“Minimize Risk”: the Lead-Lag Report’s Michael Gayed Joins OPTO Sessions

Michael Gayed is Founder of the Lead-Lag Report, a newsletter and research site that gives investors weekly advice, trading strategies and insights into market trends.

He has 138,000 subscribers on YouTube, 170,000 readers on Substack and 750,000 followers on X.

An experienced investment manager, Gayed set up the Lead-Lag Report in 2010 with the aim of offering insights into his personal strategies. Starting in 2020 until recently, Gayed served as Portfolio Manager for the ETF platform Tidal Financial, where he ran three funds.

Gayed acknowledges he can sometimes be perceived as bearish, but says followers get that wrong. “[People] think I’m something like a perma-bear, when I’ve been doing content for 15 years and plenty of times I’ve been bullish,” he explains.

That said, his outlook for 2025 does seem rather bearish. “I think probably the forward-looking returns for the US markets are not going to be that phenomenal.”

Could the AI Bubble Burst?

Gayed’s aim with the Lead-Lag Report is to help investors maximize returns even when things look volatile — so they “minimize risk regardless of market conditions”.

His philosophy is not about overnight wins, but rather about using data and analysis so clients can achieve long-term gains.

What does Gayed think investors should stay mindful of? 

A rare artificial intelligence (AI) sceptic, he thinks things could soon get choppy. “I’ve gone on record many times saying that I think this AI mania, in hindsight, will mark the blow-off top of large-cap tech dominance.”

“What’s scary is that liquidity has largely funneled into a very concentrated group of stocks because of the AI narrative, which everybody believes in.”

This has resulted in a concentration bubble of large-cap stocks, “where you have so much concentration in the top-10 names. Historically, those types of levels are when things start to break down heavily.”

Ultimately, says Gayed, AI might not be the sci-fi world-changer we imagine, at least not yet. “What is AI? It’s machine learning that’s faster. That’s all it is. Machine learning has been going on for forever.”

“Nvidia [NVDA] empowered the speed part of it. But I think people conflate AI with Nvidia. Nvidia is providing the ‘picks and shovels’ for the process. But if the algorithms are not being used, who cares? Just because it’s faster doesn’t mean you’re going to use it. 

“I’m not saying AI isn’t transformative or isn’t going to be some massive boom to the economy, but tell me when.”

Japan vs. the World

One area in which he has urged caution is Japan’s carrier trade, where overseas investors exploit cheap borrowing. “Because Japan has had zero to negative rates for decades, or very close to zero, it’s been a source of financing for the world,” he explains.

“People would go to Japan, convert their currency into yen, borrow a whole bunch of money, then convert it back to their currency and deploy that capital anywhere else that has a higher return than zero.”

An unravelling carrier trade, which Gayed called, was pinned to a “flash crash” when Japan’s Nikkei index plummeted 12% on August 5, 2024 — its worse day since 1987 — triggered by a rising yen as investors sought to exit their positions. It caused aftershocks around the world’s markets.

We must, he says, consider the impact of the “reverse carry trade”, when money gets repatriated back into Japan to pay off the original loans. 

“The currency dynamic is what makes this so interesting,” Gayed explains. “If you’re a foreigner and borrowing money from Japan, you like it when your currency strengthens relative to Japan’s currency. If, however, the yen is strengthening, you’ve got to deal with that against your now weakening home currency to pay back that loan.”

Last August, markets recovered swiftly, but the risk is still there: “I don’t believe it’s over because it doesn’t make sense to me. You’re talking about a dynamic that’s been ongoing for well over a decade.”

Trump, Bitcoin and Beyond

Most of all, the world is waiting to see how markets unfold once the post-inauguration dust settles.

This time round, US President Donald Trump has signaled he is on board with bitcoin — something Gayed has been skeptical of.

“People think I’m a bitcoin hater and I’m not at all. I just think the narratives are stupid. It deserves a place in a portfolio, but the whole ‘have fun staying poor’ stuff irks me. It’s very egotistical. Ego is the same as overconfidence, overconfidence creates leverage, leverage creates crashes. It’s no wonder bitcoin has these huge swings.”

He adds: “The overconfidence is back in bitcoin. I don’t think a strategic reserve is going to change the fact that typically when you see cycles with this type of overconfidence, it’s the top.”

Elsewhere, there is the question of inflation and Trump’s big-ticket trade policies. But, says Gayed, “even if tariffs are inflationary, I think that gets countered by deregulation, which you can argue is disinflationary because it encourages competition as you lower the regulatory burden of newer entrants for various industries.” 

In general, today’s market valuations can seem bloated. “You can argue that we’re in a permanently higher average P/E level because of the constant liquidity the policymakers put into the system. I’m sure you’ve seen that meme across X of somebody throwing out Benjamin Graham’s book, The Intelligent Investor.”

Despite everything, Gayed believes common sense will prevail: “I still think fundamentals matter. I still think valuations matter. I still think that the market is designed to punish the speculators ultimately and reward the patient.”

We live in times where policymakers seemingly want to control any unexpected underperformance. But Gayed says fluctuations are where opportunities lie. “You want to have stocks go down. You want to have dislocations. You want to buy low. I don’t know why everyone’s so afraid of the idea that you have a correction.”

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