American Consequences

You've reached your click limit.

You're approaching your click limit.

Subscribe to American Consequences to keep reading completely FREE, and get access to exclusive articles and our monthly magazine.

Please provide a valid email address.

American Consequences logo
We’re in the Eye of the Storm – A Substantial Decline Is Coming

We’re in the Eye of the Storm – A Substantial Decline Is Coming

Episode #47  |  August 5th, 2021

In This Episode:

This week, Trish Regan and American Consequences welcome Michael Gayed, portfolio manager at Toroso Asset Management, award-winning author and publisher of the Lead Lag Report.

His report uses intermarket analysis to seek the valuable data from the bad, focusing on the market signals that matter most — the kind that his acclaimed research has shown to anticipate trends in the financial markets. 

And at the moment, there’s plenty to worry about: personal savings dissolving, ongoing asset bubbles, inflation outpacing wages, the Fed’s endless printing press, and the rise of the uneducated retail investor.

But what concerns Michael most is that the market’s direction is due for even more volatility.

This period is merely the “Eye of the Storm,” as he dubs it.

You can glean vital lessons from this “risk-on/risk-off” expert on ways to make sure you are protected and prepared before the levees break in this financial hurricane.


Michael Gayed

Portfolio Manager at Toroso Asset Management
Michael Gayed is a manager of the ATAC Funds and a respected award-winning, results-oriented Investment Manager showcasing 15 years of success executing initiatives that result in significant revenue growth.


Trish Regan:               [Music playing] Up, up, and away, that’s where prices keep going. This inflation is increasingly becoming not just an economic problem but also a political problem for Joe Biden. Recent polls show he’s not polling even as well as Donald Trump or Barack Obama at this time in his presidency. And why is that? I bet you anything it’s because people don’t like when their money can’t buy them as much.

I’m Trish Regan. Welcome to American Consequences With Trish Regan. And, you know, we’ve been talking about inflation a lot, here, because it’s pretty concerning. If you’re out there saving all your money, right? Saving for retirement, trying to protect those assets, and then it turns out the government is printing, printing away, handing out more and more stimulus checks, effectively, eroding the value of your savings, what do you do? I mean, you have to think about how to protect yourself in that environment.

Moreover, are you worried at all? I mean, I’m worried. I think this market actually is going to continue doing well for the foreseeable future, not for real reasons but because we’ve got so much money printing going on. But you should be worried about what happens when they can’t print anymore, right? Or what happens when they drive up asset prices so much that we run the risk of another ’08? I remember that quite well… it wasn’t pretty.

And you know what? Our Federal Reserve and our federal government had a big hand in that, because they made it so easy to take on risk, right? No-income, no-asset loans, didn’t matter, they were handing out money to everyone. And the Fed was keeping rates low enough that people, banks, were incentivized to keep lending money. And what did that do? It led to a massive asset bubble that eventually was pricked.

And so, as you look at the markets right now, again, I believe you need to be in them because of inflation, and I think that, just like during the Barack Obama-Joe Biden years, we run the risk that you see asset prices inflate while nothing else goes up. Meaning, real wages don’t really go anywhere, the economy doesn’t really improve enough, and so, unless you’re actually invested in things like the markets, it’s going to be really hard. Then again, also, believe me, you’ll want that diversification. We were talking with Doc Eifrig, a couple of weeks ago, and he’s very concerned about inflation.

He’s been watching what the U.S. dollar can buy you, going all the way back to the Civil War days, and increasingly, he sees that, over time, the value of that dollar has been eroded. And the one thing that’s actually held steady is gold. You can check out his warning for you at – I’ve certainly been writing about this a lot, on I want you to go to, read all of that, because this is a big problem for our country. And somebody who’s very concerned about the risk levels being tolerated by our markets right now is none other than my next guest, Mr. Michael Gayed.

He is a mutual fund and ETF portfolio manager at the, and he has a lot of concerns about all of this money pouring into assets, and worries that, you know, at some point, the music may stop. I’ve brought him here, today, to kind of walk us through his thesis.

Michael, it’s great to talk to you again. Welcome.


Michael Gayed:          Thank you, Trish. I appreciate it.


Trish Regan:               OK, so you’re worried, right? You’re worried that this is not sustainable?


Michael Gayed:          I’m worried for a lot of different reasons. I mean, I think [laughs] when you’re a portfolio manager, you always have to be a little bit worried, because what drives returns over long periods of time is not how well you’re doing against the stock market on the upside. It’s about not getting killed when the market goes down. Now, you know, in listening to sort of the opening part of setting this discussion up, there’s a really interesting kind of dynamic which is playing out, here. So, we know that prices have gone vertical coming out of COVID, not just because of supply disruptions but, to your point, a tremendous amount of liquidity coming from both the monetary side and the fiscal side. But interestingly enough, when you look at the way markets played out this year, the areas which are most sensitive to that inflation-reflation narrative are actually spitting in the face of that story.

