Title: Making Hay (Almost) Monday — January 20th, 2026: "Lessons Learned In the Fullness of Time"
Show: Haymaker — Making Hay Monday
Author: David "The Haymaker" Hay
Date: 2026-JAN-20
URL: https://haymaker.substack.com/p/making-hay-almost-monday-january-1d4
Length: written post (PAID), no timestamps
Note: Cleaned body captured for personal study; verbatim where quoted. Charts/financial tables and the bottom Tracked Portfolio render as images and are not reproduced. Themed essay (Fed crisis-response history → a "Fed will buy stocks next crisis" call) + a Stock Spotlight on Devon Energy (DVN).

"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." — John Stuart Mill, as recently reprised by Charles Gave

PART 1 — Lessons Learned In the Fullness of Time

MH(A)M Summary:
- During the 2007-2009 Global Financial Crisis, the financial system nearly collapsed due to subprime mortgages, excessive leverage, and flawed assumptions about housing prices never falling nationally.
- Mark-to-market accounting, introduced just before the crisis, amplified panic by forcing banks to recognize massive paper losses, pushing even healthy institutions toward perceived insolvency.
- Government intervention through TARP, combined with suspending mark-to-market rules, ultimately stabilized the system and even generated a profit for taxpayers, but only after severe economic damage.
- In the aftermath, years of ultra-low interest rates and quantitative easing failed to produce strong growth, instead inflating asset prices and widening wealth inequality.
- The pandemic triggered an even more extreme response: massive fiscal deficits financed by the Fed, which crushed bond yields and later ignited inflation, leading to one of the worst bond bear markets in history.
- A pivotal but underappreciated moment came in March 2020, when the Fed, for the first time, bought corporate bonds and instantly reversed market panic with relatively little capital.
- Looking ahead, in the next major crisis, the Fed is likely to go even further (potentially supporting equity markets directly), reinforcing the idea of a persistent "Fed put" under risk assets.

The senior-citizen Haymaker signs his name to this intro. Going back about 17 years: the events of 2007 through early 2009 were unlike anything I had witnessed in nearly 30 years in the industry. The world's financial system came perilously close to imploding. The serial collapses of "too big to fail" firms (Lehman, AIG, Washington Mutual) set off a chain reaction. The culprit was the sub-prime mortgage cataclysm. In summer 2007, Fed-head Ben Bernanke assured the world that what was happening in sub-prime would stay in sub-prime. A year later that hopeful view was dead wrong.

A new accounting rule had recently gone into effect requiring financial institutions to "mark their assets to market." This seemed sensible under normal conditions. Yet in an utter panic it was like pouring napalm on a raging inferno. Banks and insurers have relatively skinny equity capital relative to balance sheets, so it doesn't require much of a price drop to threaten solvency. The industry was loaded up on AAA-rated CDOs whose underlying collateral was basically junk mortgages. They carried AAA ratings because of tranching. A fundamental and dangerous assumption was that home prices would not fall nationally. Yet from 2007 to 2011 they fell precipitously — the 20-City Composite crashed 35% from the 2006 peak to the 2012 trough.

The lower-rated buffers of many sub-prime CDOs were wiped out, and even the AAA tranches were in many cases cut in half. Forced liquidations spread into high-quality realms; below-investment-grade corporate bonds were nuked, with yields spiking over 20% and credit spreads hitting Great Depression levels. With mark-to-market rules in force, some speculated every bank and insurer was effectively in negative equity in early 2009. The S&P 500 fell to the "satanic" bottom of 666 in March 2009, less than 10% of its current level.

The U.S. Treasury under Hank Paulson injected capital into banks and insurers, cleverly receiving warrants (call options) on the bombed-out prices. My belief (for which I took heat) was this would lead to a windfall for taxpayers — vindicated a few years later. The banking industry repaid all its loans by 2014 and the government netted a profit of around $30 billion. More importantly, it avoided a repeat of the Great Depression's mass bank failures. The combination of TARP and the mark-to-market suspension did the trick.

Despite rates being eliminated, the lackluster recovery pushed the Fed to launch its now-infamous QE programs, supposedly temporary but lasting years. (A stealth version is now underway; we're told it too will be transitory.) Despite a decade of unparalleled stimulus, the 2010s saw below-trend growth and quiescent inflation. Then came the pandemic.

The U.S. ran multi-trillion annual deficits effectively financed by the Fed (a fig leaf: the big banks did the bond-buying using Fed-fabricated trillions). The 10-year Treasury yield fell to essentially a non-yield of 0.53% by late summer 2020. After 40 years a bond bull, this caused me to do a complete 180 and become a raging bond bear, convinced inflation was set to erupt. Long-term Treasuries crashed nearly 50% from 2020 through 2023 — the worst bear market ever for long government bonds in such a short timeframe.

