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GDP growth for the past two quarters has been positive — but gross domestic income has been negative over the same period.

The multitude of macro data is screaming recession, yet earnings estimates are on the rise, unemployment remains low and the stock market is booming.

What can we expect from the second half of the year?

For perspective, we turn to David Hay, co-founder & co-Chief Investment Officer of Evergreen Gavekal, a financial advisory firm managing $3.5 billion of investor capital.

I love talking with experts like David because as a steward of so much in AUMl, he can’t simply rely on an “opinion”; has to steer this capital safely through what’s coming next. So his conviction needs to be as high as possible.


David Hay 0:00
So I think that’s another thing that you got to watch is just this fragility that is endemic because of all these years of misguided monetary policies and this addiction to free money. I mean, I think directly, Muller said that when money is, is cheap, people do dumb things. When money is cheap for 13 years, they do really, really dumb things. And we’ve seen a plethora of that, and all these speculative investments and all the other malinvestment that’s gone on. And so now we’re seeing that the payback for that and, and I think, personally, it’s naive to believe that is going to lead to a mild economic contraction. I just don’t think that’s the history of these huge bubbles.

Adam Taggart 0:48
Welcome to Wealthion. I’m Wealthion founder Adam Taggart. As we head into the start of summer, the US economic outlook appears schizophrenic. GDP growth for the past two quarters has been positive, but gross domestic income has been negative over the same period. The multitude of macro data is screaming recession yet earnings estimates are on the rise, unemployment remains low and the stock market is booming. What can we expect from the second half of this year? For perspective, we turned to David Haye, co founder and CO chief investment officer of evergreen golf call a financial advisory firm managing 3.5 billion of investor capital. And I love talking with experts like David because he’s a steward of so much in assets under management, that he can’t simply rely on just having an opinion. He’s got to steer his capital safely through what’s coming next. So his conviction needs to be as high as possible. David, it’s great to see you again. Thanks so much for coming back on the program.

David Hay 1:49
Now, it was a privilege. Thank you for inviting me back and talk about

Adam Taggart 1:53
should have happened a long time sooner. But thanks for thanks for coming on. And glad our schedules worked out a lot to talk about, like you said, if you don’t mind, I’m going to kick this off with the general question I like to kick all these interviews off with, what’s your current assessment of the global economy and financial markets?

David Hay 2:11
Well, I think you brought up a very good point when he brought up GDI, I have no idea we’re going to go there, because that was one of the things that I didn’t want to cover. And of course, that’s talking about the US not globally, but to look globally for a bet. I mean, if you look at China, there’s been a lot of enthusiasm about the reopening. Yet, they’re actually getting another wave of COVID and the reopening even before that’s been disappointing, so you got to put that as under the column of not very robust, and then you’ve got Europe, which is back into a technical recession, Germany looks to be in a full blown recession. So that’s not to grip, there’s definitely parts of the world are doing pretty well. So it’s a mixed bag. It’s even a mixed bag in the United States. And there’s a tremendous debate, whether we are going to have a recession, more and more people seem to be even in the no landing camp, much less soft landing. But again, back to your GDI point. I do think that’s an interesting one. I don’t know if you’ve seen kind of a variation of that the GDP plus, which is basically GDP and GDI, blended together. And if you look at that, that is really, that has had a flawless record. And it’s clearly screaming recession right now.

Adam Taggart 3:15
And I’m doing this from memory. I’ll try to find a chart to put up here if I can find when when we added this, but I believe GD plus is negative the past few quarters.

David Hay 3:23
Yes, that is true. And it’s only done that when we’ve had recessions over, there’s been no false negatives, or false positives about a negative outcome, if you will. So it is it is meaningful, I believe. And just to kind of give a little more corroboration about that, you know, remember last year, we had two negative GDP quarters, first and second quarter, a lot of people thought we were already in recession. And I said at the time, even though I think what’s coming, I didn’t think we were actually in it and GDI did not confirm that. So it gave a good signal at that point, too. So again, I think kudos to you for bringing that up, because I do think that that’s telling. And as you said in your intro, that there’s just an awful lot of evidence out there right now that that is screaming recession, and coming from one thing that leading economic indicators had been negative for 13 straight months. You know, that’s pretty powerful. And then he got, of course, the yield curve, which has one of the best economic forecasting track records, and it’s been inverted for, you know, over a year and deeply inverted. It’s the biggest inversion, longest version we’ve seen since the early 1980s. So it’s a I think it’s it’s interesting to watch how kind of the group think oscillates around this theme of are we going to have a recession, we’re not going to have a recession right now. The no recession is definitely dominant. But yet I look a lot of data that’s actually getting worse, not better. I think what we’ve had for sure is an earnings recession, which was my highest conviction call was less convicted on the actual recession, but now it appears in a pretty much certainly we’ve got an industrial recession. So really, the question is, is the consumer going to roll over? And I think that if you look at history, it’s the man Factoring side that tends to lead the consumer side because you start to get layoffs as these you know, big employers start to have profit margin pressure. So they, you know, what’s their biggest cost? It’s labor. So they start firing people, and then all of a sudden, the consumer goes into the foxhole.

Adam Taggart 5:14
All right? Let’s tap into in there, and I gotta be completely transparent with you. I just came to this interview, having just finished an interview with Ed Yardeni, which we’ll have lunch on this channel the day before you. And Ed tells a much more sanguine story. And I was kind of prepared for that actually really enjoyed the discussion, we that was the first time I interviewed him. And we’ve had a lot of people that have been relatively pessimistic on the on the macro data. And like I said, it’s more sanguine and where things are going. And he doesn’t doubt that we might not be in recession right now. But the way that he sort of described it is he sees it as being what he calls a rolling recession, where it kind of hits one sector of the economy, and then moves to another as the other sector begins to recover. And so it’s kind of like this baton getting passed laterally, he doesn’t think we’re necessarily going to see the entire economy, so to slump into a recession that way that say, we did no weight or in the tech sector, and oh, one I just thought was an interesting way to think of it. You don’t necessarily have to share that opinion or not. But I get the sense from what you’re saying. You maybe expect more of the harder landing type at least, or at least you don’t expect to know landing type, which which kind of is what it is suggesting by by this rolling recession that we’re it doesn’t mean we get off scot free, but it just means that everything’s still kind of muddles through. I guess first, let me let you react to that, then I want to get to your earnings recession, because I want to know if you if that’s over or not, or if you consider that that may get worse.

