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
Michael Gayed on Market Manipulation Myths, Deregulation Impacts, and Strategic Investment Opportunities
What if everything you thought you knew about the financial markets was wrong? Join us as we welcome back seasoned market analyst Michael Gayed to dissect the pervasive notion of market manipulation. Together, we unravel the intricate roles that liquidity and algorithms play in shaping the financial landscape. As we navigate through the current state of limbo, Michael provides a thought-provoking analysis on how potential political shifts, specifically a Trump presidency, might reshape the regulatory environment and offer new prospects for small and mid-sized companies. This episode is a must-listen for anyone eager to understand the balancing act of offensive and defensive investment strategies in these unpredictable times.
The conversation takes an intriguing turn as we explore the dynamics of stock market shifts, particularly how sudden price declines can present opportunities for dollar cost averaging. We scrutinize the performance of the Russell 2000 against the S&P 500 and explore how deregulation could potentially boost small-cap stocks. Michael and I critically examine the Federal Reserve's past rate decisions and discuss the implications of rising 10-year treasury yields, all while questioning the traditional perceptions of market behaviors. By assessing the impact of tariffs and inflation on economic policy, we provide a comprehensive look at the factors influencing today's market conditions.
To round out our discussion, we venture into the speculative realms of gold and cryptocurrency, examining how excess liquidity fuels over-optimism among investors. Geopolitical tensions add another layer of complexity, impacting oil prices and investment strategies. We also discuss the merits of diversifying into undervalued sectors like miners, small caps, and emerging markets, while acknowledging the challenges hedge funds face in keeping pace with the S&P 500. This episode is packed with valuable insights that equip investors to navigate and capitalize on the shifting market dynamics with a well-balanced and informed approach.
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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First of all, let's be very clear Everything is manipulated.
Speaker 2:What are we talking about here? Everything is manipulated. I know really. Everything is. Of course it's manipulated. The Treasury is manipulating liquidity. The Fed is manipulating liquidity.
Speaker 1:They're manipulating algorithms by what they put in a statement that they're probably going through AI to filter as far as to see what the reaction by the other algorithms. Everything's being manipulated. There's a hell of a lot of recency bias that's going on now Like a shocking amount of recency bias, and when everybody thinks the same way, it's probably time to think differently. When I say there's not enough leverage or it's not no real leverage in gold, what I'm talking about is there's no over-optimism, there's no over-confidence in gold. I don't see people excited about gold. Bitcoin reclaims 100k.
Speaker 2:And it's like, oh my God, what is going on? That people are like this is like a casino that we're just creating content around.
Speaker 1:Nobody's talking like that for gold.
Speaker 3:Hello and welcome back to Soar Financially, a channel where we discuss the macro to help us understand the micro. My name is Kai Hoffman. I'm the Ed J R Mining Guy over on X and, of course, your host of this channel, and I'm tremendously looking forward to welcoming back Michael Guy. He's the publisher over at the LeadLac Report, somebody I'm following on Twitter quite a bit and somebody who's quite loud on Twitter, but he's quite tame when you get him in person and really looking forward to chatting with him here to prepare a bit of an outlook or discuss the outlook for 2025.
Speaker 3:It feels like to me at least that we're in a bit of a weird time in the markets right now, bit of a limbo mode. It almost feels like Market is missing direction. In my opinion, I think we're all waiting for the inauguration January 20th, but I'm really curious what my guest has to say about that, where we're headed and what things look like in the markets right now. Before I switch over to Michael, please hit that like and subscribe button. Helps us out tremendously and it's a free way to support us Really easy to do. It's a little button down there as well. So thank you so much for that, michael. Happy new year. It's great to see you again. Thanks so much for joining us.
Speaker 1:Yeah, am I loud on Twitter? Is that really how people?
Speaker 3:perceive me. I don't know. That's news to me, is it? I don't think so. You know your personality on there. We've chatted about that before and I enjoy it. It's a bit different, you know. Sometimes you have to be loud to make noise and be heard. So I don't mind. Michael, lots to talk about. We haven't talked in 12 months, so really curious where your head is at these days.
Speaker 1:But maybe we'll start off with a bit of an opening question and risk on, risk off where we at in the markets right now. Can I say yes to both because it's like I get people. People are like, oh, you've been risk off the whole time. I know that's not true. You know it's like I, you can. You can be both, both offensive and defensive. You can be both bullish and bearish. It just depends on your time frame. As far as whether you're bullish or bearish, I mean lead Lagaport signals I just put out this morning all risk on. I mean based on the rolling look-back period of the respective signals. That could change by end of week or the week after or the week after. That I have no idea. So, yes, I'm not some perma bear. That's always risk off by any means. I mean that's, that's kind of comical. Anyway, it looks in into the research, can see that. Ok so, but let's talk about, kind of where we are here.