Lost in the dislocations: on March 23, 2020, the Fed announced that, for the first time ever, it would use its Magical Money Machine to buy corporate bonds. The impact was instantaneous and electric — plunging stock and corporate bond prices immediately rallied. In contrast to the trillions expended during/after the Great Recession and post-Covid, it only needed to invest around $14 billion in 2020 to turn the tide. This vindicated a prediction I'd made years prior that the Fed would buy corporate bonds in the next panic (I was told this was illegal; my reply: "Just watch!"). It also validated a plea I made in 2008-2009 in the Evergreen Virtual Advisor (EVA) for the Fed and Treasury to invest (not spend) as much as $1 trillion in corporate bonds and high-grade mortgages when junk yielded 20%+ — they could have made a killing for taxpayers while stopping the meltdown almost overnight, eliminating the need for years of de facto money printing that inflated asset prices and exacerbated the wealth divide.

What brought this back was a paper by the venerable Charles Gave (father of my friend Louis-Vincent Gave), "The Euthanasia of the Rentier." Charles compared two ways governments respond to crises. The first, advocated in the 1800s by UK journalist Walter Bagehot (editor-in-chief of The Economist): "in a market crash the central bank should buy the illiquid asset of the private sector without limit but at a significant cost to the holder (i.e., a steep discount)." He added that a central bank buying corporate debt when, for example, real yields on BBB-rated bonds move above 5% leads to a temporary money-supply increase that need not be inflationary, since it is destroyed when the corporations repay their debts. That is what happened with TARP. But it took time, and the economic damage lasted for years.

Had Bagehot's advice been followed in October 2008, when investment-grade corporates yielded roughly 10% (about 8% above inflation, way over Bagehot's 5% threshold), the carnage would likely have been immediately contained, as in 2020. Instead, the West engaged in hyper-Keynesian policies. Since the GFC federal deficit spending has gone bonkers. Despite federal debt increasing at an 8.3% annual rate since 2007, real growth slowed from 3.2% per year before the crisis to 2.3% since — Charles observes the Keynesian multiplier has gone negative. We now have over $30 trillion of debt to service. The temptation to use depreciated dollars to finance it is almost certainly a key reason so many hard assets — especially the monetary metals — have gone postal of late.

The overarching point: the misguided reaction to the GFC was the prime factor in creating today's mess — extreme indebtedness, inflated asset prices, and emerging class warfare.

But here's an equity-market point certain to produce blow-back: in the next crisis/market crash, I believe the Fed will buy common stocks. It may not do so directly but via some Special Purpose Vehicle it finances; the effect will be the same. Hong Kong became the buyer of last resort for HK shares in 1997 during the Asian crisis when its market crashed 60%, generating windfall profits — now considered one of the best "trades" in market history. Therefore, even though the present U.S. stock market is extremely overvalued, there is likely to be a floor under it — the latest iteration of the "Fed Put." Yet it's likely to take a pronounced decline, or even a crash, to catalyze that plunge-protection reaction.

To best minimize the fallout, you might focus on sectors already in the investment community's doghouse. The poster child is energy. In this week's stock highlight, we give a prime example of a security we believe offers far more upside than downside. Should conditions devolve into a panic, the good news is the Fed and Treasury have learned a costly but valuable lesson on preventing a sector-specific problem from threatening the entire system.

— David "The Haymaker" Hay

PART 2 — Stock Spotlight: Devon Energy (DVN)

(Upon largely finishing this piece, rumors surfaced that Devon Energy may agree to merge with Coterra Energy (CTRA). Such a deal would massively shake up the energy landscape. We think Coterra's bid could prompt a megaproducer, such as Chevron, to make an offer of its own. That CTRA is aggressively pursuing DVN validates our view that it is an extremely valuable producer with solid fundamentals and a phenomenal track record.)

Team Haymaker has had Devon Energy (DVN) circled on our watchlist for a while, but it kept getting bumped for names with louder near-term catalysts. While the market stays fixated on oil-surplus headlines, Devon has quietly assembled one of the cleanest, most shareholder-friendly franchises in the upstream space. At current levels we believe the stock is meaningfully mispriced, and the reason is largely narrative-driven.

Right now the consensus oil story is stuck on surplus: global inventories "growing," robust non-OPEC supply, Brent in the low $60s, U.S. output above 13.2 million bpd even after declining rig counts. So shorts accumulate and energy investment shrinks. But the tale frays on closer look. A meaningful portion of the inventory build is strategic, not commercial — China and India are stockpiling aggressively, while Europe pivots toward longer-term LNG contracts to reduce reliance on Russian gas. Gas in Europe trades for roughly 3.7 times the Henry Hub price.