David Hay 6:53
Okay. Well, let me first address the the rolling recession, it’s certainly possible. You know, I think that would qualify as a soft landing kind of outcome. I think that’s less likely than it was pre banking crisis. Because it’s, it’s pretty obvious and looking at history that the worst economic periods are when you have a banking crisis. And I realized that, that a lot of people probably the consensus view right now is the banking crisis is over, it was looking pretty scary a few months ago, or even a month ago. But it’s subsided. And I think the question is, will it continue to subside? And I would just say that, in that regard, the guy that has been the most accurate as Chris Whalen, he’s the really the was the the loudest voice, one of the few voices really early in the year saying, hey, this higher interest rate thing isn’t necessarily good for the banking system, because that was the view last year is that higher interest rates are good for banks, because for a while it was because they course didn’t raise the interest rates on deposits, right, they’re making the spreads still, still, unbelievably low levels. And people were just kind of brain dead I was one of the big things I was writing about in my newsletter so much last year was get your money out of a bank deposit and put it into some kind of money fund or a government securities offering it at a higher rate. And that really, there was very little momentum to do that until the banking crisis hit. And then it was more of a fear factor than a greed factor or not greed, but just you know, being a good steward of your money is in a while at the bank, you know, sit there and you know, we know people that had over a million dollars sitting in the bank earning virtually nothing, when all it took was a phone call just to move it to the banks government money fund. Anyway, so that that is changing. And I think that’s what we do. And we’ll have a visual, you can run here on this on this topic, because there is a chart that people run to want to look at the stock market from a bullish perspective. And they say, look how much money is in money market funds. And it’s true, it’s going up radically. But what they don’t say is look at bank deposits, because they’re going down just as fast. That’s what I call the north of the mountain of money, or the mountain money myth, and it’s basically a trillion dollars has come out of bank deposits and gone into money funds. So it really is just what going for, but it’s the right way to go. And it’s smart for people to do that. And yet they’re still many, many, many more trillions to go from bank accounts and the money funds. Why does that matter so much? And I think it relates to the as Yardeni argument, because then it has very negative implications for money velocity, because as you well know, when money’s in the banking system, it has a very high turnover rate, it’s you know, could be 10 to one, it’s almost enough demand for money. But once it goes into government securities, it’s quite a nerd. So I think that is important because you look at the money supply, which is contracting, and it’s contracting for the first time since 1959. Now, the count or you might just listen to Stan Druckenmiller, who I would actually rate even higher than a Jordanian is macro abilities to forecast but by the way, he thinks that we are likely in recession right now and he’s not buying the rolling recession argument. But his point is that yes, there’s still a ton of money even No money supply is falling, it’s falling from a very high level. So the overall stock and money is still quite elevated. And I think there’s truth to that. But it is falling. And now you got this velocity issue, which is kind of like monetary tightening, you know, works with long and variable legs. And so I don’t know how quickly this is going to bite. But I just know that historically that if the banking crisis is not over, you know, this is going to be hard to pull off this rolling recession, soft landing kind of scenario. And I think in general, that just you’ve got a very fragile financial system with way too much debt. And I guess the other thing that I would argue against the ED Yardeni situation is I think the opposite of what I call the forest scenario, which is basically a federal financing. Fiscal financing fiasco, in the second half of the year is quite high. And it’s because part of this debt ceiling thing where they delayed the Treasury issuance, and where they drew down their checking account, the Treasury general account. So that’s got to be replenished. And also, which isn’t getting much press is that federal deficit are exploding, we ran a trillion dollar deficit in the first half of this year, this fiscal year for the federal government was in September 30, we’ll probably have a $2 trillion full year deficit. And you’ve got that delayed financing that needs that needs to be made up for. You’ve got foreign central banks, which used to be very active buyers of treasuries now, their sellers, they really don’t want to hold Treasury debt anymore. The banks have got obviously too much in the way of treasuries it’s killed them to have such a large Treasury portfolio, it’s unlikely they’re going to be very aggressive buyers. So who’s really going to step up and provide the financing that needs to be offered to the federal government, at least interest rates, which are not severe? And right now, I mean, as you know, the short term rates are five, the longer term rates are less than four, but I don’t see those longer term rates staying there.

Adam Taggart 11:51
Okay. So first off, would you say the current rates are severe 5% Plus federal funds rate? Would you consider that severe given what the system can take or would severe be even higher?

David Hay 12:04
I wouldn’t say it’s severe. I mean, that’s one of the conundrums. And we’ll talk about this later, what looks attractive in terms of other securities, besides treasuries, because normally at this stage of the economic cycle with a high risk of recession, inverted yield curve, we just look historically, whenever the yield curve gets highly inverted, you want to extend duration. That’s what I’ve done for my 44 year career. Up until now, this is the first time I’m not a duration bull. Because I really am worried about this forest scenario where the government just floods the market with more debt and can be acquired, and you create a potential for actually a failed Treasury auction. I think that’s a fairly high risk in the second half. So you again, you get kind of this, there’s kind of a bias on Wall Street to be bullish and ignore these kind of macro threats. And generally, that’s the right thing to do. But I do think that when you listen to somebody like Druckenmiller, he says this is the most unsustainable situation. He’s seen it as in his career. And he’s obviously had one of the most, most spectacular financial careers of all time. And then you’ve got Jeff gunlock, saying kind of the same thing. $150 trillion of unfunded autonomous Druckenmiller is actually saying 200 trillion of unfunded entitlements. Now this stuff has been building for years, and it’s never really hit a crescendo. Right, it’s all we’ve, we’ve always had the ability to kind of cover up the debt prices with more debt. And the Fed has always been able to step in and be the buyer of sometimes first and last resort. I don’t think that capability is there right now, at least when they’re trying to find inflation. So you know, you’ve got, I don’t think he even mentioned it before, you’ve got the Fed selling instead of buying. So you’ve just got you got a multitrillion dollar Delta, of this year versus a year ago or two years ago. And it just has a high high potential to really be a crisis later this year.

