Trust Is Gone: Ted Oakley on Inflation, Fed Failure, and Why Energy Looks Undervalued

In this episode of Lead-Lag Live, I sit down with Ted Oakley, Founder of Oxbow Advisors, to break down why inflation remains sticky, why investors should be skeptical of Federal Reserve guidance, and where real value may be emerging beneath the surface of today’s market.

With more than four decades of experience advising high-net-worth investors, Ted explains why mega-cap stocks now represent concentration risk, why energy is one of the cheapest areas in the market, and how separating base capital from investment capital helps investors survive volatile cycles.

In this episode:
– Why Ted says the Fed is consistently late and unreliable
– What the latest CPI and PPI data reveal about persistent inflation
– Why mega-cap stocks may carry more risk than reward
– How energy offers income and value in an uncertain macro backdrop
– Why separating base capital from risk capital matters in downturns

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.

#Inflation #FederalReserve #EnergyStocks #MarketRisk #IncomeInvesting #StockMarket #Macro #PortfolioStrategy #Investing

Transcript

Big Tech Risk Warning

SPEAKER_00 0:00

I think the risk right now is in the big names, the big the the big ten stocks. Uh I think they've you know they've had their day, so to speak. And if you look at this year, certainly since October, they've been underperforming. If you look at those big names, maybe, you know, we still own uh Google and we own uh some microphones, maybe, maybe Amazon, maybe those do okay. But in general, the big the big 10 stocks in the SP is where the risk is, in our opinion.

Setting The Macro Stage

SPEAKER_01 0:41

So it's my birthday, and this year I'm celebrating by giving a special gift away to one of you. And to officially wish a happy my birthday to you, I've had this tote with a few surprises from our signature T-Croof merch portfolio. And it's not just random merch. Inside, you'll find some items that really at least signal you know exactly what you're doing in these markets. And the tote, well, it won't hedge your portfolio, but it will make you look smarter than anyone pretending they know what risk on means at the grocery store. If you want it, here's what you need to do. Follow Lead Leg Report on X, follow Mela underscore Schaefer on X, subscribe to Lead Lag Media on YouTube, and like and share this video. Only one person gets the toe, but since everyone gets our content, it's really a happy my birthday to all of you. I'm your host, Melanie Schaefer. Welcome to Lead Lag Live. Now, inflation remains a front and center for markets after the most recent consumer price index report showed progress slowing with price pressure still lingering in key areas. Investors are now looking ahead to the next CPI print and searching for clarity on whether inflation is truly cooling or if it's simply stalling. My guest today is Ted Oakley. Uh, Ted is the founder of Oxpo Advisors and also the co-founder of its predecessor, HBO Advisors. And with more than 40 years of experience advising high net worth investors, Ted focuses on wealth protection, consistent income, and disciplined portfolio construction. Ted, it's so great to have you here with me today.

SPEAKER_00 2:23

Thanks, Melanie. Good to see you.

Reading CPI And PPI

SPEAKER_01 2:26

So to kick things off, how do you interpret the latest CPI data and what does it tell you about where inflation actually stands right now? And just as a the second part to that, what do you think investors should be watching for in the next uh CPI print on February 11th?

SPEAKER_00 2:42

Well, you know, Melanie, it looks as though uh, you know, for us, it just looks like it's the next three or four or five months will be really sort of consistent. Not you know, not breaking down a lot or not going up a lot. I mean, you've already had some inputs that caused it to come down to this level, but I think uh, you know, I think it's kind of stuck on that 26, 27, maybe. Uh hard to say. Real estate could bring it down because that's a big piece of the CPI, uh, but that that has affected, that's affected it some, but not too much, but that could be a change.

SPEAKER_01 3:16

So I want to just we just recently saw a PPI uh print with producer prices picking up. Which I mean that often acts as a leading indicator of what shows up later in CPI and in PCE. How much weight do you put on PPI as a as an early warning sale?

SPEAKER_00 3:34

Well, it's something we watch. You know, the the CPI itself has been sort of rearranged over the years, and uh, you know, it's not a not a true true look at inflation where the PPI is probably a little bit better look at it uh because you're getting inputs, whereas, you know, they sort of rig the numbers they put into CPI. Uh but I I I think PCI, and then PCE is the same way. You know, it's uh it depends on what you like you have in the basket, in other words. But um, but you know, we're sort of in that phase right now where it's probably lower. It's not something we expect long-term. We was we feel like if we're gonna have lower inflation, it'll be a short-term phenomenon, but but we'll we'll see.

