and from your chats you know that he's a deep thinker who can really back up his thesis.
Speaker 2:He's actually kind of, as you may know, more in almost the no landing camp. He's sort of a no lander. He doesn't think he thinks more of what we're seeing is sort of just market stuff. You know, like we were talking earlier, not really a credit economic event, more of a market event. He actually would be surprised if the Fed gets bullied into cutting too deeply. He's a lot more sanguine about the you know about this being more again that market bucket versus sort of like this is a signal of some big economic problem. That being said, I mean you know when you hold a conference and the first day you know the market's down, whatever. The Dow was down at 600, 700 points and the next day it's down 1,000 or whatever. I mean people are definitely watching it and wondering what's going on. Is this something deeper?
Speaker 2:But I think that, as of this point, most of the people that we're talking, you know they warned about things like geopolitics. There are the people that we're talking. You know they weren't about things like geopolitics. There's definitely concern about geopolitics. There's concern about internal politics, tribalism, whatever you want to call it here in the US and how that makes it harder to maybe work together. If things were to get ugly in terms of from an economic or financial market standpoint.
Speaker 2:But generally, ok, I would say I would not call it wildly bullish, I would not call it wildly bearish. I think the Fed there. Is it wildly bullish? I would not call it wildly bearish. I think the Fed there is definitely some fear, some discussion about the Fed maybe being a little bit behind the curve. I think that's again if you put the stuff that's happening in Japan and carry trade off to the side, you say what's a big concern amongst people in the US? It is kind of, what's the Fed doing? Shouldn't they start to move? I mean, friday we got the jobs report and that's what happened to the market. All of a sudden, I mean you know people will talk about the fact that on Wednesday everybody's celebrating the Fed. Oh, it's fine, you know, everything's good. They didn't hike rates, they didn't panic. And then, 48 hours later, oh no, you know the Fed call it a joke or a um gallows humor that here we are, the market's down hundreds of points on the same thing that a couple days ago was up hundreds of points.
Speaker 1:So but, by the way, can I, can I just refer to I? I find this whole environment to be that shit crazy from that perspective that you can that quickly the narrative shifts. I may always say, like you know, watch how quickly the narrative shifts. I mean this is like to the day now. I mean, when you talk about these big decisions that have to be made that affect the entire economy, by the way, with a lag, and affect many actors, like suddenly, what the the the market's down? Oh, we gotta get. We gotta get something by five basis point cut. We're gonna have an emergency meeting.
Speaker 2:It's like this is, this is insanity yeah, I mean, you know, just look at what like two-year yields did on mond. You know, from night, I mean, the round trip and the amount we're down. I think it was like 20-some-odd basis points at one point in the day, or like 60 basis points in three days. I mean these are the kinds of moves that usually take months and they happen in 40, 72 hours, so absolutely it's kind of hard. I think people are sort of grasping at. Again, the same thing that I'm thinking about Is this rotation or is this rollover? Is this, you know, 2000,? You know May, june, where you started to see that market top and fall apart and you know that was ushered in a bear market? Is it the summer of 2007 where we hit a new high for the Dow and then started rolling over and we all know what happened after that? Or is this more just kind of you know short term noise the summer, august of 2011 or September of 98, where you know you could use policy or you could quickly adjust and pivot in terms of policy and get things back on track and it's not sort of a pre-recessionary signal? And again, you know, sometimes you just got to be honest with yourself and that's what I try and do and say, look, I don't know, my best read is this is still. I look at it. When people say, oh, we're due for a fair market, this market's been crazy, how can we just keep going to the upside, I say we kind of had one.
Speaker 2:Go back to 22. Yes, the S&P was down a lot, bonds were down a lot. Pretty much nothing worked. But if you went behind the scenes and you look at how tech did and you look especially at how some of the junkiest junk from that period, the SPACs, the profitless tech companies, whatever I mean those things literally had a dot-com style wipeout. A lot of them went out of business. Others were down 70, 80, 90%. So even though the S&P I forget exactly how much it was down that year that was your bear market in this recent cycle. So I tend to think, sure, we've come a long way off the October 22 bottom and maybe this is going to kind of be a seasonally weak period. But if you're looking for where all the carnage was and if you're saying, geez, how is the market shrugging everything off, I mean we got to go back and kind of remember what happened for a good part of 22 and even the tail end of 21.
Speaker 1:So I've been making the case more recently that, going back to that point about confidence in my own thesis, that the one thing I'm probably most confident in is that the cycle has changed. And when I say the cycle has changed, what I'm really addressing is there's a new set of leaders. Yeah, right, and that's how I think of cycle change. It's about what's leading. So you mentioned tech. Tech was obviously the cycle leader throughout this. Is tech going to continue to be a leader? And, if not, where do you expect there to be some of that relative momentum picking up that could last for like a multi-year period, some of that relative momentum picking up that could last for like a multi-year period?