Adam Taggart 13:55
Okay. There’s so much I want to dig into here. I’m trying to make sure I don’t lose the points because they’re all good. So So I asked my question about severe only because, you know, what you were saying earlier, was really talking to the, the higher cost of capital, right, that the the economy is now burdened with? Right. It was it was fairly addicted, I think, is a fair term to reserve policies are close to ZURB. And we’ve gotten in a very short period of time to a much higher financing structure. Right. So just curious, your thoughts on you know, can the economy just sustain even where we are right now, let alone potentially go higher? For the reasons that you just mentioned?

David Hay 14:37
The list isn’t really going to address that. Is it restrictive as the Fed funds rate a little over five, but the CPI was just reported today, Core CPI, running at 5.3%. So it’s basically right at the Fed funds rate. Hard to call that restricted. Now, if you look at, you know, CPI, not core, it’s in the fours and so you can say, well, it’s at least a little bit positive. So so much of this is where do you think inflation really is and where is it likely to be to determine are we restrictive, but you look at some of these emerging market countries where they’re the insurance policy rate is way above the inflation rate. I mean, for example, in Brazil right now, the interest rates about 14 and three quarters and inflation is, you know, somewhere in the four to 5% range. I mean, that’s like a Paul Volcker real interest rate. Okay, a lot of the markets do have very significant real interest rates that now you would say that’s restrictive. So it’s hard to say that we’re it’s really that restrictive. But the problem is, you were kind of touching on this, there was such a long period of interest rates gone missing, that once they adjust, even to a, what is not really a significant real interest rate level, if it is at all, but it’s high in nominal terms, and these guys borrow a nominal money. So some of these weaker, you know, lots of weaker corporations are going to be really struggling as they have to refinance as they have to refinance. And some of these comes from companies that are just not going to make it just all of a sudden, guess what’s happening, you’re seeing a spike and bankruptcies. Now, what would companies go bankrupt? Do they hire people? Or do they fire people? So I think that’s another thing that you got to watch is just this fragility that is endemic because of all these years of misguided monetary policies and this addiction to free money. I mean, I think Druckenmiller said that when money is, is cheap, people do dumb things, when money is cheap for 13 years, they do really, really dumb things. And we’ve seen a plethora of that. And all these speculative investments and all the other malinvestment that’s gone on. And so now we’re seeing that the payback for that and, and I think, personally, it’s naive to believe that it’s going to lead to a mild economic contraction. I just don’t think that’s the history of these huge bubbles.

Adam Taggart 16:53
Okay, great. I want to I want to continue on that. And I want to both augment it and then present a counter and then let you sure what you think is right. So Fed policy acts with a lag, right. And we’ve had, you know, a tremendously fast rise in the interest rate over a relatively short period of time. And, you know, everybody kind of has their own estimation of the time lag. But you know, roughly a year sort of seems to be sort of in the middle of what I’ve heard people argue, I’ve heard people argue, nine months, I’ve heard people argue two years. But the point is, is that we still likely haven’t seen the full force of many of the rate hikes that the Fed has made over the past year, right. So we have those traveling through time. And they’ll be slamming into the economy over the next couple of quarters, right, no matter what the Fed does, from here. Right. So I’m curious to hear what you think the impact of that is going to be? Small, medium large, but just to give you the counter next, and then you can react to all of it is talking to Ed Yardeni. He talked a lot about the fiscal spending that’s going on right now. So the monetary stimulus that’s big, it’s been turned off, right. So we’re not doing QE anymore, we’re doing Qt interest rates have gone up. But there’s still a lot of federal spending going on right now, you know, from the inflation Reduction Act and whatnot. And, of course, now that the debt ceiling is resolved, you know, the government’s gonna be able to technically borrow business as usual, at least until they get to a point where they have a failed auction that you’re worried about. So we have that, and that’s in the tune of trillions going on right now. And then he was talking about the boomers that they’re really at the point where they’re hitting the age of retirement. And the boomers that have money are spending it, he said that there’s 73 trillion in wealth amongst the 75 million baby boomers. And a lot of those guys are now done and COVID Xover. And they’re coming out and they’re spending, and that that acts almost like a, like a third stool of stimulus, right? There’s the monetary, there’s the fiscal and then then there’s kind of the boomers spending. So I’ll wrap it up and let you react to it. But you know, on one hand, I can see the lag effects coming and saying, Hey, David just mentioned a whole bunch of concerns, and this is going to make those even worse. But then do we have this other fiscal and Boomer spending riding to the rescue here?

