David Hay — Making Hay Monday: the Fed's next move & Devon Energy (DVN)
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed." A crisis-response history that concludes the Fed will buy stocks next time — and a doghouse-sector pick to position for it.
One-line take: A two-part MHM. The essay traces the Fed's crisis-response evolution — mark-to-market amplifying the 2008 panic, TARP + its suspension stabilizing it (and netting taxpayers ~$30B on warrants), QE that inflated assets without growth, then the epochal March-2020 corporate-bond backstop that reversed panic with only ~$14B — to argue (via Charles Gave / Walter Bagehot) that in the next crash the Fed will buy equities (perhaps via an SPV, like Hong Kong in 1997), so an overvalued market still has a "Fed put" floor. To minimize fallout, hide in doghouse sectors — above all energy (S&P weight stuck <3% vs a 10–15% historical range). The pick: Devon Energy (DVN) — a clean Delaware-Basin franchise mispriced by the "oil glut" narrative: ~0.8× net-debt/EBITDA, 12–15% FCF yield at $60 Brent, >50% of FCF returned, two new pipelines turning flared "stranded gas" into ~$300M/yr of revenue. On price-to-sales (1.3×) a move to 2× is ~66% upside; even flat prices yield ~10%/yr via dividends + buybacks. Rumors of a Coterra (CTRA) merger bid — which could draw a Chevron counter — "validate" the value. Hay is "more bullish on natural gas than oil, though we like both."
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| DVN | Devon Energy | QT · SA · STK · FA | Positive | The week's Stock Spotlight — a clean, shareholder-friendly Delaware-Basin (Permian) franchise mispriced by the "oil glut" narrative. Q3-2025 output 670k boe/d (+4% YoY), 12–15% FCF yield at $60 Brent, ~0.8× net-debt/EBITDA (one of upstream's cleanest balance sheets), >50% of FCF returned via variable dividends + buybacks ($1.1B repurchased in 2025, ~7.5% shareholder yield). Two new pipelines will convert flared Delaware "stranded gas" into ~$300M/yr of revenue. Trades ~9.9× fwd earnings / ~4× EV/EBITDA, cheaper than EOG and pre-deal Pioneer. On price-to-sales (1.3×), a move to 2× is ~66% upside; 2.6% yield; broke a near-four-year downtrend. Even with flat prices the business delivers >10%/yr through dividends + buybacks. Buy the doghouse sector before the re-rating. | read |
| CTRA | Coterra Energy | QT · SA · STK · FA | Positive | Rumored to be pursuing a merger with DVN — a combination Haymaker thinks "would be highly attractive" (the combined entity ~two-thirds gas / one-third oil). Given a bullish write-up in September 2024 (with AR and EXE); "still fans," up ~10% from that plug. Its aggressive pursuit of DVN "validates our view" of Devon's value; the deal could prompt a Chevron counter-offer. | read |
| AR | Antero Resources | QT · SA · STK · FA | Positive | Recap of a September-2024 bullish write-up (with CTRA and EXE) on the natural-gas thesis; has "performed considerably better" than CTRA since. Cited as a gas-producer winner backing the bullish nattie stance behind the DVN pick. | read |
| EXE | Expand Energy | QT · SA · STK · FA | Positive | Recap of the same September-2024 bullish write-up (with CTRA and AR); also "performed considerably better" than CTRA since. A gas-producer winner reinforcing the natural-gas case behind the DVN pick. | read |
| EOG | EOG Resources | QT · SA · STK · FA | Neutral | Valuation benchmark — trades ~10.5× fwd earnings / ~6.5× EV/EBITDA, above DVN on both, used to show how cheap Devon is (along with the premium Pioneer fetched before Exxon's acquisition). Not a call on EOG. | read |
| CVX | Chevron | QT · SA · STK · FA | Neutral | Cited as a potential counter-bidder — Coterra's pursuit of DVN "could prompt a megaproducer, such as Chevron, to make an offer of its own." A scenario reference (the kind of buyer DVN's quality attracts), not a call on CVX. | read |
References only (no ticker created): Pioneer (the premium it fetched before Exxon bought it, a DVN-valuation comp), Exxon (the Pioneer acquirer), the natural-gas forward strip and "nattie" buy (Sept 2024), Henry Hub, and the energy-sector S&P weighting chart. Cross-references: Charles Gave (the "Euthanasia of the Rentier" paper, Walter Bagehot's lender-of-last-resort doctrine), Louis-Vincent Gave, Harold Hamm (no North Dakota rigs for the first time in 30 years), Hank Paulson, Ben Bernanke, Cornerstone Analytics & the IEA — people/sources, not rows. The bottom Tracked Portfolio renders as an image, so david-hay/portfolio.json is unchanged.
2. Talking points
The 2008 setup — subprime, leverage, and a deadly accounting rule
- "Too big to fail" collapses (Lehman, AIG, WaMu) metastasized from the subprime cataclysm Bernanke had said would "stay in subprime." A new mark-to-market rule — sensible in calm markets — was "like pouring napalm on a raging inferno" in a panic, since thin bank equity can't absorb forced asset markdowns.
AAA-rated junk — tranching and the home-price assumption that failed
- The industry was loaded with AAA CDOs backed by junk mortgages, rated AAA via tranching on the assumption home prices wouldn't fall nationally. They fell 35% (2006–2012); lower tranches were wiped out and even AAA tranches were cut in half, forcing the S&P to its "satanic" 666 bottom in March 2009.
TARP, warrants, and the taxpayer windfall
- Treasury (Paulson) injected capital and cleverly took warrants on bombed-out prices. Hay predicted (and took heat for) a taxpayer windfall — vindicated: banks repaid by 2014 and the government netted ~$30B, averting Depression-style mass failures.