Which is a little bit at odds with the way most people are looking at the goods that they’re buying at their groceries and products that they might be ordering online or getting at stores. Treasury yields have been dropping since mid-March. Now, that’s a little concerning, because if you have real long-lasting inflation, you would expect that bond investors want to be compensated more for them. The bond market seems to think that inflation is going to be transitory. Now, we’re going to play with that word in a bit. You’ve seen, in terms of the futures markets, a lot of commodity prices which went vertical, which people are seeing in terms of the final price of goods, a lot of them have crashed.

If you look at lumber prices, they peaked out early-May, and have been, essentially, going through a roundtrip type of motion, meaning, tremendous sell-off. Small-cap U.S. stocks, which are most sensitive to the reopening and reflation trade, have gone nowhere for six months, despite tremendous liquidity. So, you’ve got this kind of interesting dynamic, here, where the market is actually suggesting that, yes, this inflation may indeed be transitory, while everybody else is obviously paying up in the here and now with their goods and services. That, to me, in many ways is, arguably, more dangerous than the inflation story, longer term. I’m a big fan of putting things in context, Trish.

You know, with these trillions of dollars of stimulus, the areas which are most sensitive to all this money-printing are saying it’s not enough. Which is really actually, in its logical extreme, kind of disturbing, because it suggests that no amount of money by the policymakers is enough to get them to force wage inflation to go higher, to force growth to go higher. And if that’s the case, when you have so much debt in the system, we are really in a really tough spot, I think, economically, beyond the here and now.


Trish Regan:               Wow, OK, so, let’s get over to the Treasury yield, because you’re right, I mean, it’s bizarre – it’s bizarre. And so, I say to people, like, look, I’m really concerned that, at some point, this bubble will get pricked. But I’m watching the 10-year yield, and I’m going to keep you posted on it [laughs], because right now, it doesn’t look like we’re anywhere near that. And I guess, what’s behind that, in your view? I mean, how can we be trading at such an incredibly low yield? Why are debt investors not more concerned about the inflationary future?


Michael Gayed:          Because I think there’s too much debt for the debt investors to be overly concerned, right? So, the problem with the argument that yields will rise in any sustained way is that the interest expense, the cost of servicing that debt, especially by the U.S. government – which has, you know, 30-plus trillion, depending upon what numbers you’re looking at, of liability – it ends up getting to a point where the faster rates rise on the upside, the more you actually can’t pay down principal. So, the bond market, because there’s so much debt in the system, can’t handle higher rates, to maintain all this phony growth that we’re seeing. Now, you know, different indicators, which get ahead of major crashes, corrections, and bear markets, these award-winning whitepapers that I’m known for, which I use, in principle, through the risk-on/risk-off RORO ETF, as well as the bond junk on-junk off bond ETF.

You know, the risk-off signals are all there, meaning, it looks like the behavior of yields, in terms of their drop, is more than just, let’s call it, a technical type of move. It suggests that there is a feeling that we’re going to be entering a higher volatility juncture. I’ve been saying, quite loudly, that I think we’re in the eye of the storm. Part of that is because of the overhang of all of the stimulus, but I do think there’s an underestimation, by a lot of market participants, around risks, particularly on the political side. We’ve got a debt ceiling expiration coming up, we have a tremendous amount of debt in the system, you’ve got a very cantankerous political environment, and you have the potential grey swan – not quite black swan, but grey swan – surprise of S&P and Moody’s entering the conversation and saying, “You guys have got to address this debt load on the U.S. government side.”

Which means you could have a redux of 2011, where credit ratings were downgraded, S&P dropped AAA [glitch interferes with audio].


Trish Regan:               Do you think they’d really do that? I mean, you know, I don’t know, there’s a part of me that kind of wonders why they haven’t been a little bit more forthcoming when looking at U.S. debt. I mean, I think there’s probably tremendous political pressure on them. Joe Biden, in his CNN town hall just the other day, was referencing Moody’s, I mean, they’re very aware of what Moody’s is doing. [Laughs] So I just wonder if some of these institutions run into challenges in terms of being as transparent as they need to be on that.


Michael Gayed:          Oh, I’m sure there’s pressure for them to not do it, but keep in mind, Fitch did it last year, I think it was in July, they put a negative outlook. And it went under the radar because we were still dealing with, you know, the deaths of COVID, obviously. But, you know, look, I don’t disagree, there’s unequivocally, I’m sure, backroom talks that are happening with the creditor rating agencies, with S&P and Moody’s, and where they’re floating the balloon out there. They’re basically saying, “Listen, if we do a $3.5 trillion infrastructure bill, is that going to cause us to have a problem with our credit quality? What about 2.9? How about 3.1?” Right, I’m sure there’s a lot of that backend talk, but I do, at the same time, believe that these rating agencies have a fiduciary responsibility to address the debt load.

