Is FOMO More Powerful than the Fed? Michael Gayed @leadlagreport Interview

Dive into the intricate world of financial markets with this week’s episode of ‘The Money Runner’ hosted by David Nelson. This week’s special guest is Michael Gayed, author of the popular  @leadlagreport Whether you’re an advisor, investor, or simply curious about the financial markets, Michael has a wealth of knowledge and observations to share. David and Michael go deep into what is driving markets today and the signals that can prepare you for what lies ahead. 

00:00 Worst 10 years of my life
01:09 Michael Gayed Interview
02:39 What everyone wants to know
03:10 When markets crash
04:00 Bear Markets
04:22 High Risk Period
05:25 Sentiment was abysmal
06:26 Past matters more than prediction
08:04 The 60-40 portfolio
09:24 FOMO is more powerful than the Fed
10:59 Markets need a catalyst
11:14 The Credit Cycle
12:14 Higher for Longer
13:23 Where the Black Swan Lives
17:04 Treasury Auctions
19:26 Don't be overly convinced
20:02 Can A.I. save the market
21:07 Marc Andreesen
22:31 Let me push pack
25:44 Traditional bond buyers aren't buying
26:42 Hard Landing
27:22 Rest of the Year
28:38 There is no Santa Claus
30:13 The Election Cycle
34:04 Bearish on Humanity?
36:31 My dad ran a hedge fund
37:28 There are no gurus
38:42 I'm an optimist
39:47 Predicting the weather
40:09 Everyone thinks they can be a PM
43:20 What would make you a bull
45:00 You're supposed to Flip Flop
46:06 What did we leave out?
47:36 I'm right a lot, I'm wrong a lot

Transcript

0:00

The worst ten years of my life was running a hedge fund. The absolute worst. Worst ten years. Sounds like me with a mutual fund. I did not sleep for for 11 years. It wasn't until and I remember the most the best day was in 2010, I decided to shut it down. And I remember I was using this thing. Do you remember the Redi system with a Goldman trading think ready was a Goldman trading system and you could press one button and it would collapse all positions. Like the switch. And it did it in about 20 seconds, 25 seconds. And it was the first good night's sleep I got. All right, we're already recording, so let's get it going. Welcome to The Money Runner. I'm David Nelson. This is a real treat for me today. First, it kicks off a series of interviews for the Money Runner podcast. But more importantly, my first guest, Michael Gayed is not only a friend. Michael is one of the sharpest minds on the street. He has a legion of followers, from advisors to investors. And I can tell you, I'm one of them. He's an award winning author, a chartered financial analyst, putting out cutting edge research and commentary. His lead lag report goes right to the heart of what's driving markets. Advisors and investors both not only get an inside look into Michael thinking but he lays out a roadmap on how to navigate any market cycle. Finally, Michael walks the walk. He's on the line. Portfolio manager running ATAC rotation fund. Michael, I know I'm leaving something out, but thanks so much for joining the show. Welcome to The Money Runner. I hope first is not the worst. Second might be the best. So maybe you have to reinvite me for a second. Say that again. As a second is supposed to be that first is the worst seconds the best right now. So I don't know. There'll be many more of these. You know, I want you to be the first interview when we have a lot of history, we go way back, right back to the days of Newsmax when when I was an anchor there. And I've been following your career. Really, it's been pretty extraordinary. And a couple of times we were even on. I was on the floor of CNBC. You were on on the panel, and there was some pushback back and forth. So it was a lot of fun. It's great to have you on my show, but let's get it right out in the open. You know, probably what a lot of people want to know is what happened in the last ten days. Pretty extraordinary move in the markets. Fed to monster move off the October lows, in part driven by Fed commentary and of course, rates coming down. So, real or not, do we embrace this or do we use it as an opportunity to lighten up exposure? All right. So there's a few parts. First of all, I have made that point many times before. This is just factual. Markets tend to crash from oversold levels and the market was oversold. But the thing is, they can also reverse pretty aggressively. And that's why this business, as you know, is so challenging, because you can have an extreme both ways, right, when it already looks like it's pretty bombed out. From a pricing perspective. So I myself was actually pretty negative entering last week based on into market relationships that I track. And I've been on this credit event argument for a while, which obviously has not played out on the corporate side yet. Everything rallied largecap small caps treasuries. And then the following week, which is this week, we saw somewhat of a continuation, although Smallcaps actually gave back a good amount of those gains, not fully those gains. Now, you've been in business for a while, like I have been. You and I both know that moves like this are not uncommon in bear markets, right? I mean, this is just facts. You end up having big swings both up and down. Everyone's starting to think that, wow, that was it. You know, that's the low. And then markets do what they always do, which is that they humble everybody just at different times. Now, I still think we're in a high risk period broadly speaking, because I keep going back to there's still a lot of tail risk potential, meaning Japan, I think is still problematic. The lagged effects of the fastest rate hike cycle in history are still problematic. I don't think the Fed wants to see the S&P make new highs because the wealth effect counters higher rates, which is why I think we keep seeing these periodic moments where Powell comes out and talks markets down and emphasizes we're not done hiking rates. Right. Even though it sounds like it's counter to what he just said the week prior. So I