David Hay 19:25
Yeah, great stuff. And certainly it’s true that the boomers have an enormous amount of wealth. And you know, I’m a boomer. I’m right in the middle of the boomer generation, born in 1955. So yeah, it’s true. And frankly, I guess I would take a little bit different a longer term look at it, I think that could actually be the solution to our terrible fiscal status, because that money is going to get handed down over the next 1015 years to the next generation, right. It’s gonna be the biggest wealth transfer in history. If America had a clue, or policymakers, they would say, Hey, we’ve got a golden opportunity to put in some kind of effective estate tax, that would create enough revenue to pay down in a meaningful way, this massive amount of money that we’ve been debt we’ve accumulated plus all these unfunded entitlements, that could be a great solution. Now, that’s I know, a longer term thing as far as on a near term basis. Will that pool of money stimulate things? I think it’s a competence factor. I mean, it certainly helps. But I think when people are scared, they tend to hunker down. And I think Americans in general are terrified about the course the country is on. And I think you can’t just simply look at economics and say, Well, you know, really, economy’s doing pretty well, I think that’s highly debatable. Just if that was true, if all this money was out there was being spent, why are retail sales so disappointing right now. And the Johnson red book just came out, it’s basically at zero, you’re seeing a lot of high profile retailers, Miss companies that normally wouldn’t like Dollar General. And at first, it looked like companies were trading down, or consumers were trading down too high and was suffering and kind of the consumer staples were doing fine. But even the consumer staples are looking Sakana me Campbell Soup, here recently had very disappointing volumes, and the pricing is still strong. So I don’t think you’re actually seeing that type of scenario validated by activity right now. Now, it’s, I just think that’s why people don’t want to spend their capital, when they’re scared. They tend to hunker down and spend less. And I think that’s what you’re saying. I just was reading ironically, David Rosenberg. This is anecdotal. But he was talking about being on a on a trip this weekend to a very popular tourist spot in Canada by Niagara Falls. And he said, it’s just dead. I think there’s a shift going on. I think it’s happening relatively quickly, where, you know, and maybe what you said earlier is the case that this just this lagged effect of these higher interest rates. I mean, my green, if you ever had Mike Green on

Adam Taggart 21:59
Oh, absolutely. He’s great. He’s gone in a week, I think, Oh, really?

David Hay 22:03
Oh, cool. Well, you’ll he’ll who you’re talking about this, because he’ll bring up I’m sure the auto loan thing. The basically auto loan payments are up 90% From where they were in 2018. And his point is that as we kind of this variable, like thing is people now are buying more new cars, which even though the new car sales rate is down, it’s still about 15 million units a year. So eventually, these increased auto payments are going to be hitting more and more people, which he thinks is going to be a 6% hit to household disposable income. Now that’s in as he points out, that’s like the savings rate. It’s a big, big number. And what about mortgage payments? What’s happened to those? Now, you could say, well, people are buying homes, right? Because these mortgage payments are so high that affordability sucks. So home sales are, even though ironically, the home builders are making new all time highs, but lumber prices are down 77%. That’s because home sales are very sluggish. And there’s just not going to be very, very many new homes built for a while. So you know, the cost of housing is for anybody buying a new home is very, very elevated. So there’s a lot of drags, are there positives? Absolutely. The the number one positive is how strong the labor markets is currently.

Adam Taggart 23:15
I agree. I think everything hinges on that.

David Hay 23:18
It does but as we all know, or we should know, there’s nothing more lagging than the jobs market. So what you have to do to get a sense of where’s it headed is you have to look at the leading indicators of the jobs work and an initial claims is one of them. And initial claims all of a sudden isn’t looking so good. In fact, 80% of states right, roughly right now have rising initial claims for unemployment. I think that’s disturbing. You’ve seen the quits rate go way down, you’re seeing average hourly earnings fall. So some of these things that give us a challenge or layoff survey is surging, you know, it’s more than doubled over the last year. So lots and lots of straws in the wind. And that’s why I have a hard time believing the optimistic scenario, though I will say that the economy has been more resilient than I expected. So you can say Well, look, Dave, you thought we’d be in recession by now? Well, we may be well, it’s hard to know, as you know, they backdate these things continually. But again, I’ve been worried for over a year, but for 13 months now we’ve had falling leading economic indicators. I just think it takes a great leap of faith to ignore those ignore the yield curve endorsement of the GDP plus so many of these things that have had reliable track records that are all flashing red, and say no, no, this time is different. I mean, those are always dangerous words, you better have really good data to back it up. So it’s the baby spending their capital might be a bit of a reach.

Adam Taggart 24:38
Okay, this is a fun interview for me because, you know, I tend to spend a lot of time right in the array you are and I’m kind of throwing these bullish darts at you and watching you, you know, do batting practice on them, which is super interesting. So

David Hay 24:56
can you give me a bullish argument? Well, that

Adam Taggart 24:58
will place the Yeah, so

David Hay 25:00
one of the things that I think is surprisingly bullish, and this is more of a financial market aspect, but it certainly impacts the real economy or credit spreads. Now, credit spreads I think are greatly underappreciated explained, because it’s a basic concept that most people really don’t track. It’s the difference between what corporations pay to borrow money and what the federal government pays to borrow money. And typically, when they widened drastically, it’s a big red flag. Well guess what they did last year. So he had the kind of the deadly double whammy of rising interest rates and widening credit spreads. It’s one reason why last year was such a brutal year. And for those that don’t know what it was the worst year for balanced portfolio since 1871, because people got hit on their bonds every bit as hard as they did on their stocks. And then of course, if you were having a tech which most people were with the Q QQ the NASDAQ was down 33%. Last year, it was, it was a disaster. It’s amazing, really, the people are sanguine as they are after such a horrible year. But of course, now we’re getting what often called the echo bubble. And I think what’s helping to sustain the echo bubble? Is the credit spreads of Darold fairly significantly, they’re very non alarming levels. So that’s, if I was a bull, I’d say, hey, if things were really scary day, why are credit spreads as calm as they are currently?