Speaker 1:I do think that this is going to be an interesting year from a lot of perspectives. I think it's true that everyone's waiting on the inauguration, to your point. I think it's more true that people are waiting to see what happens as far as deregulation Under a Trump presidency. That seems to be one of the major themes that we're going to see out there. Everyone's talking about tariffs, but the deregulation push looks to be a pretty big one. I saw Trump was basically making the argument that for every new regulation that gets proposed, there needs to be 10 other regulations removed. So this seems to be sort of the next major theme to pay attention to Now. That could be quite bullish conceivably, and really bullish for small caps in particular, because typically deregulation benefits smaller mid-sized companies.
Speaker 1:But aside from that, I still think that there's going to be more volatility. I know I was wrong on that last year. With the exception of that reverse carry trade momentarily in early August. I think that we're just probably due for more gyrations. It doesn't necessarily mean you have to have a collapse, but there are real risks still out there and I keep saying gold descending warning. I still maintain the gold descending warning. I still think that there's a lot of complacency that can shock people the other way around. But when is anybody's guess?
Speaker 3:Yeah, no, it's like interesting points, maybe like we'll go through it when you just mentioned topic by topic. But deregulation is an interesting one, like A, how will it affect markets? B, where do you see the biggest impact? You said small business. Can you elaborate on that?
Speaker 1:Yeah, I mean theoretically, it should right, because regulatory burden is an expense that crushes margins and your margins are going to be tighter, obviously if you're a smaller or mid-sized cap company. And you know we've seen, obviously, the market react to a lot of deregulation hope around the crypto space in particular. Some of the regional banks have gotten some big movement as well. So I do think, in general, there's going to be a lot of interesting investment opportunities when it comes to deregulation. Now, having said that, personally, I think the most interesting aspect of deregulation could very well be what happens to cannabis, which has been a horrible place to invest in for the last several years. But if somehow, in the next four years, cannabis ends up becoming a bit of a priority for the administration and we see some real change there, yeah, you know what Some of these cannabis companies could really really soar from very beaten down valuations and pricing and prices. So I think, yes, it's a lot of interesting opportunities.
Speaker 1:More volatility should bring with it more opportunities. More volatility should bring with it more opportunities. I am of the mindset and opinion that the most mispriced asset in the world by far is long duration treasuries. I am, of course, biased in saying that because that's the risk off option in my own tactical strategies. But I think it's only a matter of time until we see that flight to safety trade finally come back, because credit spreads can only stay so tight for so long and yes, I've been wrong on the timing of that, but you can't really just ignore the complacency that's gone on in the bond market outside of the duration bear market.
Speaker 3:We've seen Now that's, I think, the crux of the matter is really timing right, that's what it really comes down to, and we've all been calling for a recession for the last two, two and a half years, still waiting for it. Really, numbers tell us a different story, maybe, maybe we'll start there, michael, like 2025.
Speaker 1:Do you see the chance of a recession even happening? It's an interesting question because it seems like the the un-inversion of the yield curve would suggest it's possible. Yeah, right, I mean just based on the lag effect effect of that unversion. Typically, when a recession, on average, tends to occur, it'd be this year, which is not a very sort of seems like an odd thing to think through. Right, because markets are new highs. What do you mean? The market wouldn't anticipate a recession? Yes, that's largely true, but just because it hasn't anticipated it today doesn't mean it can't anticipate it tomorrow. Starting tomorrow, all right, possible.
Speaker 1:I do think that a lot of the hype around Trump outside of deregulation, could end up being misplaced, and what I mean by that is yes, we're probably going to see tax cuts, but it's probably not going to be as significant as he's making out to be. Yes, we're going to see tariffs, but that may not be as significant as it's being made out to be. So it's going to create just an injection of uncertainty. And when you have so much leverage and speculative fervor going on, as I mentioned, in some of these leverage types of products out there, you don't need to have a recession to have a big decline in stocks. You just need to have a big decline in stocks to happen all by itself, which has happened many, many times in the context of a bull market.