think that the best case scenario is that you get some momentary drift in the areas of the market which have not participated, which would go back to small caps. But the realistic scenario here is I still think we're in a bear market. I still think that this is going to be a challenging environment probably for some time. And markets do what they always do. They suck everybody in at the wrong time. So let's talk about that. I mean, coming into last week, I kind of felt the same way. The the sentiment was abysmal. In the week prior to the Fed meeting, tactical funds and a lot of funds that I track, even internally, some of the things that we use, equity exposure was probably at the lowest levels of the year and then even before the Fed even before the Fed decision on I guess it was a Wednesday, there was a little bit of a bump in the market for the first couple of days, in part because of some commentary coming out of Yellen about Treasury issuance in the fourth quarter. Going to be a little less than expected. And I kind of pushed back on that because I'm looking at the fact that, you know, we're knee deep into two wars for the possible third conflict sometime in the next couple of years. And I do the math. And that means larger deficits, more debt issuance. So how do I paint a picture of of the long into the curve yields coming down in that environment? So I always go back to past matters more than prediction. And actually last week was a really good example of that. Okay. So the sentiment was abysmal and there were a lot of people that, like me, view this as being a high risk juncture. You might crash. I even said the week before, I have no problem saying it publicly. You know, it's it's record. I was obviously wrong in the way it played out, but I don't believe I was wrong in the conditions. I said, I think we can see circuit breakers. And they didn't happen. They said it was the best week of the year. Okay, egg on my face. But here's the thing. If you short and you're wrong, you lose money. If you're in treasuries, you made money last week. Right now, that's why I go back to past. So there's the argument which I don't necessarily disagree with about the broader headwinds against Treasuries because of all the spending awesome new wars coming down the pipeline, you're spending just increasing. Who's going to buy up all these treasuries? Okay. All that's true from like a very long term perspective. I don't disagree with that. And it is a problem. But that's not to say you can't have a couple of weeks or two where treasuries are a better way of being short equities without the risks of being short equities. Right. Acting as a counter or evading acting with equities like we saw, you know, the last, whatever, ten trading days. So the point is we can pontificate about what treasuries are going to do from here into tomorrow and what government debt's going to look like and who's going to buy up treasuries. But in any series of weeks, I still rather bet on Treasuries than short equities. So let me try to put that together, because I was actually just having a conversation with some advisors across the country. And maybe the most frustrating thing for their clients, a lot of them, quote unquote, 60, 40 type investors, you know, a balanced portfolio that obviously did horribly last year was one of the worst years for that. And so what about the thesis of maybe just protecting your portfolio if you do the math, if you put half your money in one year paper, you know, T-bills, you're going to be making more than 5%. You know, it almost doesn't matter what you do with the other half. You could take a fair amount of risk or even if I'm wrong, if that half is down 20% and the other side is up five. Worst case, you look at it probably, you know, single digits, you know, in in terms of in terms of return. And I see that I see that playing out. I see a lot of advisors going that route. Well, I'll tell you something. It's it's counter to my own best interests and your own best interests as people. I manage money, right? I mean, I've got a rules based mutual fund into ETFs. It's against our best interest. But the reality is, what's the truth? The truth is the simplest thing for most people to do is to do T-bills, is to just do and get that that, you know, short duration, four and a half, 5%, and call it a day. Why deal with anxiety? The problem is FOMO is more powerful than the Fed and FOMO. Fear of missing out is more powerful then than getting a guaranteed rate of return. Right. So most people. Yeah, most advisors. Most individuals, yeah. The simplest answer is the right one. Just go with the T-bills, you know, do a what's called a barbell approach if you're going to, you know, do something meaning go mostly T-bills. And maybe, you know, that that 15, 20% allocation, let that be the aggressive part of the portfolio. But it is amazing to me how despite all these rate hikes, they're still, you know, people want to gamble. They want to take a chance while they still have credit card debt. Why they're not advancing in their in their jobs and trying to be higher performers. They just want to YOLO into stocks. And they're doing it against a backdrop, which I think looks pretty ugly for equities. Look, keep in mind, this is a pre-election year, all right? Pre-election years are historically the strongest of the presidential cycle. I just put out a post today on X showing that when you look at on a after inflation real return basis 63% of the Russell 3000 index is negative after inflation. And yet people are still wanting to gamble in stocks. So, you know, I think if you're prudent, you've got a gift. Now, to your point about this guaranteed rate of return, it's not a bad idea to be happy with that gift. Markets need a catalyst to go down. And what are the things you know in your research this week? It really kind of struck home because very often bad things happen in credit markets before it translates over to the stock market. And you talked about some recent commentary