David Hay — Portfolio Update: Did Last Week Bring Two Seismic Events?

Part I — the 30-year breaks out to an 18-year high

• "There were a pair of dramatic developments last week. One was the clear breakout to an 18-year high by the yield on the 30-year U.S. T-bond."
• 5.27% on Friday — a level that "raises the very real possibility of taking out the resistance at just under 5.5% that runs all the way back to 2003."

The resistance map above 5.5% — and the 1999 marker

• Past 5.5% "there's a bit of friction at 5.75% with the next line in the sand much higher at 6.75% set in late 1999 when the economy was ripping."
• Why 1999 ran hot: the Fed's "massive liquidity injections to offset the assumed dislocations from Y2K… which never materialized," plus "the late stages of that tech bubble… provided a powerful 'wealth effect' which further stimulated the economy." The parallel to a Fed easing into an asset boom is left for the reader.

The mechanism — valuations are the precondition, rates the coup de grâce

• Yields "may soon peak and even begin to ease. But if they don't, a stock market that has been totally unperturbed by the upside range expansion in long-term Treasury yields might suddenly snap to attention."
• The causal structure of 1999-2000: the yield spike "undoubtedly played an important role in popping the dot-com bubble… however, outrageously high valuations had put the conditions in place for a waterfall decline. The rate surge simply applied the coup de grâce." Rates are the trigger; valuation is the vulnerability.

SPCX — how fast a bubble valuation reverses

• "It's most fortuitous today that there aren't similar valuation extremes, combined with rampant speculative behavior. If you sense a whiff of sarcasm, you detect well."
• The exhibit: SpaceX at $225/share — "up $90/share, or up almost 70% from its $135 IPO price" — was worth "nearly $2½ trillion… almost 70 times sales." "Showing how quickly bubble-like valuations can reverse, its market cap is down to $1.4 trillion."

The house yardstick — Price/Sales over Price/Earnings

• "We consider the Price/Sales ratio to be superior to Price/Earnings… because sales are considerably less volatile than earnings. Further, it's much harder to inflate revenues with accounting gimmickry… than it is with reported earnings."
• The result: "on a Price/Sales basis, the S&P today looks significantly more overvalued… than it was even at the height of what was, up until then, the biggest bubble in U.S. stock market history."

Rebutting "but earnings are strong" — circular financing

• "Most of this is due to the AI frenzy and the above-referenced extremely flattering accounting, bordering on circular financing."
• The explicit note: "Several of the biggest tech companies are reporting huge sales to companies in which they have received stock as part of the transaction. They have then been booking enormous gains on those shares, or warrants, as income. It's legal but it is also extremely unsustainable." (The same charge levelled at GOOGL's quarter on Jul-26 and via Minack/MSFT on Jul-15.)

Rebutting "but margins keep rising" — the capital-intensity shift

• Rising margins came from "the continually swelling profitability of the Magnificent Seven-type names with their network effects and capital-light business models."
• "Yet, a massive shift is that many of these have become highly capital intensive due to the escalating 'arms race' to build out data centers." Hyperscalers are projected at "$700 billion in AI capex this year, with estimates for $1 trillion next year," and "serious questions are being raised about the ultimate returns on these vast sums."

The long-Treasury call, marked to reality

• "For years, this newsletter has advised its readers to avoid long-term U.S. government bonds," fearing "a deluge of issuance to fund $2 trillion-type deficits, at a time when the largest foreign buyers have been exiting stage left."
• "Alas, that is no longer a prediction but a reality."

The instruction — raise cash

• Whether 5%+ long yields are "a grave risk to the U.S. stock market" is "still an open question. It may not, but you should certainly be on alert for that very real possibility."
• "Raising cash right now, particularly in grossly inflated highly valued securities." (Reads directly onto this week's downgrades of the winners — ACN, MTB, TRV to Hold; the PBR trim.)

Part II — Japan: a 40-year currency low that the fundamentals contradict

• Japan is also seeing surging government-bond yields, which "often leads to an appreciating currency, but the polar opposite has happened in the Land of the Sinking Yen." The yen "recently hit a 40-year low versus the highly flawed, and overvalued, U.S. dollar."
• The contradiction: "Japan's external debt is negligible, it runs a monster current account surplus and it is… the world's largest creditor nation. Again, all of these conditions are a 180° rotation from America's present sorry fiscal and trade status."