Speaker 3:Yeah, you touched on it. We've seen that decline back in August. The market seems extremely nervous and everybody tries to run through the door at the same time when the moment is right, and you maybe might have seen a hint of that. The unwinding of the yen carry trade here, um, how nervous is that market right now? It's like you you just hinted at is like everybody wants to sell at the same time, everybody's sort of in the same stocks right now. Um, it's still the max seven for everybody here, um, is the market like I don't know. How nervous is the market is maybe the main question here it doesn't seem like there's any nervousness.
Speaker 1:I mean, you can see it in the sentiment on social media, right, it's like, and we are now at the stage of the cycle where the bulls who have, in quotes, been right and really they've only been right based on the indexes, not based on small caps and most things which again are still still after inflation, doing terrible relative to 2021 respective highs.
Speaker 1:We're getting to the point where there's a hell of a lot of, I would argue, beating of the chest, arrogance look how great we've done type of sentiment out there, and I would remind people that hubris and I've been through this in my own career occurs before you start to fall. It's when you feel like you're walking on water that you start to sink and for whatever it's worth, I just think, anecdotally, we're seeing a lot of that Now. Again, that's not a timing argument. It's just saying that we're clearly at a level where people are all on the same side of the boat and, look, the crowd is right on average, just not at the extreme. So the only question that matters is are we at an extreme? Markets being in new highs is not a definition of an extreme. People being all in on markets is by definition an extreme and there's all kinds of interesting stats that do suggest that when you look at household asset exposure to equities, you look at optimism sentiment. Yeah, we're kind of at that point where mean aversion might kick in.
Speaker 3:It's an interesting topic. The market makes me really nervous. The S&P 500 last two years up 24%, 25% each. 2022 was a bit of a different year. A lot of different impulses there Minus 20% for the S&P, but the years before again plus 20%, almost 25% each year. Can we expect the same now in 2025? Like we get used to it, right.
Speaker 1:Like we're being treated like, it seems, is the most entitled generation out there. I don't know what their generation is. The younger traders, right. It's like everyone thinks they're owed 20% annualized returns, that they're owed the market keeps going higher, that they are so intelligent based on some squigglies, they put on a chart which are really just being driven by seven stocks largely that they think they're owed those types of returns. It's like you're not owed anything Right. It's just these moves happen, happened in 98, 99. Remind me what happened in 2000. It doesn't mean you have to collapse like what happened in 2000., but you know, there's a hell of a lot of recency bias that's going on now like a shocking amount of recency bias, and when everybody thinks the same way, it's probably time to think differently Again.
Speaker 1:I don't know when I've been wrong on a credit event. I've made that very clear. I also, I'd argue, have been right and wrong on the reverse carrier trade. It worked for two days. I then said Monday, august 5th, that they're going to rally the hell out of the market. I still think the reverse carrier trade risk is out there. It can happen overnight, like it already did.
Speaker 1:But outside of that, it's like I was on another podcast and the podcaster said because that's the impression out there, you've been bearish on stocks for a long time. No, I haven't been bearish on stocks for a long time. I said at the end of 2023, I expected a credit event, which never happened. Then I argued for gold and utilities and those crushed it since October of 2023. But I said it's not that I'm bearish on stocks, it's that I'm bullish on a tail event. I think we are way overdue for an extreme decline and that doesn't mean it has to stay down. I, okay, and that doesn't mean it has to stay down. I don't know why people get so offended by the idea that stocks can have a big decline out of nowhere. Shouldn't you want that? If you're an investor, shouldn't you want to be able to buy low? I mean I, I. I fail to understand how people think if they're truly trying to generate wealth, if they think stocks go up forever.
Speaker 3:Meanwhile they average up when they should really be averaging down yeah, dollar cost averaging cost averaging, I think, is the word here. It's an interesting perspective, like just sort of maybe summarizing what you just said, michael, here. Last time we discussed Russell 2000 over S&P 500 in 2025.
Speaker 1:I would love to see it and I go back to maybe deregulation ends up being the catalyst for that. Look, the only thing that differentiates largely large caps versus small caps as far as the drivers of momentum is tech. I mean, large caps are being driven entirely by the tech play. Small caps, as a part of the marketplace, tend to not have that much tech. So to the extent that small caps rally, you need to have tech leadership stop, which is not stopping, clearly, at least to start 2025.