and you were focused on the credit cycle. And in a recent note you discussed the freight industry and the collapse of a bank tied to trucking loans. Let's talk about that. Yeah, it is. It is insane. I mean, freight is like in a real serious recession. Okay. I mean, you are clearly seeing a very significant drop off in freight, and that's consistent with what you're seeing with the manufacturing slowdown. Now, this impacts certain banks because of loans connected to the freight industry and freight dynamics activity tends to correlate also with upcoming recessions because it's about the real economy in terms of goods being transferred. I do think that further to the point that we are probably still from a macro perspective in an environment that's going to favor some kind of a corporate credit event, because if the economy slows down, if activity is coming to a crawl in a lot of things which are big drivers of the economy. Okay against higher for longer and a lot of indebted companies that have to roll over their debt into higher rates with razor thin margins. Again, I go back to I don't know why you want to gamble based on that. If you have a very long term view, that's fine. Right. But I go back to past matters of more than prediction and there's all kinds of signs that there are real stresses in the real economy. It's just nobody's paying attention to it because all they're seeing is the S&P is up, the NASDAQ up as if they are tells on what is actually going on in the broader system when in reality, the stock market, as defined by the S&P 500, is no longer a discounting mechanism of the future, it's simply responding to fear and greed and algorithms. In the reality is, I'd argue the S&P and Nasdaq are more coincident and lagging than leading small caps are leading freight is leading retailer stocks are leading. Utilities are leading. Lumber is leading. Gold is leading. And all of those things, just from an intermediate perspective, still don't look that good. It matters when it matters. I mean, it certainly mattered. In March, we had a credit event. We saw it in the banks. And that begs the question, because here's the argument, and I get a lot of pushback on this, because I've come out on the show when I've said the Fed is done and I'm looking at ten year yields that are well above where they were in March that was in part responsible for the collapse of Silicon Valley and signature. If there's a black swan out there, it's likely living on the balance sheet of some regional bank where they held a maturity portfolio that's under stress. So, one, how can the Fed hike with that as a problem and more importantly, or they've got to also support, you know, Treasury as well, because like it or not, even though they deal with the short end of the curve and Fed funds rate, their policy and their rhetoric certainly has an effect on the long end of the curve. It certainly did last week, because after that meeting, ten year yields cratered 30 basis points. Yep. Yep. Yeah. And and yet when push comes to shove, they will save treasuries and sacrifice everything else. Because if they don't save Treasuries, nothing else matters. Entire system is predicated on the risk free rate, which is treasuries, which I really am blown away, that people really don't understand that at a very core level. It's like when I say they will sacrifice stocks to save treasuries, like that's not my opinion, that is outright fact. And by the way, there are plenty of quantitative examples in big down days of Treasuries doing well because of that. That logic, that reasoning. Right. Treasuries are the default free option. That sort of risk off is the risk in risk off is default risk off, which is Treasuries. Now, I do think that for whatever toward the Fed, as has probably painted itself into a corner from a rhetoric perspective. Right, because you keep hammering higher for longer, higher for longer, higher for longer. Okay. Well, there's a real problem with that, which is that if you keep saying that and now you have to pivot very quickly because of some exogenous events, something happens with Japan, something happens in any other part of the world. You know, if the whole if this whole exercise with higher for longer and raising rates is about credibility, don't they lose their credibility if they have to? Suddenly they are. You know, we never actually went higher for longer. We spent higher for a little bit. Well, they've been high for a pretty long time. And it's been pretty rough since March of March of last year. But I do contend that this I get the fact that they have to have the rhetoric and they have to keep that out there and keep keep saying that at least at least they think they do. But it seems like everybody understands that there's another side of this. And I just feel like there's something that is going to force the Fed's hand, because in the end that the buyer of last resort, that's part of their role and their job isn't just it isn't just inflation, you know, and pricing. It is also the health of our banking system. That's certainly part of it and that's seems to be under under stress. And you just brought up another one. What was the name of the bank that they created over the short term? I'm blanking out. It's been a long time. I'm blanking myself. But Sac somebody right bank I never even heard of. But those are the kind of things that happen. It's something you never even heard of. You weren't even thinking about it. And suddenly, so suddenly it became becomes a big deal. So every time, every time it's not even just the Fed. I mean, it seems like the auctions themselves are you know, I've been doing this for quite a while. I don't even remember when I paid attention to an auction. Yeah, I, I never I never even knew they were going on. But that was something for bond wonks and maybe fixed income guys. Now it's, it's like, you know, a five alarm fire. Yeah. When I'm out. I'll tell you something that's funny. So as much as I post, like, I'm on calls all day