Because unless they have internally agreed that debt doesn’t matter – which is the modern monetary theory arguments because you have reserve currency, you can print capital to fund your liabilities – unless they’ve agreed to that, they have a responsibility, here, to say something. Because no amount of taxes is going to be enough to cover this debt monster, which I would argue both parties have created.


Trish Regan:               It is a debt monster, and you’re right, I mean, I know that a lot of people want to blame the Left, and the Left really loves to spend money. But, you know, let’s be very clear, I think that both parties love to spend money, because it’s like giveaways, right? I mean, it’s a chance to kind of – I said, when Trump came forward with the second stimulus package, I said, “You know what, this is bad, it’s going to lead to inflation, we can’t afford this, we just – ” And by the way, we were already done with the recession. If you look at the statistics, what we saw is that the inflation was one of the deepest but also the shortest on record, and it only lasted for two months.

So what were we doing handing out more stimulus checks? And then Biden comes into office, and he gives another stimulus check. And I would not be surprised if, come fall, we see that there is a shutdown again, because of the Delta variant, and the Left says, “Well, we got to hand out more stimulus checks.”


Michael Gayed:          Yeah, I think that would be sort of the second grey swan, which is, the Delta variant or some other variant, not necessarily in terms of the health impact, but the political desire to do something and to use that as an excuse to do more for – to achieve political agendas. And again, I go back to both parties are going to be at blame for that, but I do think that’s a very real possibility. I think even as we’re chatting, I saw a headline about CDC suggesting indoor mask requirements for places where there is potentially high risk of the Delta variant. So, you know, look, the reality is, it’s kind of a bigger discussion, I think.

When you have a democracy where you get voted in by promising more, exactly what you alluded to, no matter what party you’re a believer in, the reality is there’s going to be incentive to want to keep giving these freebies. It’s just going to be in a different form. Well, freebies without – every freebie has a cost, it’s just, you don’t see it right away, and the cost is usually inflation. I do think that it’s becoming very clear, here, that, unless we address this debt, the tax everyone’s going to be paying is lower wages, and it’s going to be higher grocery prices. And make no mistake about it, that’s how you get into real trouble from a societal perspective.


Trish Regan:               So, John Catsimatidis, who runs Gristedes grocery stores in New York – and anybody who’s from New York knows Gristedes quite well – he said that he anticipates grocery store prices, like, what you’re going to pay, being between 11 and 14 percent higher by this time next year. And I’m, like, “Wow,” I mean, it’s actually really happening. We’ll see if that comes to fruition, but we’re looking at well over five percent in the CPI data, we’re looking at housing prices being at an all-time high, we’re looking at restaurants – I mean, I don’t know about you, but I go to local restaurants, now, and, you know, it used to be they’d have a lunch special, and you got a free appetizer. That’s not happening anymore.

No more free appetizer. And by the way, they upped the prices on the entrees by a couple of bucks. Because food prices are going up. I mean, gas prices are going up, Americans are realizing this. And so, you know, people say, “Oh, well, you can control it, right? All the Fed needs to do is raise rates at the appropriate time.” But that’s easier said than done, as Paul Volcker learned very well, right? I mean, that was very painful what he had to deal with in the 1970s, as a result of Jimmy Carter.

What happens if this keeps going up, up, and away? I mean, how do you put the genie back in the bottle?


Michael Gayed:          Well, I think the only answer is the most difficult one, which is, there has to be pain. I mean, it’s kind of curious to me, Trish, because, you know, we were asked to shut down the entire economy because of the health pandemic, but debt can be just as infectious. And nobody wants to take the hard medicine of shutting down things and going through that pain to kind of clean out the system. I’m not suggesting that you force a recession to clean out debt, but, you know, at some point it’s got to be, “Did we have discipline on this?” And by the way, on that food point, you know, I’m always a fan of thinking about secondary and tertiary effects of this.

So, food prices go up, we know about shrinkflation, right, that products are having the same dollar amount but less of it. But, you know, when prices go up on food, people, because they can’t necessarily afford it, they turn to cheaper foods, which are often more unhealthy foods. [Laughs] So in many ways, what’s happening, actually, I can argue has a longer-term health impact, too, in terms of people eating worse because they’re buying more sugary substances, which are cheaper because there’s a lot of subsidies in the corn side of things. And that results in longer-term health care burdens because obesity is one of the major drivers of health care costs. So, there’s a lot of dynamics to this.


Trish Regan:               Sure, and actually, it was a big part of coronavirus and the problems that we had with coronavirus, and diabetes now at a record rate here in this country, unlike anything we’ve seen before. You mentioned, earlier, that we were going to talk about transitory. This is important, because the Biden Administration – and Alexandria Ocasio-Cortez, by the way, who, oddly, was an economics major at Boston University, which [laughs], sorry – sorry for anybody who went to BU. I hope you didn’t, Michael, because I don’t think that that speaks well for the economics department at Boston University. Anyway, she’s also arguing that this is transitory.