QE that inflated assets but not growth
- Near-zero rates plus trillions of QE — "supposed to be temporary" but lasting years — produced below-trend 2010s growth and quiescent inflation (a "stealth version is now underway; we're told it too will be transitory").
The pandemic — deficits, the bond crash, and the bond-bear pivot
- Multi-trillion deficits "effectively financed by the Fed" drove the 10-year to a 0.53% non-yield by late summer 2020. After 40 years a bond bull, Hay flipped to "a raging bond bear" expecting inflation; long Treasuries then crashed ~50% (2020–2023), the worst short-timeframe bond bear ever.
March 23, 2020 — the $14B that turned the tide
- The Fed's first-ever corporate-bond purchases reversed plunging stock and bond prices "instantaneous and electric" — needing only ~$14B vs the trillions spent elsewhere. It vindicated Hay's earlier "the Fed will buy corporate bonds" call ("I was told this was illegal; my reply: 'Just watch!'") and his unheeded 2008–09 plea to deploy ~$1T into corporates/mortgages at 20% junk yields.
Charles Gave, Bagehot, and the negative Keynesian multiplier
- Gave's "Euthanasia of the Rentier" revives Bagehot: in a crash the central bank should buy illiquid private assets without limit but at a steep discount — non-inflationary because the money is destroyed when firms repay. Hyper-Keynesian policy instead: federal debt +8.3%/yr since 2007 while real growth slowed from 3.2% to 2.3% — "the Keynesian multiplier has gone negative." Over $30T of debt now tempts inflating it away (a key reason hard assets "have gone postal").
The blow-back call — the Fed will buy stocks next time
- In the next crash Hay believes the Fed will buy common stocks (perhaps via a financed SPV). Precedent: Hong Kong became buyer-of-last-resort for HK shares in 1997 (market −60%) and made windfall profits — "one of the best 'trades' in market history." So an overvalued market still has a "Fed put" floor — but it likely takes a pronounced decline or crash to trigger it.
Where to hide — the doghouse, especially energy
- To minimize fallout, focus on sectors already in the doghouse; the poster child is energy. The DVN spotlight is "a prime example of a security we believe offers far more upside than downside."
The "oil glut" narrative vs the data
- Consensus is stuck on surplus (growing inventories, robust non-OPEC supply, Brent low-$60s, >13.2M bpd U.S. output). But much of the inventory build is strategic (China/India stockpiling; Europe pivoting to LNG, paying ~3.7× Henry Hub). The credible Cornerstone Analytics sees 2025 demand ~3M bpd above 2024 and ~2M bpd above the IEA's perennial low-ball.
Natural gas — the more robust demand story
- Gas demand grew 2.7–2.8% in 2024 (fastest since pre-pandemic) on AI data centers, industry, and a liquefaction wave adding ~300 bcm/yr by 2030 — LNG shipments doubling to ~20% of U.S. output, with the U.S. and Qatar the emerging champions (Russia the big loser).
Why Devon separates itself
- Clean Delaware-Basin franchise: Q3-2025 output 670k boe/d (+4%), 12–15% FCF yield at $60 Brent, ~0.8× net-debt/EBITDA, >50% of FCF returned. Two new pipelines convert flared "stranded gas" into ~$300M/yr of revenue. Priced like a speculative E&P (~9.9× fwd earnings / ~4× EV/EBITDA) — cheaper than EOG (10.5× / 6.5×) and pre-deal Pioneer.
Valuation — use price-to-sales for cyclicals
- Because earnings swing with commodity prices, P/S is more reliable: DVN's 1.3× is "extremely attractive," and a move to 2× sales is ~66% upside (plus a 2.6% yield). Even flat prices deliver >10%/yr via dividends + buybacks ($1.1B repurchased in 2025, ~7.5% total shareholder yield). The stock broke a near-four-year downtrend and poked above its moving averages (not yet a breakout).
Consolidation — the CTRA bid and the Hamm signal
- A rumored Coterra/DVN merger (combined ~two-thirds gas) "would be highly attractive" and could draw a Chevron counter. Harold Hamm — no North Dakota rigs "for the first time in over 30 years" ("no need to drill it when margins are basically gone") — signals more such announcements (and maybe OPEC), which could reverse the ubiquitous producer bearishness quickly.
3. In plain English
DVN — Devon Energy Positive
Devon is a U.S. oil-and-gas producer with prime acreage in the Permian Basin. The whole market is convinced there's an oil glut, so energy stocks are deeply unloved — energy is under 3% of the S&P 500 versus 10–15% historically. Hay thinks that pessimism is overdone (a lot of the "extra" oil is China and India deliberately stockpiling, not real oversupply), and that within the sector Devon is one of the best-run, cleanest companies: very low debt, lots of leftover cash, and a policy of handing more than half of that cash back to shareholders through dividends and buybacks. A nice extra kicker: Devon has been forced to burn off ("flare") natural gas it couldn't ship, and two new pipelines will soon let it sell that gas instead — roughly $300 million of new revenue from something it used to waste.
For a company whose profits swing wildly with oil and gas prices, Hay says the fairest yardstick is price-to-sales rather than price-to-earnings; on that measure Devon is cheap, and a return to a normal level would mean roughly 66% upside. And even if oil prices go nowhere, the dividends and buybacks alone pay you about 10% a year. There's also takeover spice: rival Coterra is rumored to be pursuing Devon, which could even draw a counter-bid from a giant like Chevron — and the fact that a savvy competitor wants to buy it "validates" Hay's view that the stock is undervalued. He's a bit more bullish on natural gas than oil, but likes both, and frames Devon as exactly the kind of out-of-favor name to own heading into a jittery market.
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.