long, right? So I was actually talking to an advisor who's been the business for a while and literally just said the exact same thing you just said. And he said it a little bit earlier. He said, you know, it used to be like this is like a nothing. But like, you know, we cared about these bond auctions and now it's like, you know, it's the main event right now. I mean, what a world that we live in that we have to worry about, you know, demand for for government treasuries. I mean, it just shows you how badly the Federal Reserve screwed up. Right, with the response post COVID both in terms of, you know, being late and how far they went and all the all the manic things we've seen since then. Now, look, I've used that line a number of times on social media, the Ernest Hemingway quote slowly, then all of a sudden, all right, so how do you go broke? Slowly, then all of a sudden, okay, now I say that in the context of credit spreads to write why credit spreads widening, which is a reflection of bankruptcy risk, which, by the way, bankruptcies are increasing in the real economy. This is fact. Just like we're seeing a slowdown with freight in manufacturing, we're seeing other knock on effects of the fastest rate hike cycle in history. Right. Credit spreads when they widen, when junk debt starts to respond and fear starts to grip, bond investors happened very quickly. When you have a big spike, it happens very quickly. When credit spreads widen, it correlates to the VIX. And when it happens, it happens very quickly. So the challenge with this environment for anybody that's being overly comfortable with going back to the start of the conversation, what happened the last two weeks, is that okay? It might persist for maybe a couple more weeks more, but there's the risk that all of a sudden you then all of a sudden everything kind of unwinds, right? Because there are these hidden build up of risks from leverage that happen from the Fed being at zero interest rates for so long and then going through the fastest rate hike cycle in history. That's not to say short the market. That's not to say things are going to hell in a handbasket. It's just to say you better be careful when you're driving now. Right. And I always advocate, be very careful being overly convinced of the outcome. You can be overly convinced that it's raining. You can be overly convinced of the conditions and the weather. God knows I often m right because I'm very loud in the way I communicate. But I don't know when, if, when or if the exact mile marker a crash happens. I mean, obviously not even what happened last week. That's not to say that it's not raining. So let's take the other side of it for a second because, you know, there's always two sides to a story and there are things that are obviously working in this market and much have been made about artificial intelligence, and that is being a secular growth driver. It's something that I've talked to quite a bit. I think there's an overreliance and in over a maybe too much focus on the AI heavyweights, the Nvidias the Microsofts, the Alphabet's, which are clearly very profitable companies and companies that I own. But I've written that some of the biggest beneficiaries are really the hundreds, if not thousands of companies that are embracing the technology to find a way to enhance the bottom line. Could a major technology shift like this and some of like Mark Andres and have said it's bigger than the Internet. So whether you believe that or not. All right. Can a major technology shift be enough to maybe increase productivity enough to wipe out some of this these other negative things that are happening? But not not to I mean, for Marc Andreesen reasons, obviously a brilliant investor, but I'm pretty sure he invested in clubhouse and there was an insane valuation. Maybe I'm wrong on that. That app, the social audio app that we like, it's like now worth what? I mean, I don't even know. So my point is like, okay, somebody can say that doesn't mean they're right. I don't care how successful somebody is. Nobody knows what the future holds. Okay. How how wealthy anybody is. We all independent of our net worth, have no idea what tomorrow brings, you know, but you these statements obviously get traction. Okay. So I don't disagree with any of that. I've noted that point before. There is this disconnect in what you're alluding to, which is A.I. is supposed to be this incredible all next industrial revolution. I think we can all agree that A.I. is not supposed to be inflationary. It seems to be quite the opposite disinflationary. And yet long duration yields keep rising. And yet inflation expectations further out in time are not really responding off of the technological shifting of inflation that should come from AI permeating every single part of our world. Right. So I'm not saying that it's not going to be the case. What I'm saying is that you can't inherently argue that A.I. is going to take over everything that A.I. is. It's and then it not be reflected in every other asset class that should be impacted. Yeah, but. Let me push back for a second. Couldn't it couldn't make couldn't it be that A.I. is maybe it would be worse, maybe it would be worse than it is now with without a new technology like this? I mean, I look at a company like be an example, a company like John Deere, certainly not a technology company, is an old line tractor company. Yet their large combines and I have have farmer friends that are using this the AI technology is now part of the machines and they're looking down at the ground and they're determining the cameras are looking down and determining the difference between a weed and a crop. And it's only spraying the weeds, one that's got to be deflationary in the sense that it's certainly less insecticide, certainly more healthy. So the crop maybe can be sold at a higher price and probably the machinery will cost more and certainly a benefit to Deere and the people that use it. Why can't things like that be a deflationary force