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
Market Mayhem: Is the Worst Behind Us?
Market veterans know that bull runs and corrections rarely travel in straight lines, and in this riveting conversation with Michael Gayed, we explore the subtle signals suggesting our recent market recovery might be more fragile than it appears. Michael, who accurately predicted the S&P's 20% drop earlier this year, walks us through the conflicting indicators currently puzzling even seasoned analysts.
What particularly stands out is the disconnect between rapidly recovered credit spreads and still-struggling small caps – a warning sign Michael believes shouldn't be ignored. Treasury yields remain stubbornly elevated despite easing tariff concerns, while the Japanese yen's strengthening since January suggests forces beyond trade policy may be driving market volatility. For anyone trying to read these complex market signals, Michael offers a refreshingly candid framework that cuts through the noise.
The conversation takes a fascinating turn when addressing gold's prospects, with Michael clarifying his controversial stance. Having been bullish since October 2023, he now sees gold transitioning from safety asset to momentum play – often a precursor to correction. Through behavioral finance principles like the disposition effect, he explains why gold could face a 10-20% pullback despite its long-term bull case remaining intact. Most provocatively, we explore what Michael calls "manipulation on a scale we've never seen before," where presidential tweets move markets and rhetoric trumps fundamentals. If you're navigating today's bewildering investment landscape, this episode provides the context and perspective to help you distinguish between market noise and meaningful signals. Subscribe now for more cutting-edge market insights that go beyond the headlines!
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Welcome back to Mel on the Street. Today I have Michael Gayad back with me again, the publisher of the Lead Leg Report, macro voice of reason or chaos, depending on the market, and one of the few people who called the big pullback before the S&P 500 dropped 20% between February and April. Thank you so much for joining me today.
Speaker 2:I was also on a cruise saying you'd see the biggest intraday turnaround in history, when the Dow was down like 1,500 points and we had that huge move on that Wednesday which was the low. But yeah, I'm not keeping tab of that. No, but I am because I remember reading a lot of your posts on X while you were on that cruise ship and the push-ups yeah, it was great.
Speaker 1:it was great to watch. So today I kind of want to get or one of the things I want to get into is ask you is the worst behind us? Whether gold is sort of in own words, in my words of what you said totally wrecked, and what yesterday's new US-UK trade deal tells us about where things are headed for the US and for the market.
Speaker 2:All right. So a few things to unpack. I've been pretty public in my belief that we'll still see lower lows and that what we saw off of that panic low on Wednesday, when I got stupidly bullish and very, very dramatic on X, as I tend to because the algorithm likes it, I think they in quotes, the policymakers, trump basically just delayed what could have been a very serious week of margin calls by lifting collateral values up, pausing the tariffs and causing that that rip back. I still think lower lows are likely because it doesn't make sense to me that credit spreads came right back, that junk debt totally veed, as if there is no slowdown coming, while small caps are still nowhere near as healthy as they should be. If the tariff tantrum is indeed over and if the tariff tantrum is over, then somebody has to explain to me why is it that 10-year yields haven't dropped? So in the initial phases of that decline, treasuries were acting like the risk-off asset again, which benefited my own strategies and funds. That flight to safety took place. And then the latter part of that decline, yields rose because suddenly everyone realized well, wait a minute, these tariffs are inflationary. Well, if we're going to now have this supposed string of deals coming and tariffs can be removed, then those yields should go back and drop. And that's not happening. They're actually quite sticky at these levels. So that alone tells me that we're probably not done with this.
Speaker 2:Having said that, I could be obviously completely wrong. I've been wrong plenty of times. Before you mentioned the yen carry trade, I kept on saying throughout this decline I don't believe this is because of tariffs. I said this is because of Japan, and I said that because it's not a coincidence that the yen started rallying really in January and kept on strengthening, which was what you saw in the lead up to the reverse carry trade in August of last year, and then you saw these headlines about Japan dumping treasuries. So it's like I'm not disputing that tariffs obviously aren't part of this or that they aren't interconnected, but to think that Japan wasn't some of the reason for the sell-off to me doesn't make much sense.
