Transcription
David Hunter, contrarian macro strategist. Welcome to the competent investor. Thanks for joining me.
>> Hey Tom, good to see you again.
>> David, you and I have been speaking for over five years now. I can't believe that. And in that time, you've been consistent in calling for a meltup scenario that keeps, you know, to be fair, keeps on getting pushed higher and higher, way higher than many people thought it could. I mean, certainly you and I, I think so. Let's start with your targets at this point for how high you think the markets have yet to go here.
>> Okay. I raised targets because I don't think we've talked in a while. I raised targets, uh, in my fourth quarter letter back in early October, uh, for the equity markets. Um, I raised my S&P target to 9500. Uh, had raised it back after the April swoon, right at the bottom, uh, to 8,700 from 8,000. And then with the move we saw over the summer and into the fall, um, it looked like there were legs, so I raised it to 9500. Um, my NASDAQ target now is 32,000. I've been raised in October from 30,000. Um, my, um, Dow target was raised from, um, I think it was 60 to 65,000. And my, um, my Russell target is, which is the most aggressive of all, is 3,800 now. So, it had been 3,400 and I raised to 38. So, um, I, I feel like those are good numbers at this point. I didn't change them in my January letter. Um, I, I think obviously they're still 40 and in Russell's case, maybe, um, more than 40% away. Um, but, um, I do think, um, we're going to see that kind of a final steep run into the top.
>> So David, what do you see as a, as a catalyst for, let's say, ringing the the bell at the top here?
>> Yeah, for me, what will probably, um, convince me it's time to exit stage left or whatever, um, is going to be, um, sentiment. You know, and we, we are seeing sentiment obviously move up, as I've said for a couple of years now, you know, from the October 2022 low. Um, most of the institutional investors fought this market all the way up until very recently. I mean, even when they were, you know, giving higher numbers for their year-ahead numbers, um, they were kind of couching it in very, um, cautious language. And they're, you know, they're mostly fully invested, probably, but they're more defensively invested. And they, you know, they had one worry or another that always was there. So, every, and every time we saw a sell-off of, you know, 3, 4, 5%, um, they got bearish again, or at least started talking more negatively. So, the wall of worry got rebuilt.
>> Now, we're at the point where I think you have more and more of the institutions getting on board the bullish bandwagon. Um, and as we move up, and retail's been surprising, even from the April swoon, last, last April, um, retail bought down there, whereas the institutions were going negative and selling. Uh, and, you know, the strategists out there, I was one of the few that I raised targets when that happened. Um, most, most of the strategists on the street were lowering targets and saying the tops in. Some were really getting very negative. Um, retail stayed pretty resilient,
>> bought into that, saw it as an opportunity, and they've remained pretty bullish all the way through. So,
>> it's more the institutions that are getting on board. Now, I think, uh, in the next, you know, three, four, five months ahead, um, we're going to see that that sentiment move to a level where I'm going to become uncomfortable for the first time in a long time. I mean, I, I think, uh, for the first time in, in this cycle from 2022, it'll be the first time where I'll be starting to talk about, you know, this thing's getting very, very extended.
>> Mhm.
>> David, when we think about, let's say, what what comes next, you know, you, you've called for a, a global bust, um, several times here. What, what do you think? I mean, to, to kind of reiterate this question, what, what do you think is the, let's say, the catalyst for that, for that bell at the top? You know, is it, is it implosions of these sovereign debt bubbles, like, you know, maybe the, the yen carry trade? Is it sentiment starting to recognize its, its own overbullishness or overzealousness? What, what do you think that is?
>> Yeah, so the bust refers to the economy and the financial system, as opposed to the market. You know, I'm, I'm calling for potentially an 80% bear. So, they, they go hand in hand. Um, the bust itself, I think there are several, uh, potential catalysts. Certainly, Japan is one. Um, China's, even though they're seeing some uptick lately, China's still got lots of problems. Um, you know, even, even Xi, I think, has some problems. Uh, you know, they just had to, um, they just basically took out a bunch of the military leaders. Um, so, there's always those potentials out there. I think the one you need to focus on is really Europe. Um, and I think their banks are in rough shape, as, as are some of the others. I mean, the, the Asian banks. Um, Japan's, you know, got the risks because of what's going on over there. Um, China, certainly, even though it's a closed economy, you never know what's going to happen. Um, so, uh, basically, it comes back to, for me, the reason I've talked about a bust for so many years is it comes back to the fact that we are so far above the debt levels we had in 2008, '09. Um, you know, we're, we're so much more extended leverage-wise. Uh, and leverage works both ways. It helps enhance on the upside, but when you get a recession, it really can exacerbate. And I worry, even though our banks are in better shape than they were in 2008, by far, I mean, they were forced to decapitalize, to deleverage, um, give them more capital, but deleverage. Um, and, but you look at Canada, Canada didn't learn our lessons. They basically are where we were then. You know, their real estate is a, a problem. And, um, their balance sheets are not what they were in 2008. Um, Europe, I think there's several big European banks that I think have, have risk. Um, so, I think it's more likely to come out of one of those areas, Europe in particular, but it could be, you know, uh, some of these other areas than it is the US. But the US, obviously, you know, we're, we're a small world now. Um, and counterparty risk and everything else. Our banks will not skate through that. They'll be hit pretty hard. So, so I think that's probably the biggest thing is leverage. As I've said for a while, um, nobody talks about it, but under the surface, you know, the statistics look great coming out of the pandemic. Looks like we were fully recovered. Under the surface, a lot of things didn't recover. There's a lot of fragility in the system, I think, because you, you know, we closed down the entire world for a quarter and then printed our way out of it. A lot, a lot of small businesses in this country and a lot of, I'm sure around, around the world, there's a lot of fragility. So, as this thing rolls over, I think some of that will start showing up. Um, you know, as I say, when the, when the tide goes out, you start seeing the things under the surface. Um, I, I think those are big things. And then the, the other big one that always seems to be a part of a downturn is Fed policy and central bank policy. And I think it's, you're hearing, you're, you're kind of seeing it if you, if you look. I mean, you know, I don't study true inflation's numbers to know exactly what the difference is, but you got true lifeflation showing what I think is really more likely happening, which is we are, we are moving towards, we're inflation's coming down, we are moving towards deflation. Um, and yet, you've got central banks around the world, and particularly our central bank and our, um, Fed leader, much more concerned about inflation. And that's classically what central banks do is miss something at a turning point and and zig when they should have zagged. And and so, I think, um, a Fed policy era is is very likely here. Now, you can look, and I've been very, um, defensively supportive of of Powell in terms of everybody's criticizing him, particularly the president, but many others for, um, for what the Fed is doing. And I go, but step back, you, I've been the first one to say rates would be coming down faster, etc. But you look at the economy and you go, how can you fault him? He's brought inflation down from, you know, high single, double digits to below 3%. And although everybody kept pushing him to cut rates, he kind of did it more, more carefully. And right now, you can't fault him. Now, that doesn't mean because I do believe that when we look forward, there's a lot of lag to some of this stuff. When we look forward, that, you know, we'll find that they are actually far too restrictive right now. And the price we'll pay for that is probably later this year.
