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In the early months of 2023, recession fears loomed large, and the world later faced geopolitical turmoil with conflicts still standing in Ukraine and the Middle East. Despite this, the S&P surged approximately 15%, and the Nasdaq skyrocketed by 30%.

Join James Connor of Bloor Street Capital ( @BloorStreetCapital ) and Michael Gayed, Portfolio Manager at Tidal Financial Group and Publisher of the Lead-Lag Report ( @leadlagreport ), as they unravel the mysteries behind this unexpected market positivity, and what it means for the economy.

They’ll explore the signals these market movements are sending, dive into the intricacies of the bond market, and analyze if fluctuating oil prices hint at a potential economic downturn. This insightful conversation navigates the disconnects observed in today’s markets, providing perspective on how seemingly contradictory indicators can coexist.


Michael Gayed 0:00
Most bear markets and I’ll stress the word most ends with a credit event, a vix spike, a capitulatory move in equities. This is just fact.

Jimmy Connor 0:17
Hi, and welcome to Wealthion. I’m James Connor. And before we get on with our episode, I want to remind you to tune into Wealthion. This Friday, December the first at 11am. Eastern Time for our new live callin series called Speak up with Anthony Scaramucci. Yes, the mooch is now on Wealthion. And this is your chance to speak to him live and ask him anything about politics, the financial markets, the global economy, all you have to do is go to forward slash ask Anthony to submit your questions. And to get further details once again this Friday, December the first at 11am. Eastern. I’m going to be there and I hope to see you also. Hi and welcome to Wealthion. I’m James Connor, and I’m with floor street capital. And we have a YouTube channel of the same name which is focused on resources and how they can benefit your portfolio. 2023 has been a challenging year to most investors and one of the things we try to do a Wealthion is provide you with information and insights from our guest speakers and how they are managing during these challenging times. Today, my guest is Michael Gayed. And Michael is a portfolio manager at Tidal Financial Group which is an asset manager based in New York, and manages just over $8 billion in assets. Michael is also the editor of The Lead Lag Report and is also very active on X spaces formerly known as Twitter spaces. Michael, thank you very much for joining us today. In early 2023. Many people were calling for a recession and a year of pain. And now here we are at or near the end of the year and we still have a war in the Ukraine, we have conflict in the Middle East and yet the s&p is up 15%. On the year the NASDAQ is up 30% on the year. And in fact many indices are some of the indices are close to all time highs. But how do you explain this upward move in the equity markets in spite of all this negativity?

Michael Gayed 2:07
Well, first of all, I’d argue that both bulls and bears have been right this year. But last year was I’d argue and anomalous year in the way that treasuries interacted with equities. I keep going back to Yeah, you can argue that anybody could have seen the bonds would sell off with stocks. But could you have said that that would happen while credit spreads would stay tight. And most people wouldn’t have been able to say that will be the case. This year has been perhaps one of the most deceptive years in stock market history. In that it looks like a new bull market. You look at the NASDAQ the s&p big move. But as I’ve noted on X before, roughly 63% of the Russell 3000 After inflation is negative in a pre election year. Now, usually pre election years are the strongest of the cycle. This is just fact when you look at it historically. The reason for that has to do with stimulus the existing party wants to stay in power what they do they stimulate the year before the election. And then people of course vote based on their pockets and recency bias, okay. That on the one hand looks like it’s what’s played out when you look at again, large cap tech and particularly Magnificent Seven market cap weighted averages. But most things beneath the surface. haven’t really done all that much small caps have been in a volatile sideways trade. European stocks look awful emerging markets have gone nowhere. The reality is breath has been horrendous, not consistent with this bull market narrative. So I’d argue that all the negativity has actually been REITs. It just hasn’t been right. In the large cap s&p market cap weighted type averages, right, which goes back to why I keep saying this has been a very deceptive year. A healthy bull market should result in a rising tide lifting all boats. Whereas rising tide does not lift all boats, everybody drowns when you have this type of concentration, and a select number of stocks driving momentum. That tends to mark the beginning of the beginning of a bear market. The beginning of a bear market, it happened in 99 2000. Prior to the tech wreck, it happened in 2021 when large caps were the only game in town and small cap started weakening around February. So yeah, it’s been a it’s been a challenging year because as you know, it’s hard to beat the s&p when it’s the only game in town. And now it’s not even about it being the only game in town. It’s only seven stocks are the only game in town.