Adam Taggart 26:12
Yeah. And that’s where I was going, which is things like credit spreads, things like analysts are beginning to increase your s&p forward earnings are actually being revised upwards. Right now. And we’ve had, you know, a rollicking start to the market this year. So what’s the deal? But,

David Hay 26:28
but I think it’s important to say that I mean, I think we’re all aware, we, you know, we should be that this market breadth absolutely stinks. Yeah, and, you know, up through the enemy, the average stock was down. And a lot of the more cyclical companies were rocking very recession. Yeah. You know, again, to be fair, if you look at this month, it’s like, all of a sudden, and I actually just wrote this up this week that, you know, this belief that when you have very narrow breath that is automatically bearish, you know, it could be a situation where the laggards catch up to the leaders. And that’s what’s actually happened as much small caps have come alive, and they were acting horribly up until recently. So in that, if you wanted a historical corollary, look back to what happened from 2000 to 2002. You had a terrible bear. I mean, the NASDAQ went down almost 80% over that period of time. And yet there were some very powerful NASDAQ rallies, just like we’re seeing right now. But then the downtrend resume. But in the meantime, the value stocks which had been so neglected in the late 90s, were in a bull market, despite the fact that we had a recession in 2001. So this belief that the value has to go down a recession and growth has to do well certainly was disproved that time. And I would also argue that who suffers the most from higher interest rates, value stocks, or high multiple tech stocks, which tend to be you know, the ultimate long duration assets? I think there’s is I will admit, this is about as confusing at times, as I’ve ever seen. And there are enough data points out there that are opposed to each other, you can kind of create whatever story you want.

Adam Taggart 28:06
All right, but it’s so great to watch you explain kind of where you are focusing your attention, because as I said, in the intro, you don’t just have the luxury of opining and off I’m wrong, I’m wrong, you’re managing billions in client capital. So you’ve got to be making decisions based upon your convictions here. So if I, if I’m summarizing correctly, on the net, you are more pessimistic about where things are likely to head from here, both in the economy? And if I’m intuiting correctly on the markets as well?

David Hay 28:38
Well, depends on what part of the market I think there’s definitely opportunities in that we could see kind of the second act of the great rotation. I’m a believer, the great rotation is happening, kept and you know, value. For example, last year value held on we got hammered for sure. But it held up much, much better than the NASDAQ 100. Now this year, of course, we get a reversal of that. And the question is, does that continue? I think what’s different this time versus say, back in the 2000, to 2002, tech implosion was there was no AI, the Internet was out there. But they’ve been out there for a number of years, whereas this AI, I think, has gone viral almost overnight. And that’s obviously triggered a massive rally in the AI related names. So that is different. And that’s not something I saw coming. So it’s, you know, every time is different and, and I think AI could be a great, a great driver of, you know, say a renewed economic surge like we had in the 1990s. It could be great for productivity, and God knows we know we need it. I don’t know, if you’re looking at these productivity numbers. They’re horrific. I mean, they’re the worst since 1948. We’ve had five straight quarters and productivity. We’ve got an aging society like America, which has a very sluggish labor force growth. If you have poor productivity. You’ve got really bad GDP numbers mean forget the short term long term. So something’s got to goose productivity and AI certainly has potential Now it could also create mass unemployment for a while, I think ultimately you’ll get job creation. But initially, it could be pretty ugly. And is what does that do? And this gets back to what were your guinea was saying was that, hey, look, you’ve got all these deficits that Dave’s worried about are actually bullish, because that’s government spending and government spending, without taxation, which is what happens when the deficits explode. It just falls almost not directly, but it certainly enhances corporate profitability. But the problem is, normally, that’s true. But the problem is, if there’s so much debt, that the government’s got to finance, that it literally swamps the market. And that’s what I keep saying is that to me, if you run the numbers, the numbers are very scary for the second half of this year, when you have falling demand. And there’s very few places other than shooting for short term government securities, no problem, lots and lots of demand for T bills. So no problem there. But I think where it gets really problematic is in the longer part of the Treasury market, where you could actually see drastically falling short rates and rising long rates, which of course was steep in the yield curve, something’s got to convert the yield curve from where it is now to more of a normal upward slope, that will do it. But that’s not the happiest way to have it come about. So that’s why I have this idea that, you know, this fiscal stimulus is bullish.

Adam Taggart 31:16
Okay. And in terms of a steepening of the yield curve, because the long end is going up. Do you think that is the more probable outcome right now?

David Hay 31:28
Yeah, I think it’s certainly going to be sticky, I’d say a best case for the longer treasuries as they stay about where they are. For a while now, ultimately, I think they’ve got to go significantly higher, because I do think there’s a realization that’s starting to spread that is, I just listened to the second time, this podcast with Druckenmiller that he did at the Sloan conference conference last month. Great, great interview. It was a good interview. And his point is that the the math just doesn’t work. And there’s just there isn’t there’s just not the buying power out there for the amount of debt that needs to be financed and something’s gotta give and and as a result, you know, that obviously, the US can’t default. So what’s gonna happen is the debts gonna get repaid, actually, now what to think about Ray Dalio I just heard Ray Dalio interviewed on CNBC yesterday. He’s saying it basically from the same hymn book as Druckenmiller saying it will get repaid that it’s going to be with printing press money. Yeah. And to me is critical that people if the bond market is waking up to the fact that, yes, they will get repaid, but they’re going to get paid and greatly depreciated dollars, you know, then they say, three and three quarters percent on 10 year treasuries not enough compensation. I want. I want seven, I want eight. Well, what does that do to the government’s ability to pay that? I mean, as even Nikki Haley was saying on TV last night that the government is now borrowing to pay its interest. I mean, that’s the definition of a complete deadbeat.

Adam Taggart 32:54
That’s a that’s a Zombie Nation. Yeah, exactly. We talked about

David Hay 32:57
this. Well said, Mr. Zombie Nation.

Adam Taggart 33:01
Guys, so many great things there. I’m gonna re ask a question I asked earlier, just up a level when I talked about could the economy sustain the current cost of capital? Can the economy and perhaps even the nation sustain long term rates, like you’re suggesting here? I mean, that is a that is a world we haven’t lived in in a long time. And our debt levels are so much higher now. I mean, there. What was the national debt? Just going into 2008? Like, just 15 years ago, right. I mean, it was 912.