The perpetrator — a BOJ behind the curve

• "The main perpetrator behind its currency's throw-away valuation is the fact that its version of the Fed, the Bank of Japan (BOJ), has been pathetically behind the curve when it comes to raising short-term interest rates."
• The jab: "it's sloth-like tightening pace makes the Fed under Jay Powell look like the second coming of… Paul Volcker."

The seismic bit — the U.S. Treasury joins the intervention

• The BOJ has "repeatedly intervene[d] in currency markets by selling huge amounts of dollars to buy yen. Thus far, that's been an exercise in futility." On Friday it announced "another outsized intervention."
• "What's different this time is that the U.S. Treasury has stated it is also participating in the stabilization effort." Haymaker claims the call: "We anticipated this coordinated attempt… on July 9th when we reiterated our positive — and highly contrarian — stance on Japan's beleaguered currency. (Anyone who took our advice is nicely in the black since then… and it's about time!)"

The rally, and why a currency move is the second seismic event

• "These dual announcements triggered a much overdue rally in the extraordinarily oversold yen, causing it to spurt by 4% (and another 1.4% today). This is a big move for a currency in such a short time."
• The reason it matters: "because of how important borrowing in depreciating yen has been to financing trillions of overseas investments, the sudden yen rally was last week's second big financial event."

The position — bullish yen as a hedge, but don't chase

• "We remain bullish on the yen as a hedge against global financial markets losing this important source of buying pressure, though we wouldn't chase this rally."
• The under-appreciated risk: "the Japanese government's new efforts to bring capital back to its shores could turbocharge the liquidity exodus from offshore markets, a macro risk that appears to be off almost everyone's radar." No ticker is named — the yen stays a macro/FX position in Haymaker's book, as on Jul-9.

The one-two punch — and the trigger that would escalate it

• Precedent, not theory: "the global selling tsunami that occurred two years ago due to the yen spike back then indicates this is much more than a theoretical concern." Together, "the one-two punch of soaring long-term U.S. Treasury yields and a ripping yen could be a hard blow to the U.S. stock market."
• The mitigant and the trigger: "the good news… is that the BOJ continues to raise rates at a glacial speed. Yet, if that changes, like by the BOJ signaling a much more aggressive stance, that has the potential to cause investors worldwide to remember something they have long forgotten: downside risk."

The tables — nine blue cells, and what they say about the stance

• Upgrades to Strong Buy: AGI, BOLSY, EQT (both lots), PSLV, YACAF. Four of the five are down from cost (BOLSY −6.5%, EQT −17.8%/−6.3%, YACAF −26.7%) — the conviction rises as the price falls, the same DCA-in discipline stated explicitly for AGI and AESI on Jul-27. The five sit squarely in the rotation destinations: gold, silver, gas, coal, Brazil.
• CRH moves from Holds/Trims back onto the Buy List (rated B, both lots).
• Downgrades off the Buy List to Holds/Trims (all rated H): ACN, MTB, TRV — and PBR now carries a trim dated 08/03/26. Three of the four are winners (MTB +32.7%, TRV +14.0%, PBR +60.8%), which is the "raise cash… particularly in grossly inflated highly valued securities" instruction executed on the book itself.

Housekeeping — the AEM trim-date correction and table reconciliations

• Flagged explicitly: the AEM trim date is corrected from 07/20/2026 to 07/13/2026 — the Agnico Eagle trim happened a week earlier than the published table had shown. AEM's rating stays H.
• Reconciliations visible against the July-20 tables with no prose this week: GDX and GDXJ now appear on the Buy List (they were Trims/Holds), and CPRT (Jul-10 POW!) and KRE (Jul-31 POW!) are now listed as Buy-List lots at $27.52 and $76.06. HAL, added as a Buy-list name on Jun-22, does not appear on any of the three tables.
• The Sells table is unchanged from July 20 — EWY (+166.87%), GS (+133.86%), IBM (+49.37%), XOM (+34.93%) — with each name now marked well below its sale price (EWY −57.3%, GS −54.8%, IBM −17.5%, XOM −26.5% since the exit).