S&P 500: Something is Ridiculously Wrong

Published on
April 24th, 2019
Topic
Equities, Lumber, Sentiment
Duration
10 minutes
Asset class
Equities

S&P 500: Something is Ridiculously Wrong

Trade Ideas ·
Featuring Michael Gayed

Published on: April 24th, 2019 • Duration: 10 minutes • Asset Class: Equities • Topic: Equities, Lumber, Sentiment

Michael Gayed, portfolio manager at Pension Partners and author of The Lead-Lag Report, returns to Real Vision to update his bearish thesis on the stock market. He highlights the importance of lumber as a key indicator, notes just how low he sees the S&P 500 going, and considers risks to his thesis, in this interview with Jake Merl. Filmed on April 23, 2019.

Comments

Transcript

  • MW
    Mary W.
    26 April 2019 @ 03:26
    Great show. Besides their inability to generate a competitive ROE and their persistent corporate governance issues, energy equities have lagged ytd primarily because of EM demand growth worries. Just chart the AUD/USD or JP Morgan EM currency index vs. Brent. Huge divergence since start of 2018 - artificially created by the OPEC cut. In 2008, OPEC though cut multiple times to try to stabilize the market without success, as oil still ultimately plummeted.
  • EF
    Eric F.
    26 April 2019 @ 02:08
    I like the cut of this young man’s jib. Would certainly like to hear more from him as he seems to have a sound process and thought the lumbar indicator was very interesting.
    • MG
      Michael G. | Contributor
      26 April 2019 @ 03:35
      That's the nicest thing anyone has ever said about my jib.
  • NW
    Neev W.
    25 April 2019 @ 23:40
    Not arguing the thesis, but isn't energy one of the best performing sectors ytd and you essentially committed a chart crime with the overlay?
    • NW
      Neev W.
      25 April 2019 @ 23:44
      In other words, "Energy has lagged" is fake news bro.
    • PB
      Paul B.
      26 April 2019 @ 00:23
      Energy companies lagging WTI.
    • MG
      Michael G. | Contributor
      26 April 2019 @ 00:56
      Not sure what you're referring to as "chart crime" here. Factually, the price ratio of XLE to SPY is at the year's lows, while Oil itself has rallied. Maybe it matters, maybe it doesn't. But the statement I made is correct.
    • MG
      Michael G. | Contributor
      26 April 2019 @ 00:57
      @Neev I love when fake news is actual real news. Energy has lagged. Can see this from www.stockcharts.com and by tracking XLE:SPY.
  • JG
    Jeff G.
    25 April 2019 @ 19:53
    The market doesn't crash when there are bears everywhere.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:32
      Not sure how one quantitative tests that :)
    • EF
      Eric F.
      26 April 2019 @ 02:04
      Bears can’t be everywhere if market still rising.
  • SA
    Stephen A.
    25 April 2019 @ 17:26
    Love the interview and love the bold call for a "crash". I agree by the way. If the SPX opens -10% in one day, it would not surprise me one bit. The valuations are obscene. 3M is precursor to the SPX. Gayed is my kind of guy. No hedging of his calls.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:33
      Appreciate that, but it's a call only from the perspective of probabilities and divergences. Thanks for watching.
  • SM
    Stuart M.
    25 April 2019 @ 17:03
    "Something is Ridiculously Wrong" yeah, ok - and the market can remain irrational longer than you can remain solvent.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:33
      True only if you short :)
    • SA
      Stephen A.
      28 April 2019 @ 14:27
      I can remain solvent far longer than the market can remain irrational.
  • AR
    A R.
    25 April 2019 @ 06:40
    there have been so many videos on RV of late arguing for why US equities should be lower, and has been mentioned by many commentators, it continues higher. It appears that the very fact so many experts are saying it should be lower is precisely why it marches higher. The FOMO/TINA effect is so strong it keeps dragging people in to participate from the long side. Would love to see RV bring someone on who can articulate the Flows & positioning that have kept the broad market marching higher as opposed to another saying it should be lower.
    • DI
      Dabangg I.
      25 April 2019 @ 10:39
      Been RV subscriber for 3 years and bear to bull ratio is typically 4:1 in terms of the speakers invited here. It has to do with Raul and founders bias. Eventually they will be right, but being early is partially being wrong. Would have missed > 30 percent upside if would have listened to these experts.
    • SW
      Sean W.
      25 April 2019 @ 15:37