Speaker 2:Yeah, sure, I mean, it's funny because before the most recent round of shenanigans from the BOJs dial it back to the beginning of the month. But we started to see some of that rotation Even before that. I was on a space where the question was give me hot takes. You know, give me five hot takes for what's going to happen for the end of the year. One of them, I said TLT is probably going to finish up 4% or 5%. You're going to see a lot of the panic in the long term. Part of the bond market subside and bonds are going to give you a halfway decent return. And the other big take that just off the top of my head, I remember, is I said all right, measure it from the start of half to IWM is going to outperform the Qs.
Speaker 2:And again it wasn't just like name something ridiculous like the world's going to come to an end, it's hey, name a surprise. That could happen. You know it would be a surprise still, but it's in the realm of possibilities and somebody can make money off of. And that was my thought. I thought you know we are going to see this market run now we are going to see as we pivot from you know to the Fed cutting you're new to buy and own versus just the same old, same old for months on end. And I didn't expect the rotation to be as violent as it was a couple of weeks later. But I would still say in my operating thesis We've obviously seen since then this broad market carnage where everything's been selling off, small caps included. But I think what's likely to happen is, as the market finds its footing whether it's now or whether we have another month and a half or two months of sort of instability. When it does, it's going to be the new leaders that will lead. So it's going to be your small caps, it's going to be value, it's going to be things like financials, industrials, transports, whatever.
Speaker 2:If we can dodge the recession, which is still sort of what I'm looking at, I think what I also would say is you're going to see, you know tech I don't think crashes. I don't think it's a scenario where you know for everything else to work, tech has to fall apart. I do think it's going to be a scenario where, for everything else to work, tech's going to kind of have to sit there and be boring now and underperform, whereas that money gets drawn out and rotates into other new winners. So that's sort of what I'm looking at and that's. You know, I don't think what happened at the beginning. The first half of July, with a lot of sortation, is just a short-term blip. I think that's the story for the rest of this year and probably rolling into next year as well.
Speaker 1:I love this post you got shown on screen here from X, which is the time-tested gold plus small cap, minus all tech stocks portfolio, is really proving its outperformance analysis. That was July 30th. I'm with you, by the way, on small caps. I myself believe it's interesting. Actually, the small cap to large cap ratio seems to have held below. It has not gone around trip, which is volatile, but at least, as we're speaking, you haven't seen that break. The pushback that I get around the idea of small cap outperformance under a bear scenario is if markets go down, you have a recession Again. Like you said, the most levered to rates. How can they possibly be down less? And my own response is well, they've discounted probably much more of that than large caps, at least from the perspective of recessionary pressure. Historically, is it unusual in recessions for small caps, which in theory should be most hurt by it economically, to actually outperform? I mean having from 2002, but other junctures. Is there a case to be made that small caps may, oddly enough, be a defensive part of the marketplace?
Speaker 2:Yeah, it's interesting you bring up the 2000-2002 scenario because I think that might be somewhat instructive, it's funny. And you look back at the year 2000,. Nasdaq, I think, ended up being down about 40% or something like that for calendar year 2000. But I remember, looking back, the REITs were up like 21% or something. Utilities were up 20-odd%. I mean you had a market where it was this huge bear market, but a bear market for what. Everybody was overloaded in and the rest of the market did okay. I mean, eventually everything kind of got dragged down. The S&P was down but banks even kind of held up. Financials weren't really falling apart in the first part of that downturn. So later on we had 9-11 and all this other stuff that factored in. But I think you can make a case that and I think that gets to my point is I think the underperform outperform.
Speaker 2:Look, nobody likes to lose money. If this turns out to be a deep recession, I'm going to be wrong about being bold and you're going to lose money in small caps and, let's be honest, that is what it is. But do I think you'd lose less money? Yeah, do I think that because of what you talked about, because you've already kind of priced in a lot of negative and that people are going to look for value and things that can hold up. I also would argue that in a sector like real estate, for example, you're still going to have a few opportunities. Homebuilders were up 10% in the last month. Reits, I figure, were up like 7%, 8%, 9% or so in the last month. Why is that happening? Well, interest rates, obviously, that's one of them. But also just think of how much negativity has been priced into commercial real estate. You can't open a newspaper or log onto your computer without hearing about how nobody's ever going to go back to the office and if they do, they're going to, you know, be coming out of an apartment complex that has 20 just next, you know, right next to it. They'll look all the same and they're all empty and nobody's going to go to the mall because you know who wants to do that. Buy it online. Have stunk up the joint for 18 months, right. So I think you know there are going to be a few things that have, that are still have potential that you can buy, that are discounting Armageddon or close to it. That might work. So I think you know even we talked about some sectors earlier. One thing I didn't mention is look if you got the interest rates going for you, if you can argue that a lot of this negativity about CRE, lending risk and price risk and everything from the underlying properties is gone, maybe that's an opportunity there.
