False Breakout? Or Is A Wave Of New Market Highs Ahead? | Michael Lebowitz

Market recap (macro → rates → assets)

• US payrolls report (July) disappointed: payrolls were down ~23k (approx.), described as a “5-sigma” miss.
• Initial market reaction: investors priced a higher chance the Fed hikes less / not as much, leading to:
  • Bond yields fell
  • Precious metals jumped
• Labor market nuance: even with weaker payrolls, the unemployment rate fell to ~4.1% due to a participation-rate drop (people leaving the workforce / discouraging job search), implying weaker underlying labor health.
• Wage growth concern: BLS-reported wages were ~+0.1% (approx.) and trending downward for ~1.5 years. With inflation still elevated, real wages are negative, pressuring ~70% of personal consumption.
• Fed timeline: before the late-September Fed meeting, the key incoming data includes:
  • Another unemployment report
  • Second CPI/PPI readings
  • Rate-hike odds were previously ~80–85% for September, now closer to ~40% (per discussion).

---

Oil / inflation framework

• Oil inflation risk is treated as “event-driven”, not a persistent inflation regime.
• Oil reference points:
  • Crude discussed around ~$80/bbl
  • Scenario logic: if crude stays at ~$80 for 2 years, the argument is that it implies little incremental CPI inflation from crude over that period (even if it’s structurally higher than pre-Iran levels).
• Diesel supply risk is acknowledged:
  • Diesel shortages could create an additional inflation pulse via shipping/trucking cost pass-through
  • However, CPI is said to be dominated by other components—especially rents, which are still deflating.

---

Bonds: why yields are high despite disinflation hopes

Drivers cited for higher Treasury yields

• Supply/demand imbalance
  • More government debt issuance (deficits, refinancing)
  • Increased borrowing demand from hyperscalers/AI buildout, increasing competition for investor capital
• Japan yen defense dynamics
  • Japan needs dollars to buy yen
  • The speaker’s view: Japan may use repo facilities rather than outright Treasury selling, referencing a prior intervention episode that contributed to a yen-carry unwind

Real yields as the focal point

• Real yields are emphasized as very high (speaker claim: ~3% real yields).
• Reference: 30-year TIPS with ~3% real yield (above inflation).
• The speaker notes inflation expectations (5–30 years) are said to be roughly flat over several years, so the issue is framed more as:
  • deficits/supply
  • term premium sentiment

Term premium framed as sentiment/fear (not just inflation)

• “Crowding out” narrative:
  • Hyperscalers/corporates may issue more debt → term premium up → yields up
• Mitigation idea:
  • Firms can shift to equity issuance (examples mentioned: Google, Microsoft, Meta, possibly Amazon)
• Conclusion: crowding-out pressure may ease if issuance mix shifts and/or fear changes.

Correlation signals

• Claim: highest correlation between oil and bonds (and related oil/bonds/gold dynamics).
• Gold correlation: described as negative vs oil, tied to real-rate behavior.

---

Stocks: “false breakout?” + technical/risk signals

Index behavior and underlying dispersion

• The S&P 500 moved into near/all-time-high territory after a 2–3 month consolidation, but with weak breadth underneath.
• Index calm coexisted with volatile sector/stock rotations, including examples such as:
  • “Chips on fire” while Microsoft/Apple weakened (Mag 7 dispersion noted)
  • Micron / AMD / Intel cited as names where momentum crowded to extremes and then reversed
• A “situational awareness” fund was referenced as heavily levered (details below).

Technical framework / explicit decision points

• Watch whether price holds the breakout or re-enters the prior range rectangle.
• Support reference
  • ~200-day moving average around 710 (SPY) vs S&P around ~770 (roughly ~8% lower)
• Indicators
  • MACD turned up (buy signal)
  • RSI becoming overbought → potential pause/mean reversion
  • Implied vs realized volatility divergence:
    • Since the rally: realized vol rising, implied vol falling
    • Flagged as a warning sign (pricing future risk as less than realized)

Equity positioning risks

• Call option volume off the charts, yet implied vol still falling
• Margin debt at the highest ever, with options potentially funded via margin → leverage vulnerability

---

Leverage case study (explicit caution)

“Situational Awareness Fund” narrative

• Mentioned as founded by a ~24-year-old with background references including OpenAI and context around FTX Sam Bankman-Fried.
• Performance claim:
  • up to ~6700% through June
  • assets ~$45B
  • levered ~4x

Mechanics / lesson

• Simplified math given:
  • 4x leverage means a 25% stock drop could wipe ~100% of the leveraged equity.
• Momentum crash driver:
  • Micron/AMD weakness drove margin calls → forced selling → the fund reportedly “went belly up.”

Key takeaways

“Leverage kills.” “The market knows more than you.”

---

Factor/rotation strategy (method + portfolio construction)

Core approach

• Rotation across style factors and sector ETFs using relative/absolute technical strength scores.

Simplevisor.ai (beta) & rotation tool (as described)

• Track:
  • Relative score: instrument price vs S&P 500
  • Absolute score: instrument level/trend
• Scores range from -1 to +1
• Use stretched pairs and convergence/divergence to time:
  • trade entries
  • position shifts

Example pair: growth vs value

• MGK (large-cap growth) vs VTV (large-cap value)
• Since July 28 (speaker claims):
  • MGK +~6.6%
  • VTV ~flat

Implementation example (RAA)

• Added to several largest megacap stocks
• Reduced value stocks (e.g., Coca-Cola mentioned)
• Sector/holding examples:
  • XLK (tech ETF) and VTV exposure discussed, including indirect Micron exposure
• Stated performance:
  • factor rotation model “up ~20% this year” (approx.)

