Lead-Lag Live
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Lead-Lag Live
Michael Gayed on 2025 Market Predictions, Cryptocurrency vs Gold Dynamics, and Strategic Investment Opportunities
Could a potential Trump presidency in 2025 redefine the financial landscape? Join us as we engage with the Michael Gayed, Publisher of The Lead-Lag Report, who shares his expert insights on how such political shifts, alongside the compelling rise of cryptocurrencies like Bitcoin, might influence the markets. Michael illuminates the intricate dance between market skepticism, Federal Reserve policies, and gold prices, drawing fascinating comparisons to historical stock market performances across various administrations. Dive deep into the complex interplay of liquidity, market momentum, and asset pricing, and discover what these elements mean for investors looking to navigate potential risks and seize opportunities in 2025.
As we dissect the current market sentiment, we question whether we're on the brink of speculative mania, fueled by retail investors' frenzy in leveraged single stock funds. Get ready for an eye-opening discussion on the potential impacts of a Bank of Japan rate hike and its ripple effects across global markets. Michael also offers a compelling analysis of the intriguing relationship between Bitcoin and gold, touching on generational differences in asset preferences. Prepare for an insightful exploration of bullish assets, like long-duration treasuries and small caps, and their roles amid deflation scares and yield collapses. With a keen look at mortgage rate trends despite fluctuations in the 10-year yield, this episode promises to challenge your investment paradigms and equip you with fresh strategies for the future.
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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That would spark the yen spiking and then a reverse of that carry trade.
Speaker 2:So yeah, a repeat of the first week of August when global equities markets fell. It was a deleveraging moment.
Speaker 1:It's a pure momentum play. Just this is about liquidity flowing elsewhere. Both large caps and small caps are very pricey from a fundamental perspective, but you can't time the market based on fundamentals. That's the issue.
Speaker 2:Michael Goyad returns. Publisher of the Lead Leg Report. Good to see you, michael. We're going to be talking about Michael's outlook for 2025, how he's positioned his portfolio, risks and opportunities he sees for investors. And if you're listening and watching now, comment below if you have any questions for next time when we have Michael back on again in the new year. Always good to see you all, michael. Good to see you.
Speaker 1:I'm glad you're already inviting me. That's good to know that I'm not going to be excommunicated after this.
Speaker 2:Well, you know what Well we'll see. Today is full of. The theme of the day is full of risks and uncertainties. China and US excommunicated each other in the last Trump presidency. We'll talk about whether or not that's going to happen today, but OK, well, Michael, let's start with this tweet that you made.
Speaker 1:I don't know if we can still call it which one, because there's so many that I put out.
Speaker 2:Yeah, yeah. Well, this one in particular, I'm going to share my screen live shot of me preparing for an uncertain 2025. You're standing in front of a vault of gold with a bunch of lumber so uh, people should be aware that michael has an award-winning lead like lumber to gold ratio. Uh, so tell us about this image. What are you prepping for exactly? Why do you have a bunch of um logs and a vault of gold in this presumably AI-generated image?
Speaker 1:Well, first of all, good guess that it's AI, and I think it's just kind of funny and fun. No, look, I mean you know, look. For the last I don't know year I've been saying gold is sending a warning and that warning has not cared for the stock market, as we've seen. But I still think gold is sending a warning that the things are very off. I think also Bitcoin is sending a warning in the most recent move. But the whole point of this is to say that I suspect that gold is going to keep on rallying into next year and that if Trump is ultimately going to be a lightning rod for more animal spirits, then housing, housing instruction, probably picks up as well, which is not exactly great, given on affordability. So, yes, I suspect both will go up. I suspect gold will go up more, though, in that sense, but yes, it's just a little comedic relief, folks.
Speaker 2:Well, what's the rationale for gold going up? Gold did come down after Trump won. The gold market clearly didn't like Trump's victory.
Speaker 1:Yeah, initially, and then it has since.
Speaker 2:Yeah, you're right, it has climbed back, although it hasn't peaked. It hasn't touched his $2,900 peak yet, but anyway, yeah, the initial reaction to Trump's victory was not bullish for gold. What is the market discounting there?
Speaker 1:Well, I mean, I think, to the extent that gold was just selling off, probably because it already had a big move, I mean I don't think it's sort of the gold market sensing some fundamental change. It could have just been, you know, sell and use and it's an excuse to take some profits. I think gold is going to continue purely just because nobody thinks it will. I mean, there's still a lot of skepticism around gold and the shiny object of the moment happens to be on the blockchain with Bitcoin, and I think it's just causing a bit of a distraction from the momentum players. But the longer term argument for gold, I think, makes a lot of sense as an alternative long only asset that tends to do well when you have risk off cycles. It is interesting. I do think that, um, I do think the market probably is mis, uh is, is, is pricing wrong.