Speaker 2:If you're looking for something to do and it's funny, I want to actually show let me see if I can show this slide. That was awesome in the presentation. Hang on a second here. I'm going to pop this on the screen and hopefully this won't bore everybody to tears when they see it, because it is. It's one of those things that here we go.
Speaker 2:So this is the Fed's slLOUS report Senior Loan Officer Opinion Survey on Bank Lending SLOUS they come up with all kinds of acronyms, right, but it's basically that is a mouthful. Yeah, it sure is, it sure is. But you know what this is. The Fed goes out every quarter and surveys big banks and says, hey, listen, are you seeing more demand or less demand for credit card loans? Are you seeing more demand or less demand for credit card loans? You see more demand or less demand for mortgages? Commercial blah, blah, blah. And on the flip side, are you getting tighter with your lending standards? Are you getting looser, they go out. They do this.
Speaker 2:The survey goes all the way back to 1990, although they kind of changed the methodology. You can see the lines look different on the one side of the screen, the other. But look at what last survey that just came out or the one before that. You can see it's kind of rolling over there, that bar on the far right. That means you've hit the max point where the most banks were getting the most tight with lending standards and now it's kind of rolling over. They're still tightening, but less of them are tightening and just like this is cyclical, you're seeing standards kind of head towards that easy level.
Speaker 2:So I would argue you know if you have that going on too and you have buyers, you know money, that vulture funds and you know distressed funds looking to put money to work. They're saying maybe this is a point to start buying some of this crap. That because now I'm only paying 20 cents on the dollar or 50 or whatever instead of 100. So I think that process is working itself out. So that's another reason why I think you know an unloved sector. That might be whether it's a place to hide or whether it's a place to make some money. That's probably one of them.
Speaker 1:Hey, I give you a lot of credit for the kind of work that you've been doing throughout your career and the kind of work that you do at Money Show. Maybe, for those that are not familiar with Money Show, do a pitch on what the conference is about. I have spoken in the past when I was much heavier on the conference. Hopefully I can do it again as a skittier guy. But talk about that and the types of guests and what's the overarching hope on the conference end.
Speaker 2:Yeah, sure, I mean, at Money Show we do two types of events virtual and live. So we have virtual expos, where we'll pull people together on our platform for two to three days. You'll have maybe seven, eight presentations a day that are going to be on a mix of topics, a mix of trading and investing topics. So Money Show has been basically going out there, finding the experts who know what they're talking about and putting them together and connecting them with investors and traders in all kinds of venues. We've been around for 43 years doing this. So we have the virtual platform now where, if you don't want to travel, it's easier to just grab your smartphone or hop on your laptop and watch some bees and log in and get some pointers. Then, great, that's what you can do. And we also have what we've always done, which is the live events.
Speaker 2:Like I said, I just got back from a Vegas symposium that we had at the Paris for three days. We're going to be in Toronto on the 13th and 14th for Canadian investors and back in the US in October, 17th to 19th in Orlando, and that's one of our big shows. We can have anywhere from 1,000 to 1,500 people there when you add up attendees, sponsors, exhibitors and speakers, and during the course of the three days that we're on site, again, you're going to have presentations, you're going to have in-depth classes, you're going to have keynotes, panels, networking receptions in the evening, and the idea is just bring together investors and traders with experts who you know have different approaches, that teach courses, that recommend stuff for free, that publish newsletters. All kinds of you know analysts, strategists, you name it. Jim Bianco is one that you've mentioned, but other, you know, you name it.
Speaker 2:Jim Bianco is one that you've mentioned, but other Christina Hooper from Invesco, ed Yerdeny from Yerdeny Research. These are the kinds of people that we bring together, as well as, again, countless individual traders and investors, just to basically be a marketplace. Not everybody's going to agree, and that's fine, but you're going to walk away from these events with new strategies, new ideas, things you can put to work in your portfolio.
Speaker 1:I was a big fan of it when I attended. I hope to do it again. Everybody, please learn more about the Money Show at moneyshowcom. Support Mike Larson not only because of his first name, because, as you tell, he's very knowledgeable on X. And stay tuned, folks. I've got another few episodes of Lead Lag Live coming up today actually. So, mike, always appreciate you, good seeing you, great perspective, and hopefully I'll see you all watching soon enough. Thanks, mike, it was awesome. Take care, thank you, cheers. Thank you.