Rebalancing discipline

• Rebalanced/thematically adjusted after large winners/losers.
• Example: Microsoft increased from ~4.5% to 6% due to relative strength and “due for rebalancing” on stretched weights.

---

Precious metals (and miners) setup

Recent moves

• Silver: >4% up on at least two mornings
• Gold: +$100/oz, and at one point ~+$170/oz (approx.)

Driver and caution

• Driver: metals strength attributed to falling real yields after weak payrolls.
• Caution for miner ETFs in pair-trading:
  • rotation signals may be less “apples-to-apples” across instruments like GDX vs GLD vs S&P
  • suggested better pair: GDX (miners) vs gold (GLD) to assess relative cheapness

---

Performance / benchmark context (portfolio results)

RAA vs a 60/40 benchmark

• Equity model: 20–25 single stocks
• Sector model: mostly ETFs across the 11 S&P sectors, plus a couple subsectors

YTD behavior narrative

• Earlier lag attributed to missing very high-momentum names (e.g., Micron-related moves).
• Last ~week: equity model “caught up,” returning roughly to line with the benchmark (small difference).

---

Explicit recommendations / cautions (as stated)

• Technical caution (S&P):
  • Treat the breakout as potentially false until it holds above the breakout range
  • If it falls back below the range: cause for concern
• Volatility/leverage caution:
  • Rising realized vol with falling implied vol
  • Margin debt + option activity increase risk of fast reversals
• Leverage warning:
  • High leverage repeatedly condemned
• Portfolio construction:
  • Use diversification to reduce “single superstar” blow-up risk
  • Use rotation tools to avoid blindly chasing momentum

---

Assets / tickers / instruments mentioned

Indices / benchmarks

• S&P 500
• SPY

ETFs (mentioned)

• VTV (value)
• MGK (mega-cap growth)
• XLK (tech)
• GLD (gold ETF)
• GDX (gold miners)

Sectors

• S&P 11 sectors
• technology / tech sector

Individual equities (mentioned)

• Microsoft
• Apple
• Nvidia
• Broadcom
• Micron
• AMD
• Intel
• Coca-Cola

Inflation/rates instruments

• 30-year TIPS

Commodities

• Crude oil (WTI/Brent not specified)
• Gold
• Silver
• Diesel (in the inflation discussion)

FX / rate policy

• Yen (JPY)
• Treasuries
• repo facilities

---

Key numbers & timelines (all approximate as transcribed)

• Payrolls miss: ~23,000 down, described as “5-sigma miss”
• Unemployment: ~4.1% (noted alongside 4.2% / 4.1%)
• Wage growth: ~+0.1% (BLS)
• September rate-hike odds narrative: ~80–85% → ~40%
• Fed meeting timing: late September
• Oil scenario:
  • ~$80/bbl cited
  • range examples included ~$60 (normalization) and risks up to ~$200
• TIPS: real yield ~3% (30-year)
• S&P/support:
  • S&P ~770
  • 200-day (SPY) ~710
• Metals:
  • gold +$100/oz, at times +$170/oz (approx.)
  • silver >4% up days
• Leverage case:
  • ~4x leverage
  • peak fund claim ~6700% through June
  • fund size ~$45B
• Rotation tool scores: -1 to +1
• Rotation example:
  • MGK +~6.6%, VTV ~flat since July 28
• RAA factor model performance:
  • ~+20% this year (stated)

---

Methodology / frameworks explicitly shared

Breakout validation (technical)

• If the breakout fails and price returns into the prior range → consider it a false breakout
• If price breaks below the range → bearish / concern
• Indicators referenced:
  • MACD (buy signal)
  • RSI (overbought risk)
  • 200-day support (~SPY 710)

Implied vs realized volatility check

• Rising realized while falling implied flagged as a near-term risk mismatch.

Rotation model (relative/absolute scoring)

• Compute:
  • relative strength vs S&P 500
  • absolute trend/level
• Use pair extensions (convergence/divergence) to time rotations.
• Use score changes to infer rotation direction (e.g., VTV vs MGK).

Real-yield driven rates framework

• Real yields are framed as the dominant driver across gold/oil/bonds more than short-run inflation headlines.
• With stable inflation expectations: focus shifts to deficits/supply/term premium sentiment.

---

Disclosures / disclaimers

• The discussion includes investor guidance and a recommendation to consult a professional financial adviser.
• No explicit “not financial advice” line was present in the provided subtitles, but adviser consultation promotion is mentioned.

---

Presenters / sources mentioned

• Adam Teegert (host; “Thoughtful Money founder and host”)
• Michael Lebowitz (guest; referenced with minor spelling variations in subtitles)
• Lance Roberts (normally a co-presenter; absent for this segment)
• Thoughtful Money (show/channel)
• Lacy Hunt
• Darius Dale (upcoming video referenced)
• Jeff Curry
• K.berg (referenced regarding equity expected returns, per subtitles)

Additional narrative references

• FTX (Sam Bankman-Fried)
• OpenAI
• Citadel
• Samsung / SK hynix (mentioned in relation to KOSPI references)