>> Mhm.
>> So, it's those three things, really, that I think cause a bust.
>> Mhm.
>> Before we get, you know, more into the weeds on Fed policy and and central bank policy around the world, what does a global bust look like to you, David? Is it a dramatic sell-off and and crash, or is it more like a, a grinding contagion that spreads from sector to sector over the course of, you know, several months?
>> Yeah. Well, again, bust refers to, um, what makes it a bust is it's a, it's a, a bad recession, but then it's accompanied by a, a financial crisis. So, the most classic one to point to is surprisingly the one we just had in 2008, '09. I think that one, I don't call a bust because we kind of pulled back from the cliff. You know, we were on the edge of the cliff, and when they almost shut down the commercial paper market, which would have really hit some big corporations very hard, and and, you know, others, um, they, they acted just in time to avoid a bust. This time, I think just the mindset, um, you know, that our central banks say, we're never going back to that place again. We're not going to do QE infinity. We're not going to, means there's going to be a lag to when we respond properly. And it's in that pause, in that delay, that I think we can go over the cliff this time. So, it's, it's basically 2008, '09 on steroids, is what I describe it as. Which means for a short period of time, if you can imagine October of 2008, if they hadn't, um, made sure the commercial paper market stayed open, if they hadn't bailed out the banks immediately, etc., um, we could have seen the bust then. Mhm.
>> This time around, I think because it, it's the next cycle, basically, um, they're going to be very reluctant to repeat what everybody on Wall Street, as well as, um, on Main Street, thinks was a mistake.
>> Um, you know, the, so, so it's that delay. It's not that they won't come in. They'll come in bigger than they've ever come in, but there's going to be a, a delayed response. So, I mean, you can see it already in terms of, of Powell and the Fed. They're still fighting the last war. They're so worried about inflation right now, and they're, you know, they, they think, you know, they, they haven't learned the lessons of the past of leads and lags. And they're kind of everything is, they don't want to make mistakes. So, everything is right to the minute. You know, it's like, what, what was CPI this week? What was, you know, what was the jobs number last month? And, you know, the leads and lags to policy are, you know, six, nine months at least. And so, you're guaranteeing it can be late. And when you have the leverage we have in the system, that, that lateness is a problem. So, so I, I'd say a bust, I, I think overall the cycle will be, um, not necessarily any longer than 2008, '09. I've, I've said, you know, the bust itself may be 12 to 18 months. The market will lead the bust coming out. So, the market might be the bare market might last nine months, you know, it's, um, or it could even be faster. But, but it'll, it won't be, you know, it won't be two months. You'll have different legs to the bare market. It won't be straight from top to bottom. You might go down 30%, come back halfway, go down, you know, another 40 or 50%, come back halfway, and then have a final sell-off. So, it'll take, you know, those consolidation or bare market rallies might last a month or two.
>> So, it all depends on how much those counter rallies, how much time they take as to how long the bare market lasts. So, you know, could be a year, but it might, might be shorter.
>> Mhm. You know, it's interesting to think about the, the nuance of how the Treasury and the Central Bank are operating right now and how, you know, in a way, we're, we're coming, we're coming quite close to the, the end of Powell's term, right? He's done at the, you know, in May here. But I was listening to, um, Secret, or, uh, Treasury Secretary Bessant the other day in, you know, a bit of a longer-form interview, and he was talking about the idea that they're not, they're not against coming in to make sure that if there's a liquidity crisis, that they respond accordingly. But as, as you're saying, they're not, they, they don't want to completely support Wall Street and and the stock markets. But in a way, they, what he's kind of signaling is that if there's a, you know, more so a banking crisis or a, a specific liquidity crisis, that they're willing to step in in that case. So, do you think that there is, you know, a little bit of a shift of strategy considering Bess's words and also the, the idea that maybe the, the new Fed chair is more aligned with a, a strategy like that?
>> Yeah, for sure. I think you're going to see, as we move towards May, um, that, you know, the Fed, the Fed will not be fighting the administration like they are now. Um, I, you know, I, I really, um, am torn because I, I do think Powell can be a little political. >> And by now, I mean, Trump's alienated him for sure by calling him a, etc. So, so even if he's trying to be objective, it's hard for anybody to be objective when that's who you're facing, you know, what facing off with. Um, but generally, I would, as I said before, you know, you can't fault the policy. And it's not just Powell. He's got, and it's not because he's browbeating him. He's got most of his, his, um, committee pretty much in line with his thinking. Um, and so, you know, so there may be some politics there, but more than that, I think they're looking back, you know, they're fighting the last war, uh, or they're overly concerned about inflation when they shouldn't be, etc. So,
>> they're still, they're still fighting transitory inflation, right?
