In this episode of Lead-Lag Live, Melanie Schaffer sits down with Ted Oakley, founder of Oxbow Advisors, for a candid discussion on inflation, the Federal Reserve’s credibility problem, risks in mega-cap equities, and why energy may be the most overlooked opportunity in today’s market.
Below are the key takeaways from the conversation.
Inflation: Stuck, Not Solved
Oakley sees inflation as “stuck” in the near term rather than meaningfully breaking lower. After recent CPI data showed only modest progress, he expects the next several months to reflect a similar pattern — not collapsing, but not accelerating sharply either.
He notes that housing remains a major swing factor within CPI, but even there, disinflation has not been decisive enough to shift the broader trend meaningfully. Producer prices, in his view, offer a more useful signal because they capture input costs before they filter into consumer data.
The larger issue, however, is structural. Oakley does not believe low inflation will persist long term. Short-term relief is possible, but he remains skeptical that price pressures have been fully extinguished.
The Fed: Credibility in Question
Oakley is blunt about monetary policy. He does not rely on Federal Reserve guidance when constructing portfolios, arguing that central bankers have historically been late and reactive in crisis periods.
He believes the Fed’s flexibility is limited. While policymakers can influence short-term rates, long-term yields — especially the 30-year Treasury — are driven by market forces. Attempting yield curve control through aggressive bond buying would, in his view, create new distortions and longer-term problems.
The broader takeaway: investors should not build portfolios around forward guidance. Policy credibility, in Oakley’s framework, is not a reliable anchor.
The Real Risk: Mega-Cap Concentration
Oakley identifies the “Big 10” stocks within the S&P 500 as the primary source of equity market risk today. He believes those names have already had their run and have begun underperforming since late last year.
His concern is not simply valuation, but debt levels and aggressive capital spending, particularly tied to artificial intelligence initiatives. The payoff from those investments remains uncertain.
Rather than broad sector bets or ETFs, Oakley focuses on individual companies. His firm screens hundreds of names but owns roughly 50 that meet strict criteria: strong balance sheets, reliable cash flow, and a multi-year discount to intrinsic value.
He prefers holding companies five to ten years when fundamentals justify it.
Why Energy Looks Cheap
When asked what the market may be underpricing, Oakley is clear: energy. He argues it is currently the cheapest major area of the market and believes investors with a 18–24 month horizon could be well rewarded.
Unlike many high-growth technology names, energy companies generate significant free cash flow and often return capital to shareholders. That income component allows investors to “get paid while they wait,” a key distinction in a volatile environment.
He contrasts this with mega-cap growth companies that have accumulated substantial debt and are spending heavily on AI initiatives with uncertain long-term return profiles.
Gold, Silver, and Risk Management
Oakley has maintained long-term allocations to gold and added silver exposure over the past year and a half. After strong gains in silver, he trimmed positions to manage portfolio risk — emphasizing discipline after large commodity moves.
Long term, he believes precious metals are not finished, but he expects volatility and consolidation phases before any sustained next leg higher.
Base Capital vs. Investment Capital
Perhaps the most important framework Oakley outlines is his “base capital” philosophy.
He advises investors to divide assets into two categories:
Base Capital: Stable, liquid assets designed for preservation and peace of mind.
Investment Capital: Risk-oriented capital deployed into undervalued opportunities.
This separation allows investors to act decisively during market dislocations rather than being forced sellers. Oakley points to prior market crises as periods when liquidity created opportunity.
Final Thoughts
Oakley’s message is consistent: inflation is not defeated, the Fed’s credibility is fragile, mega-cap concentration risk is rising, and energy may offer asymmetric value.
In a market driven by narrative and policy speculation, discipline, cash flow, and valuation still matter.
For more insights, watch the full episode of Lead-Lag Live and subscribe to The Lead-Lag Report for future conversations.
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