Speaker 1:The uh implications of Trump being president next year. I know there's a lot of hype and excitement around deregulation. I know there's a lot of hype and excitement around, you know, growth and lower taxes. Um, people seemingly forget that, and it's just fact folks. People seemingly forget that and it's just fact folks. Historically, the S&P 500 does better under a Democrat than a Republican. Now that is skewed. You can argue by the 90s.
Speaker 2:OK, but history actually suggests that returns may be subpar, especially when valuations are as elevated as they are. Ok, just on that note, the last Trump presidency did pretty well. Let me just take a look, share my screen one more time. So this is the S&P 500, zoom, zoom, zoom, 2017. His inauguration in January, all the way to COVID, was an anomaly, so we're going to discount that. So, basically, until he left office. Well, even after COVID had recovered, the V-shaped recovery went up about 60% by the time he lost the election in November 2020. Yeah, it was up 63%. So why did Trump do so well for the stock markets last time, and could this time be any different?
Speaker 1:I would say ask Powell and go to the Fed's politics. No, really, because it's like you know, the dynamics are totally different. I mean, you know it's zero bound rates, you have QE and obviously you don't have that now. Now it is true that financial conditions are incredibly easy. This is not restrictive. When you look at financial conditions, when you look at credit spreads, that's very obvious. So you can argue well from that standpoint. Maybe that's beneficial for risk assets under a Trump administration, as long as that dynamic persists. I just think it's not exactly an apples to apples comparison with what we saw the first term.
Speaker 2:Before we continue, I want to tell you about a recent data breach that exposed nearly three billion records in one of the biggest data breaches ever. One of the biggest data breaches ever. This case highlights just how vulnerable personal information can be in today's digital world and the importance of protecting your privacy online. That's where Deleteme, today's sponsor, comes in. Deleteme removes personal information like your address, phone number and more from hundreds of data broker websites. It's a service I trust because it makes staying safe online simple and effective. Using Deleteme is easy Submit your information and within seven days, you'll receive a detailed privacy report showing where your data was found and removed. Plus, Deleteme keeps monitoring and removing your data all year long for ongoing protection. Head over to the link in the description down below and use the promo code David Lin at checkout, or simply scan the QR code here on the screen to get 20% off on all US plans. Today, Thousands are already relying on Deleteme to safeguard their online privacy, so start protecting your personal data and information now. Yeah, understood, Michael.
Speaker 2:So I'll just jump straight to the core of the conversation today. What is the biggest market theme risk or opportunity for investors in 2025? Prior to this, I know we talked about the Japan reverse carry trade. That was one of the core theses for Risk to Watch. It happened earlier this summer. We can check out prior interviews with me.
Speaker 1:Momentarily yeah momentarily.
Speaker 2:We can check out prior interviews with me and Michael link down below. But anyway, what is it for 2025?
Speaker 1:I mean I think the big question is are you finally going to get the fabled broadening out of market momentum where small caps lead? I keep on saying for the last year plus small caps hold the key, because if small caps are going to break out in a sustainable way, then yeah, you know what? There's probably some real momentum and catch up that could take place. I'm a little skeptical, and I say that I'm a little skeptical purely because typically small caps historically outperform, meaning they're up more, down less, against large caps in bear markets. Maybe this time that's not going to be the case. I would love to see small caps run like hell. I really would. I mean, for all the arguments that people throw at me saying, oh, you're a perma bear, you're always negative. No, no, no. I would love to see small caps run because it's a lot easier to, in quotes, beat the market by tilting small when there's momentum. It's just there's still this kind of whipsaw dynamic that's gone on in the small cap space. So I think if you're going to be bullish, you probably do want to play small caps for mean aversion, keeping in mind, by the way, that the fundamentals in small caps still suck, meaning if you look at valuations on small caps. They're still also very expensive relative to US mega cap and large caps. It's just that there's been no momentum, so momentum begins. Momentum If it starts in small caps, it'll likely persist independent valuations If you don't have a sustainable breakout and small caps turn around.
Speaker 1:That is the risk, because that then again goes back to the core, fundamental problem that I have with this market, which every time I say it, nobody can really counter me. They just say you're wrong, which is that you've got two different messages. Small caps are saying there's default risk, which is why they haven't done all that well relative to large caps the last several years. Credit spreads are saying there's no default risk. The small caps are worried about bankruptcies. Bonds are not worried about bankruptcies. One of them is going to be wrong. I don't know which one. I think it's going to be the bond market. That's wrong, but I've been wrong in thinking that.