>> Yes. Right. Yeah. Exactly. They don't want to be accused of making that mistake again. That's exactly the war they're fighting. Um,
>> well, I mean, David, this brings up a really interesting point, though, is that, you know, we're looking at replacing the Fed chair, which is one vote out of, I believe it's 12, right? So, how much, how much weight, or is it, is it basically the, the overall direction that the Fed chair has influence over the entire committee? And how does that, you know, do, do we think of the Fed as one person when in reality, you need a consensus among 12 chairs?
>> Yeah, every, every Fed chair has a little bit different. Um, I guess, you know, Greenspan certainly had pretty much full control of his. Um, Volcker, pretty much control of his. And I think Powell's got, you know, certainly most of the committee pretty much has his back. So, um, so the Fed chair has influence. If things are kind of on, uh, you know, uh, where there's, you know, the committee is split, his, he can weigh in and carry a lot of weight and, and particularly when he's got a relationship with the committee like Powell does. Um, but, you know, Fed chair can be overruled if, if the committee and, you know, if, if most of the committee, I'm not saying this is the case, but if most of the committee had TDS, um, it wouldn't matter who the chair was because they would probably fight him and it, it would be very dysfunctional. I don't expect that at all. And frankly, I think the economy is going to be, uh, making the decision for them. As I've, I've said, um, for a long time, you know, I'm, I'm definitely somebody that supports most of what Trump does, but I've said it's a mistake to be going after Powell, that the bond market sets rates or determines rates. You know, the, the Fed controls the overnight money. That's it. And yes, the Fed certainly, you know, Wall Street hangs on every word and, you know, on every meeting, but in truth, the bond market, if they see, um, inflation coming down or the economy softening, they're going to move rates before the Fed, no matter what the Fed wants to do. So,
>> so I just think it's been a lot of wasted capital fighting Powell and, you know, you come across looking like a brute, but, but, um, you know, I get it. I understand he, he believes that rates are hurting the housing market, hurting the economy, etc., and he wants to bring them down. But it's not the Fed, you know, if the Fed cut too, too aggressively, too soon, it can have, as we saw, you know, a year ago, more than a year ago, you know, it can have, um, the opposite effect. You know, rates, long rates can go up. So, so I, I, you know, I think we make too much as investors, um, particularly Wall Street, uh, spends too much time talking about who's going to be Fed chairman and, you know, um, what's the effect going to be if Paul stays on or what have you. You know, we don't like dysfunction. I don't want to see that. But I don't really think it's going to make a, a lot of difference in terms of the ultimate, um, outcome or even shape of of the next year. You know, it's, um, I think we're heading for a bust, no matter who the Fed chairman is. I, and, and in terms of the administration, and I, I think Scott Besson is the best Treasury Secretary in history. Um, I think we're really lucky to have somebody who not only came from Wall Street, but at least for me, he thinks like I do. I mean, he really does have a control, an understanding of markets and and macro in ways that nobody that's been in that place before has.
>> Um, you, Minuchin did pretty good job and, you know, other, Rubin was pretty good. Um, I guess that was with Car, uh, Clinton. Um, but, you know, Besset really does have, um, a handle on all of that. And and he's also, um, not afraid to speak his mind on some things. You know, he's not, he's not a wallflower, that's for sure. Um, he's well-spoken in terms of explaining himself and explaining things. Um, so that's a big plus. Um, you know, Trump still has, you know, when he wants to do something, he'll do it. But, but, um, and they, they're pretty much on the same page on a lot of things. Um, what, what I would say though, is that, um, this administration, this Fed, Besson, none of them are looking for a bust. I, you know, people say, "Oh, do they know this is coming?" but they're just not going to tell the public. Or no, this is, this is something that's totally not on anybody's radar, or hardly anybody's radar, certainly not any policymaker's radar. So, it's going to surprise when it comes. And what I've said about Fed policy, and I think it's true, even if Bessant has inclinations towards, you know, responding quickly, it's not just the res, the quick response, it's right-sized policy. And if you're going to have something where, um, things are coming apart much faster, much deeper than even 2008, '09, nobody's going to be ahead of time prepared for what it's going to take to turn that around. And then add in the fact, as I said before, I think the inclination is not to repeat the mistakes of 2008, '09. So, they're going to be coming in gradually, initially, very gradually, and, and reluctantly, and then realize like a deer in headlights, oh my god, that's not nearly enough. And then they come with another tranche. That's not nearly enough. And so, it's going to take them a good long time to get a good look time in terms of crashing markets and crashing economies. Um, you know, a day is a long time in that environment, or a week, or a month. So, but it'll take them time to get the right-sized policy. In the meantime, things are going to continue to be free-falling. So, and if I'm right that we're going to have a banking crisis of, of a magnitude even bigger than 2008, '09, um, you know, that's, you're going to have bank failures dominoing across the world. And again, um, my focus is the US and the Fed. This is a global bust. So, it's going to take a lot of, and we, we, we also don't have cooperation globally. I mean, we've got a lot of, um, you know, can you, I, I'm not sure how Mark Carney and and Donald Trump are going to, um, meet in terms of minds immediately. You know, they'll get there because they're going to have to. But, you know, there's going to be a lot of that that, you know, we, we just, we're in a world where people make stupid decisions because of their, you know, their politics.
