Title:   Stocks Face A 'Vicious' Unwind; Which Sectors Win Out?
Show:    The David Lin Report (host David Lin; their "David Squared" series)
Guest:   David Hay (founder, Haymaker Publications; retired co-CIO, Evergreen Gavekal)
Date:    2026-JUN-05
URL:     https://www.youtube.com/watch?v=qUxpYVmsn_Q
Length:  ~41 min
Note:    Auto-transcript, timestamps mm:ss. Saved for personal study. Markets/macro interview on a market-wide
         sell-off (June 5): a severe, under-priced oil/energy supply shock, a deeply bullish natural-gas & coal
         thesis, an over-concentrated "bubble 4.0" US market with a wave of mega-IPO supply (SpaceX/Anthropic),
         and a rotation toward energy, financials, fertilizers, EM, and smaller/mid-caps.

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(00:00) Could the tranks tanks run dry? And in their view, in my view, they sure could. And that's just not being factored into the current price of of oil. How can you have this tech boom without energy? Tech is very energy intensive, and nothing is more energy intensive than these data centers.
(00:16)  What is this intense concentration uh around the world, not just in the US, tell you about investing in 2026? I'm pleased to welcome back the show, David Hay, former CIO of Evergreen Gaffol and author of Haymaker Publications. We'll be getting his take on how the Iran conflict and the closure of the street of has impacted markets and what's next for investors.
(00:35)  Welcome back to the show, David. Good to see you. >> Thanks, David. Always an honor, a privilege to join you. Congratulations on how well your show is doing as usual. >> Privilege is all mine. Thank you very much for coming back on the show. It's good to see uh you're uh doing well and your publication is doing well.
(00:51) Everybody should check out Heymaker Publications link down below. Uh David, let me just start by talking about the allocation of capital right now and how you would prioritize that uh for your portfolio. And um now I know we've talked about treasuries before. At some point you've liked treasuries. Nobody I've talked to currently uh has liked treasuries.
(01:15)  In fact, most people have abandoned the 6040 to go into something else for alternatives. Is the 6040 still relevant for you given how far yields have risen? And by the way, the 30 year the 30-year yield, I believe, is at a 19-year high. >> Yes, you're right. And we've been negative, as you know, on long-term treasuries for actually years, going all the way back to the summer of 2020 when the 10-year Treasury note got down to a yield of like 55 basis points, almost a half a percent, which seemed insane to us. You're raising a good point. I think
(01:47) that it, you know, now we've got the the 10 year at about a 450. It hit 4 almost 470 a week or two ago, the 30 years is at five. So, it's definitely more tempting. And I do think that for a dexterious trader, you could do, you know, a buy, put on some treasuries, long treasuries, uh, kind of as a a hedge against what seems like an awful lot of euphoria and a stock market that doesn't look good on a number of measures.
(02:18)  Now, maybe it's just going to be another one of our little temporary corrections, but you know, if there is a sharp sell off in the market, you could get a nice rally in treasuries. I think those rallies are to be sold. So, I think anybody that buys a 30-year at 5% should realize it's a tactical trade, not something you could buy and put away for years and years and years, unlike say in the early 80s when you could.
(02:37)  So, I I think that you're right. I think there is some appeal there. We tend to prefer emerging market debt still uh because you can get so much higher yields and I think you've got a much more positive fun fundamental backdrop and if you look at the last three or four years those bond markets are making new highs while the developed bond markets are making new lows in price which means new buys in yield.
(03:00)  I mean this is a yield breakout in almost all the developed worlds as you know. So, it's it's a continuation of what has been a multi-year global bond bare market for the rich count so-called rich countries. >> Stock markets are taking a huge hit today on the 5th of June. Now, some of this has to do with the Broadcom selloff that's pulling down the entire tech sector. The S&P is down 2 and a half%.
(03:21) The NASDAQ is down 3.7%. But gold is down three and a half% and Bitcoin is down 6%. It looks like profit taking across all sectors right now. What's going on, you think? Well, Bitcoin is I mean, it's down over 50% now. It's getting slaughtered. And Ethereum is even worse. I mean, there's to me it almost feels like we got a little bit of a global deleveraging cycle going on out of the blue.
(03:46)  And we've had these periodically over the last few years, you know, liberation day and then earlier this year with the uh you know, the war in Iran. So, you you get these periods where people kind of panic and they just sell everything. And so I think that's why you're seeing, you know, the kind of this unified decline.
(04:02) You know, we've been warning particularly in the last couple of weeks that the US stock market was looking a little precarious, at least on a near-term basis with very poor breadth. Uh the VIX was actually going up while the stock market was going up, which was very unusual. Uh on the breadth topic, you had only about 5% of the S&P stocks making new highs as the S&P itself was making new highs.