Speaker 2:Wait, how is the small cap signaling risk of bankruptcy? It's up 20%. Brussels is up 20% year to date. I mean it hasn't outperformed the S&P, you're right, but that's still not bad.
Speaker 1:No, not bad, but you're still at 2021 highs Barely, which, after inflation, is actually negative. You're still technically in a real after inflation drawdown. Versus what we've seen with the S&P, the differential is huge. What's held back against all these financial conditions I mentioned being easy is the concern around these companies not surviving.
Speaker 2:It's the zombie companies. So are you suggesting that the Russell 2000 is better positioned from a valuations perspective?
Speaker 1:No, it's a pure momentum play. This is about liquidity flowing elsewhere Because, to your point, evaluations are still very elevated, also for small caps. Both large caps and small caps are very pricey from a fundamental perspective, but you can't time the market based on fundamentals.
Speaker 2:That's the issue 2023 and 2022 were quiet years for Bitcoin and crypto. Some of that hype is coming back. Some of that FOMO buying is coming back into the markets. Now we're speaking the day after Bitcoin just hit $100,000. I wonder if investment capital is going to flow into Bitcoin and the crypto sector next year and out of the tech stocks. Same crowd, no.
Speaker 1:Yeah, I think that's an interesting argument. They are certainly correlated. That's an interesting argument. They are certainly correlated. Isn't it funny, by the way, that Bloomberg put a piece out the other day saying the carry trade is coming back with a vengeance? Isn't it funny that the carry trade is coming back from Japan and we're at these highs on the Nasdaq and Bitcoin?
Speaker 2:This is a recent article.
Speaker 1:Yeah, it's a recent article. I had to repost it with my catchphrase words. It starts with my catchphrase words, which starts with a half-meat and another term. So, yes, maybe you can argue there's some reallocation there. I had said a prior major turning point. I put out this line when an investment becomes a religion, it's time to lose faith. An investment becomes a religion, it's time to lose faith.
Speaker 1:All right, which goes to kind of your point about the sort of speculative fervor which is back and a lot of this does feel like what was happening in the lead up to the 2021 peak. Now, it doesn't have to peak here, right, but it's like when you have the Haktua girl having a meme coin. It's like here we go again with the silliness. Right, that a meme coin. It's like here we go again with the silliness right Now. Okay, it rallied and then crashed, okay, fine, but still we're back to the lunacy.
Speaker 1:So I think it's very clear that we are in a speculative mania, but it's unlike other speculative manias in the sense that it's very concentrated. It's concentrated, you can argue, in tech stocks. It's concentrated in Bitcoin and some certain cryptocurrencies. It's concentrated also in levered funds, if you look at trading volume across some of these single stock levered ETFs, you know, I mean, it's very clear we've become a gambling nation, right? Everyone's just trying to YOLO into 2x and 3x and individual stocks and, you know, get rich quick. And it's like, yeah, you know what that can continue. A lot of people made a lot of money, but the last time we had that feeling as a society was the peak in 2021. I'm not saying that to be bearish, I'm just being matter of fact with that.
Speaker 2:Yeah, I bring up the comparison between Bitcoin and stocks because even the mainstream media is reporting on the stocks. Are little change heading into key US jobs report. This is today. The problem you have is that valuations are stretched across the board, said Keeley Teton, portfolio manager at Brian Leonard. So you know you're sitting at records but there's not a lot of enthusiasm or euphoria. Well, that's not true for Bitcoin. Like I just said, you know it's up $100,000, a fabled 100K mark. So you're seeing the crypto sector rise up a little bit more than the tech sector, which is normal in a bull market that has a higher beta. But I'm just not sensing the same sentiment for stocks and I wonder if the steam, the momentum, is running out, is my question.
Speaker 1:It could be. I would push back and say that I think the euphoria is there. When you look at flows into the leveraged single stock, I see that that cause, that's, that's, that's peak retail, right Like that's, that's and that's just pure chasing. Okay, and and it has nothing to do with an investment thesis, retail being smart money or dumb money or whatever term you want to use it has to do with an underappreciation of how the path behavior is what determines the performance of these single stock funds and lever funds in general, which is a totally different issue than if NVIDIA is going to double by next year. How it doubles is what drives the performance, the path. So we'll see. Again.