>> Mhm. Well, that's actually, you know, where I wanted to go next is, is this, you know, you mentioned the idea of a banking crisis. How, how will banks be affected? And does that, you know, put into jeopardy people's savings that they have held within these banks? And does the, the, the FDIC really, you know, the FDIC insurance really mean something at that point?
>> Yeah, that's one place where I've been pretty adamant that, um, that, you know, the ultimate response is going to be, I think, just looking at the US, it could be as much as 20 trillion or more in terms of new QE. So, we did five QE, 5 trillion QE in response to the pandemic.
>> Um, we did 3.7 in QE after 2008, or in response to 2008, and that came over a few years. Yeah.
>> This could be 20 trillion coming in like we saw in the pandemic, coming in over the course of a year or 18 months. Um, that money is going to be used in so many different ways to try, just like we saw in the pandemic, you know, they did so many new things that they had never done before and and tried to figure out ways to help small business, help Wall Street, um, you know, provide, uh, loans to those that really needed something to just get through this. Um, you're going to see all that again, I'm, I'm quite sure. And it means there'll be plenty of money because they'll, they'll do whatever it takes to stabilize the system and turn it up. That means there'll be plenty of money to fund. I have zero doubt that the FDIC will be funded to whatever their liability needs are to meet, meet the, you know, the 250,000, um, per institution threshold. So, if somebody has 250,000 in a bank, uh, that's FDIC, FDIC insured, um, they'll get that back. Beyond that, I can't know. I mean, I would presume that we might see even beyond that protected. But, you know, in Europe and other places, bail-ins are very possible. But I think in the US, I'm very comfortable and saying up to that 250 per institution, um, you shouldn't worry.
>> You know, it's interesting to try to consider what happens in that case, though. Like, let's say you have less than 250 in, I, I believe it's each account, right?
>> It's each, each, I think it's each institution.
>> Okay.
>> Um.
>> Um, well, either way, if you.
>> So, you could have, you could have three accounts, but if you exceeded the 250, you'd be above the threshold. So, um, so it'll be your sum total in that institution can't go over 250 for the insurance. I think I'm right about that.
>> Okay. So, in that case, though, if they come in with, you know, $20 trillion worth of liquidity to, you know, crop up or save the system, that 250, you know, once you adjust it for that extra $20 trillion that is going to be created, you know, the, the real value of that currency just gets destroyed by that liquidity as well.
>> Well, keep in mind there are leads and lags at 20 trillion.
>> Of course. I, my, my cycle, uh, forecast, or my, my long-term macro forecast is that, as I say, this is my, talking about 20 trillion is not a, um, an endorsement that that's what they should do. I'm just saying that's inevitable. That's, you know, whatever the number is, that's what they're going to have to do to save the system, and they will do that. I have no doubt. So, but then the lag, the lagged effects of that is going to be inflation and ultimately hyperinflation, or what I define as hyperinflation, which could be 25% inflation by the early 2030s. But there's, you know, the first year out of a bust, we're coming out of what I think will be a deflationary bust. So, it'll take, you know, take that first year just to get to low inflation again, and, you know, low single-digit inflation. And then second year, you might be mid to above mid inflation, mid-single digit. Uh, and by the third year, you're, you're approaching double-digit inflation. And by the fourth and fifth year, you're, you know, you're roaring straight up like silver is now. Um, so, um, so yeah, it's going to lead to a real purchasing power problem down the road. But in the, in the period where you're in deflation, you know, you're just glad to get your money back. And having your money back while inflation's not moving forward, um, you'll be fine. It's what you do with that money in the ensuing years that will make a difference.
>> Yeah.
>> As to whether you're one of those that says, "Yeah, I have 250, you know, just using a number. I have $250,000,
>> but it now, you know, is only buying me what 100,000 or $150,000 used to buy me." Um, so, yeah, that's, I mean, that is going to be the problem to this. But as I say, I think it's inevitable that they, they'll try other things before they get to that, but ultimately, the only thing that can save a free-falling system, or the only thing that can move fast enough to save it, is cash, is money. And so, you'll see that, you'll see other things, you know, they'll legislate things to try to save pension funds and save the money market funds. They'll probably have the, you know, we won't break a buck policy again that they had back in 2008, '09. Um, but, um, but, you know, ultimately, yeah, the ultimate result is that we go from this, this bust into an inflationary cycle. That's going to be our, our undoing because you're also going to see, to, to do 20 trillion in QE means they're probably going to do something equivalent in terms of treasury borrowing,
>> government borrowing. So that, or if it's not 20, it's certainly a big number. So that the, you know, the amount of debt that I quote, the global number of 330 trillion today, by the time we get through the bust and on the other side of the bust, it could be 450 to 500 trillion. So, we're not going to be deleveraging in this process. We're actually going to be more leveraged, and then we're going to have that much higher leverage, um, facing 15, 20% inflation rate, that inflation, interest rates.
>> And there's, you know, in exactly as you explained, you know, it's not, it doesn't end up being, we're trying to save the dollar, therefore we have to sacrifice the bond market. It ends up being the idea of basically sacrificing both through probably undulating, you know, back and forth push and pull, um, kind of tug-of-war, but at the end, you know, we're going to end up with both of those things being destroyed.
>> Exactly. Yeah. The end result is a dollar that now, the dollar will get bid up, I think, in the second half of the bust as people see how bad it is. They flee to safety, a dollar.
>> Yeah. You know, because we're, we're still the safest place. There may, we have plenty of problems, but people will see this as the place where they trust it most, uh, that they'll get their money back. So, the dollar gets bid up as people buy Treasuries from overseas, etc. Um, and, um, so you'll have one last on the dollar. I'm calling for 82 on the dollar pre, what I call pre-bust, meaning this year,
>> um, sometime this year. And then, um, in, when it starts going the other way, I think I think you could see 120 or higher on the dollar. So, you have one last hurrah.
