Seeking Alpha

Michael A. Gayed, CFA

 
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  • Pascal The Trader And The Logic Of Faith
    Mon, Dec. 22 SPY 13 Comments

    Summary

    • Both the atheist and the faithful have the same fundamental problem: there is no way either can prove their point because it requires knowledge of the future after death.
    • The Fed has said nothing new whatsoever. A strong recovery occurred in junk debt (JNK), but that needs to hold for the move to persist.
    • The faithful are now those who believe that return cannot be generated without risk.
  • Crashes In The Eye Of The Storm
    Mon, Dec. 15 2 Comments

    Summary

    • Alpha is not generated from being up more but mathematically from being down less.
    • We are living in the eye of the storm for equities, and crashes are happening while in it.
    • The market has a funny way of hurting the most number of people when you least expect it.
  • Let's Have Some Fun And Challenge Everything
    Mon, Dec. 8 SPY 18 Comments

    Summary

    • Lower oil is only bullish if it is not a precipitous fall, not a reflection of growth, and not damaging to credit markets.
    • Investing is not about buying the certain past that already happened, but the uncertain future which can look very different.
    • Long duration Treasury yields are NOT low because of the Federal Reserve, but because of inflation expectations which continue to fall.
  • In Defense Of Diversification
    Mon, Dec. 1 1 Comment

    Summary

    • Stocks are not hitting new highs. Only a particular index, the S&P 500, has that distinction.
    • Junk Debt, a tremendous source of yield chasing, has fared poorly relative to most other areas of the investable landscape.
    • The lower yields go, the more the US and Europe look like Japan, and the more likely the correlation between the two cracks in a powerful way.
  • The Path Matters More Than The Destination
    Mon, Nov. 24 EWG, EWQ, EWZ 8 Comments

    Summary

    • Stocks are not hitting new highs. A particular index, the S&P 500, is.
    • The market rallies on words and not actions, and seems to forget that even if the ECB did Quantitative Easing, no round of QE caused inflation in the US.
    • Utilities and Treasuries based on our models (alongside other inputs) are nearing another risk trigger flip.
  • Fear Lower Oil
    Mon, Nov. 17 SPY 19 Comments

    Summary

    • The Utilities sector, perhaps the most predictive sector of the stock market, broke down meaningfully.
    • The faster Utilities underperform, the more likely on a short-term rolling basis in the coming weeks they are to outperform.
    • Wall Street seems to be under the impression the year is over, forgetting that the last time QE1 and QE2 ended, stocks corrected severely a month later.
  • Anger From The Rearview
    Mon, Nov. 10 TLT, SPY 4 Comments

    Summary

    • People care only about what’s after the equal sign, rather than before.
    • Treasuries remained strong on a rolling basis alongside defensive sectors.
    • The first major relationship that could kick in? Seasonal weakness in Treasuries, and seasonal strength in stocks.
  • Small-Cap Meltup, Or Large-Cap Meltdown?
    Fri, Nov. 7 SPY 4 Comments

    Summary

    • Historically, the November to April period tend to be the best 6 months of stock market performance relative to the worst 6 months of May-October.
    • The complicating factor, however, is that every end of Quantitative Easing resulted in a meaningful stock correction shortly thereafter.
    • Small-caps may strengthen purely because large-caps break down, causing them to underperform on directional trend weakness.
  • Volatility, Corrections, And The Vicious V
    Mon, Nov. 3 SPY 7 Comments

    Summary

    • Most risk managers in this business fail at managing risk because they tend to do so post, not pre.
    • Nearly all traders, and investors, however, care only about the streak and successive number of wins, rather than the magnitude of them.
    • Japan, simply put, is out of its mind, and the vicious V in high beta equities may mark a near-term extreme from which it reverses.
  • Social Media Stocks Friending Correction?
    Mon, Nov. 3 SOCL Comment!