Jimmy Connor 4:44
So let me take the opposing view to that argument and say because the stock market is discounting mechanism, do you think the markets looking ahead and saying that the economy is okay. And we’re going to come out of this recession if we are in fact in a row Session, do you think the the markets telling us that the economy is improving?

Michael Gayed 5:04
So this is actually an interesting? I think thought experiment? Okay. It’s really, I answered the question with a different question, which is, is the s&p, a discounting mechanism of the future anymore? Okay. Now, since 2012, you’ve had a tremendous amount of auto buys, that happened into 401k plans, a portion of incomes automatically going into basically Vanguard type, large cap market cap weighted funds, just automated flows, right buys from that perspective. I’d argue that doesn’t make the s&p 500 discounting mechanism the future anymore. I don’t think it makes it more coincident, more based on the present. Because it’s there’s a direct link there, no more employment there is, the more buys there are into large cap weighted averages. I’d argue that actually that small caps and mid caps, more small caps are more a reflection of the future state of the economy. Because small caps are the equivalent of small businesses, which drive the economy. Small caps are the tail on consumer strength. They’re the tail on a healthy financial system. They’re telling unemployment. So I would caution under this idea that the s&p is a discounting mechanism future. I think now, the s&p is more of a driver of the wealth in the country at the margin because of those auto bids. Rather than a reflection of expectations. It can’t be a reflection of expectations. We have automatic flows happening, independent of thought, right. Now, from that standpoint. Look, I’ve been on this credit event kick, right for some time, not because I’m a perma bear. Right. I was very bullish in October of last year screaming melt up, I got the same kind of vitriol annex that I’m getting now. I said this would be a melt up year because it’s a pre election year, but that there will be a credit event down the line because we just went through the fastest rate hike cycle in history. And the effects of those rate hikes start to happen. Now. I thought you would have credit spreads widening aggressively towards the end of the year obviously didn’t happen. The credit event was actually treasuries which we can touch on. But then why is it the small caps haven’t done that? Well, because they’re expecting a credit event? How else can you explain the vast majority of stocks which are operating on high leverage and razor thin margins not performing? In what is supposed to be the strongest year of the presidential cycle? Again, the pre election year? How can you explain that? Were small caps doing this poorly on a relative basis? The simplest answer is the right one. Because higher rates are doing what they’re supposed to do. They’re causing stress, they’re causing concern, they’re causing a discounting of a much more difficult future going forward. So

Jimmy Connor 7:51
Michael, you brought up the potential credit event. And so let’s discuss the bond market right now we currently have an inverted yield curve, the short end is higher than the long end. And in a normal environment with normal yield curve, the long end would be higher than the short end. But as you mentioned, you’ve been very vocal on on X, I always want to say Twitter, but on X, about this potential credit event, maybe you can just elaborate on that. And what exactly would this credit event be and how would it manifest itself?