Speaker 1:I would love to see small caps run. I keep saying small caps hold the key. If small caps run, it means credit spreads were right all along, by being as tight as they are, that there's no default risk, whereas small caps have been saying there's default risk by the very nature of the fact that zombie companies are holding back the loss of 2000. Yes, there is a possibility that small caps rip this year. Absolutely have massive, massive outperformance. The only caveat to that is typically small caps outperform in bear markets. Outperform meaning up more or down less. They'd be down less because they've already discounted a lot of relative weakness. But if you're going to say, would you rather allocate to, I'd rather allocate to anything outside of the S&P. If you're going to say you know what would you rather allocate to, I don't have to allocate anything outside of the S&P. If you're going to be long, only equities, go into international, go into small caps. I mean, typically the old leaders get old and then something else emerges the leaders become laggards, the laggards become leaders. Hence the lead lag report.
Speaker 3:Yeah, talk about lead lag report. I was going to ask you about inflation. Talk about a lead-life report. I was going to ask you about inflation and maybe I'll. Well, we should attack it from the angle of the Trump tariffs or proposed tariffs here as well. Like what do you expect the impact to be in 2025? I know it's a lot of speculation. We're recording exactly two weeks before the inauguration, of course, so kind of tough to make a really 100% clear prediction here. But you know, given your expertise, and you know and what the charts maybe are telling you here.
Speaker 1:Michael, what do you expect is going to be the impact? I know everyone assumes the tariffs are going to be inflationary. They likely would be. But again I go back to magnitude how pervasive. And then what other countering factors are there? I mean, if the market were to have a hissy fit over tariffs, then I can almost guarantee you that Trump would walk it back because he loves the S&P, he loves stocks. He rang the bell pretty much at what looked like a top for a moment in time in the New York Stock Exchange.
Speaker 1:So I don't know. I mean the inflation argument. I think it's very clear that the inflationary pressure is still very much remains, and it remains because the Fed stupidly lowered rates with credit spreads near all time lows. That never made sense to me. Why would you start a cutting cycle when credit spreads are telling you there's no stress, right? So small caps have been saying there's stress but the bond market is not of stress. But the bond market is not.
Speaker 1:And candidly, that's been sort of the major error that I made the last year and a half, two years of my macro framework, which is that I assumed, or thought logically at least I thought logically that the fastest rate hike cycle in history would have a lag. The fact that caused some kind of massive disruption. It did momentarily with the regional banks, and then the Fed again kept on draining liquidity as Yellen and the Treasury kept on putting back to the system. So the net effect was what Easy financial conditions. I never thought that you'd be in a situation where the government is countering the Fed, but that's exactly what's happened.
Speaker 3:Interesting times we're living, especially now with the new government coming in. We'll see what Scott Bassett is going to do here. Yellen appalling job apparently. A lot of short-term treasuries and T-bills that were issued here that could come home to roost actually this year, which will be interesting. But bond market maybe we stay on that, because I just mentioned treasuries and bonds as well. What do your indicators tell you about the bond market? I'm looking at a 10-year treasury yield of 4.64% right now. They're not at 10 yet, but bonds are selling off right now, especially 10 years. What are your thoughts on the bond market right now? What is it telling you? What is it trying to predict?
Speaker 1:I think it's interesting because one of my friends has got some great research. Andreas Tenen Larsen put a post out telling you what is it trying to predict? I mean, I think it's interesting because I mean, one of my friends has got some great research. Andreas Tenelarsen put a post out saying it's odd that the 10-year yield keeps rising when all the inflationary and macro data is either sideways or down. Is it just a supply issue? Yeah, maybe it is.
Speaker 1:I think there's an element of the market is expecting more inflation. Maybe it's just rejection of US treasuries because there's disgust around how much debt there is. But even that argument doesn't make sense to me because, sure, us debt keeps on skyrocketing, but so is equity market capitalization. So you know which is more extreme, the US equity side or the government spending side in terms of the actual dollars that are being a liability or not? I said at the start, I think long duration is probably the most mispriced asset out there. And I say that because, if everything is valid around AI, that's going to be disinflationary. I mean, tech is disinflationary, historically at least. Yeah, you can argue that all the data centers will need a lot of electricity, but all right. Well, trump's coming in is going to probably jam energy prices even lower. All that sounds disinflationary, not inflationary, which you mean. Yield should, on average, be lower.
Speaker 3:He wants to have a say in the Fed policy and I think there's a lot of wishful thinking because I don't think there is a chance through Congress that that will happen. But of course he can try to influence it, at least publicly and through social media, and apparently he's got a strong ally there in Elon Musk trying to push the Fed maybe towards lower rates and support it. But does that even make a difference? Like the US has to issue at least three trillion dollars next year just to um reissue bonds. They were issued in short-term basis plus the deficit that needs to be financed. Um credit event, I think is the buzzword I'm going after here. Michael is like when we talk about that a, I'm asking for your, for your definition, just to clarify for our audience because you haven't been on in 12 months. Mich Michael and B is like are we running into a credit event slash liquidity crisis this year?