(04:24)  That's really narrow breadth. Then you've got, of course, this tremendous amount of money that's going to get sucked into these new IPOs uh this summer, 4.5 trillion. Now, it's all going to hit the market at once. And I'm talking about SpaceX. Yeah. >> And Anthropic and there's about four others that are going to suck in trillions. We've never seen it.
(04:42)  If you look at the whole history, we're going to go down that rabbit hole a little bit. The whole history of the US stock market going all the way back to 1792, there's only been 1.5 trillion of IPOs cumulatively. And we're going to do 4.6 six actually I think is the number this summer again it's not all going to hit the market at once because as you're aware there's lockups so the insiders can't sell all at once although they're making it easier for them to they're going to be able to sell it quicker than they normally can or their lockups will
(05:08) be shorter and then you got vesting schedules for the employees and so forth but still there's going to be a tremendous amount of money pulled into those names and it's got to come from somewhere >> would you buy these IPOs by the way so so there's I I okay no clear answer so I've heard that Several people have told me this.
(05:27)  If you buy this IPO, you're exit liquidity for the venture capitalists who already got in. So, you're not early. And these valuations of some of these companies, SpaceX, for example, 100 times earnings, I think, something like that. Um, very, very ridiculous for some of the comments. But then I think to myself, okay, when Tesla IPOed, they were pre-revenue.
(05:45)  Sorry, not pre-revenue, pre-p profofitability. They weren't even making, you know, they weren't even making money. Yet, if you have missed out on that IPO, you would have missed out on one of the biggest gains in tech history. So, I don't know anymore. >> Well, I think that's a good comment. I think we all don't know anymore because this has been such an unparalleled period that we've been going through where valuations are just like, man, there just seems to be no ceiling.
(06:09)  But, of course, when so here's a good example. When Google went public back in 2004, I believe it was right around there, its total valuation, you know, including all the locked up shares was 23 billion. And if you went back and looked at Tesla, probably somewhere in that area. So my point is those things were starting with much much lower valuations.
(06:29)  That's why when you look cumulatively going all the back to all the way back to 1792, there's only been 1.5 trillion of IPOs because they started much lower valuations. Then they if they were a winner, then they exploded. But here we're starting out with enormous valuations. So it's, you know, the margin of error is very skinny. >> Before we continue with the video, I'd like to address one of the fundamental problems of owning gold.
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(07:42)  So visit their website today to get started and learn more. That's monetary-medals.com/lin link in the description down below or scan the QR code here and get your gold to start working for you now. What do you think has changed for the markets permanently, if anything, following the start of the Iran war? Now you have a slide deck uh entitled crude awakening.
(08:07) Now crude has awakened. What are we in for? A crude awakening for the rest of us. >> David, this is our usual David Squared thing. My little joke about our common names and you say crude awakening. >> So the uh you know well let's play of course on the old phrase rude awakening. And the point at this chart is that you know let's just see that the markets don't seem to care at all about this Iran war.
(08:30)  Here's the XLE, the leading energy ETF since the war started back on February 27th. It's up a little bit, hardly at all. It ran up decently to begin with, but it's given most of that back. So, there isn't, you know, a sense of of unease, at least, or at least bullishness on energy. And I think that's just really bizarre given the fact that this is the most severe energy crisis we've ever had.
(08:51)  You know, going back to the 1970s when we had what everybody thought was an energy crisis would never be surpassed. We've lost at least a billion barrels of output and it's likely headed to 1.5 billion. As you know, there was a lot of enthusiasm about peace last week and yet, you know, the Iranians are attacking Kuwait and uh Baharrain and I mean, it doesn't look like this conflict is at all at an end.
(09:16) So, it's a u it's a it's a major supply shock. And I think the the big misconception is how quickly things can return to normal because we're drawing down inventories throughout the whole global system, not just the SPRs, but you know, the floating storage, you know, pipelines are being drained down and tanks are getting low.
(09:35)  We'll talk about that a little bit. So, we're we're really looking at something that we've never seen before. As I said, even in the 1970s, and we've had a there's a belief that before the war there was a huge glut of oil, but that was really because the IEA consistently energy international energy agency consistently underestimated demand.
(09:55)  And they increased right before the war by 1 million barrels a day, which is a big [clears throat] number. According to their calculations, there's some 830 million barrels of oil that's missing. And that's that's how they that's their fudge factor. And they've been wrong just over the years. I mean, over the decades really. And actually Mike Rothman at Cornerstone Analytics has been in a battle with them for that length of time and he gets kudos for being right. They've been wrong.