Michael Gayed 8:24
Okay, let me let me take a step back and just talk broad thesis. Alright. And it’s all hard to talk about with a visualizing but when you look at the top 20 drawdowns for the s&p 500 going back to 1961 biggest peak to trough the clients and you’ll get to how stocks how the s&p did during those draw downs relative to how long duration treasuries the so called quintessential safe haven asset, the pristine asset, how to treasuries performed during those major drawdowns for equities, you find a couple of interesting dynamics. One is in 10, out of the 20 biggest declines for the s&p 500 treasuries made money. They countered the decline in equities, by the way that includes instances prior to Volcker prior to the early 80s. So the argument that Treasuries are a safe haven, because of the 40 year bond bull market is just not true. I can show you instances from the 70s and the 60s where treasuries made money while stocks were going down. Okay, nine out of the 20 biggest declines for the s&p Treasury’s lost money, but they lost a lot less, which is fine portfolio construction perspective. Last year was the only time in history treasuries lost more money than stocks, any major drawdown for stocks for the s&p 500. So anybody looking at those stats would say okay, well that was the one time that treasuries in quotes failed, but they’re missing what it is that treasuries hedge against. Treasuries are not a hedge to the stock market. Treasuries are a hedge to credit spreads to volatility because as the vix rises as volatility rises, credit spreads the differential between junk debt and triple A rises because there’s a feeling that default risk is going to increase. That’s what causes the flight to safety into treasuries that causes people to ultimately go into government debt because the government can’t go broke. They’ve got the money print more most bear markets, and I’ll stress the word most ends. With a credit event, a vix spike a capitula Tory move in equities. This is just fact. Now let’s go back to that point about last year was the first time in history Treasury has lost more money than stocks. The assumption in the idea that treasuries failed is that the drawdown for the s&p 500 is over. At least as of this conversation, we’re still in the drawdown, we haven’t taken out the prior peak. So we’re still in the drawdown, we’re still prior to that peak. What if the October low of last year was not it? If the October low of last year was not Vilo. If we were to break it at some point, which I think could happen with that credit event, that vix spiked, that repricing of default risk in the bond market, then you break that October low even slightly for the s&p Treasury’s counter it which still then results in the relationship of treasuries equities, looking at the way historically does were they performed better, better, relative to the s&p throughout the entire decline of the s&p. I could be totally wrong. And obviously, my timing has been off on this, I never imagined the treasuries would be the source of the events this year. But I find it hard to believe that bankruptcies are rising, consumers are stretched, credit card debt is at all time highs, unemployment looks like immediately finally starting to pick up. And everyone’s assuming that you’re not gonna have real stress in terms of the economy in the market, that you’re not gonna have real stress in terms of bankruptcies increasing and that that’s not going to manifest in the public markets. Yeah, you and I both know, there’s a fine line between being wrong and early in markets. But I’d rather be early than late to a thesis to an arguments. Okay. And the reality is, if you were to have a credit event, it ends the bear market that I still think we’re in, it probably results in a tremendous amount of opportunities in small caps in emerging markets and all the things which have lagged because they’ve been seeing and feeling the headwind of what higher for longer, what will we do to them?

Jimmy Connor 12:25
So let’s just dissect this credit event a little bit more. I mean, where do you see it happening? Would it be a corporate event? Would it be sovereign? And there’s also a lot of chatter, or a lot of narrative out there about the commercial real estate space? Could you see it happening there?