SPEAKER_01 4:19

So I mean we're talking about the data, but we also have uh the a new Fed share stepping in. How do you think investors should be thinking about the Fed's direction from here? What really matters in the messaging?

Trusting The Fed’s Message

SPEAKER_00 4:32

Well, I have to tell you, Melanie, in the last 25 years, we don't even we believe nothing the Fed says. So it's not something we even use to uh make any decisions on because they're typically wrong, typically late, make very, very poor decisions when times are tough. Uh I think they they're part of the they're one of the reasons we've gotten in such a mess we've gotten into with the debt side, and and and uh and other things as far as that goes. Now, whether the new fellow uh orange, which I I know a little bit about him, but uh whether that changes or not, I don't know. You know, I would hope that they wouldn't go back to zero interest rates because that just creates another round of inflation. But uh the last Fed governor that I really believed was Paul Volker. That tells you how far back that is. So maybe he will be another Paul Volker and you can really believe what they do. So we'll have to see.

SPEAKER_01 5:30

Well, in terms of how much trust uh the Fed has, how much uh flexibility realistically do they have at this point?

Rates, Long Bonds, And Control

SPEAKER_00 5:37

Well, they don't have a lot. They can affect short-term interest rates, but they can't affect the long bond. If you look at the long bond, like the the 30-year bond, it really hasn't changed much at all. Uh if anything, it's probably gone up a little bit. And I I think with other countries' long bonds going up as well, look at Japan, that sort of thing, you know, it it I don't think they'll be able to affect long-term interest rates unless unless the Treasury goes in and does something like they're doing now, which, you know, they buy mortgage-backed securities or try to buy you know, you they can do it. I mean, they can control the yield curve if they want to go out and buy long bonds, but that would be a uh to me, that would be a problem. It basically would be something where you're doing yield curve control. Never works in the long run, though.

SPEAKER_01 6:25

So that's where I wanted to pivot on next a bit, Ted. When you when you're looking at uh at equities bonds and sort of the broader cross-asset allocations, where do you see the biggest risks right now and and where do you see opportunity starting to emerge?

Risks In Megacaps, Value In Energy

SPEAKER_00 6:38

Well, you know, Melanie, we buy single companies. We don't buy exchange-rated funds or mutual funds or anything like that. We buy single companies. I I see the I think the risk right now is in the big names, the big the big 10 stocks. Uh, I think they've, you know, they've had their day, so to speak. And if you look at this year, certainly since October, they've been underperforming. If you look at those big names. Maybe, you know, we still own uh Google and we own some microphones, maybe, maybe Amazon, maybe those do okay. But in general, the big the big 10 stocks and the SP is where the risk is, in our opinion. And if you get if you get foreigners selling, that's the ones they'll sell to. Um and and the reward for us, the the cheapest thing on the board right now is energy. So it depends on how you want to structure a portfolio. But for us, you know, we really look for companies that are cheap, they pay good cash flow, and that that's our style. And those a lot of those companies in that upper tier right now don't fit that category. They've all gone into debt, a lot of debt. Um, and it's yet to see if uh everything they're spending on AI will pay off. And so we we elect not to be in that area too much right now.

SPEAKER_01 8:00

So when you talk about cheap, though you're not talking about small caps necessarily or mid-caps, which sectors specifically are you looking at outside of outside of energy?

Stock Selection Over Sectors

SPEAKER_00 8:10

Well, we we don't look at sectors as much as we look at companies. I'm not I'm not trying to dodge the question. But what happens is if we find a great company and it it fits with there's about there's roughly 400, 450 companies we'd like to own that go down into mid-caps, not so much the small cap. The small caps are a little tricky. I don't I wouldn't doubt it, they don't do well in here, but uh they're a little different for us. But we have about, we screen out those names. You know, we've got about 50 companies we own right now. And we've got, you know, we have some companies that are that are not huge, but the but they're mid they're mid-sized, you know, and they'd and we look for, you know, what we're looking for in situations like that is a company itself, balance sheet income statement over the next five years. We think we're buying it at a discount. And we like to own those companies a long time. If we can, we like to own them, you know, five to ten years, maybe longer.