(10:18)  So basically we've now we've got a situation where 13 to 15% of global supply is offline. It's trapped in the Persian Gulf. That's just enormous. I mean a million barrels a day, 2 million barrels a day in the past was considered to be a huge supply deficit. So as I said, this is worse than 2022 when Russia invaded Ukraine.
(10:38)  there really wasn't much of a supply cut off at all uh the 1990s and even 1970s. So 1990 was when Kuwait was invaded by Saddam Hussein. Uh okay so let's forget what you know people like me are saying how about the real pros like the senior management at Exxon we're approaching unheard of inventory levels unheard of and the draw this is I think a very key point the draw down will persist in the weeks ahead regardless of diplomatic progress just because there now is such a shortage that's been built up over these last three months over three
(11:10) months and basically the CEO of Chevron Mike Worth is saying pretty much the same thing the buffers are out you I think have you ever had Adam Rosenway on your show by the way. >> Rosen swag. >> Have you ever had [clears throat] Adam Rosenwag on your show from Garing and Rosenwag? >> Oh, I have not. No. No. >> He'd be a great guest.
(11:28)  He's very articulate, very smart. They put out every your re your viewers can go to their website and get their free research and they just put out a 44 pager and I know they're not going to read all four 44 pages, but they can scan through. There's some amazing charts. I could recreate a few. It's a great read.
(11:44)  And their point was very similar to what I just quoted from Exxon and Chevron. could the tanks tanks run dry? And in their view, in my view, they sure could. And that's just not being factored into the current price of of oil. They're thinking that we're looking at sustained oil prices of 120 to 150. That is such a radically different view than the consensus.
(12:03)  Now, obviously, they could be wrong, but let's think about why they could be right because the market obviously has been priced for perfection and beyond. So they talk about the complacency that I mentioned earlier and uh we can see that when we get to the term structure of the futures market but they they believe just like Mike Rothman at cornerstone that demand has been running much stronger than popularly believed 105 to 107.
(12:25)  In fact I just saw that cornerstone is saying they think it could be at 109 million barrels a day this year despite the war. Now, there's a problem with that. And of course, you know, here's here's a great example of the tr tank running dry with the US strategic petroleum reserve. So, what we see it's collapsing uh because they're selling so much out of it.
(12:44)  And unfortunately, back after Ukraine, uh there was a big SPR release. Now, some people thought it was politically motivated because even when it became clear that there wasn't going to be a supply shock after the invasion, they continued to dump oil out of the SPR. It turned out to be a very poor move, but um they did it.
(13:05)  So Rothman's sinking 170 180 on oil. I don't I mean I think well here's the point I was trying to make. If you look right below that underlying section, the December 26 futures contract is only pricing oil at 80. And that's very very cheap when we look at it rel on a on a real inflation adjusted basis. And that's basically what this visual shows.
(13:25)  So it shows us here it's really just midpoint. It's, you know, this is going way back to the mid70s. So, it's there's really no premium in there for this being the worst energy shock ever. I find that rather astounding and I think it creates a great opportunity. >> $170 to $180 barrels. Now, what does that do to the economy? What does that do to the markets? At even $100 a barrel, we didn't see the stock markets crater like some people might have expected initially.
(13:54)  And yet, we're at all-time highs barring today's sell-off. So, I wonder if 170 is just going to be another drop in the bucket um for investors who are morely concerned with AI tech earnings than what's happening in the Middle East. >> Well, there's a connection. I mean, that it's a great that you bring that point up and I'm going to talk about that a little bit later if we get to those slides that how are you going to how are you going to power these AI data centers? I don't know if you've seen this, but roughly half of all the AI data centers
(14:21) that are have been announced are being either deferred or cancelled. And it's not because of lack of chips. It's because of lack of energy. And also, you know, populist push back because they don't like what, as we'll see, we've got a a chart coming up of electricity prices, which are starting to look like a tech stock the way they're going up.
(14:41) So, the the solution is to have more energy now. So this isn't really happening at a very convenient time to have this tremendous supply shortage. Now fortunately those data centers are to be powered by natural gas, not oil. And natural gas has stayed remarkably cheap. And that's where I think you've got I mean really I'm more bullish on natural gas longterm than I am even on oil because of the there's just tremendous demand drivers.
(15:07)  You want to skip to gas and look at that? >> Yeah, let's do that. But before that I have one more question on the broad market. So, uh, one of the, um, shifts that happened as a result of higher oil prices to stick your inflation expectations, we saw the, uh, long out of the yield curve go up. But on top of that, expectations for a Fed hike have risen dramatically from basically zero to now 30% by year end.