Speaker 1:I don't know. I've been wrong on that. I thought the reverse carrier trade was going to be the catalyst. Again. It was for two days. The VIX hit 65 very suddenly and I got 20,000 followers on a single day because everyone knew I was the guy that was adamant about the reverse carrier trade and I still think it's out there. I was adamant about the reverse carry trade and I still think it's out there, but I don't know.
Speaker 1:I mean, this whole environment has been very frustrating because a lot of the historical stuff is not in quotes, working the way it was prior. There's not as much co-movement. If you have small caps really start to run which again I would love to see then, yeah, a lot of that gets postponed, I think. I mean, look, a credit event by definition is just a VIX spike because credit spreads correlate to volatility and equities. That's all it is. It's not some scary thing, it's what I'm saying. It's the tail event, which is the way markets behave. Obviously, my timing has been very wrong on that and I go back to the reason. I think is because of Yellen, okay, but you know, could it still happen? Sure and candidly, it probably happens when I give up on the idea.
Speaker 3:That's always how it works. That's always like once you change your mind and say, ah, it's going to look something different.
Speaker 2:Then it just happens right. It's selling the lows absolutely no.
Speaker 3:It's like we haven't talked in a while, michael, but the disconnect between the economy and the markets like the markets, of course, right running at an all-time high economic data like, if we take it at face value, looks, looks all right. Like does the market and the economy make sense to you at this point, or is there still a massive disconnect?
Speaker 1:well, you said it correctly at face value, all right. It's like how many revisions are there out there? Do we do it? Do they really have a clue? There's still a massive disconnect. You said it correctly at face value. It's like how many revisions are there out there? Do they really have a clue what the real state of the economy is? Because I would tell you what small caps if that's a clear sense of the real state of the economy have been saying yeah, it's okay, it's not phenomenal. I mean, small caps are much more tied to the domestic U consumer than large caps, which are multinational. So if you want to make a play on the US, you're making a play on small caps. It hasn't really worked that well. I'd rather use market prices than economic data from policymakers that are trying to stay in power.
Speaker 3:Talking about those indicators, have they changed over the last 12 months for you? Have you weighted them differently? Are you giving more weight, maybe, to inflation data, unemployment data? I'm just not trying to put words in your mouth here, michael Curious.
Speaker 1:If that's changed at all, I use a lot of market, intermarket signals in the way I tend to form a thesis. People say, oh, your lumber to gold signal has been wrong. There's no predictive power. It's like that's stupid, because you can look at the white paper, which is pure fact on that and actually, as a matter of fact, lumber to gold has actually worked out very well. What has not worked is the expression of treasuries against that signal. That's a whole different discussion. So no, I mean to me, I still believe that there's cause and effect. I still believe that when utilities outperform the market, that tends to be a defensive signal. I still believe when gold is outperforming lumber, that tends to be a defensive signal, because that belief is proven in history, outside of the small sample of the last year and a half where treasuries have failed, whatever signal you followed as a risk-off option, because you've had no real risk-off because credit spreads have stayed tight. I mean, that's just the reality.
Speaker 1:As far as economic data goes, I don't know. I don't think any of it matters. I think this is a pure liquidity-driven type of environment. I think it's a pure leverage-driven, which is part of liquidity-driven environment. I've used that line many times before on X and I maintain this, even though it hasn't happened, obviously, yet. The precursor to every crash is leverage. The precursor to leverage is over confidence that the current trend persists ad infinitum. And I go back to we have never been in such a bull market for recency bias in history. I think that's at some point gonna kick everybody in the pants. I don't know when, but I'll probably be loud on x whenever it happens.
Speaker 3:that's the one thing I do know we'll probably see it and hear it two degrees, like even just a capital letters.
Speaker 1:I'm sure there'll be a lot of you a lot of use of capital letters here, um I don't know, man, because now apparently that algorithm change is coming, meaning I have to be positive, so I'm going to say it's exquisite, as opposed to the other F word.
Speaker 3:That's not sarcasm, right? Just preface everything with that and you should be fine. I've looked at the algorithm changes yet that are planned here, but it'd be interesting. Risk off-wise, you mentioned four categories last time. Treasuries, gold were two of them. What are your favorite risk-off trades right now? How are you hedging?