Speaker 1:I go back to I'd love to see small caps run. I think we're in a speculative mania in certain areas of the marketplace. I I'd love to see small caps run. I think we're in a speculative mania in certain areas of the marketplace. I think that this still is going to end badly. I still think the reverse carry trade is out there lingering and could come back. I've said before I have a bad feeling about December and I keep saying that because there's a BOJ decision coming up. It seems like they need to hike rates and maybe they'll just postpone it because it's end of year. But Japan has a real inflation issue and if the Bank of Japan does panic to try to counter the inflationary pressure, then you might have a repeat of August, which people will say won't matter, because look how much we rallied since August 5th when everyone was worried about the reverse carry trade. The fact that nobody's worried about it is probably why you should be worried about it.
Speaker 2:You said you're worried about December. For that reason, the Bank of Japan potentially raising rates. What could happen in this scenario?
Speaker 1:Oh, that would spark the yen spiking and then a reverse of that carry trade.
Speaker 2:So yeah, a repeat of the first week of August when global equities markets fell because the capital markets, especially in Asia, were flowing out.
Speaker 1:It was a deleveraging moment.
Speaker 2:Wouldn't capital markets be ready for a second time around?
Speaker 1:The capital markets are ready, until it's obviously not ready. I guess this is my point. It's like I think there's a degree of complacency that this risk is still out there, because when it happened August 3rd, august 5th, everyone suddenly became an expert on the reverse carry trade. I was getting high fives like crazy on it because I've been talking about it for the longest time and I myself said they're probably going to rally the hell out of the markets after that August 5th because everyone turns so bearish. Now everyone's so bullish and thinks it's not going to matter. This is me just being contrarian in terms of how I think about the idea that the market is in quotes prepared.
Speaker 2:The theory is that Bank of Japan raises rates. That makes the yield more attractive for Japanese assets. Capital flows out of US or European assets into Japan. That's what happens.
Speaker 1:No, no. What happens is that it's the leverage that was created from the carry trade, borrowing money from Japan to point it into the NASDAQ, into Bitcoin, into speculative assets. That that then reverses Because, as the yen then rebounds which we've seen some signs of, because of them hiking rates into straight differentials that creates a margin goal, which is really what August 3rd, August 5th was. It was a margin goal globally.
Speaker 2:So is that leverage still there. It wasn't fully deleveraged after.
Speaker 1:August and that goes back to that Bloomberg article that I referenced, which is that it wasn't fully deleveraged after august. So and that goes back to that bloomberg article that I referenced, which is that you know it, it clearly is coming back and it's been coming back. But I keep going back to like this argument makes no sense to me that people say you know a large part of it was undone. It's like just take a step back and think for a second. You're talking about a process of leveraging which has been ongoing for well over a decade and people are like like oh, it's over in two days. Like are you serious? I mean it doesn't make any sense at all to think that a 10-year-plus process of borrowing from Japan to deploy that capital into other speculative parts of the world, that that gets undone because of two trading days. Can we actually think a little bit Okay?
Speaker 2:I need to circle back to Bitcoin and gold. I need to show you this clip Jerome Powell talking about Bitcoin. Take a listen, we'll respond together.
Speaker 3:In the Federal Reserve itself. In terms of the system, what do you think of that idea? I don't think that's how people think about it. People use Bitcoin as a speculative asset. It's like gold. It's just like gold, only it's virtual. It's digital. People are not using it as a form of payment or as a store of value. It's highly volatile. It's not a competitor for the dollar. It's really a competitor for gold. That's really how I think of it.
Speaker 2:Hold up. Okay, it's a competitor for gold, not the dollar. Okay, we can talk about that, but did he just call gold a speculative asset?
Speaker 1:Yeah, which is which the one thing I will agree with is that Powell and I will agree that it's not a store of value, because and people still don't get it when I attack that, I'm not attacking Bitcoin, I'm attacking people's understanding of definitions. It's about education level. By definition, it's not a store of value, it's an investment. But, yes, it's gold speculative? Yeah, sure, any investment that has tail risk is speculative. There are degrees of speculation, there are degrees of risk, degrees of tail risk, but every investment is speculative. It's just about how speculative right. I don't buy at all, though, that Bitcoin is competing against gold, because it's like two totally different audiences. Have you ever looked at, like, the average age of a gold investor?
Speaker 2:Yeah, I agree with you because I've I've attended a lot of resource conferences. I've attended a lot of crypto conferences and you don't see the same crowd, they wouldn't be anywhere near.
Speaker 1:It's like once, once the the generation before, the other generation after, they're not gonna hang out come on.
Speaker 2:there's some overlap, I you know I I find the overlap more with gold mining stocks and altcoins, that population over that because we're speculating on penny stocks. But okay, so Bitcoin is a competitor to gold. Let's just end the conversation here. Looking forward into 2025, your most bullish assets Bitcoin, gold stocks, small caps, large caps, bonds, whatever the case may be.
