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Michael Singleton: What the Bond Market is Telling Us About The Fed?

Tom welcomes Michael Singleton to the program. Michael is Senior Analyst at Invictus Research.

Michael explains Invictus’s approach to investing, which includes a focus on the business cycle. You can leverage the growth and inflation cycles to determine where markets and the economy are at. Growth has been awful during the Covid period, and a lot of reporting is comparing to the disaster that was 2021.

We haven’t seen slowing inflation even as rates have been going up. Inflation should slow because inflationary tailwinds are slowly reversing.

The Fed operates through financial conditions, which are variable factors that affect future growth. The bond, mortgage and credit markets all tightened policy before the Fed raised rates. Their communications drive expectations for others to base policy around.

Mike discusses why slower GDP growth is likely, and he explains how seasonal adjustments impact the rate. They believe growth could be down for some time.

The CRB Commodity Index is a basket of commodities, and it’s useful at measuring where inflationary pressures will show up first.

Bellwether analysis is a tool to keep an eye on the economy. There are stocks that act as signals for what is going on in the underlying economy. Amazon and CAT are good examples of these types of stocks because they track economic activity closely.

Retail stocks have been getting crushed. This is a good indicator for how bad consumer sentiment has become. This is a classic example of where the consumers disagree with the experts.

When policy begins to shift, Mike explains what indications to look for in bonds when easing expectations grow. If the Fed intends to induce a growth scare, one would expect credit spreads to widen.

Most investors today don’t really know what a recession means. A recession is always defined after the fact by the National Bureau of Economic Research. This is why trading the growth cycle is a better method.

Lastly, the usefulness of Invictus Research’s reports and why they are probably much more meaningful than traditional media news sources.

Talking Points From This Episode

  • Business cycle investing to leverage the growth and inflation.
  • The Fed’s toolbox and why communication is their first tool.
  • Bellwether stocks that are useful in determining market direction.

Time Stamp References:
0:00 – Introduction
0:33 – Business Cycle Investing
3:47 – CPI Outlook & Fed
7:03 – Tightening Vs. Expectations
10:33 – GDP Growth Thoughts
13:08 – CPI Accuracy?
14:54 – CRB Commodity Index
16:46 – Bellwether Equities
20:25 – Consumer Sentiment
22:48 – U.S. Labor Markets
24:17 – Fed Tools & Debt Levels
26:00 – Bonds and Easing Policy
29:04 – Defining Recession
30:12 – Commodity Prices
31:44 – Economic Gold Drivers
34:18 – Wrap Up

Guest Links:

Michael Singleton is Senior Analyst at Invictus Research. 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 analysis market for timely, thoughtful, and accessible macroeconomic research. That’s why he became involved at Invictus.

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