SPEAKER_01 9:07

Okay, so you're looking at the uh as I said, the the the affordability of the stock based on on the the fundamentals, but not necessarily on which sectors. So I that's why I was gonna ask you next, your what you're thinking about gold and and you know other precious metals in the in the current uh Well uh a good question, Melanie.

Gold, Silver, And Trims

SPEAKER_00 9:27

We we've owned no, we were early in the gold and s and and uh not we've always been in gold, but but we've also, you know, last 15, 18 months ago we came into silver. And uh we owned, you know, a couple silver miners, we own some gold miners, we own them the gold uh royalty companies. But what happened is on the way up here when the silver really got you know, really got moving, we you know, we had when you get up, when you get up where you've got two or three hundred percent profit in something like that on a commodity, you you really uh from uh from a standpoint of managing portfolio, you gotta you gotta sell some of it. And we did, when it went over 100, we sold uh a good bit of the silver, not much of the gold, about 25%. Um we cut back a little bit on the miners and uh cut back some on uh silver miners too. But but uh we long term we like, we just think it's not over. We feel like you'll probably have some more selling over a you know these things don't normally do anything for two or three months. They're normally it takes a while for this kind of move to shake out. I I I wouldn't be surprised if we don't come back to them if they get cheap, cheaper again. But that's where we are right now in the portfolios.

SPEAKER_01 10:45

Yeah, so then Ted, I just want to prove it again, uh the the macrocycles from labor markets and housing and the you know global sentiment, which you mentioned um a few moments ago. But what do you think the markets are still underpricing or flat out ignoring?

What Markets Underprice

SPEAKER_00 10:59

Well, I think and you're do you're speaking in terms of sectors and the market. Yeah. Uh well Melanie, I think I think the most underpriced thing is energy right now. I think people think, well, there's a super glut. It has it's not panning out for them, by the way. Uh, but I I really think if you've got a two-year holding period at least, year and a half, two years, you'll be very well rewarded for buying energy companies. And the difference in energy companies and other commodities is they pay really great dividends. I mean, there's a number of them that pay five, six, seven percent on the cash flow. And so you can get paid while you wait, so to speak. Uh, and that's probably for us, that's the cheapest thing, cheapest sector there is.

SPEAKER_01 11:41

And I mean, the Oxford principles they emphasize building a base capital portfolio first, if if I'm correct on that. I mean, capital designed for stability and income before taking on growth risks. How does that framework help investors navigate in an environment like what we have right now?

Base Capital Versus Investment Capital

SPEAKER_00 11:59

Well, not only we've always felt like uh investors should split their money into two pieces, a base capital and investment capital. Base capital is capital that doesn't fluctuate much. You know, you're gonna make, you won't make as much money on it, but it's there for the times when times are tougher, and it's what I call peace of mind money. It's money that is really what I call, we're not gonna touch that money and throw it into risk investments, particularly. And the uh investment capital, on the other hand, you know, we risk that capital. We buy things uh they go up or they can go down uh for us too. But uh that that's the situation with those two. What we found with people, uh, really, really people that have a lot of money, is they always have a piece that I call base capital that they don't touch. They don't push that into the stock market. I think that's a good thing to look at really for anybody, no, no matter what your level assets are, because when times get hard, you need to have some liquid base capital. And I know for us, if we look at 2003, 2009, 1987, those are the best years for us. Not because we're brilliant or anything, just we had a lot of cash uh and we could use it, and and that's where you really catch up. But that's how we separate those two things.

SPEAKER_01 13:24

Ted, before we wrap up, for anyone watching who wants to learn more about your work at the Oxbowl Principal and the Oxbow Principles, where's the best place for them to go?

SPEAKER_00 13:33

Well, you know, Melanie, if you just go to the website, oxboadvisors.com, really everything's there. We're very transparent. You know, our newsletters, our interviews, we have uh 11 books on there that we'd be glad to send you if you have a topic that you're interested in. But everything's at the website. So if you go there, uh I think you'll find anything you want.

SPEAKER_01 13:55

Fantastic. Well, it's been great having you. Uh and thank you to everybody for watching. Be sure to like, share, and subscribe for more episodes of Lead Leg Live.