Speaker 2:Whenever the yen strengthens against the dollar, you see weakness in equities. Typically, whenever the yen weakens against the dollar, you see strength in equities. I mean that pattern hasn't broken. So how much of this is really Trump versus just leverage and the source of that being problematic? So to kind of wrap all that up. I think the broader point is we don't know if we're really out of this yet. Typically, bear markets do have very vicious rallies, which is why I keep saying bear markets make fools of bulls and bears. It's why you don't want to short a bear market. But we'll see, I don't. But the valuation dynamic hasn't been resolved for US stocks.
Speaker 1:So, when you were thinking about if this is a bear market rally, do you see new lows? And I know you asked your followers on Acts about what they think if the lows of the April lows are in, would you see? Or what would your gut tell you that you're seeing new lows or a return back toward I think it was April, april 7th low.
Speaker 2:Yeah, I mean it's. You obviously only know with hindsight I think it was April 7th low, yeah, I mean you obviously only know with hindsight. I think it's possibly new lows. I've said before, though, that if the lows are in, I think small caps will rip higher, which maybe you're starting to see some signs of, but not fully.
Speaker 2:I think the real answer to that question that was ultimately dependent upon if Trump is smart and the question of whether Trump is smart is a function of one's political viewpoint.
Speaker 2:Obviously, certainly in the US If Trump is smart, he should pivot the narrative from tariffs, and he should do so quickly. And if he's smart and he does that and pivots the narrative from tariffs to either tax cuts and or deregulation, then maybe that becomes enough of a reason for equities to push to higher highs, and that was the low. So it's not clear. I think a lot of this is going to be dependent somewhat upon whatever story Trump gets out into the media, into the business media side of things, just to take the distraction, just to make a distraction off of the tariff dynamic, which I think it's going to take a lot longer than people realize the UK deal is a joke. I mean, first of all, we had a surplus with that to begin with, I think, plans for a deal. Nothing was really signed. It's all bluster and it's like I mean, if this is the best you can do, good luck with China. Yeah, I think China, if anything is probably going to mess with.
Speaker 1:Ask you about next, uh, the the uk deal, uh, that the us signed yesterday not with wakanda, um, as you have to have been hilariously joking, onx, but um it was. It was kind of limited, it was maybe more symbolic. Um, I wanted to ask you if you think, is he just politically posturing, or is this the start of some sort of real um trade reset, that or that he thinks he's going to do?
Speaker 2:You use an interesting word there which is symbolic, because I keep going back to you know, this guy is not Trump, is a showman, right, and he, I think, does kind of plan from that standpoint. So he called a liberation day. And I wonder if in his mind he's trying to call the liberation day because he wants to announce a whole bunch of trade deals on Independence Day, on July 4th, which sounds ridiculous, but Trump, so I do suspect that at least his hope is there's going to be a bunch of, you know, a barrage of positive news that he's going to put out so he can take credit for and it's, you know, make America a great event. July 4thuly 4th, liberation day, and now all these trade deals are taking place. I think it's gonna be harder than than people realize in terms of that taking place. Um, but yeah, I, I I mean honestly I think the whole thing is a joke.
Speaker 2:I'm not anti-trump by any means, uh, but I'm definitely not pro-trump in the way that he's going about certain dynamics and I think people forget that you can be supportive of your president and still critique their policies and the way they go about things. So again, I think deregulation becomes sort of his card to try to push equities higher. But I got to tell you it's like I get nervous when I see Trump outright saying to buy stocks. It's like the last time Trump said anything about stocks yes, it was the day before the low Sure, but prior to that it was you basically rang the bell the New York Stock Exchange at one of the top. So it's like so I even joked about that. On X, are we going to enter a phase now where, if the stock market goes down, you can sue Trump because he gave financial advice? I mean, this is like the kind of weird world that we're in. I certainly hope that's not the case.
Speaker 1:Portnoy was going to be in some sort of trouble for insider trading and many of the comments were like I don't think that happens under Trump, because that it wouldn't make sense that everyone needs to be treated equal like that. But I wanted. I wanted to turn now to gold and you've been saying, to quote you, that gold is fucked. They're wrong words.
Speaker 2:Is that what I'm saying?