Michael Gayed 12:40
So if there’s a in again, January, I said, melt up here, you know, following the fifth worst December in history, which I also identified early December, saying the risk is high there. But their credit then down the line. In March, when the regional bank crisis was playing out, I had a number of people annex saying, Wow, you got this one. Right, right. That’s the credit event. And actually, I said, No, I don’t think this regional bank SVB dynamic is the event. Because the Fed can stop it, they know what to do. Right. And it’s under that scenario back in March. It’s really It’s funny how everybody forgot about that. Right? In three weeks, then it became all about Nvidia and AI. But it’s like if the if the central planners, the bankers, the policymakers can preempt it, they will. So any kind of a spark, I think has to be something that the Fed can’t get ahead of can’t get a can’t preempt easily. Now, I brought up this scenario a few times before, I think what could spark this is going to be Japan. Right, this reversal of the carry trade idea. Japan has a real problem. They’ve dealt with disinflation, outright deflation for 40 years, roughly, or I should say 30 years, roughly, about a whole generation. And now they’re having to deal with inflation. With a yen that comes completely looks unhinged. If they don’t start to stabilize the yen inflation will get out of control. Why? Because they import pretty much all of their oil and energy. So they have to do something to stabilize the end. How do they stabilize the end, they have to raise rates or they have to do something the monetary policy side which is tighter. A tremendous amount of cheap liquidity comes from Japan. It comes from Japan and gets deployed globally. That’s what the carry trade is. So reversal of that policy by Japan. I think in Spark, it’s what I call the Mothra effect. And so the butterfly effect the motto from the Godzilla movies that could spark a whole series of unwinds in the global financial system. Now, some people may say that’s crazy. Except that one of the baggage bank governors just last week basically alluded to this very idea and said, when we start to normalize policy, we’re expecting unintended consequences. Unintended content quinces means a reversal of the carry trade. If that were to spark, some volatility and upheaval that does, I think manifests itself into a corporate credit event because that then suggests that volatility starts to shake out. All risk on investors, shakes out. High yield. Investors in those highly levered debt issuances, causes the repricing of default risk causes the VIX spike, and again causes the flight to safety trade back into treasuries. Now, again, I could be totally wrong. Maybe it comes from something else. Right. But all I know is that we can argue from here to tomorrow about the odds of being a little bit tailwind. A low odd doesn’t mean no odd, right? I mean, that’s there’s a very real possibility that I’m right, that we’re still in a bear market. And there’s a very real possibility that a credit event that maybe gets started from Japan is what ends it. And then listen, it’ll be the loudest guy in the world to scream melt up again to be bullish. It’s not me being a perma bull or perma bear. It’s just that this is what my intermarket analysis suggests is likely beyond the short term squiggles that people refer to when looking at a chart that they can’t possibly backtest.

Jimmy Connor 16:09
And, Michael, I just want to clarify this carry trade. So essentially, investors borrow in Japan at let’s just say 1%. And then they would employ that capital somewhere else at a higher rate of return.

Michael Gayed 16:21
Right, exactly. Right. So becomes a source of liquidity for risk assets. And actually, this is because there’s been a pretty big, interesting correlation between this year tech stock outperformance and the yen’s movement itself. Just so, you know, again, I always go back to the simplest answer the right one. There has been a lot of risk seeking capital that has been funded from low rates in Japan. But if that unwinds, then that’s going to create possibly some disruptions. Right? Now the question is worth what do you do about that? Alright, now I always stress this point. I am not a fan of shorting. Because I’ve done back tests on it, it doesn’t work overtime. I’m not a fan of cash tactically, because that’s market timing. Cash does not allow you to be wrong in your timing, but still make money. Okay, yeah, there’s some yield now, but it’s not gonna be really enough from a compounding perspective, versus duration where you might have a chance at making some outsized returns for moment in time, shorting doesn’t work. Because if you’re wrong, you lose money, one for one with the market. So for me, if you’re going to express a negative view or bearish view on credit events, that means one of two things at the core, either you lower your beta, meaning you position into utilities, consumer staples, healthcare from an equity allocation perspective. And or you go into long duration treasuries to benefit off of that flight to safety trade. That’s what I do with my funds. From a rules based perspective. They’re designed to play long duration treasuries as the defensive option. But those tend to be far better ways over time, to play defense than to outright make a directional bet. And it really does drive me crazy how people don’t seemingly understand how dangerous shorting is and how dangerous timing with cash is, as opposed to asset class rotation.

Jimmy Connor 18:04
And you make a very interesting point about short selling and how dangerous it can be. We just had a very famous short seller retire after being in business for many years. Jim Chanos. And I think maybe that’s one of the reasons why he gave up after doing it for many years, because it kept going against them.