What’s behind that argument? And why do you disagree with it?


Michael Gayed:          It’s less me disagreeing with it and more, I think, just, again, the market, from a lot of these indicators that I track, sort of suggesting that that’s probably the correct stance. I mean, the real transitory inflation is wage inflation, I mean, that’s the reality that nobody wants to admit. And I think that this becomes very political, right? Because you don’t get voted in for transitory… you get voted in for the perception that inflation is real, or, voted out, rather, because the perception of inflation is real and long-lasting. So, you know, if the Democrats want to stay in power, they have to kind of talk up their own book that this is all temporary inflation and that it’s not due to their policies, even though some of it clearly is, just like it’s due to Trump’s policies, as well, as well as COVID, the combination of all three.

But, you know, all of this is just sort of covering themselves, right? For when the next elections come up. Because the surest way of getting voted out is if suddenly you realize that you’re going to have to pay a lot more for everything else around you.


Trish Regan:               Right, so, you believe, in the market indicators that you’re seeing, that this is not transitory, that this is permanent?


Michael Gayed:          What I’m suggesting, here, is that the feeling of inflation is real, that inflation data, short-term, unequivocally, is incredibly strong, and I think that data will – you start seeing a softening of the inflation pressure. But the average price of most goods will probably stay elevated. And my suggestion, here, is that if inflation does not stick, there’s something much deeper that’s wrong with the system, because then no amount of money that’s being printed is enough to jam it into the system. And while we all want to see lower prices, you also don’t want to see the debt load that’s on top of us crush the societal productivity and growth. And if stimulus is not enough to actually counteract that, we have much, much bigger problems to worry about down the line.


Trish Regan:               There is something kind of wrong, though, right? There’s this disconnect. Because if you’re a politician, what do you care about $20 trillion in debt? Like, why not make it $38 trillion or $58 trillion? Like, you don’t need to care, because we are the world’s reserve currency, people still flock to the United States, you know, prettiest girl at the dance, so to speak, in times of trouble. And so, you know, what’s in it for them? I mean, if they just want to get elected, what, they’re supposed to say, “Here, you’ve got to take your medicine, now”? No politician is going to do that, which causes me to worry, like, we’ve got a bigger problem with our democracy as it is, because the incentives to do the right thing aren’t there.


Michael Gayed:          No, that’s exactly right, actually, and even cynically I would say, you know, they probably have an incentive to put on more debt because it favors asset holders. And last I checked a lot of these people in power are very, very rich and they benefit from that. I mean, just cynically, I think that’s just a truism. But, you know, so I don’t disagree with the notion, I think there is this kind of interesting thing that’s coming into the conversation, here, which is, you know, can capitalism and discipline and democracy all coexist? Capitalism needs to have loss, period. Everyone got so used to the Fed saving the system, but for capitalism to really be the case, you have to have some pain.

Well, you can’t really have pain, and, to your point, you can’t get elected based on austerity, based on pain in your policies. So, what does that end up doing? It causes more debt. Well, then, if you have more debt and if debt doesn’t matter, you suddenly have more socialist policies enter the conversation, too, because debt doesn’t matter. Let’s start giving away more dollars, more checks. Let’s introduce universal basic income into the mix. And so, you end up having this situation where, because politicians don’t treat debt on the government level like they do for themselves individually and for their people that vote them in, it actually makes capitalism more socialist, because you don’t have that loss component.

And then, there’s all kinds of other implications, right? You have to have pain for a system to work. You can’t get elected based on the pain, so what do you do about it? I mean, this, to me, is the great challenge for the next generation.


Trish Regan:               Sure, no, I think it’s a huge challenge, because – all right, so then, let’s think about that pain. I mean, they want to just tax everybody more, they want to tax businesses more, they think that that’s going to actually yield more. I disagree with that. I mean, I think [laughs] – look, our friend Art Laffer could chart this out for you, as he did, of course, Ronald Reagan. But Art would tell you – and he’s right, I mean, you can prove it out mathematically – at some point, you keep taxing, and you lose those businesses. It has a depressionary effect on the economy. And so, if you have lower taxes – and by the way, interestingly enough, when the Trump economic team introduced the lower taxes, and also eased up on some regulations, and allowed all that money that was overseas to come back onshore, well, guess what, we had a record year for tax receipts.

Lower taxes resulted in the most tax revenue this country ever collected. And that has often gotten lost in all of this, because I think everybody is more punitive, at least in the current administration, the idea being, “We’ll just tax businesses more.” Well, if you tax businesses more, that comes out of their profitability. So, either you have inflation, I guess, and they just say, “OK, well, we’re going to charge more for all these goods, because we need more in the way of profitability,” or, well, it comes out of earnings, therefore, it comes, effectively, I would think, out of its stock price. And that’s how you start to kind of depress this market that’s on quite a euphoric high, right now.