>> Mhm.
>> And then I wouldn't be surprised to see the dollar under 50 by the end of the decade. So, you know, and, and going south from there. Um, just remember, we're not, we're not in isolation on this. It's all fiat currencies because they're all going to be doing the same thing. Um, and so, what that speaks to is obviously gold and gold commodities do very well. Uh, if you want, if you want to preserve your purchasing power post-bust, that's going to be your best way to do it.
>> Well, that's what I was, I was going to say is like, how do we transport value through that time? And maybe we need to separate this into, you know, bust, then post-bust, you know, how do, how do we, how do you think about separating that and really protecting the, let's say, the value that you've built through that time?
>> Yeah. So, I, probably the best way I can answer that is to talk about, you know, I've talked about the equity market in terms of its run-up here,
>> and then it'll get hit to the tune of, I think, 70 or 80% on the downside in the bust. Same thing will happen with most assets. The only asset that I see, uh, any asset of substance that I see holding up in the bust and actually appreciating in the bust is the US Treasury
>> bond, or across the Treasury curve. You know, the, the, um, notes and bonds, and even the bills, uh, if rates are coming down dramatically because they're printing money, uh, and, and we're in deflation, uh, those appreciate. But almost every other asset, certainly commodities, certainly, um, precious metals, certainly the equity markets, um, junk bonds, um, even, even higher-level investment grade bonds, they'll all be going down based on the risk that the economy's really hitting corporations hard, hitting, um, demand hard. So, so going into the, you know, in the bust, that's what you're going to face is a bare market and a lot of assets. Coming out of the bust, if we print that kind of money, you're, you know, let's say we're, we did go down 80%. So, if, if I'm right and we go to, uh, I'll just use the S&P. If I'm right and we go to, um, 9500, that's basically, um, um, around 2,000, I think, is where the S&P would sell off if it were an 80% decline. So, um, if you come out of the bust with all that money flowing into the capital markets first, and then from there into the economy, there's, there's going to be a cyclical market. I've said we're making a secular peak in the stock market that won't be seen again, probably for decades.
>> Um, so the, the highs of this market that we're in now, probably won't be seen for decades. But if you, if you come out of a, a market that's down 80%, and the S&P goes from 2,000, it could easily go up threefold and be back at 6,000 or 7,000 or higher, and not get back to the peaks because you're down so far, right? So that means there's going to be a cyclical bull market where people can make a lot of money in the first probably the first 18 months out of the bottom. After that, as interest rates start moving up pretty, pretty fast, the PE multiples start getting compressed, and and corporations start having to, um, see margins starting to get squeezed. Again, it's three, four years out for sure. Um, so that profits are more constrained. They, they might be growing, but not growing that fast. Um, interest rates might be moving up towards double digits. All of a sudden PE multiples on that, that kind of constrained earnings means your stocks aren't going anywhere. So then you, the trick then is to look at the sectors and the stocks, uh, the companies that can produce earnings that can outpace inflation. And where is that? That's typically going to be industrials and commodities. So, so a company like Caterpillar, because they service the commodity industry, is going to have great earnings, right? And they'll have to deal with the cost rises, but they'll be able to price just because they'll have strong demand. Um, so, so industrials will do well. Um, certainly the precious metals will be going through the roof. Um, and other metals. Copper, I think could go, copper. Copper, I have a copper forecast right now for pre-bust of $8, and I may be low, but I'm certainly high on the street. I, I have a $6 number raised at seven at the beginning of 2025. Then we had that tariff news and it went down to like 450. I kept my $7 number, um, which I had, yeah, early '25, I put in, and it didn't look like that was going to happen. And then obviously the last few months is starting to move. I think my $8 number that I put in in January may prove low. Um, but it's, you know, it's the end of cycle type pricing. And then in the bust, copper could fall to one or $2. I mean, and then coming out of there, I wouldn't be surprised to see copper north of 20. So, you're going to see big runs in commodity prices. Energy is a big one. I have a, um, I've been the bear on the street in energy from 2022 when they invade, when Russia invaded Ukraine. I've been bearish from one, probably 130 down, certainly 120 down, and I've been using a number of, um, once it, once it got below 100, I, I lowered my number to mid-60s and then lowered it to 60. So, I'm at this point, I think you're in a trading range till the bust hits, you know, so low 50s to mid-60s. If we hit something in Iran that's, you know, not quick, it could certainly spike, but basically oil's under pressure, demand is soft, and supply is large.
>> Um, I think you're going to see 30 or below in the bust. Um, and then coming out of the bust, I think by the early 2030s, energy could be $500 a barrel. So, energy should be at the top of people's list in terms of buying what you buy on the other side of the bust.
>> Mhm.
>> And so, same thing with precious metals. I'm looking for, um, you know, my current target on silver is 125. I'll probably end up having to raise that, um, in the next month or two. Um, but, um, I think it, it can fall in half or more in the bust, um, and then, um, go to $500 has been my long-held target for early 2030s. I'm probably going to be low on that now that we've seen what's going on recently. Um, and gold, I've had a long current target of 5,500. I'll probably end up having to raise that sometime. Um, pre-bust. I think by the early 2030s, my, my number's been 20,000. So, so again, you can see coming out of a bust, and gold will get hit, not as hard as silver, but get hit in the bust. So, let's say, let's say the target becomes 6,000 and it falls to 4,000.
>> Mhm.
