In this week’s episode of Opto sessions, Toroso Asset Management investment manager Michael Gayed joins the show to discuss the “bizarre” market dynamics occurring between asset classes amid this year’s recession. From forex volatility to rising treasury risk levels, he gives his expert perspective on how he navigates these market anomalies.
LISTEN TO THE INTERVIEW:
“You can’t thrive if you don’t survive first,” Michael A. Gayed, portfolio manager at Toroso Asset Management and author of the critically acclaimed research publication The Advance lag ratio with over 15 years of experience, recently said Opto sessions.
The investment manager recalled that lesson from his namesake father – Michael ES Gayed – who worked alongside legendary investor Bob Farrell in the late 1980s at Merrill Lynch before setting up his own hedge fund, which included Stanley Druckenmiller among his clients.
“The one thing I learned from him as a lesson not just about investing in life, but also about life itself, is that perseverance is the key to any successful endeavor. markets, you only have to worry about persistence when you need to survive, in other words, when you’re in a drawdown, a period of losses,” he explains.
“Perseverance is the key to any successful business. In the context of markets, you only have to worry about persistence when you need to survive” – Michael Gayed
“Weird” market behavior
For many investors, 2022 has been characterized by an uncertain market environment. The selloff in equities ricocheted off other sectors of global markets as macroeconomic headwinds, including rising interest rates, recession fears and geopolitical tensions, take their toll.
The strong dollar is adding further downward pressure on equities, which has made this asset “the king of inflation hedges” over the past year and a half. “I think [this] should give everyone pause and make people realize what an anomaly this has been,” Gayed said, adding that recent forex volatility could be a precursor to a sovereign debt crisis.
Another “weird” market dynamic that has emerged in the market landscape this year is that Treasuries have been riskier than stocks. “Usually when the dollar is strong and you’re in the so-called periods of high volatility with no risk to stocks, Treasuries are the safe haven,” he said.
“It’s not a situation where if you just look at an S&P chart and you’re like, ‘Well, this is a standard type of bear market or correction.’ When you start looking at the interaction of the different asset classes, especially the dollar against [other asset classes]it is very clear that what we are experiencing is historic.
An inflationary bear market
One of the biggest debates that has defined markets in 2022 has been whether or not the US economy is in a recession. A typical measure of recessions is if there have been two consecutive quarters of negative GDP growth, and although this happened in the second quarter, many have described market conditions as an “inflationary bear market”.
“There is a correlation there between market movement and economic cycles. But the problem is that if you’re in a recession – even in the 1970s, which was a bear market for stocks and a bear market for bonds throughout the cycle – Treasuries still act as a safe haven in this type of market dynamics. I don’t know if we’re in a recession,” Gayed said.
He believes that “the problem with these definitions around the recession is that there is an assumption that is very accurate, and it probably isn’t.” Gayed explained that when there is high inflation, the most important variables become.
“I don’t know if we’re in a recession” – Michael Gayed
“All I know is that generally recessions lead to disinflationary pressures. We haven’t seen that yet.
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