David Hay — Making Hay Monday: "The K-Shaped Economy Comes Due"
A year-opening macro manifesto — a 2026 "run-it-hot" stimulus thesis (pliable Fed, fiscal windfalls, the liquidity dam breaking into the real economy) — plus the week's Equity Highlight, Jacobs Solutions (J), a "picks and shovels" play on reindustrialization and the data-center buildout.
One-line take: After a candid mea-culpa scorecard (metals/bonds/energy calls right, the 2022 recession call wrong), Haymaker argues 2026 is set up for "the mother of all mid-term manipulations" — a Trump-driven "run-it-hot" push via a pliable Fed (wants 1% funds vs ~3% inflation, i.e. a deeply negative real rate) and a fiscal flood (bonus depreciation, ~$100B refunds, ~$500B tariff rebates, cash-for-clunkers, an affordable-housing push). With deep-recession-level consumer sentiment (65-yr UMich lows) coexisting with record asset prices — the "K-shaped"/"Special K" economy where the top 10% drive ~50% of spending — the playbook is to own the prime beneficiaries of the stimulus and of Michael Howell's "liquidity dam breaking into the real economy" (Main Street over Wall Street). The week's Equity Highlight is Jacobs Solutions (NYSE: J): record $23B backlog, FY26 EPS $6.90–7.60, forward P/E ~17.7–19.6 (~25% below peers), a ~$230 three-year target vs ~$135. Portfolio notes: trim ⅓ of Helmerich & Payne (HP) after a ~double; dollar-cost-average Petrobras (PBR) to ~1.5%. (The two model-portfolio tables rendered as images on Substack and did not extract — only the H&P/PBR "Note:" lines are captured.)
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| J | Jacobs Solutions | QT · SA · STK · FA | Positive | The week's Equity Highlight (first written up April 2024) — a "picks and shovels" play on US reindustrialization and the hyperscaler/data-center capex boom. Record backlog >$23B (+14% YoY, 1.2x book-to-bill), FY26 guide adj. revenue +6–10% and EPS $6.90–7.60 (mid-teens growth), forward P/E ~17.7–19.6 (~25% below large-cap peers) despite a cleaner balance sheet; Value Line 90/100 earnings-predictability, ~$10 EPS by 2029 → ~$230 three-year target vs ~$135 today. Cost-plus discipline (avoids fixed-price turnkey work) vs peers that took write-downs; ~$1.1B returned (≈3% of shares retired), ~1.1% yield. A prime "run-it-hot" beneficiary. | read |
| XLE | Energy Select Sector SPDR (ETF) | QT · SA · STK | Positive | Energy has roughly doubled the S&P's total return since the start of 2021, yet the sector is still less than 3% of the S&P 500 — "barely over one-third of Nvidia's capitalization alone" — and "remains brimming with bargain-priced stocks" (the list shrank a bit after a one-day oil-service explosion). The relative-weight bargain screen. | read |
| PBR | Petrobras | QT · SA · STK · FA | Positive | Income-portfolio note — PBR has declined from $12.70 at the initial recommendation to $11.72; Haymaker reiterated dollar-cost-averaging into it last week and now lifts the target allocation to roughly 1.5% (150 basis points). Add on weakness. | read |
| HP | Helmerich & Payne | QT · SA · STK · FA | Neutral | Growth-portfolio note — H&P has roughly doubled ($15.20 → $30.94) since the June-30 SLB→HP swap, "regaining far more than the hit on SLB." Haymaker now suggests selling one-third of HP "to capitalize on the massive move." A profit-taking trim, not a sell-out. | read |
| SLB | Schlumberger | QT · SA · STK · FA | Negative | Referenced as the funding source for the swap — back on June 30 Haymaker sold ½ of SLB at a loss of ~$6/share ($42 → $36, ~14%) and rotated the proceeds into H&P. Cited here only to recount that reduced position, not a fresh buy. | read |
Referenced only as peers / cautionary names, not as ticker rows: Fluor (FLR) and Bechtel (private) — fixed-price E&C contrasts to Jacobs' cost-plus discipline; Morrison-Knudsen and Westinghouse — E&C firms that "went the way of all flesh" after taking massive fixed-price projects. Nvidia (NVDA) appears only as a market-cap yardstick (energy <3% of the S&P ≈ one-third of Nvidia alone), not as a view.