>> Um, from 4,000, it can go up fivefold to 20,000, and who, who knows if that's even a, a high enough number. So, so I think commodities in general, you know, all kinds of metals, steel, aluminum, etc., will have pricing power and will be able to outpace inflation and have a very big, we haven't had an industrial boom like that since the late 70s, early 80s. And that's what I think we'll be looking at is something that's, you know, we're, we're obviously doing a lot of reshoring that requires a lot of commodities. That's going to continue, uh, and, and so there will be places after the bust where you can make a lot of money. But if you're in the wrong places and you're still buying growth stocks when interest rates are going from close to zero up to 20%, you're going to be very sorry that you're in the wrong places. If you're buying utilities because, you know, yes, we're going to see more electric demand, you're gonna be pretty, pretty disappointed because they're bought for their dividends and, you know, interest rates are going through the roof. So, so it's going to be very important to know that in a new cycle, you need to focus on new leadership, and that leadership is going to be commodity-led.
>> Mhm. Well, David, that's another, you know, question I wanted to run by you is this idea that, you know, a lot of the bull run in gold has been pointed as being driven by central bank buying over the last, you know, four or five years. This theme doesn't seem to be slowing. So, how does, you know, obviously in a, in a big liquidity crunch, everything goes down because of margin calls, you know, anything that is liquid gets sold. But how do you think the price of gold gets affected in a time like that because of those, you know, large institutional buyers that have been consistently and constantly driving that price?
>> Yeah, they'll, they'll certainly soften the blow. That's why I say, you know, you might have a, um, a, you know, 6,000, 4,000. I'm not saying that's the right number, but, you know, that's obviously a 33% drop, uh, as opposed to an 80% drop in the stock market or maybe a 70% drop in silver, you know. Um, so, so that will be a, a softening effect that will certainly ameliorate some of the decline. Um, but, you know, if we're in deflation and the, and the world's falling apart, there's going to be plenty of rethinking gold and saying, "Well, you don't earn anything. Gold doesn't pay a dividend and doesn't pay interest, doesn't do anything." Um, there's a lot less demand for gold other than monetarily, other than for safety, uh, or security. Um, and I'm not sure that's going to hold up here. You'll, you've seen it before. I mean, the, the thinking all of a sudden changes. So, the central banks won't be so anxious to do that. Um, that the dollar moving up during the bust will mean they won't be so much focus on what the alternative needs to be. What do I need to own against the fiat currency? So, there'll be lots of reasons for selling it along with what you said, which is, you know, you sell what you can. Um, so, I, I think it'll, you know, it's not going to hold up as a, um, you know, in, in whole. It may outperform, but it's not going to hold up in a bust, particularly a deflationary bust.
>> Um, but it will be certainly one of the assets on the other side of the bust.
>> Yeah, it might be. So, so would it be better to be in cash at that point and then re-buy gold, or, you know, does gold pull back the least in your mind through that?
>> It would, everybody has to kind of decide what, you know, what makes sense for them. But it certainly from a mathematical standpoint, my guess would be
>> that cash, basically, if you've got most assets falling, uh, cash, without any gains, but just no losses, is a huge thing. And like I said, as long as you have your money spread, um, so that you don't lose that cash, um, cash would seem to make a lot of sense. Um, Treasuries would make even more sense because I, you know, as long as the, as long as the, uh, government has a printing press, as long as the Fed still has its printing press, um, you pretty much don't have to worry about defaults on US Treasuries. I can't say the same thing in other countries because, you know, I don't know exactly. The likelihood is that's probably true elsewhere, too. Um, that money's, you know, it's going to be like 2008, '09. You know, as long as there's a printing press, um, the governments aren't, the sovereign debt isn't at risk, right?
>> Yeah. The problem we have is going to be when you skip over to the, um, the other side of the recovery cycle. Um, if inflation moves up to 20, 20 or 25% in this country, if interest rates follow that, as they do, um, there's a good chance that T-bills will be, and I, I was a, you know, a money manager back in 1981 and '02. There's a good chance that treasury bills will be over 20%. There's a good chance that the long bond will be somewhere between 15 and 20%. And we'll have twice, probably twice the debt we have today to to service. That equation doesn't get solved, right? You're, you're bankrupt. You, you know, the government won't have enough, um, revenue to even pay the interest on the debt, never mind fund military, fund welfare, etc. Somewhere along the line, as we approach the end of this decade, we cross over at that place where, you know, because early on, they'll, they'll be printing more money to, and selling more bonds to help fund their needs. But as, as that fuels more inflation and, and, um, rates move up faster than they can keep up with it, you cross over a point where that makes sense because the more you print, the more you owe, or the more, the more you can't keep up with it. Um, so, there is a point, I think, late this decade, where we cross over, and the reality is we've lived way beyond our means. We no longer have a way to allow that. You know, the printing press is closed down. You can't print money because it just is like pouring gas on a forest fire, you know. And so, once that happens, the game's over. The Ponzi scheme has ended.
>> And I think then it's a matter of time. You might be able to kind of, um, take from Peter to pay Paul for a little while, etc. But I think by the time you get to somewhere between 2033 and '35, you have a collapse of the system. You know, not just the US, but around the world because we all have done it.
>> It's been one huge Ponzi scheme that started post-depression, post-Great Depression, and, you know, built up slowly early on, but we're now, you know, the Ponzi scheme's gone parabolic, right? It's that we're, we're racing ahead in terms of our debt numbers and, and all of that at levels we never saw before. So that's a sign that you're going to burn it, burn that whole thing out. And it's like, you know, it's like watching, you know, a parabolic stock when it reaches its crescendo and rolls over, it goes down almost as fast as it went up.
>> Yeah. So, David, when we see, when the, when we see the strength in the metals at that time, what do you think happens to the mining stocks, the, the precious metals mining stocks?
>> I, I think they are going to be huge winners.