Michael Gayed 18:23
I’ve seen this a lot of times before, when you see major strategies closing down because they haven’t worked in businesses shutting down from that perspective, the cycle is about to fail. And, and I say that because it’s an interesting dynamic, which I think unless you’re the business like you are, and like I am, from an entrepreneurial standpoint, you run a strategy, you have a fund, like I do with my mutual fund my ETFs. And let’s say you haven’t watched at the wrong time the cycle is against you, which I believe is what really happened in my case, because I launched for a row and Joe Joe, risk on risk off junk on junk off ETFs just before the greatest bear market and treasuries in history, using treasuries as the risk of safe haven. Okay, so, if you launch the wrong cycle, it’s hard to get assets because nothing closes a sale like performance, doesn’t matter how compelling Jim Chanos is in the way he speaks or how compelling I might be for those that actually listen to me. People buy based on a chart not based on words, for the most part. So you have a cycle that is a failure approach, your performance is not working. At some point, then every person that launches that strategy asks the question, do I keep this strategy open? Because I put so much money into it already. You’re running a business right? The products not selling the cycles, not figuring how do you close it? Because you’re falling prey to a sunk cost fallacy. Right? You pumping money into this thing hoping that it works and the cycle time for every it’s not working? You just shut it down? Or if you do that, are you selling the low of the strategy? This is actually to me and I’ve kind of live this kind of thought process with my mutual fund in 2019 prior to bidding up 72% and 2028, tax, and then giving it all back the last two years, you always have this this this really interesting dilemma in the business or the business side of running funds, where you say to yourself, do I stick to it because the cycle is due to reverse? Or do I close it down and then regret closing down because the cycle is about reverse? I think in the case of chinos, it might be something similar to that the fact that as much as I don’t like shorting, you’re seeing short sellers capitulate probably is not a good sign for the bull market.

Jimmy Connor 20:33
Michael, if we go back to a normal yield curve, where the long end rates are higher than the short end? What would this mean to your scenario?

Michael Gayed 20:40
Well, keep on you don’t need to have an inverted or re inversion of the yield curve necessarily to have a recession? I mean, Japan has shown that right for many years, I guess it depends on on the reasoning for the initial on inversion, right? Because to your point we’ve already inverted, right, it looks like we were about to invert, and then we got got back into the ring inversion stage. Usually recessions happen as the onion version finally takes place. But if they were in such a weird environment that it looks like who really knows, you know, how this ends up playing out, because again, rising tide has not lifted all boats, cool movements have not reacted according to history, at least not yet. I think that the longer the the inversion takes place, the more at risk, the banking system ends up the right, because there’s no incentive to lend. And at some point, that credit contraction becomes very real. And does impact things pretty aggressively. And I myself am of the mindset that the Fed probably did over tighten, which probably results in the short end at some point lowering, and then causing the an inversion Finally, on the yogurt. Now, the reason thing, by the way, the Fed has probably over tighten these, again, goes back to the legs, right? Everyone cheered this lower than expected inflation in November, not realizing that the lower than expected inflation aside from calculation issues around health care, right, which is a whole nother discussion. That is because of its rate hikes from January, February. That’s how these legs work, that delays work, right. Meanwhile, oil is falling off a cliff, largely commodities, right, the cost push side of the commodity side, it’s not telling you inflation is gonna be a problem, at least now, demand pull we’ll see with Black Friday and holiday sales. But we tell our SOPs are telling you there’s not an expectation that consumers will be strong. So if the federal retighten, whatever an inversion, whatever inversion there is here is not gonna be anything, because the Fed probably then did what it always does, which is overdo it and act too late. But

Jimmy Connor 22:39
you touched on oil. Let’s go there and discuss that now. Because this is another commodity where we’ve seen a lot of volatility this year. And despite of what’s going on in the Middle East oil keeps drifting lower. It’s gone from 95 to 75, in a very short period of time. And I’m just curious to hear what your thoughts on that are, because typically, that would indicate we have a weakening economy. Yeah.