(15:29)  And so, the question is, why are markets not yet, where perhaps they are, why equity markets in particular, not yet pricing in the chances of a hike? Uh the last time this happened in 2022 when the Fed hiked, stocks really didn't like that yet. Again, all-time highs. >> Well, I just think there's so much momentum, so much money that's coming into the market that but you know, you add up these things and that's certainly a negative and the oil price surge that we've had is a negative and particularly if it continues to go higher, that's a
(16:03) negative. And you know, we talked about this tremendous amount of supply that's coming from these IPOs. I mean, at some point, you know, you get enough straws that it breaks the camel's back. But, you know, one on its own, I don't think just the Fed hiking one time would be, you know, that delletterious to the market.
(16:19)  So, I I I think that's kind of a sideeshow to be honest with you. I think what's happening in the energy world way outweighs the Fed, though it could cause the Fed to tighten a lot more than one time if they really feel like this energy crisis is here to stay. And that's why I think this is such an underappreciated aspect. And I guess before we go to gas, I just want to point out this chart again from Cornerstone Mike Rothman.
(16:41)  And if we're now in basically week 13 going to 14 of the shutdown and what you can see this, if you look at this far right column toward the bottom, we this is basically a billion barrels that we've lost and it looks like it's headed to a billion and a half. And again, at some point, you know, the market can kind of ignore these things for a while, but at some point, you know, reality bites and bank bites hard.
(17:02)  That just shows what I was saying earlier about $80 is the projected price by December. What's interesting too is we're not getting demand destruction yet. Flight data continues to be quite strong. And you know that's that's really what's going to have to happen, David, is because the shortage is so acute, you're going to have to have a major price spike so that you you do get demand destruction until the supply can come back online.
(17:23)  But the problem is, this is from Morgan Downy's, you know, wrote the book Oil 101. Global demand has only contracted year-over-year four times in the last 160 years. One of those, of course, was during COVID when the global economies basically shut down. So, I won't belabor that I already made that point. Uh the Perian is trending down in production.
(17:41) That's huge because that's been uh the main source of US shale growth and US shale growth has been almost all of the global supply growth. Uh then we had a collapse here in oil inventories. But what I really want to do is get to the well this is a positive. This is something that should be noted which is the oil global economy is much less oil intensive than it used to be.
(18:05)  So that's the positive. Uh I think the flip side of that is the developing world of course it gets more affluent and they obviously use more energy. So you're still seeing the demand for energy going up. But let's go to gas hitting the gas. So we talked about this already at these data centers.
(18:21)  So I I don't know if you know these numbers. are pretty staggering if you really drill down. So these are the ones that are under construction right now. It's going to require 37 gawatts of electricity. Now to put that in perspective, each one of those is equivalent to a large scale nuclear plant. So enormous amount of energy needed and then another 146 were the ones that are under firm commitment.
(18:40) Now again, I think a lot of those under firm commitment are going to get cancelled because there's just not going to be enough energy for them. But it is a staggering amount. Even just, you know, if you cut that in half and say, well, 90 of these will get eventually built or, you know, it's going to require 90 gawatts.
(18:56)  Here's what's happen about this a moment ago. What's happening to electricity prices? They're starting to go postal. That's not very popular with the voting public. So, nukes, a lot of talk about loot nukes being fasttracked and I'm a big believer in nuclear energy and there is a renaissance going on. I'm an investor in a couple of these smaller reactor micro reactor companies but really for the next few years gas is the only viable solution and it's cheap.
(19:21)  So what this shows is the discount of US gas to the global market and it's now those are LNG prices in in either Asia that plats is the is Japan Dutch TTF is Europe but you know you're talking 16 $20 per per mm BTU which is loosely equivalent to a gallon of gas. It's actually like one sixth.
(19:43)  There's about six as much energy in a gallon of gas as there is in an MMDTU. I'm sorry, the other way around. It's six times more energy in a gallon of gas. But our the point is that our gas prices are deeply deeply discounted. As Gary and Rosen Swag says, it's a 90% discount. US gas is 90% discount to international prices.
(20:01)  That's just not going to stay. That's just way too big an arbitrage. >> And then you look at, you know, how are people positioned? Are they overly excited about No. No, look at this is the red line shows that actually you've got bearish positioning in US natural gas. And then if you look at Europe, I don't know if you're aware of this, David, but you probably are because you study these pretty closely, but unlike after Ukraine where Europe built up a big gas storage amount, they've let their storage go down and down and down. They've been way
(20:28) too complacent. And then we've got um this is we talked about this a little bit with with Cutter. 20% of global LNG is now offline. gets very little press and these facilities have been severely damaged so they're likely to be offline for an extensive period of time. So, you know, you think about, okay, there's not enough LG in Europe and Asia.