>> You know, I think the, the post-bust era, you're going to see lots of money made. It will be, it will be the dot stocks of the early 2000s. It will be the AI stocks of today. You know, mining stocks will be big, big winners, as will a lot of, you know, oil exploration stocks, etc. You know, it's
The need for for um materials, you know, commodities means that prices are going to go through the roof. So David, before we kind of move on here, can you give us a a quick refresher of let's say your your your GDX, your gold um energy targets, all all of the the targets for this let's say this intermediate top here.
>> Yes. Um so um for for I'll start with gold. The my GDX and GDXJ targets, those are the the miners and the junior miners. Um, I did raise targets there twice in se in October, you know, my early October letter. Um, I raised GDX from 75 I think it was or maybe a 65 um up to um trying to think 120. Uh, I raised GDXJ uh from 100 up to um 70. Uh, and then in my January letter, I raised those from there from 120 to 150 for GDX and from 170 to 210 on GDXJ. So, that's where I'm at now.
Um on silver uh SIL which is large miners um major miners uh it was 75 and last October I raised it to 150 uh and then I raised it to um I'm trying to think 180 I think is my current target. Um and for SIJ which I had a long held target of 35 and it was you know it was 10 a year ago. It was people going I think that target is going to be hard to reach. Um I raised it in October from 35 to 60 and um yeah big these are big changes because I don't normally >> you know I'm looking ahead but that was you know I had Fortunately, I did see things that told me I I even as far away as I was that I needed to go higher. So, I raised 60 and then I raised it again in in January to 75. So, that's where I'm at now.
Um, in terms of oil, I don't I don't really expect oil to do anything but kind of trade in a range till the bust hits. So my real focus I' I've been saying target is you know trading ranges um low 50s to 65 or mid60s um in the bust as I said 30 or below um postbust or or and so for the um for XLE the you know the uh ETF for oil stocks um I the only target I have is um it was $20 but they split two for one. So, it's $10 for XLE in the bust and that I think the stock is somewhere up in the high 40s maybe. Um, so that's a big drop. Um, and then coming out, I don't have postbust numbers, but you know, those things will all go up a lot. Um, uh, copper. Um, my, as I said, my copper target currently is $8. Um I have a target for COPX which is the produ copper producers. Um had been I think 75 um and I raised it to 100 last October and now it's at 120. So you know still good upside there I think.
>> Um any others? I think that's pretty much it. Um trying to think is there any other ETFs that really are important. >> We've kind of covered let's say those are the those are the upside targets here. Do you see you know is this a roundabout let's say 30 to 50% pullback in many of that many of those numbers that you mentioned um in that in that initial bust. you know, in in the bust, I don't have, you know, different phases of the bust, but in the bust, you know, if the market's going down 80%.
>> Well, stock intermediate pop. Sorry, that's that's what I mean. >> Those those are my tops for for, you know, those are the the pre-bust tops. So, before we start going down, those are peaks. Um, and in the bust where I think the market's going to go down 80%, I presume these things will go down pretty close to that. You know, they're cyclical stocks, um, their price are going to get hit, etc. Um, I will tell you this, just to give you an idea, you know, we've had tremendous runs and and everybody says the miners have lagged. Yeah, they've lagged because silver's done so much and gold's done very well, but they've come up in many cases are up threefold or more in the last year. Um, so I am calling for and I don't usually try to short term it, but I think this is a big enough correction. I think we're very close and I haven't seen what silver's doing today, but um I think we're very close to a, you know, short-term top.
>> Um where we could have a 20 to 30% correction in the price of silver, >> that's a big hit. So if if it can do that just in a correction, imagine what it can do in a bust. So same thing with the miners. I think the miners can come down maybe 25% um in in a correction. So if they can do that in just a correction and and by the way that correction means we have another leg up from there. So silver my target 125 now is going to have to be raised I think at some point. Um but I'll probably do it in during the correction. I want to see what we you know what what things look like during the correction. But I, you know, for sure I think I'm going to have to raise both gold and silver targets. Um, and um, not sure about the miners.
>> what are those targets now? >> Uh, silver is 125. Um, so, you know, I would guess I'm probably going to be raising it by, you know, 40 or 50 bucks maybe, but I don't know that yet. I really want to see. Um and then uh uh gold is 5,500. Uh you know, I wouldn't be surprised if I had to raise that. Um it's almost at 5,500 now. If we get a correction in gold, silver, like I said, could correct as much as 30%. Uh gold, I would guess probably corrects 10 or a little more. So, you know, if gold's 5,500 at the top, because I think we're very close, whether it's this week or early next week, I think we're within days of a top probably or certainly a week of of a top, week, week and a half um or less. If if gold tops near 5,500, you know, it can probably uh come back uh I'm trying to it might even do more than 10, but but certainly uh something in the you know high fours uh would make sense. Um so it's not going to get hit as hard as silver by any means in a correction and and then come out of that and probably go to higher highs for both metals.
So David, once we get that, let's say that bust or that in in some ways that that global reset, does are are you optimistic? Does does life look something like like a a good thing after that?
>> Um I I think we're obviously we're late in it. what I call super cycle is a period a long cycle between two depressions. So the great depression of the 1930s and what I think will be an even greater depression in the the 20 mid 2030s and beyond.