Michael Gayed 23:02
And again, there’s seasonality aspects of this too. But seasonality aspects relative to a war premium is it’s kind of strange to see this sell off. Although I I’m so upset, I thought, I don’t think that move higher oil will last even with Israel, Hamas dynamics that aren’t at play. I think you hit it on the head, right? It’s like, oil is a driver and a signal of inflation. So the fact that oil is dropping probably tells you the demand side is gonna be challenged. I think it’s not just oil. There’s other commodities, which are also giving kind of the same messaging here. So I don’t think this is. Again, I recognize my timeline has obviously been wrong, you know, but I still think the conditions are there for that. That credit event spread blowout, and that would happen with a slowing economy anyway. Right. So I think all that is consistent now. Yeah, it’s not like every time you have a massive decline in oil, you have a recession, but just most recessions tend to be preceded by a massive decline in oil. We can debate whether it’s massive in quotes, but you know, if it turns out to be far worse than what we’ve already seen, to me, that’s more of a warning sign again, that it’s still raining outside, and that everyone’s being distracted by the AI narrative, the Nvidia, you know, hype, the mania that’s still there, which a lot of people are making money in, but I keep going back to you can make a lot of money in mania is the question is, can you keep it, you cannot disregard the backdrop that all of these dynamics are telling you about and this is the other thing too, it’s whatever viewpoint I have is based on looking at Inter market relationships. I’m looking at all these different charts, all these different inter market movements. This is what the market itself I believe, is screaming not a single stock, right the multiple relationships that we’ve the the tell you the picture, the mosaic of the way things are shaping up. That picture looks pretty ugly, still, again, could be totally wrong. I mean, listen, how many times are you and I wrong slowing down into Mr. Owen we’re driving, we never regret it if you don’t want to have the accident. So

Jimmy Connor 25:04
as you mentioned, we have a number of disconnects in these markets. So let’s just examine them all and, and try to summarize where this market might be going in 2024, we just discussed the well, we’ve had a major pullback there, and that would indicate a slowing economy. We also discussed the inverted yield curve, and that would also indicate a looming recession. But then we have equity markets, the s&p and the Nasdaq have been very strong, not too far away from all time highs, but you made mention of the fact that the Russell, which represents a lot of smaller companies has been very weak. I believe it’s down on the year. But when you look at all of these elements, how do you make sense of it?

Michael Gayed 25:44
I think it’s interesting that the Pareto Principle has a Pareto principle when the 8020 rule is now even within that, that 8020 is another 8020. In other words, what’s happening is that we are seeing so much concentration of wealth. So much of a disparity between rich and poor, that we’re also now seeing it between large caps and everything else. I often wonder if what we’re seeing here is a bigger is a bigger affliction about where we are as a society. Because all momentum is just going to a smaller and smaller number of large players, while other companies and individuals are getting left out. There’s something I think broken in the transmission mechanism. It’s a bigger sort of almost maybe philosophical thought experiment, right? As to what is this telling you, to me, it’s telling us that we’re one not only probably still in a bear market, but that the structure of the economy isn’t sound. Right, like at all, in terms of the way money is flowing in terms of what is being favored, favoring the Cantillon effect that happens from those that are closest to the stimulus, benefiting the most from it while everybody else basically gets crumbs and inflation. So it goes beyond I think, just portfolio management and making money and trading. Now, having said that, like you and portfolio manager, rules based funds, I don’t choose the cards on Delta choose to play the game. Alright, and my funds are designed to run the way they run based on decades of research. Even though a small sample may not favor it, I still have the data to prove over time. It’s it’s has real merit. But I do I do worry beyond the sort of rotations risk on risk off if what we’re seeing here is, is a bigger problem than people realize in terms of just the fabric of the way capitalism works.