or a force for good, however you want to view it, and maybe keeping it from getting worse than it would would have been? Yeah. No, I think that's valid. And actually that that's very consistent with why I push back against what I call the squiggly traders who look at long duration yields and interest rates and who say, well, you know, we're going to go back to the 13% level from the 1980s. Okay. The problem with all these arguments around, you know, interest rates historically should be much higher because look at the average over the last number of decades or centuries is technology. Right, because exactly to your point, that only gets better. That's inherently disinflationary, which means the average interest rate should be lower because of the advancements of things, just like you just mentioned. So and that's why I go back to what's interesting in Treasuries here is it is is to me fascinating in the context of the AI debate discussion because if AI is going to be that big of a deal, it sounds like, you know, 5% on a Treasury is, you know, could be a generational buy. No different than what happened, you know, in the early eighties because of the technology component, forcing the average rate lower, the disinflation effects. That's not a very popular being because everyone now is just saying, well, you know, we went through this and now we have to go to 13, 14, 15% like the eighties. It's like they forgot the efficiency that that the entire system at hand. Yeah, but, but to that point, in the 1980s, the debt to GDP was a different figure than it is today. That's fair. Unequivocal. Sure. So, so, so it's not apples. It's not apples to apples. And I'm not saying that it can save the world. Right. But it but maybe things would be a lot worse than they are, because I go along with your thesis. I had a very difficult time believing that the long end of the curve is going to push higher, just simply because if I'm a bond investor, I want some food on my plate for you're asking me to extend duration in a world where inflation has not been necessarily tamed, tamed yet, and you're just issuing an awful lot of paper, you know, so why should I be the last one? And some of the traditional buyers out there are not stepping up. We saw that in the auction yesterday. Yeah. And so it's interesting back and forth that I, I can push back further because that relates to a narrative that's out there that all this money printing means inflation is going to keep on rising. There is this cantillon effect, right? I mean, the more the government spends, the more likely gets funneled to only a select number of economic actors and all that money that the government spending then isn't inflationary because it sits right among the very wealthy. So what the effect of that is a widening wealth gap, a widening wealth gap is also disinflationary. So there's a lot of I think the point is that there's a lot of there's a lot of fascinating, complicated dynamics of which all this plays out regardless. Going back to the original question about, you know, the A.I. move and sort of the broader, you know, idea that, you know, look at the bright side. Maybe things recover. I don't disagree with any of that that you always have to do scenario analysis, right? Whenever you're doing any kind of portfolio construction outside of a rules based approach, like what I do with my funds, I still believe the base case should be, you know, hard landing. And the base case probably is this will surprise everybody negatively in terms of what the Fed has done. If that's wrong, yeah. Then you know what? I can't wait to get Fed even though I'm fasting from my I, you know, powered waiter. Let's look at something, you know, that a lot of people are thinking about right now. And it's, you know, what do we do between now and the end of the year? You've been doing this for a while and traditionally the end of the year, we're told we get this, you know, kind of Santa Claus rally and maybe this is the beginning of it. What we saw today, a pretty, pretty sharp move, higher certainly for the last couple of weeks. The November through December is supposed to be a good time. So far, that's whole, whole holding up. But what about the things that haven't worked last last year? You couldn't get out. You couldn't sell enough Microsoft, you know, to get out because they have been down all year. Everybody was dumping it. So small caps are kind of the laggard this year, even mid-caps to a certain extent. A lot of areas of the market. You just mentioned 63% of stocks were were negative on the year, too. Is it too early to start buying those names? Are they just going to get flushed out in the next couple of weeks and stay with what you got and then maybe look in January? I wish I could tell you in January. The answer to that is I can come back and tell you what actually happens. I think, look, I've been I've been cynical on the seasonality argument, which is put out there. You know, and seasonality to your point, didn't work last year. It was a fifth worst December in history for the S&P. There was no Santa Claus rally from that perspective. Now, having said that, yeah, maybe maybe I'm wrong about the seasonality. Maybe it is kicking in, but if it kicks in, it should really kick in from small caps. It should be a breadth improvement. Again, it's not impossible. The problem is if you're going all you seasonality here is bullish for stocks, you should then see the right types of risk on relationships leading that. What does that mean? You should see utilities weak relative to the S&P because seasonality wise, you should not see utilities be a market leader. Now, they've weakened actually quite a bit just the last three or four trading days, to my surprise. By the way, you should see gold weak and lumber strong because that would suggest more risk on sentiment. Is there a little bit of weakness there? Unclear how much that sticks. But my point is, if you're going to argue for seasonality, you have to look at the seasonality