Speaker 1:Well, again, in terms of the strategies I run, which are rules-based those are not based on what I'm thinking, it's just using long-duration Treasuries I do think Gold probably still has a lot more room to go. I mean, I still maintain that Gold is the ultimate diversifier because historically it doesn't correlate to very much kind of marches to its own beat Not a lot of leverage in the gold market, because people are leveraging crypto and Bitcoin instead. So I think gold still has that counterparty attractive aspect to it. I do worry about the dollar continuing the way it's been continuing Now. Maybe it's a top or close to a top, but if the dollar were to keep on rising, that is going to be a self-fulfilling risk off play because it creates this almost short squeeze dynamic where it creates some funding stress in international borrowers. That financial stress then results in the dollar even going up further and you know, and then it's, like you know, a blow off in the dollar which you make it a risk off play but would probably be very painful for everything else around it.
Speaker 1:And I still think utilities look interesting alongside healthcare. Healthcare is going to be unique in the deregulation trend I think. See what happens as far as deregulation and FDA approvals. But yeah, I think it's. There's a lot of interesting dynamics that are coming Either way. Look, the last few years have been shockingly good for US large caps. We know a large part of that's the AI, nvidia meta type of plays. We're probably due for some broadening out, but broadening out can simply mean that the things which have not participated go down less, while the things which have driven the rally go down.
Speaker 3:You mixed a lot of topics so it's difficult to ask for follow-up questions. Because you brought up healthcare, now I want to ask you about the mining sector, because you you talked about deregulation. So it's like, ah, maybe we'll throw in the mining question here now, because I don't. I want to come back to gold, because you said something interesting as well, but maybe just because you mentioned health care, like, what do you make of the mining sector? Joe biden just gave a permit to the stip-nut project in in idaho. Um, just epa approval there. Like, do you, do you see any changes there? We can expand that to oil and gas potentially as well. When you talk deregulation, is this something you look at at all?
Speaker 1:It's an interesting space. I defer to my friend Axel Merck on that from Merck Investments because he knows that gold mining space very well and also quite familiar with some of the potential deregulatory aspects of that. You should have him on the show.
Speaker 3:I speak with him actually on Thursday, so it's an interesting coincidence.
Speaker 1:Yeah, exactly, I think anything that has to do with the environment is going to ultimately be deregulated, so anything that benefits from deregulation around environmental standards will benefit. So to the extent that that impacts the miners, that should be a positive tailwind impacts the miners.
Speaker 3:yeah, that should be a positive tailwind. Okay, let's talk gold. You mentioned something that I think we need to dissect a little bit. You said gold is not leveraged enough, or there's not enough leverage in gold. Can you explain what you mean by that? Because everybody I'm sure we'll get some comments below this video like, oh, but the gold market is manipulated. So I'm curious what you mean by that. And the one way you manipulate the gold market is through leverage and paper gold.
Speaker 1:So I'm curious what you mean by that. First of all, let's be very clear Everything is manipulated. What are we talking about here?
Speaker 2:Everything is manipulated. There's my.
Speaker 3:YouTube title, by the way.
Speaker 2:I know, really Everything is of course. It's manipulated. The Treasury is manipulating liquidity. The Fed is manipulating liquidity.
Speaker 1:They're manipulating algorithms by what they put in a statement that they're probably going through AI to filter as far to see what the reaction by the other algorithms. Everything's being manipulated Like what you think. Fair value for the S&P 500 is where it is now. That's not manipulation, you know so. When I say there's not enough leverage or there's no real leverage in gold, what I'm talking about is there's no over-optimism, there's no over-confidence in gold.
Speaker 2:I don't see people excited about gold.
Speaker 1:I see a lot of people talk about Bitcoin 100K. I see random posts about live streams. Bitcoin reclaims 100K.
Speaker 2:And it's like, oh my God, what is going on? That people are like this is like a casino, that we're just creating content around.
Speaker 1:Nobody's talking like that for gold. When you start seeing that type of stuff on X and silliness around gold, like you're seeing in the crypto space, then that means there's leverage and that's when it's going to turn negatively.
Speaker 3:I appreciate you clarifying that. No, we don't have our own fart coin in the gold space yet, so I'm not seeing that type of excitement.
Speaker 1:I put out that post. I said you know fart coin.
Speaker 2:Uh, the federal race race because of fart coin and it's like I'm actually serious about that, because it shows you there's too much liquidity, there's too much stupid shit that's going out there part of my language.