Jimmy Connor 27:42
It Michael, I just want to clarify one thing you just said. You mentioned that your funds are rural base. Does that mean it’s passive money versus active? It

Michael Gayed 27:52
means that if I die tomorrow, they run the exact same way. So they’re very active and tactical rotor and JoJo have indices, you can go to market and see them. They went through a horrible drawdowns because I designed all of my funds to avoid draw downs in equities by being in treasuries. Not to avoid drawdowns and treasuries. If I could find a strategy that could avoid a drawdown in equities and treasuries, I’d be made off because it’s nearly impossible to do that from a sequencing perspective. And I will challenge anybody to actually show me a back test where you can show that that works over time, as opposed to just a one off, like what happened last year. But yeah, this is this is this is the challenge that I faced with people being able to unable to differentiate between me as a researcher and analyst as a content creator is on the persona on x, which is over your purposeful because it does work. Like it or not, I have 750 1000 followers, I must be doing something right. But my world is my funds like this is my career. Right? I took a very specific bet launching funds. I never imagined the cycle will play out the way that it did. I also can never imagine closing the funds, because it goes back to that point about sunk cost fallacy versus selling the low. Right. So I believe in what I built, I believe the cycle will come their way. And I believe that I have to just wait like everybody else does, because nobody can constantly win in every single year. It doesn’t work that way. I always use that line on apps. There’s no gurus only cycles. I say that because I’ve lived that life as somebody who’s gotten a lot of things right and a lot of things wrong. But from an implementation perspective, I would say path matters more than prediction. I’m a huge fan of systematic approaches that you can actually back test, even if in the small sample, which by the way, folks, two years, even 10 years can be a small sample in the context of decades of market movement. I’d rather believe in something that has caused an effect over time, then randomness which I think is where most people get fooled using Nassim Taleb great book titled Fooled By Randomness. I do think a lot of people get Fooled By Randomness in this business.

Jimmy Connor 29:56
And Michael we’re coming into year end and also holiday season. In which, from a seasonality point of view tends to be quite strong. Do you think the equity markets continue to grind higher? Okay,

Michael Gayed 30:06
so I think you need to be careful about confusing, high probability with 100%. certainty. So, it is true, I should put that stat out in July, or in June, you go back to the late 1920s. You look at the months where the s&p tends to peak for the year 40% of the time, the peak for the year for the s&p happens in December. So the odds do favor higher highs in December, no issues. Eight, eight and a third percent, not because it’s one to 12. But in the third percent, the peaks have to happen in July, which I still think was I think the peak for the year. But you know, by the time this goes live, maybe that’s not gonna be. But when we we get feedback from viewers, it’s probably, you know, maybe it’s not gonna be the case. But the point is that equilibria will be that we rally into urine. If you do, you would expect small caps to do the best because historically, that is where the seasonality is strongest, which is one of the reasons I keep saying small caps hold the key. Right, small caps should be if you’re in a real seasonal, strong period, the real play into the end of the year. Having said that, high probability is not 100% certainty. People somehow forget last year, fifth worst December in history, people somehow forget December 2018, Christmas Eve when the Dow was down like 1000 points. So we don’t know. Right, except with hindsight, I think there’s enough things to make people think there’s nothing that could result in people being surprised. It seems like Santa may have come early, with this move higher in the first couple of weeks of November into Thanksgiving. But I just wonder if the market is doing what it always does, which is sucking everybody at the exact wrong time. And make the crowd think that it knows an unknowable future. Again, not something you could actually trade off of, except by maybe lowering your beta or going into treasuries as a defensive option. But I’d be cautious in assuming that the future is certain.

Jimmy Connor 32:06
So we have one more Fed meeting coming up in December, what’s your take? Do they lift interest rates one more time? Or do they hold tight?

Michael Gayed 32:14
They probably should. Just to scare everybody, honestly, I think is like, you know, one thing, one thing you need to have to really bring inflation, you need to break housing? Well, it’s hard to break housing if you have the wealth effect for stocks, right, mortgage rates are part of that. But I do think that one of the reasons that housing has not fallen, despite all my beliefs that it would, is because there’s been this wealth effect from the s&p and people from Okay, so they say, You know what, I’m gonna pay seven, seven a half 8% on my mortgage rate, but at least my stock portfolio is doing well. So I’d actually actually argue maybe the Fed doesn’t want to see stocks necessarily keep on rising at least negative seven in particular, just because they want to probably cool off housing. So you know, maybe maybe they should, even though I still think they’ve over tightened. But I always go back to the Fed as a follower, not a leader. The Fed will lower rates and pivot when credit spreads widen, in which case it will be too late. And the damage will already be done. So that remains the key. And we’ll see, it’s an election year, it’s gonna be really fascinating to see not just how financial markets work, but just in general, what happens to sentiment following this huge dispersion. And again, the idea that rising tide has not lifted all boats.