of the leading indicators that, say, risk seeking behavior is kicking back in. It could be the case. I don't disagree. I just don't believe it's likely right. And I think because everybody and their mother is talking about seasonality, I get nervous just intellectually when I hear everybody saying the same thing as if it's a given. Now for me, it doesn't matter if my funds right, my funds will do whatever they do. Rules based, they rotate independent of anything. That's not discretionary in that sense. But I would just caution anybody to think if everybody's thinking like everybody else about seasonality, maybe winter is coming in a wrong way. I want to shift gears for a second, because it's going to drive it's going to drive markets for the next 12 months. We're coming up on an election cycle and we've actually already probably knee deep into an election cycle less than a year to the next election. I don't see anything changing on either side of the aisle in terms of getting more fiscally responsible, which is in part what the market is reacting to. I mean, I just watched the Republican debate and no less than at least half the candidates were talking about massive I mean, massive military spending increases. They were talking about taking the U.S. Navy from, I think, what, 290 ships up to 350 ships. That's a lot of money. All right. So even if you cut all that stuff in half and the other side of the aisle is doing that as well, and I'm a military, you know, I'm a hawk. You know, I've got family in the military. I believe we have to defend ourselves. But I feel like we're we're writing checks that we can't pay for. And that's one way or the other has to play out in financial instruments, in particular the bond market. If we continue on that course, how high could yields go? What would be what would be your bearish case on that? Well, look. Okay, so so debt becomes deflationary when you cannot issue more of it. Right. Debt becomes blame that. We understand that. So I think this is this is this is like the whole discussion around debt being inflation or deflation is a function of can you rule out going forward, is there somebody that you can roll and kick that can down the line if you roll it too? So you keep on increasing debt and it's inflationary, but only to the point where somebody is willing to lend you to keep that that game going. Right. And, you know, you can argue that to the Fed role is to do okay. Well, here's the problem. The Fed wants to get out of the balance sheet game. I don't think they're ever going to be able to fully do so. But let's say under that scenario, the defense spending really ratchets up. Is the Fed going to be able to absorb that? Because if the Fed cannot absorb that and foreign holders of Treasuries are not buying, then yeah, you could have a real disruption further to Treasury yields. Now, the problem is if that happens, everybody else is more screwed than the US government. This is the other part of the discussion which I think is missed. If you end up having a real super spike in Treasury yields, you know how you bring that back down through fear that the government will tax us more to pay for their profligate spending. Now we can debate whether there's actual appetite for that, but the point is the US government will always be able to pay off its bills, whether it's from the Federal Reserve printing it or from them taking it, which means we will be in much deeper trouble. You'd see spreads widen and it's such a substantial cliff at the expense of saving treasuries so that they can fund the army. I'm trying to think of where I want to go with that. And I find I find it kind of concerning. And you're painting a charity. Do I listen, I keep I say it I say it in a joking way with all caps. People know the word. I say it right. It starts at F and ends with it. Right. But like I say, kind of in a comedic way, but like I really like, I don't know how people don't see what's happening and don't say like, wow, we really are in a nasty setup. I mean, with, with government debt and with this the way that people think about and interact with each other and the way we constantly are tearing at each other, I mean, it's like, I hate to be bearish on humanity. Because I can't. Say that, but it's like, I don't know. I often wonder about these kind of very long term secular, secular trends. I'm going to push back on that. Okay. Because when you cross over to that side, because of what the one thing that we've learned over the last 30, 40 years is that as we dig deeper and deeper holes, you know, as as humanity, we have the ability to repair and recognize that something's wrong. And what if we haven't gotten to that point? But we get to a point where suddenly we realize we've got to we've got to fix it. All right? We've got to do something to fix it. We've we had to do something with the banks after 2008. They were a mess going into 2008. I'm not saying that they're good now, but they're certainly in better shape than they were in 2002 thousand. In 2007. So, you know, I'm kind of, I guess, the eternal optimist. You know, I'm a long only guy, you know, for the most part. As am I. With the money, money that I run. I, I, we were talking earlier and I talked about running a hedge fund. It was the worst ten years of my life. I never want to do that again. So when I'm bearish, I'm maybe I'm repositioned, but I'm probably still in the game, you know, maybe, maybe I'm more defensive. But, you know, you bring up you bring up a lot of food for. But there's a lot more to Michael Gayed than than I think people really understand. You're obviously a brilliant market strategist and you're out there and unless you're a normally portfolio manager and most aren’t a lot of people talk this game but until you're actually running money, other people's money and it's a lot different than when you're running your own money, when your own you're running your own money, you only answer to yourself when you're running other people's money. The