    Summary

    • One can get a sense of whether a manic phase in the uptrend is underway based on pockets of stocks which exhibit irrational outperformance.
    • The two areas which have been the attention for speculators have been Biotech and Social Media.
    • If Social Media stocks keep faltering, it would mean risk sentiment in high flying stocks is unable to stick.
  • Vicious V, Or Potential W?
    Mon, Oct. 27 SPY 8 Comments

    Summary

    • Following unrelenting declines in the weeks prior, the S&P 500 underwent an unrelenting advance off of the mid-October lows.
    • The thing with every V formation is that you never really know if it is a V to push for higher highs, or a W.
    • Should the market want to make a push for new highs, seasonality wise it would make sense given that we are now entering the best 6 month period for equities.
  • Small-Caps Saying Bottom Is In?
    Wed, Oct. 22 IWM 12 Comments

    Summary

    • The message of small-caps relative to large-caps is less about risk sentiment, and more about growth perceptions.
    • Small-caps relative to large-caps have undergone a stunning collapse.
    • Large-caps are more likely to suffer relative to small-caps purely because of US Dollar strength.
  • Pain Is The Best Quantitative Easing
    Tue, Oct. 21 BROTX 10 Comments

    Summary

    • Stocks are not oversold. They remain massively overbought relative to growth and inflation expectations.
    • Quantitative Easing failed by all measures – it failed to reflate.
    • The best thing that could happen is that the Fed actually RAISES rates into this volatility.
  • The Real Correction To Come
    Mon, Oct. 20 SPY 21 Comments

    Summary

    • Much of the intermarket movement thus far has been reminiscent of the Summer Crash of 2011, though not as violent nor severe yet.
    • European bond yields in problem countries, notably Greece, Spain, and Italy, rose against German Bunds which remain strong.
    • Credit spreads on both the sovereign level and in the corporate space are the canaries in the coal mine.
  • Gold's Warning
    Thu, Oct. 16 GLD 25 Comments

    Summary

    • The stock market (particularly large-caps) has ignored the realities of failed reflation for far too long.
    • Something is amiss, which makes me wonder if a prolonged period of difficulty is ahead for risk assets.
    • Gold has been warning of some time that the narrative is wrong on where we are in the economic cycles.
  • What Is Happening Now Is Profound
    Wed, Oct. 15 SPY 50 Comments

    Summary

    • The meme that is out there now is that we may be in a correction, and that what happens next is perfectly normal for markets.
    • What is happening now, with hindsight, may be a profound a structural turning point for markets worldwide.
    • The Last Great Bubble is popping - faith in central banks.
  • Everyone Is A Weak Hand
    Mon, Oct. 13 SPY 7 Comments

    Summary

    • The Fall Epiphany has only just begun, as the Russell 2000 craters, global markets falter (particularly in Europe), and volatility (VXX) emerges like the phoenix from the ashes of complacency.
    • The IMF continues to cut global growth, and Fed officials over the weekend, surprise surprise, are now arguing that a rate hike may be delayed because of a strong dollar.
    • Stocks are not oversold. They remain massively overbought relative to growth and inflation expectations.
  • Waiting For Small Caps To Stop Getting Smaller
    Mon, Oct. 13 IWM 16 Comments

    Summary

    • Small-caps relative to large-caps have undergone an unbelievable relative collapse with severe weakness in those companies relative to larger multi-nationals.
    • Clearly momentum is quite negative on the downside, and likely justified given the current deflation pulse permeating in market movement.
    • At some point, small-caps will be oversold and likely will then switch from market laggard to market leader.
  • Why Spain May Cause European Panic
    Thu, Oct. 9 EWP 12 Comments

    Summary

    • When analyzing markets from the standpoint of intermarket analysis, it is worth comparing relationships that often express opposite sides of the risk spectrum.
    • On a country level within Europe, the equivalent of this would be comparing Spain to Germany, largely because Spain benefits disproportionately from forced reflation due to its extremely high debt.
    • If highly leveraged Spain begins to weaken on the equity side, it might mean the market in Europe is becoming even more concerned about deflation.
  • The Bull That Is Buy Low, Sell High
    Mon, Oct. 6 SPY 26 Comments

    Summary

    • The incredible majority of people in the business of investment management buy past performance and chase prices up, rather than bet on mean reversion where most gains are made.
    • With the exception of the last few weeks, the correlation between the S&P 500 and Treasuries has been abnormally historically correlated this year.
    • The enemy of leverage is volatility.
  • The Law Of Yesterday
    Mon, Sep. 29 13 Comments

    Summary

    • In behavioral finance, it is well known that most investors tend to be myopic, and fail to understand that markets live in the world of cycles.
    • The Fall Epiphany where risk matters is coming.
    • Buy low, sell high still works. The equivalent of that for any strategy isn’t in the 80% of the time the approach is working. It’s in the 20% of the.
  • Inching Towards The Great Epiphany
    Sun, Sep. 21 3 Comments