(20:50)  So, they're going to have to take more US LG. There's a number of US LG export facilities, gasification facilities under construction. So, that's going to be a huge demand for natural gas. Then you got the data centers and you got gas still trading in the threes. It's I think people are going to look back and say, "What was I thinking? How did I not load up on natural gas at that point? >> So, is the assumption here that petroleum will stay high uh because of what's going on? And if so, people will flock to alternatives to uh brand and
(21:17) WTI such as natural gas and perhaps down the line uranium. >> Well, I think the gas the bullish gas story is really independent of what's going on with oil. I mean, obviously there's a relationship, but I think where the really direct relationship is this this slide here. We we talked about it. Look at where Cutter is on there.
(21:33) Number two, they're gone. That's gigantic. So now it's really all on the shoulders of the US to, you know, to make up for the drop off in LG exports that was expected from cutter. Now the other thing which I want to talk about briefly is coal. And I've been reluctant to be a buyer of coal in the past because I, you know, it's just so so dirty, so polluting.
(21:56)  And it's not CO2, it's all the, you know, nasty stuff, the NOx and you know, nitrous oxide that is emitted by coal, burning coal. But Asia loves coal and they, you know, they're cut off on LG badly. So, I think you're going to see another spike in coal prices coming up. And if we want to fast forward to that, uh, we can.
(22:15)  I do have a specific idea here. I guess I could stop for a second and just talk about, you know, if you got your viewers want to buy natural gas producers, if they're interested, they should do their own research, of course. But, >> yeah, >> we XE expand energy a lot. It's broken out, but pulled back. It's only trading for about uh 10 times earnings, one and a half times sales.
(22:35)  So very, very reasonably priced. So you're not overpaying like you are for so many other stocks these days. Same thing with uh Range Resources. And by the way, that's also had a breakout recently to a new all-time high or a new I'm sorry, new multi-year high, nine times earnings. That's what the 8.9 shows here.
(22:52)  So these stocks are dirt cheap, just like natural gas is dirt cheap. I think you can make a lot of money on these. But as I say, coal, uh, the Indonesia, I don't know if you saw this, Indonesia is basically saying, "We're not going to allow coal exports." And they're the largest coal exporter in the world.
(23:09)  And of course, they supply Asia, you know, China primarily. So, you're going to have a coal shortage. And that's what a lot of these countries are doing. They're protecting their own domestic interests by saying, "We're not going to allow exports." So, that's big news that doesn't seem to be reflected. Look at the price of coal.
(23:25)  Newcastle coal is here. Here here's back during the Ukraine invasion which is nothing compared to way of now. Now they got crushed after that. Now they're starting to turn back up again. So I think you're going to see a spike in that. And a good way to play that is people are looking for a specific idea.
(23:41)  New Hope Mining which is the large Australian coal miner. And to me this chart looks terrific like it's a coiled spring. It's only 14 times earnings despite depressed coal prices. So anyway, that's pretty much what I wanted to cover with you that, you know, energy is just not in favor. It's it's just like it's like this crisis isn't happening.
(24:00)  These things are priced like they were, you know, for the most part over the last few years when it was when energy we had really no really no catalyst. So that's why I think there's such great opportunity. >> Well, could it really be just as simple as capital has been flowing into the tech companies and just more recently? I mean, over the last week and a half, we've started to see a bit of a rotation away from tech stocks.
(24:19)  uh I think yesterday on Thursday or Wednesday I believe for example the NASDAQ was falling while the Dow Jones rallied 800 points um in a single session. Um so maybe this rotation starting to happen now. Um could it just be that? >> Well I think so. But it may be a catalyst for that rotation is people kind of connecting the dots finally and saying wait a second with with this you know global shortfall of of all forms of energy.
(24:46)  You know what's going to how's how can you have this tech boom without energy but tech is very energy intensive and nothing is more energy intensive than these data centers and as you know that's what's been driving the memory stocks. >> Yeah. So if you that's what I'm saying. If you get a if there's a realization an epiphany that we're not going to have, you know, as let's say we're going to have half as many data centers put into place over the next few years than was assumed, you know, a month or two ago.
(25:13) >> I just want to share my screen uh for a minute. Going back to crude oil, the the um >> uh the history of crude oil has taught us that geopolitical shocks that pushed oil higher usually did not keep oil higher. If you take a look at the u invasion of Ukraine in 2022, uh oil climbed up, fell shortly after uh in the early 90s.