Michael Gayed:          Well, I’ll take it even a step further because if you were to sum up all billionaire wealth, and instead of taxing the billionaires, you just outright took all their wealth, you stole it, you’d still barely be able to fund the government for, like, 10 to 11 months. So, it’s not sort of a cliché or even a political argument. These are just numbers. I mean, the spending is too much relative to your tax base, so you’ve got to lower the spending. That’s why I can’t understand, you know, if you’re going to raise taxes by a dollar, then ultimately you should be cutting your spending by a dollar. This is what’s so maddening to me, right? It’s that if you have this environment where – everyone talks about fair share, everybody talks – you know, you talk about the sort of taxing more to cover these new programs.

But it’s not about taxing more to cover prior liabilities. Taxing is used as an excuse to do more, not to pay up what you already spent. So, you have this reverse situation where the higher tax rates go, the more debt actually increases, even though taxes are your revenue to pay off the debt. I mean, it’s actually maddening when you kind of think it through that way.


Trish Regan:               So, indulge me for a moment, and I ask the listener to indulge me, because I like this podcast format and I like to think creatively and openly with no judgment, here. There was a recent poll that came out that said, basically [laughs], 66% of republicans in the South would like to secede from the U.S. Now, this is not just a Southern republican thing: 50% of Democrats in the Pacific Northwest would like to secede from the United States, while nearly 50% of Democrats in New England would like to secede from the United States. So, I’m thinking about how broken we are, and I’m thinking about the sort of, how we’ve gotten away from that smaller government and the need for more fiscal discipline, and kind of a buy-in, if you would.

And P.J. O’Rourke, who is the editor in chief in American Consequences, a very famous notable journalist, he and I were talking about this, last week. He, in his new book – or new edition, I should say – of his very well-known book Eat the Rich, went around and looked at all these different structures, economic structures all over the world. And one of the things he found, for example, was in a country like Sweden, which is very homogenous and everybody kind of has the same work ethic and the same expectations and the same desire for what they want from their government, it kind of worked, right? But you think about the structure we have here in America, and everybody kind of want something different, and there’s a lot of different cultural divides, etc.

I think diversity’s one of our greatest strengths, but nonetheless, it’s also a challenge in that you have many different kinds of people with different expectations and different abilities. And so, then it becomes much more challenging to say, “OK, we’re going to do this and provide this.” I mean, do you think there’s – and by the way, we’re talking, like, 100 years out. I’m not saying that this is going to happen in the next three years, 10 years, or even in our lifetimes. But do we ever get to the point where we say that this country is just ungovernable, that it’s too darn big, and that we need to be more sort of inward and more regional, because it’s just gotten to be one giant blob?


Michael Gayed:          I’m a big believer in [inaudible] and that extremes and pendulums always swing. That would not surprise me at all, but you have to have, you know, a group of voters – you need to have the population recognize that we’re kind of doing this to ourselves, in the way we fall for some of these narratives, not thinking about the costs that are associated and the implementations. So, to some extent, it requires people to actually think more, which is a little bit hard to do, unfortunately, right, because everyone is so emotional and everyone is so angry, and it’s kind of the System One versus System Two. System One is the reactionary part of ourselves… System Two is the more effortful thinking side of it.

You know, the keyword to all this stuff you hit on, which is discipline, right? So, really, arguably, discipline broke, in terms of the system, when we got off the gold standard, because now you no longer have a finite potential money supply. You can just simply print money and, you know, consequences be damned in that. I don’t think we’ll ever necessarily go to that. Now, some bitcoin maximalists will argue that this is the role of cryptocurrencies, that the whole idea of saving the system is to save the monetary supply and the way money works, that’s maybe a different discussion for another time. But, you know, it seems to me that, at some point, there’s going to be this sort of “aha” moment that this is very hard to undo, and the only way to undo it is to go through significant pain.

And you have to have shared sacrifice. I just don’t think people will ever want to vote that in.


Trish Regan:               Yeah, I mean, look, people are short-term-oriented, politicians are short-term-oriented, and there’s nothing to kind of enforce some kind of, again, discipline into the marketplace and into the political atmosphere. I think, back to the Tea Party years, and I think it became a good talking point, but even the Tea Party [laughs] wasn’t really willing to go the extra mile to make sure that we got our debt load level down. I mean, it can be done, credit to President Clinton, right? I mean, that was in part Newt Gingrich, as well, Clinton didn’t really have a choice. He had to work with the republicans, and there were, back in those days, some sort of, you know, classic very fiscally oriented conservatives that wanted to see less spending. And as a result, we were able to manage that.

But I don’t know how – I mean, like, you think about the rate at which this is increasing, I don’t know where it goes. I mean, I have a lot of concern, a lot of concerns about this, and the sustainability, really, of the country when you’re so indebted. But let me also turn to, because I know that this is, you know, you’re trying to invest around all this, so, how should people be thinking about it, knowing that it’s probably not sustainable, but we’re going to have more of it in the near term.


