Michael Singleton: Gold - Inflation Hedge or Real Rate Correlation

Tom welcomes Michael Singleton to the show. Michael is senior analyst at Invictus. Mike explains their approach to the financial markets and business cycles, which are broken down into growth cycle, inflation cycle, and policy cycle.

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He believes the current inflationary picture is near its end but wage growth is still high. Mike shares that the stock market has the highest correlation to the ISM manufacturing PMI, and that it's important to pay attention to market history and study cycles for guidance.

Mike then discusses the effects of rate hikes on corporate debt and housing markets. He states that corporate debt is lower than it was during COVID, but higher than 2007. He further explains that banks are less willing to lend and borrowers are not interested due to high interest rates, which could indicate a credit contraction. In the housing market, the lack of existing home inventory is pushing buyers to new homes, but this is not a healthy dynamic for the economy. Mike explains the base effects of inflation, which have been a tailwind recently but may become a headwind in the near future.

Mike also discusses the commodities market, which is a reflationary exposure responding best to economic growth and inflation. He breaks commodities down into four categories: energy commodities, industrial metals, agricultural commodities, and precious metals. Mike suggests that gold should be bought when the Fed stops hiking or starts cutting interest rates, and cash is an attractive option with yields of 5-5.5% in a slowing economic environment.

Time Stamp References:
0:00 - Introduction
0:33 - Three Economic Cycles
5:27 - Fed & Business Cycle
6:51 - Market Correlations
10:12 - Corporate Lending
15:04 - Housing Markets
17:48 - Inflation Headwinds
20:12 - Fed Rates & Pause
22:30 - Yield Curve Signals
25:02 - The "Recovery"
27:14 - Commodities
33:24 - Gold - Inflation Hedge?
34:36 - Cash & Treasuries
35:36 - Wrap Up

Talking Points From This Episode
- Commodities can be broken down into four categories: energy commodities, industrial metals, agricultural commodities, and precious metals.
- Oil is an important economic indicator and is highly correlated with inflation, while gold should be bought when the Fed stops hiking or starts cutting interest rates.
- Paying attention to market history and studying cycles is important, as humans have to rely on data from the past to guide expectations for the future.

Guest Links:
Website: https://invictus-research.com/
Twitter: https://twitter.com/InvictusMacro
MacroTrial

Michael Singleton is Senior Analyst at Invictus. He studied finance and theology at the University of Notre Dame, where he graduated summa cum laude. After graduating, he worked for several years with Broad Run Investment Management. There he spent most of my time conducting deep, fundamental diligence on the highest quality companies. That grounding gained him a thorough, bottom-up approach to research and has proven invaluable.

Since then, his focus has been spent studying the economy at-large and its relationship with liquid asset markets. There is a massive hole in the anlysis market for timely, thoughtful, and accessible macroeconomic research. That's why he became involved at Invictus.

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