(25:39)  This was Operation Desert Storm. Huge spike came down. there was a secular bull market in oil throughout the 2000s. Um, but you know, it wasn't due to one particular event, I don't think. And my question is why would this time be any different? Because the supply shock is so much more severe. >> Okay. >> And it's, you know, so there's this belief.
(26:04)  So I would admit that let's say tomorrow there is finally a lasting piece which I'm very skeptical about. You know, this is just this on again, off again thing that we've seen for weeks and weeks, if not months. But let's just say there is this miracle. You know, they sign on the dotted line. They actually Iran sticks to their word and and we quit attacking and Israel quits attacking.
(26:21)  It's the belief is oil prices are going to go down. And they will initially, but then the realization is going to sink in. It's going to take a very long time to replenish these inventories that have been drawn down. And it's not just replenishing say the US SPR. There's c countries like Pakistan that never had an SPR. They're saying we want an SPR.
(26:42) You know, we this we've been running the US or I'm sorry, the global energy industry very tight. Yeah. You know, just in time type of thing. Uh the big oil companies have a lot less in their systems than they used to because they've used technology, you know, sophisticated sensors to measure their tank volumes, their pipeline volumes, and so they've been running much leaner than in the past.
(27:03)  But that's dangerous when you got a world that uh I just don't think the world's going to be the same. And I'll say mention something else, David, that worries me and I mean I really I would be horrified if this happens. But you know, one of the reasons that the world has coped with this is because the Saudis east west pipeline that delivers oil away from the Persian Gulf over to the Red Sea where it can get out without being held hostage by the Iranians.
(27:28)  But you know, they're they're pretty good at hitting pipelines with drones. What if they hit that pipeline? It's a long, very exposed pipeline. So to me, there's just been way too much optimism that things are going to return to normal in the energy complex. I think it's going to be the polar opposite of that. >> What happens to the economy once we have persistently high oil, at least for the foreseeable future? Do you think actually our economy today is a little more resilient to such a supply shock and oil shock than maybe in the early
(27:55) 80s or late '7s? In other words, are we less dependent on oil now than before? >> I ran that slide showing the world in general is less energy intensive than it used to be. I think it's very true in the United States. Plus the fact that we've gone from being I mean to answer your question is absolutely we are much less energy shock sensitive than we were in the 1970s.
(28:15)  We being the United States because we are now mostly energy sufficient. I mean, we actually do run a shortage of 2 to three million barrels a day of oil, but then we have lots of natural gas liquids and it's we're, you know, obviously we're the world's largest exporter of natural gas, which is just amazing because we used to be the largest importer.
(28:34)  So I think the US and everybody says this, this is nothing uh you know the blinding bolt of brilliance here that the US is pretty well insulated from this but that doesn't mean that prices aren't going to go a lot higher and that's going to make people not really too happy but I think it's a matter of yeah we'll pay up we we'll have supply.
(28:52)  We're not going to have gas lines in the United States anyway. Now, I think other places you could have, you know, gasoline and particularly jet fuel shortages, but I don't think this, you know, unless we see 200, $250 barrel oil, I don't think this is going to cause a global recession. I think it's just painful and for some countries, it's extremely painful.
(29:13)  But, you know, the other issue is what's happening to fertilizers and food prices. And, you know, there's a there's a major loss of fertilizers because of the shutdown of the straight of ramuse. So, it goes beyond energy, but it's all related. There's a lot of energy that goes into producing agricultural products obviously, but I do think that there's just way too much complacency about this.
(29:32) >> If yields are higher, does that mean we should be going to bonds as a um hedge against inflation? >> Well, I don't know that they're a great inflation hedge, particularly when energy is pushing up consumer prices. But if you believe that higher interest rates along with higher energy prices are going to cause a recession, then typically bond yields come down in recessions, and I do think you're going to get these knee-jerk Pavlovian, as as Jeff Gunlock calls them, Pavlovian rallies when economic data looks weak. But
(30:05) again, I think those are trading rallies you need to sell into because the problem is that in the next recession, the government deficit's going to actually explode and they're going to issue, you know, enormous amounts of debt, government bonds. >> Well, in I don't think the old playbook works as nearly as well as it used to.
(30:22) In a period of rising yields and potentially higher inflation for longer, uh textbook finance would teach us to stay away from risk assets, go defensive and start to collect yield to beat the 3 and a half% whatever CPI is going to be. Uh what what should you be doing in that scenario? >> Well, once again, I think that you have a trading opportunity with some long treasuries.