      "Missed 30% upside"... historically the biggest gains are right before the crash, so that's true but only half the story for anyone following market cycles. Do you want to play that game of chicken trying to predict the tippy-top? Pigs get slaughtered. The Fed looking to do a 0.5% rate cut leading to more QE will prove the market is addicted to artificially cheap credit, exactly as Austrian Business Cycle Theory predicts. The boom-bust cycle is caused by, not suppressed by, central bank credit (liquidity) issued below the natural interest rate (between borrowers and savers). This will all end in tears. Danielle DiMartino Booth has been focused on flows of liquidity as opposed to strict business cycle theory, btw -- explicitly bristling at the "permabear" label.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:33
      Negative narrative always sounds more intellectual as I said in the interview. I'm also not a perma-bear by any means.
  • NR
    Nelson R.
    25 April 2019 @ 01:04
    A “crash" in the era of central bank interventionism is 1-3%.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:34
      True story.
  • RA
    Robert A.
    25 April 2019 @ 00:06
    Good well presented video with a bold call. Very glad I watched and heard the viewpoint, but that said, clearly Powell and Trump are going to be fighting a retest of the December lows every inch of the way. On the way down they can unfurl a rate cut, and immediate stop to the Balance Sheet roll off, a China deal and it’s not out of the question that a discreet phone call is made to the SNB and the JCB that results in S & P purchases “in size”. Both Powell and Trump used a lot of effort to come off those lows and I for one think they are going to fight a decline of that nature tooth and nail.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:34
      Not trying to make a bold call - simply looking at things subjectively and objectively. Thanks for watching.
    • EF
      Eric F.
      26 April 2019 @ 02:11
      Robert, don’t tell me Trump et al. have complete, precise control of the market. Yes, the system is being gamed, but I also think that makes it more unstable and we’re going to see a fair bit of turbulence this year. The complete almost vertical reversal since December is artificial and will get exposed at some point.
    • RA
      Robert A.
      26 April 2019 @ 20:00
      I agree with you Eric and sorry you interpreted my comment as “complete and precise control”, I simply believe that they will fight as hard as they can all the way down—whether they will be successful is clearly an unknown.
  • VB
    Vance B.
    24 April 2019 @ 20:19
    Ids he looking at lumber prices or lumber futures?
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:35
      Both
  • LA
    Linda A.
    24 April 2019 @ 18:39
    2 thumbs up for Michael. Housing permits are down but could lumber prices have also crashed because one of the largest private equity landlords (Blackstone) continues to hold on to a vast portfolio of under-water properties?
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:35
      Maybe - just following the price action.
  • BH
    Bin H.
    24 April 2019 @ 17:26
    From the chart, the highs and lows of lumber do lead S&P, any logical explanation on that?
  • SC
    Sau C.
    24 April 2019 @ 16:40
    Well spoken and I give him credit for having a call and sticking with it despite it being clearly wrong for the time being. Hopefully he comes back in another month or two for another update.
    • JL
      John L.
      25 April 2019 @ 06:01
      Hey....I'm not wrong....just early :-)
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:35
      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604248
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:36
      @John - all joking aside, every action is a forecast. And timing for judging is entirely about where you start and where you end.
  • PC
    Peter C.
    24 April 2019 @ 14:40
    Great Analysis. thank you. For someone knows him - Does Michael go from bullish to bearish from time to time or is he a perma bear?
    • JS
      Jerry S.
      24 April 2019 @ 15:33
      I've been following him for several years and he constantly goes back and forth between bullish and bearish as his firm runs a short-term oriented tactical strategy.
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:36
      Definitely not a perma-bear.
  • mh
    michael h.
    24 April 2019 @ 12:25
    Has Mr. Gayed thoughts about oil reversed since the announcement of no new Iranian oil waivers will be issued? The last ones should be expiring in November.(if im correct) Does light of this change Mr. Gayed's conclusion at the end of the video?
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:37
      In a word...nahhhhhh :)
  • SG
    Sashi G.
    24 April 2019 @ 09:50
    So many logical arguments from many about why the S&P and stocks should not be so high and are due for a major correction, yet markets continue (illogically?) higher. Fascinating times
    • MG
      Michael G. | Contributor
      25 April 2019 @ 22:37
      I never personally view "stocks" as just the S&P. Fascinating times indeed!