David Hay 33:38
Brilliant. Yeah. So yeah, rather than

Adam Taggart 33:42
3132 Now,

David Hay 33:44
right. Oh, yeah. That ignores all these off balance sheet entitlements. Exactly. Yeah. Generally, it’s, the math doesn’t work. You just have to suddenly admit to have to be a bowl, you have to say, well, that what you’re worried about is down the road. It’s not a clear and present danger. It’s clear, but it’s not present. I think it’s becoming both. And it’s because you just again, look at the numbers objectively about how much money the government’s got to raise fresh money, then, you know, what’s another amazing policy blunder, the Fed could have or the Treasury could have basically termed out its debt when extended maturities drastically when interest rates were so low in 2020. The tenure fell to a half a percent. Yeah, I mean, it’s dead. Instead 40% of the government’s debt is gonna roll over the next two years. So not only do you have all this new money that needs to be financially get this all money’s gonna be rolled over. Now, normally, that’s not a big deal. But if people start to get worried, and again think that Ray Dalio is right, and, you know, when you hear Ray Dalio and Stan Druckenmiller, and like I said, they’re kind of on the same page. It’s like, I gotta pay attention. And you know, that usually these kinds of macro concerns are not realized and dropping those verses say he’s been on this theme for 10 or 12 years warning that this is just a disaster in the making, but at some point, it does. I mean, you know, they say, though, when the little boy was crying wolf, the wolf did eventually show up. Yeah, but I guess the bigger point I’m making is that, you know, you look at the valuation of stock market is very punchy, this is not a depressed, you know, 2008, you know, much less than 1974 1982 type of market that’s priced at seven or eight times earnings hits, and then you got the corporate bond market behaving like everything’s fine. And, and even the fact that the Treasury can still sell long term debt under 4%. I mean, that’s, that’s just complacency. And maybe that’s maybe the biggest bubble out there right now is complacency, despite you see all these, like broken? No, I’m sorry, to go back to that. He’s just had some great quotes lately that it’s like people are sitting on the pier in Santa Monica. And they’re worried about this 10 foot wave that they can see offshore, where there’s a 200 foot tsunami lurking right over the horizon and that tsunami is, is headed our way.

Adam Taggart 35:54
All right. So I think you just sort of answered my question about, you know, how can the nation the economy nation handle these potentially higher yields we’re talking about and I think you’re saying, I can’t, the math just doesn’t work. There’s there’s some sort of reckoning that has to happen. That certainly isn’t being reflected right now. And the pricing of the financial markets, they’re just they’re just apparently way too sanguine for the type of concerns that we’re talking about. And I guess it it matters more how present the danger is versus clear. But it sounds like you think it is becoming both clear and present. And that’s, that may be

David Hay 36:30
a hazardous thing to say, because it’s, you know, you know, like Buffett always says for say, I think something’s going to happen, but don’t say one is going to happen. And so I’m making the mistake of saying I think it could be the second half of this year. No, no, actually, I hope I’m wrong. It’s not something I’m looking forward to. That wouldn’t be good for our portfolios, even though we’re very defensively positioned right now. But I think he also is complacent look at the CNN fear and greed right now it is off the charts on the greedy side, look at the inflows into tech with the largest inflows in a given week into tech just happened. And that’s just more hard evidence of how

Adam Taggart 37:08
but I’m curious how you feel about the current action in this AI mania right now. I’ve had a couple of folks on we’ve reminisced about how some of these valuations feel just as extreme, if not, in certain cases even more extreme than what we saw during Mania, right? We’ve got what’s in video trading at right now. It from a price to sales and perspective.

David Hay 37:33
Yes, like 35 times sales over 100 times earnings. Those are tough, because it’s like you can keep going. At some point, it’s gonna get too far up too excited. It’s going to correct hard, but this AI thing it’s almost unquantifiable. It’s kind of like when the Kryptos were running, like he said, How high is too high for Bitcoin? Well, nobody really knows. And when you don’t know how big the market for AI is gonna be, but I do think when you I mean, it wasn’t that long ago, the blockchain was kind of put in the same category as AI. Right. And that’s, you know, was last time you wrote read an exciting story about blockchain,

Adam Taggart 38:06
right? Or just where is a really concrete practical application of, you know, a commercial use of the blockchain that’s creating lots of demonstrable profit today, like real revenues, real profit, and I’m not, I’m not slamming the blockchain, I actually think it’s a great property and transformative technology. And I think we will eventually get there. But your point is, is that this takes just a lot longer to arrive than people expect. And so we pull in all this valuation today, that eventually has to kind of flow back out because oh, gosh, what we were expecting is not going to arrive for maybe a couple of decades.

David Hay 38:39
Precisely. So it’s getting overdone. I just, I guess I’m reluctant to say, you know, when is the point where you might want to really sell audio, and video or if you’re bold go short, I’ve, I’m just reluctant to do that. I think there’s easier targets out there than in video. Just I’ve been there done that. I think something like Tesla, for example, is, is getting pretty silly on the upside and based on this charging station thing that was announced. But there’s lots of excesses out there. Again, again, I believe it’s an echo bubble. And so for those that are willing to buy poster go short, I think there’s some great opportunities. And I think you’ll get some near term rewards. But for the most part, I think what people need to know is that this is not a time, I don’t believe to be adding more capital to aggressive areas of the market. I think it’s a time to be cashing in some of your profits and saying, you know, thank you, Lord, that we’ve got this echo bubble, because it is rare that you get this second chance. So again, it did happen briefly during the 2020. I’m sorry, the 2000 2001 decline attack. There were a couple of very powerful counter trend rallies that were in the 30s. Even to in

Adam Taggart 39:48
do you feel that probabilistically This is more likely that this is a bear market rally, meaning the bear market that started last year is not over. And as these things are want to do, and they can be pretty violent in terms of they can, they can be really big rallies. But they, they create a complacency that gets everybody off the sidelines. And then once everybody’s back in the pool, you know, the bear comes back out with his claws.