(30:52)  just wouldn't put too much there. I I much prefer to be in shorter treasuries where you still can be at least roughly even with inflation, but you have the optionality of being able to, you know, redeploy, you know, without having to worry that, oh my gosh, you know, we're going from five to six on the long-term Treasury, which a lot of people think we will and, you know, could have big losses because you you look at these price charts for these major bond markets around the world, they look sick and you can get oversold rallies, you know, where the prices are
(31:20) too low, they rise, the yields come And I think that's, you know, as you alluded to, almost everybody's bearish. So I think it's a pretty good time to make a tactical bet like that. I just probably wouldn't put too much there. >> Uh there's, you know, there is the the tendency for governments when they have a energy shock like this that they, you know, start printing money and, you know, kind of monetizing the energy shock, which is what the US did in the 1970s.
(31:44) >> Yeah. >> So it's unprecedented. >> It's tricky time. When you see WTI at $100 a barrel or close to $100 a barrel, when you see the S&P at new all-time highs, the NASDAQ at new all-time highs, gold having reached new all-time highs, silver reaching over $100 a barrel, copper at new all-time highs, the list goes on and on.
(32:04)  How does the world fit into your bubble 3.0 thesis today? >> Well, that bubble burst. So now, I think you would argue that we're at bubble 4.0. So, the bursting of that bubble happened in 2022. >> Okay. Okay. And it was painful with a lot of the because we really were very negative on the super high multiple stocks and the meme stocks and so forth and those went down 78%.
(32:24)  We're also really negative on things like Dogecoin which got absolutely nuked and is getting nuked again. Uh whereas the Magnificent 7, you know, you can make a valuation case that these things are not that unreasonable and I think that's probably true at least as long as earnings hang in there. Like Nvidia, I mean it's not not a high multiple stock.
(32:39) It's just sales better keep coming through. So that that's a different issue. Uh so I I think that where we're really seeing this speculation, I mean the the whole idea of these space stocks, I mean it's going to be probably decades before there's really meaningful revenue and profits coming from those or at least close to a decade.
(32:59)  It's not going to happen overnight and with with these things when you get so much enthusiasm as you know when reality sets in the price corrections are vicious. I mean you mentioned silver. I mean look what happened and we did say with people we were really bullish on silver back in 2024 25 and then when it went up over 100 we said this looks like a blowoff top to us and it's been crushed and then we put out a trading buy and it rallied and we suggested selling so we we've been playing that but these things can be you know they get caught up in this
(33:27) speculative euphoria they get way overdone and then that when they come down it's just like whoa I had no idea it could go away so fast and there's a lot of woes out there right now things that are just so extended But again, it's very it's become increasingly narrow, which is a classic warning signal. >> Anything in particular outside of some of the energy uh sectors you looked at and talked about that look particularly cheap to you right now that's not overvalued. We're in a bubble.
(33:54) >> Well, I think some of these financials that have come down really hard look pretty intriguing. >> Yeah. >> So that mean they've been lagging the market and they did have a pretty good breakout. And so a lot of times what happens when you get a multi-year breakout is there's an initial pop and then a correction and it caused people to give up on it, but it's still in an uptrend.
(34:12)  I think that's the key thing is look at look at sectors that are in uptrends but have corrected. Uh that's a pretty nice way to make money because you're not overpaying and you know the trend is your friend. They're going up. So I'd say that's one area to look at. I I think China you know for people are willing to look overseas.
(34:30)  the Chinese market had a breakout after being in a horrible long downtrend and then has corrected hard and if there's resolution you know when there it's it's going to happen there's going to be peace in the Middle East and if nothing else they're going to build pipelines so that they're no longer held hostage by Iran but that's going to take a while but uh you know if you're looking for a bounce back when things look better I think China is going to have a very big bounce back like the FXI is a good way to play that not the only way but it's one of them
(34:57) >> if you look around the world actually uh also So uh the top performing sectors or stock markets this year, Korea up more than 90%, Taiwan up more than 50%. Actually, Taiwan's most of Taiwan's stock market is just one stock right now. So >> yeah, and Korea is basically two, Samsung and Heinex.
(35:14)  And that's where we got lucky because we recommended Korean stocks and they even in our newsletter and they went ballistic because of those two stocks. And >> in fact, we actually put out one of our rare sales on the Korean stock market a little early earlier this year, but uh I still think that one's going to get clocked at some point.
(35:28)  What does this intense concentration around the world, not just in the US, tell you about investing in 2026? >> It's hazardous. I mean, that's that's exactly right. It's just whenever you see this kind of narrowness of leadership, it's a big warning signal. >> So, for people who want to be diversified and buy the market, should that mantra fade going forward? Is that because you're no longer buying the market, you're buying a few stocks.
(35:51) >> Well, yeah. The US market now is basically not just looking at Taiwan and South Korea, but the US market is about 50%, you know, basically tech and and kind of stealth tech. >> Yeah. >> So, it's extremely concentrated. That's why I'd be looking at other areas. And >> to me, that's like if you want to play the tech boom, do it with energy.