Speaker 1:What's ironic to say with fart coin? Uh, just too much stupid stuff out there that people are just throwing money at. I'm not against gambling, but it's like when you have speculative fervor like this, it only happens when there's liquidity and too much of it.
Speaker 3:We've seen it with the NFTs, we've seen it with the Bored Monkey and like what did Justin Bieber pay for? A sticker of a monkey or whatever it was? So yeah, too much liquidity in the markets. One last topic I want to tackle with you here, michael, is geopolitics and how you sort of factor that into your analysis and into your rules as well. You touched on the carry trade, so that's a bit of geopolitics in there, but I'm thinking also like what's happening in the Middle East.
Speaker 1:How is that sort of weighing on your rules-based system and how do you factor that in? I mean, first of all, for rules-based, you can't really factor in any of that stuff and it's always an unknown. I don't know, it's not clear. I mean, yeah, maybe Trump is able to kind of figure out ways of calming some of these tensions, right, and in quotes, resolve Ukraine and Russia, in quotes resolve Israel, and I don't know.
Speaker 1:I'm skeptical of all this stuff.
Speaker 1:I think, in general, we're in a dangerous world, a far more dangerous world than people want to admit, because we're distracted by all the social media lights from all these screens we're looking at while there are actual lights and bombs going off and people dying, while we sit in our comfortable lives and just disregard the horrors that are happening all over the place.
Speaker 1:I don't think Trump necessarily can change those dynamics. I think those risks keep getting higher and higher over time, because this is what people do Now. Where that could manifest into markets is obviously around the price of oil and, yes, okay, we have largely control of our destiny here in the US because of how much oil is produced here. But that could still be a source of a sudden surprise, meaning an oil spike and if that happens, that goes back to my reverse carry trade thesis, because it was never about the yen. It was about yen oil priced in yen and that's sparking a whole bunch of other interrelated nasty movements. But we'll see. I don't think you can necessarily invest based on geopolitics, but you can size for it.
Speaker 3:Now that's a good point. Maybe it leads to my last question here, michael as well. If you had a million dollars today to invest, how would you allocate that money? And again, not financial advice or anything, I'm just trying to sort of. It's a nice wrap-up question because it summarizes what we discussed, I think. So I'm curious how would you allocate?
Speaker 1:a million dollars right now, michael, I'd buy a series of gyms. I'd invest in a fasting education course, since I've done a lot. Now look if I had a million dollars. What would I do If I had a million dollars? I probably launch more funds, which is not what other people want to hear. But me saying that basically is implying I would think about putting money to work in things outside of the S&P 500.
Speaker 1:There will come a point and I think we're probably close to it and I've been actually very consistent on this narrative, this idea. I said this two years ago or three years ago, it's two years ago. I said I believe that AI mania, with hindsight, will mark the blow off top for large cap dominance in terms of the global equity landscape. I've said that many times and if you look at any chart that looks at top 10 stocks as a percentage of the S&P 500, which has largely tech names relative to history, you're at basically all-time highs in terms of how much those large cap tech names contribute to the performance of the index. I maintain that idea.
Speaker 1:We are in a concentration bubble. That concentration bubble will burst. When it bursts, there's going to be a lot of interesting opportunities because money will then flow into other areas which have been underappreciated, which could include miners, which could and likely would include small caps, banks, value international emerging markets. I'm for all of that because I'll tell you what folks. It's a hell of a lot easier to beat the S&P 500 when it's not the only game in town, and, for all the hemming and hawing around how great people's portfolios have done, it's because they're in the right asset class at the right time, which may soon be the wrong time, but they're not going to recognize it until two or three years after.
Speaker 3:The very last point, Michael, is I saw the VE Shaw as a hedge fund, like the performance chart of the hedge funds I think Bloomberg published that the other day and I was shocked. Most of them underperformed the S&P 500.
Speaker 2:Of course they have. Of course they have. I was shocking to see. No, I don't think so. I mean anything that's active.
Speaker 1:Okay, look, this is actually, I think, an incredibly important point. Okay, anything that's tactical or active, you need to still have a tailwind around your opportunity set, okay. So when you go back to sort of investing 101, idiosyncratic risk is the risk tied to the specifics of an individual company. You get rid of idiosyncratic risk by diversifying. So one company might have positive idiosyncratic risk by diversifying, so one company might have positive idiosyncratic risk, the other one might have negative idiosyncratic risk that's outside of the market, it's company specific. Okay, the equivalent of idiosyncratic risk for anybody that's active or tactical is whipsaw risk. Trust me, I know Whipsaw risk meaning you get a signal, you get something that says says go into this stock, go into this asset class. It starts to work, but then suddenly you get whipsawed. It doesn't hold Momentum, persistence is not there and you go back to just large caps because there's no tailwind.
