Seeking Alpha

Michael A. Gayed, CFA

 
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  • Vicious V, Or Potential W?
    Mon, Oct. 27 SPY 7 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 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.
  • The Crisis May Be In U.S. Small-Caps
    Mon, Jul. 28 IWM 5 Comments

    Summary

    • Treasuries remain relatively well bid, acting as if either the US economy is about to meaningfully slow down.
    • U.S. small-cap stocks are considerably more vulnerable than emerging markets despite lingering fears there.
    • Sector movement also does not validate small-cap strength in the near-term.
  • ATAC Week In Review: The Source Of Complacency And Coming Fear
    Mon, Jul. 28 SPY Comment!

    Summary

    • Talking about a correction is not the same as preparing for one.
    • Source of risk is junk debt.
    • No one is asking when they should be selling high yielding debt.
  • Brazil's Coming Melt-Up
    Fri, Jul. 25 EWZ 41 Comments

    Summary

    • Political change can be more stimulative than all the Quantitative Easing in the world.
    • Recent polls show that Brazilian President Dilma Rousseff has been waning in popularity, resulting in the very real possibility that she does not get re-elected.
    • Given how much Brazil has underperformed under her administration, it stands to reason a major change in the government could alter investor expectations.
  • Realities And Dreams: Market Reminders
    Sun, Jul. 20 SPY 4 Comments

    Summary

    • Homebuilder stocks continues severe weakness.
    • Small-caps relative to large-caps crashed.
    • Emerging market credit leading.
  • On Discipline And Whipsaws
    Sun, Jul. 13 IWM, SPY 4 Comments

    Summary

    • Treasuries whipsaw back.
    • Small-caps crater in way that breaks relative momentum.
    • The Not-Everything Boom has still left out emerging markets.
  • A Surprise Recession?
    Mon, Jun. 30 SPY 22 Comments

    Summary

    • Negative GDP among 25 worst in history.
    • European banks major source of risk.
    • Mutual funds and separate accounts went defensive last week.
  • A Crude Awakening
    Mon, Jun. 23 SPY 10 Comments

    Summary

    • Defensive sectors remain well bid despite new all-time highs.
    • Risk-on potentially switching to risk-off in weeks ahead.
    • Oil, combined with consumer weakness, is the elephant in the room.
  • A Stock Correction For Misguided Perception?
    Mon, Jun. 16 SPY 11 Comments

    Summary

    • Too much focus on return, too little on risk.
    • Oil could serve as catalyst for correction.
    • Defensive areas remain stubbornly strong.
  • Tipping Point For Correction: Will Oil Foil The Equity Rally?
    Thu, Jun. 12 USO 12 Comments

    Summary

    • Oil could rise to the point where stocks finally take notice.
    • Iraq may cause enough of a disruption for spike in energy costs.
    • Rising Oil, combined with weaker discretionary stocks, might force Fed to act.
  • When Butterflies Attack
    Sun, Jun. 8 SPY 8 Comments

    Summary

    • Stocks cheer yet another week with days that end in Y.
    • But the why is questionable as negative ECB rates may be deflationary.
    • Complacency at historic levels, and may result in severe breakdown later in year.