Jimmy Connor 33:30
And Michael, quite often when we have a shock to the market, it is something that nobody saw it coming. And if you look at Oh, wait, oh nine, or even back in 2000, or 1987, these were all unknowns and and they just happen all at once. Right. But you mentioned that possibly it could be a credit event coming from the carry trade in Japan. If there was one other event that would shock the market and take it lower significantly. What would it be?

Michael Gayed 33:57
I don’t I don’t think it’d be from the financial sector. But it could still be something from China, it could still be to your point about commercial real estate. I have some doubts about that. Because it’s not like a bullet type of, you know, crisis in that sense. But to your point, it’s like when the Tinder is right, anything can light up, like the fire. So I get everyone always wants to find the catalyst. And to your point, the catalyst is only known afterwards. And it’s too late to do anything about because it happens slowly, then all of a sudden, that’s kind of used that line before. In markets, nothing matters until it matters. And then when it matters, it’s the only thing that matters. So they’re, we’re in a very complex financial environment and a world where everything’s interconnected. So any number of butterflies flapping their wings or Japan mouths flapping their wings can create a hurricane. Right? My only point is stressing the credit event is it goes back to my bear market thesis. And it goes back to I just believe that that’s how you end this, you know, a two year period of the most manic fed monetary policy we’ve ever seen. If I’m wrong, I’m wrong. Listen, you can be wrong and still make money. You can be right and still lose money. But at least consider different scenarios. Right? And consider the timeframe is everything you can be bullish and bearish at the same time. It just depends on when.

Jimmy Connor 35:16
Michael, as we wrap up, that was a very interesting discussion. And I want to thank you for spending time with us today. If somebody would like to learn more about you and your various funds and your lead leg report, where can they go.

Michael Gayed 35:28
So the funds are, again are separate from my research, but at Lee leg report on pretty much all social media X YouTube Instagram threads. The funds are a tech Again, the funds have not done well. But the reason is very clear, because they rely on treasuries as the risk off safe haven, which probably means that they’re now about to have their turn, the road was actually done pretty well, this year, well, things considered. But I’m very accessible. I put a lot of content out podcasts all the time space, as you mentioned, you can only control what you can control. So what I can control is the amount of content and quality of the content as well as hopefully the comedic rigor with which I put that content out. So follow me on all those platforms. And if a visitor to the funds feel free to reach out to me directly, there are nuances to this, I deeply believe that the role of any fund manager whether it’s rules based or not, is to communicate why something works, when it works and why it doesn’t work when it doesn’t work. And why it doesn’t work when it doesn’t work is the critical component for keeping investors eye on the prize in terms of having a longer term objective.

Jimmy Connor 36:31
And you do a great job on X spaces formerly known as Twitter spaces. And I listened to you on a regular basis, I would encourage our viewers to also check you out. And you have a lot of fans on there too.

Michael Gayed 36:44
I got a bunch of trolls also that I blocked in their mothers and their hamsters as I say on x.

Jimmy Connor 36:49
Once again, Michael, thank you. If you are trying to figure out how to invest in your financial future, consider having a discussion with a financial advisor that Wealthion has you can fill out the short form there and there’s no commitment to work with any of these advisors. It’s a free service that will feel an offer to everyone. Don’t forget to subscribe to our channel and hit that notification button so you can be kept up to date. We have some amazing content coming out in the weeks, which will help you navigate these challenging times. If you have an interest in resources and how they can benefit your portfolio, check out my YouTube channel Bloor Street capital where we discuss precious metals that are in metals in uranium. Once again, thank you for your support. And we’ll see you again soon.


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