Speaker 1:There's no cycle that favors the opportunity set. So it's basically a series of false signals, false positives. So it's basically a series of false signals, false positives. So in an environment which is purely large, cap driven purely risk on purely up and to the right, purely select number of stocks, you have to underperform.
Speaker 2:How could you not by definition?
Speaker 1:because you're going to whipsaw because nothing else is working. Right so and it's like all right. So if you're a hedge fund, well then, why not just be in the S&P 500? Because then what's the point of the hedge fund? Then what's your value add? Even if these hedge funds had performance that matched the S&P, what you think they're going to raise assets? You think they'll get new clients. All of these guys have a hard time raising assets. You know why? Because you can't really get assets. If it ain't broke, don't fix it. If everyone's in the S&P 500 and the Qs and everyone's just doing rocket ship emojis into their favorite market cap weighted index which everyone is in all at once Like, yeah, hedge funds have sucked.
Speaker 2:Anything that's active and tactical has sucked until it doesn't.
Speaker 1:And when it doesn't, that's when the S&P is no longer going to be the only game in town and then you're going to have some real opportunities there. But it's a cycle thing. I always go back to that line. I say it repeatedly there are no gurus, only cycles. This is a cycle issue. It's not an issue with the hedge fund manager, it's not an issue with the active manager. It's an issue with the opportunity set, which is a function of the cycle that we're in now.
Speaker 3:It's just interesting. I read a quote the other day like the two most successful investors were on the opposite end of the spectrum, so like, right, so, uh, I think that's a perfect uh you know quote for that what you just, uh, just mentioned there, michael. Um, very last point, like I want to ask you about your funds you're launching in 2025. Uh, what's the focus going to be?
Speaker 1:um I? I will keep that under wraps, but there's a lot of interesting opportunities that I will announce when the time comes. I think, yeah, I've called this sort of chapter two of my career. I have three tactical strategies which have the same problem in the commonality of long duration treasuries. Ironically, this is probably the year where that starts to make a comeback as I launch these other funds which don't have anything to do with that.
Speaker 1:People don't understand that when you're a mutual fund manager or an ETF manager, you're not a manager, so to speak. You're really a product developer. You're trying to create a product that people want to go into that's timed right with the cycle, that you don't know if it's timed right with the cycle until you launch and until you have enough hindsight to know it was the right time. So there's a lot of interesting things that I think are coming from an international perspective. I think from a commodities perspective and you know, I'm at a point in my career, thankfully, where I've got enough relationships where I can have economic partners and bring interesting new things to market outside of what's happened the last three years.
Speaker 3:Well, michael, sounds exciting. Definitely We'll keep following you on on X here and maybe quick shout out what can we follow you? Uh, lead like reportcom, I think is one destination we can send our viewers still under lead lag, uh, but uh, yeah, it's all, it's all been.
Speaker 1:I'm, I'm, I think I'm at a hockey stick moment um, at least I hope I am. And if it so happens to coincide with the return of the flight to safety, the phoenix, which is part of my brand and part of my personality at this point, the rebirth, um, it's going to be a hell of a year yeah, absolutely fits your personal transformation as well.
Speaker 3:I've been following jealously, or with a bit of jealousy. No not jealousy. Getting inspiration from it is the proper word, not jealousy. It's like something to aspire to. That's the right way to put it. Something to aspire to. It's inspirational, that's what it is.
Speaker 1:That's what I meant. I think everybody should aspire to be the best version of themselves.
Speaker 3:Yeah, no, absolutely, michael. Tremendously appreciate your time. Thank you so much for joining us here on Soar Financially and need to have you back on. 12 months is way too long. Hope to do this again very soon. So thank you so much and everybody else thank you so much for tuning in here to Soar financially. Hope you enjoyed the conversation with Michael and if you did make sure to follow him, of course you probably are a follower already. He's got 750,000 followers on X, lots of followers on Substack as well, but if you don't go check it out, it's an interesting follow, interesting read on a daily basis, lots of daily updates from his side on X. And if you don't follow us, please hit that like and subscribe button. It's a free way to support this channel and we tremendously appreciate it. Thank you so much for tuning in. We'll be back with lots more here on Soar Financial.