2. Talking points
Mea culpa — the scorecard
- Owns up to over-confident "predictive declarations" in unprecedented post-Covid conditions. Calls that worked: repeated urging of precious-metals and miner exposure; accumulating industrial metals (palladium, copper, more recently aluminum); a "table-pounding" energy buy at end-2020; and "almost totally spot-on" bond calls — very bearish on long Treasuries from mid-2020 into early 2022, anticipating "one of the worst bear markets in bond history" and the inflation eruption (chronicled in the elder Haymaker's book Bubble 3.0).
- The big miss: agreeing with the 2022 consensus that a recession was likely (Russia's invasion + commodity spike + aggressive late Fed tightening). Exculpatory: the earnings recession he predicted did happen, and by 2023 he saw that $2T deficits were masking what would otherwise have been a normal private-sector downturn.
65 years of consumer pessimism — recession-level sentiment
- University of Michigan consumer surveys (chosen because they go back 65 years, to JFK) show consumers think "we have been in a brutal recession… and still are" — as pessimistic as in past recessions including 2008, 1981, 1974, 1970, several of which were "whopper bear markets" (GaveKal's Charles Gave's Ursus Magnus).
The "Special K" economy
- How can robust GDP and a record-priced market coexist with deep-recession sentiment? A "K-shaped" recovery: affluent consumers (the upper, smaller arm of the K, and most of the investor base) are fine, enriched by 17 years of asset inflation; the majority are not. The top 10% of earners drive ~50% of consumer spending.
- Caveat: feelings vs behavior diverge — "when Americans feel blue, they spend." One reading is we're one bear market away from high-end consumers joining the gloom (which could tip the economy quickly); the market may now lead the economy, not vice versa.
2026 — the mother of all mid-term manipulations
- With dismal approval ratings and "palpable" desperation, Trump is "VERY likely to pull out all the stops to stoke the economy over the next 10 months" into the mid-terms.
The monetary side — a pliable Fed
- Trump is preparing to name a Fed chair "who will do his bidding"; on record wanting a 1% fed funds rate despite ~3% inflation — i.e. a "most inflationary" negative real rate near −2%. Even a puppet likely won't cut that far, but short rates are heading lower.
- The catch: long rates on bonds and mortgages have been rising even as the Fed cut 175 bps since summer 2024 — "a totally different story." (Take the 2.7% CPI print "with a big shaker of salt.")
The fiscal side — stimulus flood
- Bonus depreciation for business, unusually large tax refunds (~$100B), and — barring a Supreme Court block — ~$500B of tariff rebates to individuals earning ≤$100k.
- Supporting factors: surging AI spend; multi-trillions in US reindustrialization (incl. foreign investment); an "en fuego" gig economy; inflation-adjusted oil among the lowest in decades during an expansion; depressed foodstuffs (ex-meat); and a potentially much weaker dollar aiding exporters.
- Offsets acknowledged: double-digit health-insurance, auto-coverage and utility inflation; still-unaffordable housing and autos. But watch for a revived cash-for-clunkers and a multi-trillion, multi-year affordable-housing push (rare bipartisan support; aimed at Millennials/Gen Z).
Not a confident boom — an inflationary one
- Even if the stimulus lands, the likely outcome is an "inflationary boom," with the first part more durable than the second. A CPI spike may be deferred until after the mid-terms (with "guidance" to the BLS). What he is confident of: the administration will give "injecting the economy with a hefty dose of amphetamines its best shot" — so hunt the "run-it-hot" beneficiaries.
Howell's liquidity dam — Main Street over Wall Street
- Liquidity expert Michael Howell sees the liquidity dam — contained mostly within financial markets — "breaking and flooding into the real economy." If right, it has "an excellent chance of reviving Main Street at the expense of Wall Street."
Equity Highlight — Jacobs Solutions (J)
- An overlooked premier engineering & construction firm at the intersection of public infrastructure, clean-energy buildout, advanced manufacturing and data-center construction; ~$17B market cap, ~$18B EV (little net debt). Record backlog >$23B (+14% YoY, 1.2x book-to-bill = future-growth tailwind); Q3 FY25 revenue +5–7%, adj. net revenue +7%, EBITDA +14%; FY26 guide adj. revenue +6–10%, EPS $6.90–7.60 (mid-teens growth).