Shit hits the fan really quickly and you talk to a lot of people in this game. You talk to a lot of advisors, a lot of the advisors that are under my tutelage here at Belpointe, follow what you write. How do you keep them in the game and how do you position them on each incremental mental day or each, each incremental week with all the chaos that they're seeing on a day in, day out basis? And just to respond to that point, the I remember my father ran a hedge fund himself. Right. And, you know, this is from 2000 to 2008 He knew the hedge fund was really big and he had some clients in the early stages like Stanley Druckenmiller and a couple of other big names. But you know, when I graduated and I joined the family firm, I remember, you know, he was he was in his office in a small office, just him. He had like eight screens. He was one of those kind of traders. And, you know, as a young guy, I was in my early twenties and he said to me, Wait till you're in my seat. Wait till you get to feel that pressure. Wait till you see and feel that anxiety daily. Right. And I get it now. I get it from the perspective maybe slightly different from his in that I always use that line. There's no gurus, only cycles. I launched three funds there designed to play the flight to safety, trade and Treasuries, which has not been there for the last two years. I've gone through in these funds a nasty drawdown. People have a hard time differentiating between me as an analyst or researcher and me as a portfolio manager, a rules based fund that would run the exact same way if I die tomorrow. But you know what? You those are rules based funds, and I should be detached from the outcome. I have anxiety every single day. Right. And I have to keep on getting out there and waiting for the light to change. And unless you are in the business doing that, having the skin in the game and skin in the game because it costs a lot of money, as you know, to have an ETF, open avenue, to have an open. And you can't control the outcome because it's a function of the environment that you're in unless you know what that's like you can't possibly understand how difficult the business of managing other people's money is. To your point, it is nowhere near like managing your own, nowhere near like it as a business. Now I am an optimist too, but in a different way. I'm an optimist. And the idea that conditions change, I'm an optimist. And the idea that nothing's forever, everything's just a moment in time. So as much as I myself have gone through that pain, that anxiety, I'm optimistic that it will end. And because I can't control the value of my portfolio, just like you can't and nobody can. I mean, that's the thing about this business. Nobody can nobody can can tell me they know exactly what the proposal is going to look like by end of year unless they have to be in T-bills. And even that is nuance because then what's the after inflation rate of return? Right. But unless unless you recognize that you can't control the value of your portfolio and that you can do more with your time, you can't be efficient. And in my case, my form of efficiency in terms of what I can control is content analysis, talking to advisors, talking to individuals, trying to get them to be aware of what I believe in, which is identifying the conditions. Right. And I view myself very much like a weatherman and it's so funny to me. People seem to rag on weathermen all the time. Meteorologists, Oh, they're always wrong. They're the most accurate in their profession, in the business of forecasting the future, meteorologists have been proven to be the most accurate, and yet you're vilified for saying, Oh, all you're trying to do is tell people it's raining. I mean, it is it is a wild dynamic. And I just want emphasize that point. It's this is not a business, as you know, David, for for everyone. Everyone thinks they can be a PM thinks they can be, you know, this, this manager that's raising all kinds of money and trading and making all this great returns and living that life, it is difficult this is perhaps not one of the hardest careers you can imagine because there's so little in your control except your identification of the weather and in your communication of the conditions. You know, you mentioned your dad and it made me think of my own dad and kind of how he drove drove me. I didn't realize it. So your dad was in the business of running a hedge fund. Did he actually develop you develop the whole style based on intermarket theory is the one who set you on that path. Did you kind of know even beforehand, before college maybe that that this was the direction you wanted to go? Yeah, I mean, I so I always I always grew up thinking I'd be in this career when he passed away, I always thought I'd take over the family business and grow it. But I was not of age. Take it over in 28, my father passed Lehman Brothers. It was it was the it was the break in my life, right. As far as where I thought my life would go. But I'm sure you've seen that that meme, right? It's like people's perception of where they're going to be. You know, the end point is a straight line, is their perception. But in reality, to get to the end is like all kinds of squiggle lines and different ways to ultimately get there. And it takes longer and it's harder than you think. So, yes. I mean, a lot of my father's thinking and framework and cynicism, I still have inside me. The the difference is I he didn't have a rules based approach. He was discretionary in the way he was. He was treating it was his book, I think it was page 311, 314. It was one little section in his book InterMarket Analysis and Investing, where the section is titled Utilities Lead the Stock Market. And I saw that and I tested it. And that became the genesis of the 2014 Dow Award paper and inter market approach to beta rotation, which looked at the utility sector as a leading indicator, became one of the risk off indicators trying to find one of the the risk off indicator for my Jo-Jo Bond ETF. So