>> So if I'm saying that the that's what we're headed for, I'm not optimistic about you know our future 10 years out. I do think there are great opportunities postbust and what I tell everybody is you're fighting chance in what's coming I think is to get your financial house in order first going into the bus make sure you don't ride it all the way back down. um you know, clean up any debt you can uh and then come out the other side and and if you invest properly, you know, there's there's certainly things that are going to be five and 10 baggers in stocks. And you know, and for even the average investor, you you know, you're going to be able to coming out of the the bottom of the bust, you're going to be able to make three or four times your money um in mutual funds or anything um you know, ETFs, I should say. Um but if you write it down, you're just trying to get your money back. If you if you've actually protected your capital, there's an opportunity to get your house in order and give you a fighting chance. What I what I describe in terms of what comes after the recovery cycle that follows the bust is we're going to have um if I'm right um no money for welfare, no money for unemployment, no money or limit if at all limited uh social security bankrupt Medicare um very very limited if at all you know Medicaid u you know, you're just not going to have support system that everybody's grown up on. And that means you're everybody's fending for themselves. That's not I, you know, I I can't pretend to envision exactly what that means, but it doesn't speak to me to something that's going to be friendly. I mean, it's, you know, there's going to be a crime's going to go up big time. Violence probably going to go up big time as people, you know, fight for survival. Um, I hope I'm wrong. I hope I hope uh a lot of what Trump is doing cleans up a lot of the debt and that somehow the world gets its act together and and we can kick the can down the road for lots more cycles. Um, I just have my doubts.
>> David, is there anything that we that we haven't covered? Maybe you know something on your mind that let's say you don't get asked too often.
>> Yeah, I'll say the the thing we have not covered is bonds and and I think um obviously rates are ticking up here again today. Um I I think we're very close and bonds are putting in a two-year bottom basically been you know it came down uh prior to that two years but they were basically been in a a very um rounding bottom here kind of flat trading area for a couple of years you know tight trading range I think what we're going to see as we come we emerge from this on the upside in terms of bonds and on the downside in terms of rates I think rates during this last whether it's three months, four months, five months, I don't know, but during this last run in the stock market, I think rates are going to be part of rates coming down are going to be part of what drives it. So, you're going to have lower inflation, lower rates, an economy that um is still holding together. Maybe maybe more than that based on what we see right now, but at least holding together. um no you know you're going to hear no recession etc. um and that's what I think drives this last move in in the stock market. A big part of it will be I think I think the 10-year can drop from you know we're currently four and a quarter uh it can drop to 3% in this next you know 3 four five months I think probably more like five or six months but um if you can move from four and a quarter to 3% that's that's a lot of tailwind for the market um and then if I'm right at all about you know second half of this year later in the year sometime this thing rolling over the market peaking and then the economy rolling over and it's starting to pick up speed um during the bust is when rates can fall from whether it's 2 and a half 3% when that really gets going I think you could see a 10ear at zero so a 0% 10year and again people go that's impossible who's going to buy the Fed's going to be buying up every bond they can find to do QE of that magnitude um institutions They're going to be buying for safe, you know, safety and saying, "We may not earn much, but we can't afford to lose, so we're going to buy treasuries." Um, and you know, short rates are probably going to be negative. So, it'll be happy to have zero and the 30-year might be selling at a quarter or half percent yield. Um, but, you know, in a deflationary environment, that's that's money. Um, so, you know, I think the bond market that everybody's been so um anxious about may finally turn the corner here pretty soon uh and be part of the the wind at her back.
David, there's been an idea kind of thrown around here and obviously not officially, but an idea that if the if the Treasury and the Fed instituted a a goldbacked bond of some sort, that that would or or could spur more demand for that? Is do you think that that's a a possibility or something that could happen?
Yeah, I I struggle with um you know the the things because Trump Trump certainly is willing to do things we've never done before and and they're thinking about trying to solve they're problem solvers I think more than we've had in the past. So you know stable coin um uh gold back uh bond etc. I just don't think it's you can do anything in a magnitude that's gonna offset what our problem is. So it I think it can it can temporarily cause some excitement and cause things to hold up beyond what I might expect. >> But ultimately I I think the numbers are just too huge. I mean this has been you know this has been 90 or 100 years in the making and you know we're at levels where again this isn't the cycle where I worry about sovereign debt but think about when when the printing press goes away and most of that debt out there that we quote 330 trillion you know the biggest part of that increase in sovereign debt in in this cycle certainly um when they reach the point where they can't service that there's nothing out there you can do I don't think to offset that kind of magnitude you know we throw around trillions today but you know hundreds of trillions is a whole different story.
>> Yeah. Well David um I think that's a good place to kind of end it for today. Uh tell everybody about your is it your quarterly letter that you write?
>> Yeah I write a macro letter that I put out quarterly. Um it's by subscription. Um I have to say um it's become problematic when uh ex Musk or his software engineers decided to change the messaging system to an encrypted system that's called chat. Uh it's got a lot of uh wrinkles and a lot of um um glitches in it. um a lot of the time when I and so I used to say just direct message me and I'll provide you information on the on the um my my letter because it's by co you know it has a cost um I still say that but then when we get to the next step where uh most the time they can see the what I put out there for them um but then when we start ex going back and forth to exchange information etc um I don't chat is reliable. So I tell people then I'll provide an email and then we can communicate there. So so the initial step is to still direct message me you know through chat. Um but then just understand that if if you don't you somehow don't get message from me it's the glitch in chat not me and so keep trying. You know, normally we can figure it out, but it's it's caused me a lot more um having to put in a lot more time or go back and forth with people because lots of times it says message did not go through.
>> Yeah. >> And yet they still will see it lots of times, but I can't see that my message was said. I I wish they could fix that because I don't understand how >> Why don't Why don't you give people your Do you want to give people your email instead?
>> No, I don't do that. That's why I haven't come to direct message because I >> I just don't want to fill my box with all kinds of people. So, >> your uh your your ex-profile is daveh contrarian, right?
>> That's correct. And I am on X pretty much every day. Um answering questions, uh commenting on what I see in the markets. Um so, that's pretty much how I communicate out there. Uh I know people look for websites and stuff. I do not have a website, but I am on X most of the time. Um, so, you know, look for me there.
>> Excellent. >> Perfect. David, always a pleasure to speak with you and, uh, we'll look forward to to doing it again.
>> Yeah. Thanks, Tom.