Michael Gayed:          So, I always say I’m a big fan of Nassim Taleb, you know, author of The Black Swan, Antifragile, and I think he’s right, that one of the necessary precursors, preconditions to extreme risk is leverage, in any domain. Meaning, the more debt you have, whether it’s in markets and cryptocurrencies, in the economy, in government debt, the more leverage you have, the more vulnerable you are to black swans, to butterflies flapping their wings creating hurricanes. And all that means, from an investment standpoint, is that the sequence of returns is probably going to be more volatile going forward. Meaning, if you are a true buy-and-hold investor, great, hold on and stomach the inevitable big drops when they occur.

But there are going to be more of these risk-off, high-volatility, high-risk junctures, because, again, the more debt you have, the more likely these one-in-1,000-year events are likely to occur once every couple of years. As we’re seeing, these extremes happen more frequently: if it’s not COVID, it’ll be China… if it’s not China, it’ll be something else, right? There’s always going to be these types of events that occur where the sheer amount of debt makes the margin for error very low for investors. What that means, practically, is that you have to diversify and think differently. Not necessarily in terms of asset class, not in terms of the number of securities that you own, but in terms of different types of strategies.

I mean, I’m talking selfishly, here, because I run risk-on/risk-off funds, RORO and JOJO on the bond side, but you’ve got to really sort of set and manage your own expectations. It’s going to be difficult, you know, especially with the rise of retail traders, a lot of people that are in the markets, here, they haven’t even seen markets go down 3%, and that’s the extent of their experience in investing. I think there’s going to be some pretty rude wake-up calls [crosstalk].


Trish Regan:               By the way, I should point out, just for our listener, I’ve known you for years [laughs], and, you know, you battled it out during the aftermath of the 2008 event. And of course, you know, you watched alongside markets moving higher while our economy went nowhere, during the Barack Obama and Joe Biden years. I mean, you and I have known each other for a long time, and you’ve been an investor through all of these things. And I just want to say, just a little plug for you, by the way, like, it’s important, when you have someone running your money, that they’ve had that experience. Because it’s a little crazy, right now, and I think that a lot of young people that are getting into the market just haven’t seen that downside and don’t expect it ever coming.

But listen, it can happen. I’ve seen it, I’ve reported on it from the frontlines, you’ve been in investing amid all of it, and indeed it can happen.


Michael Gayed:          Yeah, and I think the – the thing I keep saying on Twitter, which I really do believe, is that the level of uneducated speculation in markets is astounding. The way that people refer to things, the way that people take risks without having any clue in terms of what they’re buying and what they’re so-called investing – and they’re not really investing, they’re trading – they don’t even know the rules of the game. And when you have the market being driven by that type of a knowledge base, right? Just like every other domain in life, right? You’ve got to study, you’ve got to put the time, put the effort in, a lot of people are treating this as if it’s a guarantee in terms of markets going up. And when you have that, it creates overconfidence, overconfidence creates more leverage, it creates more downside surprises.

So I go back to, anybody that is trying to figure out what to do with their money in an environment which is highly, highly uncertain, you’ve got to be just mentally prepared for a lot more swings, a lot more risk-off scenarios. And listen, let’s all hope that it ends up being OK, because it’s not to anybody’s benefit for the system to break down and collapse. But if these are the cards we’re dealt, we have to simply choose to play the game, and in my world, that game is trying to navigate these risk-on and risk-off pulses. My point, here, is that I think we’re in the eye of the storm, I think multiple indicators are suggesting that it’s going to get ugly with the debt ceiling coming up, and potentially the credit rating agencies, you know, whether they’re politically motivated or not, potentially coming into the conversation.

And who knows, again, you know, we’re seeing, with China, a tremendous crackdown in the education space and the tech space. There are these risks that are out there. It wouldn’t matter as much if we didn’t have as much debt as we do. But because we do, every little thing will have an outsized impact on portfolio returns.


Trish Regan:               Very interesting. We’re talking with Michael Gayed… he runs the Lead-Lag Report. You can follow him on Twitter, @leadlagreport, or you can go to his website, Talk to me about your funds and how you manage this risk. When you say, “risk-on/risk-off,” what do you actually do? Like, mechanically, what’s going on? Is this an options trading?


Michael Gayed:          No, no, you know, I love this, because, you know, obviously, you’ve got tremendous knowledge, certainly, in the financial space. And I am sure there are many people you’ve interviewed, along the way, Trish, who, you hear them talk and say, “These people have no idea what they’re talking about,” [laughs] in the investment industry. The reality is, very few things that people refer to when it comes to investing and markets have any predictive power. The different research studies that I’m known for show that one area which has some degree of predictive power in identifying conditions that favor an accident, those relationships all are in some way, shape, or form tied to interest rates. So, if interest rates are dropping on the long duration side, for example, as they have since the middle of March, that suggests that volatility is likely to rise.