the influences is there. But I'd say so it really does haunt me to this day. You know, all those years ago I remember just seeing him and I didn't understand. I was like a lot of these guys that you see on social media who are beating their chest, oh, I can beat the market. I'm awesome. I know all this stuff. You know? I was like that, too. It's like that great Oscar Wilde quote, I'm not young enough to know everything, right? It's literally like that. I remember the I through that. Right. But my point is like, you know, and I've been humbled so many times in in in cycles to know that that's not the way this business works. So and from that perspective, you know, I think my father's words ring true. You can't understand what this business is like unless actually sitting in that seat. Look at before we come up on our hard out here, Cause we're going to run out of time. I want to I want to make sure I explore this because we a lot of this call was admittedly, you know, fairly bearish and looking at, you know, the downside of the market. But things change. Yeah. And I guess what, what our listeners want to know, or at least my listeners, listeners want to know and maybe even your own, even the people that follow you, what is it going to take to bring Michael Gayed out and go? You know what? The sun is shining. Yeah, this is a better environment. What? What what are you watching for? And how would that translate into a change in your portfolios? Yeah, no, for sure. Okay. So I go back to all I'm doing is leading intermarket relationships and trying to see what is the market internally saying and then communicate that. Right. Okay So what would turn me optimistic is if you had some kind of persistent weakness in utilities, defensive sector, if you had persistent strength in lumber risk on signal, if you had persistent uptrend movement in terms of being above the 200 moving average because that also is a risk or an indicator if you had the right stuff outperforming retailer stocks, because that's a sign of the consumer financials outperforming because that's a sign of kind of health for the financial sector and credit creation. You need to have the right things working in terms of what's leading and what's lagging, which is the whole idea of the lead lag report. All right. It's not based on my opinion. It's based on what the market itself is telling me, based on these relative movements. Right. That you can back test and quantify as to whether or not they're telling you if it's sunny or not. All right. Now, maybe that happens. And believe me, I have no problem. Suddenly flip flopping because that's what you're supposed to do. I've seen you do it. I mean, I've. Seen you do it in the past. You're supposed to flip flop when conditions change. Change, right? I have no problem. Screaming melt up if those areas are showing persistence. But the thing is, they're not right now. Again, maybe they do, but everything for me is dictated by these relationships that I can back test, as opposed to patterns and formations and things related to options and zero like none of this stuff which people refer to as leading indicators, are ever back tested and ever prove works. At least when I try to have a viewpoint on what the conditions are saying, I know what the history says and right now nothing. Well, I shouldn't say nothing right now. It's very early to be convinced that it's sunny. Maybe it is. Every storm ends, right. But until it's really shining hard, I'm going to still say, be cautious, slow down. At least don't be at the speed limit. Awesome stuff, Michael, as always, you're one of the best. It's why I follow you. You've been a friend for a long time. I know my my listeners are going to like this. Anything we left out that you need to get out there, that you need to talk about, have recovered it all, have recovered enough? No. I mean, listen, I've known you for a long time. We've had drinks a couple of times. I can't do that now because of fasting again. But you are also one of the greats, and I do appreciate your depth of knowledge and your kindness. I will tell you, I have been disappointed by humanity in the way that some people respond to not just me, but people I've even interviewed. Right. That just say things behind your back. But you are one of the good ones. And I think, you know, for anybody who's listening, support David. Follow him on social media also. And I would stress everybody, don't be convinced of the outcome, be convinced of the conditions and subjectively look at the conditions. That is the key. Michael, thank you. First, tell everyone where they can follow you and how do you sign up for the lead lag report? You're not going to follow me on any places. I have the face patrol just because of what I'm going through now. But on X on threads Instagram, YouTube, @leadlagreport is the consistent handle on all those on Substack as well. And of course, Leadlagreport.com, Lead Lag report is a separate endeavor, separate from my rules based funds. I do everything I can to communicate openly and just like anybody else. I'm right a lot. I'm wrong a lot. No amount of intelligence can increase the clarity of one crystal ball. But there's one thing that I am for sure which is consistent in process, even if the outcome is different. Well said, Michael Gayed Michael, author of the Lead Lag Report and portfolio manager for the ATAC rotation fund Michael. Thanks so much for being with us. We'll be right back. You're the man, Dave. Michaels said it. This is hard work. Investing and protecting capital means taking a lot of time, effort and research to get it right. Would you want anything less from your doctor? I'm probably in the camp where the glass is half full, but Michael gave us some really important data to consider before investing that next dollar. Today's interview was the first of many, but in the meantime, if you like today's pod hit, subscribe and as always, comments are welcome. Let us know what you think. Thanks for joining. I'm David Nelson.