(36:09) >> The other thing too that's and I didn't really dwell on this too much, but I think it's pretty tricking the fertilizer stocks because they have done nothing. They've been really disappointing and and I think some people are giving up on them because they haven't popped. But I think that's just a matter of time before people realize that kind of like with energy that fertilizer is really in short supply.
(36:29)  So a company like Nutrian you would think would have a nice rally coming up. >> Mhm. >> Definitely a lot of areas to make money in. I mean there's been a lot of lot of serious corrections out there. Think silver at some point could be good again. >> So okay let's talk about that briefly. Silver and gold uh stalling down from the tops early in the year.
(36:45)  Is it coming back soon or is it just uh is is it done? >> Yeah. I I wouldn't say it looks like gold has hit bottom necessarily. I'm a little more leaning that silver in the upper 60s is is kind of the wash out point and it got there and then rallied from like 68 to 90 really quickly. Now it's coming back down closer to the upper 60s.
(37:06)  I think in there it's a it's a decent value. It's it's I know it's hard to get excited when you saw it at 30 bucks not that long ago per ounce, but there the sentiment on these things is really negative. of the open interest is extremely low and you've still got this uh you know the sense of debasement monetary debasement going on around the world and of course silver has got tremendous drivers from you know AI you need silver in a lot of these data centers and of course with the defense I mean every time a missile gets launched there's a bunch of silver that's
(37:34) consumed and so I think silver's got a pretty good demand story with gold of course it's the central banks and wanting to uh to hold that instead of treasuries I think treasuries are I think they're a tarnished reserve asset and I That's a big development. >> Tarnished reserve asset. What does that mean? >> So, the central banks don't really want to hold gold much anymore.
(37:55)  And I'm sorry, treasuries anymore. They'd rather hold gold. And I think so as gold corrects, they're more inclined to be buying gold. And you can see that I mean, Japan was a big seller of treasuries lately. China's been selling treasuries for years. And so, they're kind of losing their preferred reserve out.
(38:11)  I'm not saying the dollar is going to lose its reserve currency status, but uh treasuries are no longer very appealing to central banks and that's a big deal. They were huge buyers for decades. >> Yeah. Just on the central banks uh holding gold. So, as you know, foreign reserves um held in gold have now exceeded foreign reserves held in US dollars or treasuries for the first time.
(38:32)  I actually read a tweet by Mohammad Arian that addressed this and he said most of that had to had to do with just gold revaluation upwards. So maybe for for the exception of a few central banks, particularly China, we didn't actually see central banks piling into gold. It's just that their holdings balloon in value. Um, and that that that makes me wonder if uh gold has just really become more popular as a reserve currency or asset.
(39:02) >> I think it's both. I mean, I I think it's just there's no question that there's been volume accumulation, not just by because of price, but >> sure, >> I can't [clears throat] I can't sign a statistic to you right off the top of my head, but >> it's a little bit counterintuitive that because you did see a tremendous amount of central bank accumulation when gold was in the 2000s and really having it preparing for its big breakout.
(39:27) uh you know it's probably true that as gold went ballistic that there was more of a backing off of the volume accumulation but I believe they continued to buy through that period. >> And then finally do you have a preference for size? Now I've noticed that the Russell has been outperforming the uh S&P uh year to date 12% versus 7 and a.5%.
(39:51) Um, >> yeah, and emerging markets, which has been one of our favorites, has has crushed the S&P again this year after last year, too. Uh, yeah, I think that it's makes sense to kind of go down the the size because you're going to get out of some a lot of those bubble stocks. Uh, the one that we preferred the most is the midcap index.
(40:08)  I don't know if you could pull that up uh to show what that, but I believe that's outperforming the S&P as well. >> What's the ticker for the midcap? >> Try JH. >> There we go. Yeah, that's slightly outperforming as well. >> And and the valuation we got, you know, kind of 15, 16, 17 times earnings, so pretty big discount.
(40:29)  And so that's that's if you want to be in the US market. I think that's a pretty good one to overweight. >> Okay. Excellent. Thank you very much, David. Appreciate your uh pres. >> Yeah. Where can we find uh your work? We want to stay up to date with your writing. >> Hey Maker, it's Substack. Pretty easy to find us there. >> We'll put the link down below.
(40:47)  Hey Maker, Substack. And uh appreciate it once again. I look forward to the next episode of David Squared. Take care for now. >> I hope we get an invite back. I'd love to. And you again >> as always. Bye. >> Thank you for watching. Don't forget to like, subscribe.