This week’s episode features a discussion with Michael Gayed, author of the Lead-Lag Report on the Seeking Alpha Marketplace. Michael has been writing on Seeking Alpha since 2007 – a full-cycle contributor, you can say – and has been a regular on CNBC, Real Vision, and other outlets for a long time.
Inflation expectations have bottomed out, argues Gayed, and if reflation is the theme going forward, that means good things for some lagging equity sectors - notably financials (XLF), emerging markets ([[EEM]], [[VWO]]), and commodities like energy (XLE). On the flip side, reflation would mean just the opposite not just for bonds (TLT), but for anything yield sensitive - REITs ([[IYR]],[[VNQ]]) come to mind.
The government needs inflation, says Gayed, to ease the burden of the many trillions in debt it owes. The Federal Reserve needs it as well, he contends, to allow it the room to raise interest rates from still-extreme low levels that it might have the space to ease during the next downturn.
When reading economic tea leaves, sometimes simple is best. The average home contains massive amounts of lumber, says Gayed. Thus lumber prices can be fairly directly connected to expectations for the future of construction and housing. And if you can figure what's going to happen with construction and housing, you've probably got a pretty good idea of what's going to happen with the economy. For the moment, the action in lumber (up big over the last few months) is giving Gayed confidence in his reflation theme.
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