Demand is holding up better than the bear case suggests. The IEA projects global oil consumption rising ~830,000 bpd in 2025 and another ~860,000 bpd in 2026. The far more credible Cornerstone Analytics believes 2025 demand growth will be roughly 3 million bpd above 2024 and around 2 million bpd higher than the IEA's low-ball forecast. Natural gas demand is even more robust, growing 2.7-2.8% in 2024 (fastest since before the pandemic), driven by AI data-center power needs, industrial use, and a wave of new liquefaction capacity adding nearly 300 billion cubic meters per year by 2030 — LNG shipments will double by then, ~20% of total U.S. gas output. America is already the world's largest gas exporter; Russia is a big loser, the U.S. and Qatar the emerging champions.

That backdrop is precisely where Devon (DVN) separates itself. It produces significant stranded gas from its Delaware Basin reserve base (a sub-formation of the Permian). For years it has been forced to flare this gas. Two new pipelines coming on stream will let it ship to the Gulf Coast, converting wasted gas into a significant revenue contributor — a back-of-the-envelope ~$300 million per year.

On crude, Q3 2025 production averaged 670,000 barrels of oil equivalent per day, up 4% YoY, with FCF yield landing between 12% and 15% at $60 Brent. Net debt to EBITDA sits at a very comfortable ~0.8x, one of the cleanest balance sheets in upstream. The return-of-capital policy remains aggressive: more than 50% of FCF flows back via variable dividends and buybacks.

Devon trades around 9.9x forward earnings and roughly 4x EV/EBITDA. Compare EOG Resources at closer to 10.5x forward earnings and 6.5x EBITDA, or the premium Pioneer fetched before Exxon's acquisition. Even Coterra, with greater gas exposure, trades above DVN on both metrics. The market continues to price DVN as if it were a speculative E&P swinging for the fences on volume; the financials describe a disciplined, high-return Delaware Basin developer.

Consensus 2026 earnings and FCF estimates strike us as overly conservative; management uses a FCF projection of $3.1 billion for this year versus the Bloomberg number of just $2.644 billion. As we often express with cyclicals, a more reliable valuation metric than P/E or P/FCF is price-to-sales, because earnings are temporarily inflated or depressed by commodity prices. On P/S the current 1.3x is extremely attractive; a move back to two times sales would create a stock-price increase of about 66%. It also yields 2.6%.

This is not a breakout situation, but DVN's share price has broken the downtrend in place for almost four years and poked above its moving averages.

Unlike oil, gas producers can make good money at $3 to $3.50 per MMBtu. Based on surging demand for cheap American gas, the LNG export explosion, and AI data-center power needs, we believe gas prices are poised to run up hard again. They did so after our table-pounding "nattie" buy in September 2024, and we like the current setup a lot.

Despite energy's criticality, the sector's S&P 500 weighting remains stuck below 3%, way under its historical 10-15% range and roughly one-third of the 8.3% it held a little over a decade ago. That reflects two decades of divestment, ESG pressures, and a tech-tilted capital cycle. But geopolitics and infrastructure policy increasingly treat reliable hydrocarbons as a strategic necessity — LNG contracts stretching to 20+ years, Europe rebuilding energy security around dependability, China locking up long-term supply. These are sovereign-level hedges, precisely the conditions that historically force a re-rating of high-quality supply-side assets.

If the forward oil curve holds (or ticks into the high $60s), Devon should re-rate from compressed levels. But even with flat prices the business can deliver over 10% annual returns through dividends and buybacks alone. In 2025 Devon repurchased roughly $1.1 billion of stock, and with dividends delivered a ~7.5% shareholder yield.

While we don't know if Coterra (CTRA) and DVN will actually merge, the combination would be highly attractive. We gave CTRA a bullish write-up in September 2024, along with Antero Resources (AR) and Expand Energy (EXE); we're still fans. CTRA is up about 10% from that plug, but AR and EXE have performed considerably better. A DVN deal makes sense partly because the combined entity would be about two-thirds gas and one-third oil. We continue to be more bullish on natural gas than oil, though we like both. A CTRA/DVN combination would continue energy-sector consolidation, a bullish development.

Among the most significant recent comments was Harold Hamm's: "This will be the first time in over 30 years that Harold Hamm has not had an operation with drilling rigs in North Dakota. That tells you a whole lot right there. There's no need to drill it when margins are basically gone." We predict a flurry of similar announcements from key executives, and suspect OPEC might say something similar. If so, the ubiquitous bearishness toward producers may reverse quickly. Among the possible pivots: Trump's reiterated desire to force oil to the production-destroying level of $50 — for America's long-term energy supply, a pivot away from that would be most welcome.

Note: We are adopting a different format for our favorite ideas, to include buys and strong buys ("SB"), segregated between growth and income positions.

— The Haymaker Team