David Hay 40:15
Precisely. Yes, I do think this is a powerful bear market rally. But that’s all it is. And I think frankly, what could be a balloon popper here is energy once again, because energy has been hammered over the last year. It was interesting. We were on last time I was pretty bullish on energy. And ironically, or fortuitously, like the XL li went from, I think it was 71. We talked last year and it went up over 90, it’s now about 81 or so. But oil is down $20 a barrel. And I mentioned Apache by name and it was 32. It’s 34. It’s up a little bit, but you know, so the energy stocks, which actually last year finished up the year 56% did amazingly well, better than oil did, because oil hit its crescendo, and you know, 120 last spring spring to those 22. That kind of double top in the summer. And it’s been crushed? Yeah. Way more, I never would have believed that we’d be under $70 A barrel with inventories at the kind of levels that they are right now. But, you know, I guess you gotta give credit to those these SPR releases. It’s they’ve released, you know, it took them 25 years to build up as much well as they were released in a little over a year. Of course, not for any political reasons, right. It was all just to help the economy. But a little bit of both, I guess, to be fair. Anyway, it’s if we got another spike in energy, natural gas prices fell from 10 to two. And I believe where you really got complacency is in Europe, I think they believe that they’ve got their energy situation solved. What happens, and I don’t think this is improbable. What happens if that pipeline, that Russian pipeline that runs through Ukraine gets taken out by either side? Or somebody else but, you know, or likely one of the two combatants? What does that do to the energy prices, I listened to a great podcast here recently where the very erudite gentleman was saying he, he’s European, and he thinks that they’re just way too sanguine that they’ve solved their energy crisis. So I think both natural gas and we’re gonna have oil are going to have another spike. And I think it’s going to shock people because there’s such a big short position out there right now and oil. That’s one reason it’s been going down not only the SPR sales, but also the hedge fund community that she’s been pounding the other trend followers, and so they’ve been jumping on the bandwagon of the SPR and the one that short position has to be covered. It could be really explosive, because the market is incredibly tight. It’s basically at the SPR at the lowest level. It’s been since 1983. Right? That’s right.

Adam Taggart 42:46
Okay, so you’re not the first on the program recently to talk about the opportunity that’s emerging in energy fight had to sort of summarize the previous experts we’ve had, they’ve said, it’s still gonna go down a bit further from here are some of the dynamics you mentioned, and a few others, but but they they’re entering at these prices right there. They plan to kind of dollar cost average continually on the way down. But they expect that it like you could actually be one of the better performers from here. I want to race through the rest of just your general market outlook. And I think we’re well through and already where you think we’re still in a bear market? Is it? I don’t want to pressure too much into into a timeframe. But looking around the end of this this? Well, let me put this way. First off, I assume we think we’re going to hit New bottoms at some point versus what we where we bought them last year, correct.

David Hay 43:38
Maybe I think it’ll at least be a retest of the, you know, June low, then followed by the October low, but which would be down a lot from here and will go to a lower low. Maybe it certainly could, but I wouldn’t predict that.

Adam Taggart 43:51
Okay, but at least a retest retest. And we do expect that to happen, you know, within this year, or would you rather have a little bit of a wider time horizon?

David Hay 44:02
Well, yeah, that’s a tough one. I suspect it would be this year less. So much was gonna depend on a recession. If we use you know, when you get corrections when you have soft landings, or just slowdowns, or rolling recessions, to use your unis phrase, where you really get the major bear markets is when you get a recession, and not just nourish recession, but a full blown recession. So that’s really the key. And I think a lot of the key to that is is this banking crisis really over? And I don’t think it is, but maybe I’m wrong. And if I am wrong, then I think that’s going to be a big, big feather in your cap. I think you look at commercial real estate. I mean, commercial real estate is a disaster. And especially office. I mean, you’re starting to see more and more office transactions office building transactions are 23 cents on the dollar, right.

Adam Taggart 44:51
So that is a ticking time bomb that is just beginning to go off. Basically,

David Hay 44:55
there’s $1.4 trillion of commercial real estate mortgage debt. is going to be rolling over in the next few years. Some of its rolling over right now. And these lenders are terrified and they’re starting to get jingle mail, you know, the commercial equivalent, where they’re getting the buildings back. They don’t want the buildings back. And here’s your hotel.

Adam Taggart 45:11
I mean, no bank wants that. No, tell me not just

David Hay 45:13
office buildings, hotels to and at least some of these dining cities. And it’s just, yeah, the macro situation is so different than the way the stock market’s pricing things right now. But again, not just the stock market, the bond market too. And if I was really I’d have more confidence about the timing that you were asking me about. If the credit spreads were, were going north a big way. It goes to being so comfortable at call call right now and sideways here, but

Adam Taggart 45:41
that will be a key indicator for you. Right? When you start to see those spreads blowing out that you’ll be saying, okay, look, probably the recession is coming sooner and market correction is coming. Okay, you’re nodding as we’re saying this. Alright, so, so to the crux of what you do manage capital. And once we get through this, there’s an energy question. I’m still waiting to ask you if we can squeeze into the discussion here before the end. But you have to manage a ton of capital around this. So I’ve heard you say, Okay, I think we’re, we’re heading back downwards from here, right? Substantially, if we get to a retest of the lows, that right now is a good time to be selling into the strength, maybe even look at it as a gift. If you were down in 2022. This is this has been your salvation. you’ve recovered a lot of those losses. God answered your prayers get out. Thank you give thanks. And and I’ve heard you say, okay, energy is, uh, you think that look, you know, it’s not just completely go to cash, there’s some value that’s on being uncovered right now. And that, yeah, the general markets might come down, especially if a mega cap stocks correct. But but some of these depressed value plays may actually go up, right. So what energy as a sector that you’re looking at, are there any other areas where you are managing capital? You know, what, what kind of key decisions are you making right now? What has your interest? What are you looking to get out of? I’m guessing you’re looking to reduce bonds, or at least bond duration right now, given the concerns you have?