If utilities, the most bond-like sector of the stock market, are outperforming, that suggest volatility is likely to rise. If lumber is weak relative to gold, because of the link to housing, that suggests housing is going to slow down, which suggests mortgage rates will start dropping. Everything I do is around changes in the demand for money, and when demand for money is falling, that’s usually when you have these black swans appear, these extreme declines being likely. So, my fund, the risk-on/risk-off RORO alternative ETF, as well as the junk on-junk off JOJO bond ETF, are just systematically using these types of relationships to determine when it’s raining, when it’s sunny, when to slow down, and when to speed up. Either risk-on offense, risk-off defense.

I will tell you that I think it’s pouring outside. And I’m saying that not based on my opinion… I’m saying that because the market is saying it’s pouring. And I think anybody that looks at just the S&P is fooling themselves in thinking that this is a true bull market. There’s a lot of weakness beneath the surface, and if these indicators are right, there could be a very substantial decline coming.


Trish Regan:               So, you’re willing to go long, if you think it’s the appropriate time. But you’re looking at the market right now, and despite the fact that we’re at all-time highs, you’re saying this is super risky, and you’re seeing indications, obviously not in the S&P 500, right? Not in those numbers, but in other ways, shapes and forms. Whether it’s the relationship of lumber to gold, or something else.


Michael Gayed:          Yeah, and it goes back to, you know, the vast majority of stocks are not at new highs. If you look at small caps, again, they’ve gone nowhere for a long time. People are being tricked, in a lot of ways, when they look at the S&P 500, because it’s not really the S&P 500… it’s the S&P 5. It’s just five stocks. The rest of the market has been abnormally weak, consistent with the strength in Treasury’s drop in yield, consistent with the breakdown of other commodities, again, like lumber. There is this interesting dynamic, here, where you’ve got inflation happening real-time, but the market, at least the areas which are most sensitive to inflation from a forward-looking perspective, are saying that there’s actually disinflation or maybe even deflation coming.

And I go back to that is wildly disturbing, back to the start of the conversation, because if those parts of the marketplace which are reacting off of a feeling that longer term, we have disinflation-deflation with all of this debt, no amount of money printing is going to be enough to save the system. That’s why, go back to a real nasty sort of setup, here, with these trillions of dollars, it’s only being masked in just a select group of stocks. Most things have been actually very, very weak since early February.


Trish Regan:               I mean, you think ’08, markets recovered, though, right? Markets, I mean, unless you owned Lehman shares, which went to zero, you know, eventually, everything recovered, and that’s the beauty of being long. But not everybody has that time horizon, too, so if you’re listening to this right now and, you know, you want to retire in five years, it’s kind of nerve-racking to think, “OK, maybe this is as good as it gets.” So, any sense of timing? Which I know is incredibly difficult, but nonetheless, I’ll ask.


Michael Gayed:          Yeah, no, no, well, look, I mean, I think when you have divergents that are lasting as long as they have so far this year, it seems very plausible to me that the S&P could catch down to everything else. When you’ve got a readjustment that’s very sudden, akin to what happened in 2011, where you get this kind of very sudden and aggressive air pocket. Now again, if you’re a longer-term investor you can argue that doesn’t matter, and we know that if the markets go down, the Federal Reserve will again step in and do more. It’s what they always do. So, they’re going to try and keep on saving the system every single time it looks like the system has any kind of a break.

So I guess from a long-term perspective, you can argue that that’s sort of your biggest plus, and the biggest plus is manipulation by the Fed in terms of investment returns. My whole point, though, is that don’t be surprised to see one of these big declines. It’s not that I’m bullish or bearish on trend. I’m very bullish on downside surprises, because I think the market is very good at making the crowd embarrassed in their own ability to predict the unknowable future.


Trish Regan:               Wow. How quickly do things move in your fund? I mean, how responsive are you to the changes in risks?


Michael Gayed:          So, both RORO and JOJO are looking at these signals every single Friday, every single week, so they can flip entirely. I mean, it’s funny, because you talk about active versus passive, as a debate that’s often in the media. No fund is anywhere near as active as the funds I run. And I’m coming from a place of having proven this. In my mutual fund, last year, the ATAC Rotation Fund was up 72%, because it was risk-off in advance of COVID, and then risk-on in equities afterward. So, you know, in a world increasingly, I think, where things move faster, you’ve got to be able to kind of respond quickly. Most investors cannot do that. In my case, I do it in a very systematic rules-based way.

But keep in mind, the long-term is nothing more than a series of rolling short terms. So, if I’m right that you have this sort of age of turbulence, right? Where markets get more volatile, you have more of these downside drops, and then recovering, then another sudden downside drop, you know, that, for me, is, in theory, the right kind of environment, because at least I have a chance at managing around that sequence of returns. If you were simply a buy-and-hold investor, it’s going to be stomach-churning, but you’re probably going to be OK. But again, just recognize that you’ve got to be very mindful of your expenses, because if you happen to sell your investments when you need that capital because of some life event, in the midst of one of those air pockets, that becomes a real problem for you.