    Summary

    • Logic would dictate that a strong dollar would negatively impact multi-national large-cap companies relative to more domestic small-cap companies.
    • Yields rose as Mario Draghi announced a form of Quantitative Easing a few weeks ago, against that backdrop US inflation expectations collapsing as measured by the TIP/TENZ ratio.
    • If bond yields begin to fall next week, we are likely closer to a real “risk-off” period characterized by Treasuries meaningfully outperforming the stock market.
  • The Risk-Off Setup Arrives
    Mon, Sep. 15 SPY 14 Comments

    Summary

    • History proves that bond buying from central banks seems to initially result in bond selling by investors, pressuring yields higher.
    • The best thing happening right now is Treasuries (TLT) and defensive sectors going down at a faster pace than broader beta.
    • The problem all year has been that Treasuries and defensive sectors have led, but in a correlated way to cyclical equities.
  • Will Yen Signal Correction?
    Mon, Sep. 15 FXY 3 Comments

    Summary

    • In the pre-Abenomics era, the Japanese Yen would often serve as a strong indicator of heightened volatility and stock market correction risk.
    • Perhaps the final correction confirmation comes from the Yen trying to push higher despite downward pressure from Kuroda.
    • Combined with negative seasonality for stocks in the September/October period, the Yen's behavior may finally be a true warning sign that conditions are about to change.
  • To Save The Euro, Draghi Must Destroy It
    Sun, Sep. 7 FXE 1 Comment

    Summary

    • The European Central Bank’s initiation of selective bond buying in covered bonds and asset backed securities came largely as a surprise to markets.
    • The history of negative deposit rates shows that it does not increase lending, but does put downward currency pressure.
    • It may works for Europe, but with US inflation still undershooting the Fed’s target, Europe’s inflationary gain may be the US’s deflationary pain.
  • The Bull's Self-Delusion
    Mon, Sep. 1 TENZ, SPY 79 Comments

    Summary

    • Equities and Treasuries closed August having one of their best months of 2014 respectively, as bonds continue to price in global deflation at the same time equities completely ignore that.
    • Put simply, bonds are correctly pricing in deflationary risks. Stocks are not. That is not open to debate. That is fact.
    • This is not about calling for a top in stocks. This is about calling for a top in strategy.
  • What Can Break Treasuries
    Mon, Aug. 25 TLT 8 Comments

    Summary

    • Investors and traders turned their focus on the Fed yet again, with the media reciting Yellen’s Jackson Hole comments.
    • What happens in the U.S. may end up being a side show relative to Europe now.
    • If Draghi initiates QE and inflation expectations rise, then European yields likely rise and that could finally break the Treasury uptrend.
  • Now It Gets Interesting
    Sun, Aug. 17 SPY 10 Comments

    Summary

    • Something fairly significant happened last week which could have meaningful implications on market movement into the end of Quantitative Easing.
    • Inflation expectations largely have not mattered with the benefit of hindsight since QE3 began.
    • We are re-entering a period where risk management is going to matter, and the post QE3 era where only buy and hold worked will change.
  • The Greatest Mistake Investors Make
    Mon, Aug. 11 SPY 3 Comments

    Summary

    • Many stock averages worldwide got into oversold territory quickly.
    • Studies have shown that the more frequent an investor checks their account balances, the more over time they dramatically underperform nearly every single part of the investable landscape.
    • With the end of QE near, it stands to reason historical cause and effect will reassert itself in terms of the inputs that our risk trigger focuses on.
  • The Invisible Risk You're Missing
    Sun, Aug. 10 BND, HYG 5 Comments

    Summary

    • To be contrarian doesn’t mean to look at stocks now.
    • To be contrarian means to look at junk debt, and acknowledge that the reach for yield has resulted in excessive risk taking.
    • Credit risk may come back with full force.
  • Volatility Phoenix Rising
    Mon, Aug. 4 VXX 2 Comments

    Summary

    • Last week bore witness to that as the VIX spiked at the same time stocks tumbled to close July down in the final moments of the trading month.
    • Meanwhile, small-caps went through a severe breakdown in what otherwise looked on the surface to not be a horrible month for US market averages.
    • Interestingly though, emerging market rotation appears to be underway.
  • Why Draghi May Ruin Yellen's Plans
    Tue, Jul. 29 6 Comments

    Summary

    • Risks are lurking in the background which could dramatically alter future policy expectations.
    • Financials in Europe have been hemorrhaging all year.
    • If European financials are pricing in some kind of slowdown and/or event, then we will feel it here in the US.