Michael Gayed, CFA (@leadleagreport) publisher of The Lead-Lag Report and Fund Manager, discusses topics related to the stock market, treasuries, Bitcoin, and commodities. The conversation covers the current investing environment, the impact of Bitcoin, the risk from Japan, the Fed's rate cuts, the importance of Fed credibility, the euphoria around Nvidia, the AI narrative, and small-cap stocks. He also gives his views on the potential trade for 2024 and the influence of political factors on interest rates. Michael joins podcast hosts (⁠⁠⁠⁠@jimiuorio⁠⁠⁠⁠) and Bob Iaccino (⁠⁠⁠⁠@Bob_Iaccino⁠⁠⁠⁠) to explore the distorted environment of the stock market and large-cap tech stocks. They emphasize the importance of small caps and international investments. They also dive into the role of treasuries as a risk-off asset and their relationship with credit spreads. The conversation touches on the perception of Bitcoin as an investment vehicle and the potential trade in copper and industrial commodities. The discussion highlights the significance of sticking to a strategy and avoiding style drift.

Takeaways

-The current investing environment is challenging for active and tactical investors, as it is focused on the S&P 500 and rocket ship stocks.

-Bitcoin hitting new all-time highs indicates a lot of liquidity in the market, making it unlikely for the Fed to cut rates.

-Japan poses a potential risk to global financial markets, as the Bank of Japan may have to raise rates to address inflation, causing a squeeze on the yen and a reversal of the carry trade.

-Small caps may outperform large caps in election years, but it is important to consider the impact of debt and credit spreads on small cap performance.

-Credibility is important in the financial markets, and the current speculative nature of certain assets challenges central bank credibility.

Investors should be cautious of the euphoria surrounding certain stocks, such as Nvidia, and consider valuations and long-term prospects.

-The AI narrative should be evaluated based on its impact on various sectors, such as utility companies and small caps, and its potential to improve margins.

-Small caps can be a contrarian trade, but it is important to assess the risks and consider the influence of political factors on interest rates.

Chapters

00:00 Introduction and Agreement

01:21 The Current Investing Environment

04:17 The Fed's Rate Cuts

06:14 Inflation and Wage Increases

08:31 The Elephant in the Room: National Debt

09:16 The Potential Risk from Japan

12:09 The Periphery and Japan's Impact

14:48 The Importance of Credibility

20:14 The AI Narrative and Small Caps

22:08 The Valuation of Nvidia

24:26 The Potential Trade for 2024: Small Caps

26:59 The Performance of Small Caps in Election Years

27:41 The Relationship between Small Caps and Credit Spreads

27:41 The Influence of Political Factors on Interest Rates

27:59 The Distorted Environment of the Stock Market

28:37 The Importance of Small Caps and International Investments

29:28 The Role of Treasuries as a Risk-Off Asset

30:29 The Relationship Between Treasuries and Credit Spreads

31:20 The Misconception about Treasuries' Performance

32:19 The Role of Treasuries in a Volatility Spike

33:16 The Flight to Safety and the Role of Treasuries

34:13 The Risk-Off Nature of Treasuries and the Dollar

35:28 The Importance of Small Caps and Small Business

36:05 The Perception of Bitcoin as an Investment Vehicle

37:37 The Role of Bitcoin in a Portfolio

38:39 The Temptation to Trade ETFs and the Holding Period

40:35 Investing in China through Commodities

41:19 The Risk of Investing in China and the Role of Confiscation

44:47 The Importance of Sticking to a Strategy and Avoiding Style Drift

46:56 The Fallacy of Putting Traders on Pedestals

49:17 The Potential Trade in Copper and Industrial Commodities

51:08 The Importance of Timing and Mean Reversion in Trading