Speaker 1:I think the two and it's interrelated. I think the two to bet on and yes, I've been wrong plenty of times on things, so take it for what it's worth when I say this I think long duration treasuries and I think small caps and they're interconnected. Why? Because if you end up having long duration treasury, yields collapse just suddenly there's a deflation scare for all the talk around reflation and inflation and deregulation and growth, that something happens, whether it's the reverse carrier trade or something with China, whatever any number of things. There considerably is a lot of movement potential in long duration treasuries to make money in for a trade as yields collapse.
Speaker 1:But then after that, what's the next move? It will be small caps because in that collapse in yields now small caps finally have their lifeline, because now they can refinance into lower yields. So I think those two areas are actually probably I think we'll see going to be among the biggest winners. At the start of the year I made the argument that gold and utilities would be the best performing areas for 2024. They have been, even though people will brand me as being negative and bearish. You could have been bearish wrong and long those bearish assets and crushed them.
Speaker 2:Okay, so two follow-up questions. So the lumber to gold ratio. Are you then expecting the lumber to gold ratio to fall because gold is going up? It depends on the pace.
Speaker 1:But yes, history would suggest that if, if I'm right, that you're going to have some at some point, one of those phoenix rising, you know, flight to safety trades which I've been waiting on for some time um then lumber to gold will already be weak prior to that. That's what the research shows actually what.
Speaker 2:What is your outlook for the lumber to gold ratio into 2025 and what does that mean?
Speaker 1:I think lumber itself probably rallies on an absolute basis. Going back to my earlier comment around construction and housing, Okay.
Speaker 1:But I think gold will outpace it, which means the ratio goes lower, which makes it more risk off. I do also think that utilities probably do continue to outperform, aside from the AI electricity generation argument. If yields do fall in any meaningful way, then that's the most bond-like sector of the stock market. There's still potential for that to keep on rallying. From a sector perspective Not exactly super exciting, but I think that remains a good place to consider.
Speaker 2:Treasury yields. Let me just take a look at this. This is the 10-year yield. You're expecting a rally in long-term treasuries, which is to say you're expecting the yield to fall even more.
Speaker 1:Right, and, and actually, if you zoom out a little bit further on that, okay, we'll see something which is interesting.
Speaker 1:that looks like a series of lower highs and lower lows okay I mean, if you're going to play the technical game, yeah, look at that. That peak from october, series of lower highs on the yield, series of lower lows on the yield that's a downtrend. It's not. Not unless I'm seeing something that you know, unless there's some squiggly line I'm not seeing from a technical technician perspective, that looks like a down channel. So I don't like yeah, why couldn't the 10-year get to 3.5%, 3.3%, even 3%, in a real fear move?
Speaker 2:The answer to that hypothetical question would be, I guess, a spike in inflation, unexpected rise in inflation.
Speaker 1:But you just used the right word, which is expected or unexpected. Everyone's expecting inflation to re-accelerate under Trump. Maybe they're going to be wrong.
Speaker 2:Okay. So finishing off mortgage rates, you know how has it been in the US, because I know in the past month it's been going up in Canada, I think in some parts of the US as well, which is strange because the 10-year is falling and yet we have mortgage rates going up. So what's up with that?
Speaker 1:Well, I mean it's tied to 10-year yields as Well. I mean it's tied to 10-year yields, as you know, the 30-year side to 10-year. Well, they rose when 10-year yields were rising. I haven't noticed recently if there's any sort of meaningful divergence, but if there is a divergence happening between 10-year yields and mortgage rates, that might be some, maybe some signs of cracking around consumer borrowing ability. The difference between the mortgage rate and the 10-year is ultimately going to be driven more by perception of default risk by borrowers. Yes, it would be presumably one of the early signs of stress, but I'm not so sure that you can attribute that right now.
Speaker 2:Okay, great, great overview. Thanks, michael. Uh, where can we learn more from you?
Speaker 1:uh, at lee lag report on x instagram threads. Oh yes, and blue sky, uh, I gotta say blue sky now, um, and then of course, lead lag report dot substackcom okay, we'll put the links down below.
Speaker 1:I've never used blue sky, so no, it's okay, all right you only have so many hours in the day and it's just all these different social media networks based on political viewpoints. It drives me absolutely crazy, because it's like can't we all just like talk? Why do we have to like, totally get out of one network to go into another network for confirmation bias and to live in the echo chamber of the brand of the moment?
Speaker 2:it drives me crazy yeah, people should just get out more and talk to each other. Well, uh, okay, that isn't that a novel concept, great thanks. Thanks for coming on, michael, always good to catch up with you. I'll put the links down below. People can follow michael there. Speak next time, cheers.