- Valuation disconnect: trailing P/E reads 39–52× (nonrecurring charges from exiting low-margin lines), but forward P/E compresses to 17.7–19.6 — ~25% below large-cap peers despite better backlog and a cleaner balance sheet. Value Line: ~$10 EPS by 2029 → a low-20s multiple = ~$230 three-year target vs ~$135 today; 90/100 earnings-predictability ("Buffett kept a Value Line binder on his desk"). PEG ~0.5–1.5, EV/EBITDA ~14× (below the 15–18× quality range), guided EBITDA margin 14.4–14.7%.
- Quality angle: from inception Jacobs avoided "lump-sum"/fixed-price turnkey work (founder Joseph Jacobs called it "unprofessional… gambling with the company's future") in favor of cost-plus/professional-services contracts — unlike peers (and now-defunct names like Morrison-Knudsen, Westinghouse) that took ruinous fixed-price write-downs. ~$1.1B returned via dividends/buybacks (≈3% of shares retired), ~1.1% yield; should get "a material uplift from the run-it-hot scenarios." "The literal foundation under the next leg of the AI trade."
Portfolio notes — SLB→HP swap (trim HP) and PBR DCA
- Growth portfolio: the June-30 sale of ½ SLB at ~14% loss ($42→$36) was swapped into H&P, which then ~doubled ($15.20→$30.94). Now sell one-third of HP to capitalize on the move.
- Income portfolio: PBR slipped $12.70→$11.72; dollar-cost-average and raise the allocation to ~1.5% (150 bps). (Both model-portfolio tables rendered as images and did not extract — only these notes are available.)
3. In plain English
J — Jacobs Solutions Positive
Jacobs is an engineering and construction firm — the people who design and project-manage big physical things: public infrastructure, factories, water systems, and, increasingly, the giant data centers that house AI chips. Haymaker's pitch is that it's a boring "picks and shovels" way to profit from two huge spending waves — America re-building its industrial base, and the hyperscalers pouring money into data centers — without betting on any one chip or AI app. Someone has to design and engineer the buildings that power and cool the servers, and Jacobs is already doing that work.
Why now: it has a record order book (over $23B, growing 14%, with new orders outpacing what it's billing — a sign of future growth), and management expects per-share earnings of roughly $6.90–7.60 next year. The stock looks expensive on backward-looking earnings only because of one-time charges from exiting weak business lines; on next year's earnings it trades around 18× — about a quarter cheaper than rivals — and Haymaker sees it reaching ~$230 in three years from ~$135 today. A key quality marker: Jacobs deliberately avoids "fixed-price" contracts (where the builder eats any cost overrun — the kind of work that bankrupted competitors); it prefers "cost-plus" deals where the client covers actual costs plus a fee, so it stays profitable even when projects balloon. It also buys back stock and pays a small (~1.1%) dividend. In short: a cheap, well-run beneficiary of the reindustrialization and AI-infrastructure boom.
XLE — Energy Select Sector SPDR Positive
XLE is an ETF that owns the big US energy companies in one basket. Haymaker's point is a contrarian, relative-size one: energy stocks have actually roughly doubled the S&P 500's total return since early 2021, yet the whole sector is now less than 3% of the index — about a third the size of Nvidia by itself. That neglect, he argues, means the group is "brimming with bargain-priced stocks." It's a way to lean into a cheap, under-owned corner of the market that the index-obsessed crowd is ignoring.
HP — Helmerich & Payne Neutral
Helmerich & Payne is a major land-drilling contractor (it rents out drilling rigs to oil producers). Haymaker had swapped into it from Schlumberger last summer, and the position has roughly doubled (about $15 to $31). This isn't a new buy or a bearish call — it's profit-taking discipline: after a double, sell one-third to lock in part of the gain while keeping exposure. A trim, not a sell-out.
PBR — Petrobras Positive
Petrobras is Brazil's state-controlled oil giant, a long-standing Haymaker income holding. The stock has drifted lower (about $12.70 to $11.72), and rather than retreat, Haymaker is leaning in — dollar-cost-averaging (buying gradually over time to lower the average cost) and raising the target position size to about 1.5% of the income portfolio. A deliberate "add on weakness" call.
SLB — Schlumberger Negative
Schlumberger is the world's largest oilfield-services company. It comes up here only as the source of cash for last summer's swap: Haymaker had sold half the position at about a 14% loss ($42 to $36) and moved the money into Helmerich & Payne — which then doubled. So in this post SLB is the reduced, funding-side leg of that trade, not a fresh recommendation.
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.