Trish Regan:               Right, so again, I just want to remind the listeners, we are talking with Michael Gayed. You can follow him on Twitter @leadlagreport, And these two funds are RORO, ticker symbol RORO, and JOJO, JOJO, so junk on/off and risk-on/risk-off. Really, really interesting, interesting stuff, Michael. I want to thank you for sharing your time, today, because it’s a fascinating space. And I’d like to say fascinating times [laughs], but really, somewhat discouraging, I would say. I don’t think “fascinating” would be the right adjective to describe what’s really going on right now. What do you think?


Michael Gayed:          Yeah, I think uncharted I think is probably the – on a lot of levels. And kudos to you, Trish, I mean, I think, you know, what you’re doing in terms of getting different voices, different thought leaders, is important, because it’s important, I think, that people get out of echo chambers. And I think, unfortunately, when it comes to mainstream media, there’s a whole lot of that.


Trish Regan:               Ah, believe – you know what, you’re preaching to the choir. I mean, I certainly went through my share of having been in mainstream media and being told, “You can only talk about this or only talk about that,” or “You’re not allowed to mention George Soros.” [Laughs] I just did a story on my podcast yesterday, Trish Intel, where we talked about the money that George Soros was donating to a particular group that was for Defund the Police, and it was $1 million, which is significant. But in my previous place of employment, that actually would not have been allowed – I’m not, to this day, entirely sure why. But I love being able to just talk freely and have all these different points of view, because I’m with you, I think these echo chambers are actually really dangerous for society right now.

And the unwillingness to listen to other viewpoints is pretty dangerous, in the long run, because we grow, as a country, by having diversified views on things. And, by the way, being tolerant of one another and being willing to listen to different viewpoints. And whether you think, you know, the market’s going up forever, or whether you think this is a real problem, I think both sides of that conversation need to be listened to. And certainly, from a political perspective, and social perspective, and everything that’s going on, we need to listen to both sides. So, I appreciate you coming here, Michael, love having you.


Michael Gayed:          Thank you, Trish, I appreciate it, as well, thank you.


Trish Regan:               [Music playing]

So, Michael made a lot of really, really good points, and, you know, look, I’m kind of a long-term buy-and-hold kind of gal, but I’m also in the point in my investing life where I can do that. Nonetheless, you know, look, I get worried, too: you see the market start to falter, and it causes a lot of concerns. I had a piece just a couple weeks ago on, remember that day when the market had traded off 725 points? And I had a lot of people saying to me, “Oh, my gosh, you know, what do I do? I’m getting really nervous.” And my advice, and I wrote about this at the time, was to just take a deep breath and know that you’re in it for the long haul.

And know that whatever money you are putting in the markets, you have to recognize that it is indeed at risk. And so, you want to have a long enough time horizon so that you can capture all the upside that I believe eventually will come your way, because I don’t believe in betting against the United States of America. But Michael’s making a very good point, and if you’re someone who’s really trying to protect against downside risk, or maybe you have a shorter time horizon, then you want to look at products that can enable you to be a little bit more nimble and to respond to that. So, what he’s doing, I think, is actually pretty interesting and pretty innovative, and for many people is something that could be a vital part of their portfolio.

But again back to what he said, I mean, I think we’ve got real concerns, here, because I believe, and I know he’s got some deflation concerns. And we can talk about that some more, perhaps, in the coming weeks, because that’s a real argument, as well. But in the near term, I really am worried about inflation, I’m worried about prices going up, and I’m worried about the value of the dollar increasingly being eroded. Which is why when I spoke with Doc Eifrig, David Eifrig, Dr. David Eifrig, just a couple weeks ago, I really enjoyed hearing what he had to say. You can listen to that podcast, you can also hear his inflation warning at Again, that link is You can read my pieces at

The reality is, as Michael so aptly put, we are in unchartered territory. This is totally not like anything we’ve ever seen before. And so, you need to be nimble, you need to be thoughtful, but you need to also make sure you’re not too reactionary. Remember that you’ve got to keep a clear head when investing. Again, I want to remind you, go to for more wonderful writing on the economy, on our markets, on the political situation that is [laughs] really imploding before our eyes.

I want to thank you again for tuning in, everyone, and I’ll see you right back here, next week, on American Consequences With Trish Regan. And, of course, on my daily program, Trish Intel. Until then, have a good one.


Outro:                         [Music playing]

Thank you for listening to this episode of American Consequences. Want more Trish? Read her weekly articles Thursdays in our magazine, at, and subscribe for free to get all of our daily articles and the monthly magazine. We’d love to hear from you, too. Send Trish a note: [email protected]

This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Trish Regan’s American Consequences is produced by Stansberry Research and American Consequences and is copyrighted by the Stansberry Radio Network. [End of Audio]