- Palisades Gold Radio
Tom welcomes returning guest Michael Gayed, Portfolio Manager at Toroso Asset Management, to the show. Michael is the author and publisher of the Lead-Lag Report. To subscribe to our newsletter and get notified of new shows, please visit http://palisadesradio.ca
Michael notes that this year has been remarkable in many ways. Treasury yields since March have been grinding lower, which indicates a risk-off market. Likewise, lumber to gold has tanked. However, utilities have been underperforming, which is concerning. All of these crashes are occurring in the context of trillions in stimulus. Small caps have underperformed along with emerging markets since February. However, the S&P continues to grind higher. What if the Fed is correct about inflation being transitory? That could suggest a big downside surprise as all of the ordinarily tight correlations seem to be breaking. We are seeing price inflation but not wage inflation.
If inflation is transitory despite such a massive surge in money supply, that will raise concerns about the Fed’s ability to influence the market. Does the Fed still have control, or are they trying to push on a string? Bond market credit spreads are beginning to widen and blow out, which could indicate higher default risks. However, the prevailing narrative may be wrong, and we could be in for a surprise. There are unintended consequences to a world awash in money. The dovishness of the Fed is likely to promote complacency and exacerbate risk-taking. Gold tends to have a low correlation to most assets, and currently, gold hasn’t responded. There could easily be a rather sudden adjustment up for gold. Volatility is likely to rise, and gold is one thing that many investors move into in a crisis. Cryptocurrencies make sense as a portion of a portfolio, but there is a lot of overconfidence in the space.
The one thing that Bitcoin can’t fix is human behavior, and we see that with overleverage and exuberance. Unfortunately, this behavior also exists in the equity market, and the first thing that goes away in a unwind or liquidity crisis is the leverage. Michael points out that if everything in your portfolio is making you money, you are almost certainly not adequately diversified. The vast majority of people do not realize the concentration risk they are taking. Therefore, it’s essential to take a systematic approach to rebalance your portfolio. Time Stamp References:
0:00 – Introduction
0:32 – Intermarket Signals
4:28 – Correlations
9:16 – ‘Flation Signals
13:46 – Bank Lending
17:51 – Gold Rangebound
19:32 – Corrections
22:20 – Peak Leverage
24:50 – Diversification
29:53 – Faith & Conviction
34:42 – Concluding Thoughts
36:26 – Wrap Up
Talking Points From This Weeks Episode
– Market correlations are breaking.
– Inflation and concerns about the Fed’s ability to control markets.
– Debt and credit and the possibility of black swan events
– Exuberance in markets and managing risk in your portfolio.