Michael Gayed, portfolio manager at Pension Partners and author of the Lead-Lag Report, revisits his “Spring Crash” thesis for the stock market, and discusses how a dovish Fed could impact the situation. He notes the flashing signals from the bond market and small caps, discusses the binary outcome of a crash or melt up, and considers how to play the reflation trade through emerging markets, in this interview with Jake Merl. Filmed on June 11, 2019. #TradeIdeas #Trading #Fed
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S&P 500: There's Still Something Ridiculously Wrong (w/ Michael Gayed) | Trade Ideas
Transcript:
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JAKE MERL: So lumber is still weak. Small caps are still weak. We see bond yields still
downloading near the 2% level. Do you think stocks are still going to crash?
MICHAEL GAYED: Look. When you have this kind of behavior, I think there is absolutely a
possibility. Now, there are always false positives in every signal. I talk about this all the time on
the road. There's nothing that's a holy grail. You have to, at the end of the day, slow down
entering a storm. You hope that the crash doesn't happen. You get to your destination slower, but
you're out there safer.
So the question then becomes, well, if you don't have a crash, what happens? And I think that
there is a possibility, that if that scenario has played out, that you don't have that now-or-never
moment, that markets don't really break down further from here, that probably emerging markets
are the place to be. When you look at emerging markets relative to the S&P, around mid-May
actually, that started to stabilize. In other words, you started seeing emerging markets keep in
pace with the S&P as all this trade war talk was happening. So it seems like there might be some
kind of leadership shift happening there.
And I suspect that the dollar is due for a pretty meaningful decline. I think a lot of what's
happened with this rhetoric around cutting rates is really more about trying to target the dollar,
try to cause a depreciation in the dollar, as these trade wars continue. Because as much as you
may want to put a tariff on some country, at the end of day, if the currency adjusts by the same
amount of the tariff, then net-net, you haven't gone anywhere. Right?
So I think that there's some argument to be made that the dollar is likely to be weak, that maybe
why you're staring to see gold rally strongly-- because dollar-denominated assets would benefit
from a weaker dollar-- may be why you could start seeing some movement in broader
commodities and reflation trades. Again, all this is hypothetical. These are just starting to show
sort of the whites of the eyes of some trend changes in those areas.
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