Speaker 1:That was the word, that's what. That's what I read. What makes you say that? And is this short-term view, or are you flipping long-term bearish on gold and other commodities?
Speaker 2:No, okay. So let's set the record straight. First of all, I use terminology like that because the algorithm likes it, so don't blame me for the algorithm. At the end of the day, you can call me an engagement informer, but the reality is you're trying to get impressions, you do what it takes and I'm selling businesses, trying to get attention around my content and then, by extension, obviously, my various business lines, and I'm definitely not an anti-gold guy by any means. I mean, I was screaming bullish gold, october 2023.
Speaker 2:It was only about two months ago, admittedly, before this progressive spike, when I started saying I think there's a risk here that gold is shifting from a flight to safety asset to a speculative momentum one and, by the way, that's verified by the magazine cover indicators. I think it was Barron or Forbes a couple of weeks ago had gold on the front page. So I think gold is next and the thesis is really that you're going to have margin calls. Then gold, because it's one of the few winners, will become a source of liquidity as people meet their margin calls by selling their winners, not their losers. That's called the disposition effect. That's a very well-known behavioral finance dynamic, and that gold will sell off to the lag which you haven't seen because you don't really have the margin calls, because it got short-circuited obviously by the move off of that April low. But I still think there's a risk that gold does correct, probably meaningfully 10%, 15%, 20% maybe.
Speaker 2:I don't think it's the end of the bull market in gold by any means. I've gone on record saying that. I say that because I think it's more likely than not that equities are maybe in a lost decade and I know that sounds dramatic. But look at the Russell 2000 you're halfway through a lost decade. I'm always blown away by people that think I'm a perma bear and that I'm just like some guy that's anti-stocks.
Speaker 2:If you just look at the pure number of stocks in the US market not market cap weighted, just the number of stocks which include many more small cap names by definition there are many more stocks that are back at 2021 levels than not, because the Roth 2000 is there as an average right. We're not market cap weighted the way the S&P is, so it's like permabear or not. I mean. The reality is it hasn't been a healthy market for a while, unless you've been in just passive indices, which you can say most people only care about that. But yeah, I do believe that that does matter. Now, if that does matter, going back to gold, if you're going to be in somewhat of a lost decade type of dynamic, then gold should keep on getting flows, because if you're in a difficult environment for equities, institutional players want lower correlation while being long. Only, there aren't that many options. Gold is one of them.
Speaker 1:Right, and we've talked about, or we've sort of touched on, how different policies, especially Trump's policies, are shaping or working with the market. Because the next thing that I want to ask about is how much manipulation is there? I know you've said that this is manipulation on a scale that we've never seen before. As a fund manager, how much do you have to think about how much manipulation plays in to the other forces that are moving the market?
Speaker 2:It's funny because, like people will say, well you know, those who don't know how to trade will say it's based on manipulation.
Speaker 1:Are you kidding me?
Speaker 2:Like you have the president's most important person in the world telling you to buy stocks. He's not. He's playing off of words that algos are then using to go along with. Of course it's manipulated, but the Federal Reserve manipulates everything too. They were designed to. The whole purpose of the Federal Reserve Act in 1913 was to manipulate financial markets, to not have another banking crisis in 1907.
Speaker 2:It's not a market that is free from that perspective. Of course there's manipulation. It's just now, it's much more out in the open, which is absolutely wild to me, that this is taking place. It's like you know what You're telling me that people inside the Trump administration didn't know that he was going to say that on Tuesday into Wednesday, which was that low. You don't think anybody bought into that. And it's like of course this is manipulation. So it's extreme. Of course this is manipulation. So so it's extreme. And I find it sad, unfortunately, that people are more outraged by it. But I'm not surprised. Uh, just because of the way society has become. You know, I think less attentive, less intelligent, reading comprehension level is as low as they are. You know, talk about right, um, so so when you, when you're in a market where it's driven by words and not reality.
Speaker 1:You should really question how much time you want to analyze anything yeah, um, I know you've been saying small caps are going to show us what's going to happen, and our audience here at coca would love for that to happen. Personally, I'm so excited to see where you go and what you announce next, and I'm going to be following you on your journey. Thank you so much for joining us today. Wakanda forever.