David Hay 47:05
You know, we’ve been pretty short internationalized. Let me address that when I get a little before we go off that. I did want to say one thing about energy and why I think you’re right about that is that right now the free cash flow yield on the energy sector is 14%. That is a mean, there’s just no other sector, anywhere close to it. And if you get another run in oil prices, which I do think is coming, then it’s, you know, that’s what I think you’re gonna have a tremendous pop and names like, Well, I really shouldn’t mention ticker symbols. But anyway, there’s a lot of very depressed energy stocks out there right now that could really pop but as far as the bond market and duration goes, it is a challenge, I think we’re that you have an opportunity is maybe in the three to five year range with, you know, high grade Treasury type of securities, or maybe even better mortgage backed government guaranteed mortgage backed securities, because you’re getting quite a nice spread over treasuries, their durations, not too bad, they’ve got some decent convexity right now, which means that a lot of these things are trading at a discount for par, because normally with mortgage securities is you’re aware of the problem in a rally market, assuming interest rates come down in that part of the yield curve, which I think they will, they don’t really participate because they have the call feature. But when you get them a deeply discounted, then you’ve got a decent amount of upside back up to par. So if it’s at, say, eight cents on the dollar, let’s just say in general kind of average on mortgage backed securities right now, you’d be trading pretty quickly to par. So that’s unusual, you don’t usually get that yield pick up over treasuries plus the appreciation, eventually, once I get the PAR, then you’ll have that problem of, you know, like participation on the upside. So kind of that intermediate short to intermediate part, I think we’re going to get some benefit when the Fed starts to cut, plus you’re locking in yields a bit. I think that’s a decent place to be. We still like corporate bonds, there’s a number with the largest copper producer in the in America right now. We do like copper, very much long term that she only about 6.4%. On 11 year bond, I think it’s 6.4%. And say, you know, that’s, that’s pretty good. I can look at that. Yeah, that happened, your fingernails about the stock market. So there’s definitely pockets of a number of these energy producers have bonds that are yielding in the seven 8% range. So that and they’re paying down debt rapidly. They’re upgrade candidates, that’s a good way to make money in the bond market identify those companies are gonna go save from triple B, which is just below investment grade to investment grade. I think there’s also the automakers strong automakers in the US where their deaths trading really cheap. You can kind of you know, there’s not too many to pick from there’s a couple I think they both look pretty attractive right now. As you can tell, I have I’m dancing around our compliance.

Adam Taggart 49:37
People who I totally get that exactly. So don’t don’t cross any lines that are gonna get Yeah, they

David Hay 49:41
don’t like they don’t like individual names. But I will say that, you know, Japan’s fascinating Japan has been one of my favorite markets. It’s it concerns me in that it’s hard to pick up financial publication these days or listen to CNBC without hearing somebody tout Japan. I never thought that would happen. I was such a lone ranger for so long with Japan but It’s, it had a major breakout, as you know, I’m a believer in range expansions. When a stock market or a sector or a stock breaks out of a, at least a three year trading range. That’s a very significant development in our world. And it is amazing when you look at the individual Japanese securities, how many of them are breaking out here, there’s all time new highs, or at least multi year highs. So Japan looks very interesting though, I would like to see it pull back a bit, it’s had quite the run here lately. Same thing with uranium. I think uranium, because of this nuclear renaissance, is is really going to have a major up move. It’s run lately. So I’d be a little careful about Chase again right now. But, you know, I know we’re gonna talk nuclear at some point. But it’s, I think that’s one of the most exciting stories, not just for, you know, investment plays, but for mankind. And I think if you’ve got a nuclear renaissance, which is I think underway combined with AI, you could create a very bullish story for the next 10 years.

Adam Taggart 50:59
All right, well, let’s go straight to uranium from there. That’s the best setup you could have. So I’d meant to leave a little bit more time for this. But sadly, you just gave me so many interesting things to react to that we’re, we’re maybe cramming it in here a little bit at the end, we’re going to drive people to a video that really dives deep into this topic. And David, we can obviously have you back on again, anytime you want to dig more flesh this out more fully. But why don’t you if you can really quickly, just kind of expound a little bit on why you think nuclear is opportunity is really arriving right now. And in terms of investing in it, you mentioned uranium, is the best way to play it by buying these uranium trusts, like the actual metal itself, or are you or mineral itself? Or is it better playing mining companies? Are there even better players in this space?

David Hay 51:53
Well, it’s good, great question the problem with the miners and I think there will be times the one of this won’t be true. But right now they’re pretty pricey. At least kind of the leading blue chip play, which we’ve made good money out of the past is outside of our buy zone. So it’s kind of a weird thing where you had the price of uranium quite depressed and the price of the miner, the leading miner, for it point elevated, uranium started to come. So I think for right now the metals, the play. The other way to do it, which is definitely more difficult and adventurous is to identify those companies that are developing this next next generation nuclear technologies. That’s really the gist of, of this whole issue is that we’re now moving away from Light Water Reactors, particularly in the United States, it’s just unbelievably expensive to build these huge, you know, 1000 megawatt plants, like finally, in Georgia, the two Vogel plants are coming online, but it’s taken him decades and billions of billions dollars over budget. And that’s just the problem in the West is that when you’ve had some of these nuclear accidents, whether it was Three Mile Island, or terminal, or Fukushima, in 2011, which really set the nuclear industry back, the what happens is the regulatory authorities then start designing and all these protections, these, you know, triple quadruple, quintuple redundancies to make sure that you can’t have a major nuclear accident. And so it just makes nuclear power unaffordable, not just from a cost standpoint, but from a time standpoint. So fortunately, in the nick of time, we’ve got the small modular reactors that have been under development for many, many years, that are finally getting to go into primetime with government support. And I think that’s the key thing is governments which were basically apathetic, if not, you know, had antipathy towards these small modular reactors are now getting behind them. And there’s a significant amount of money being released from the IRA, the price reduction and funny name to small modular reactor development. And what’s really interesting within that, or molten salt reactors, and I’m actually in the process of reading a book written by the father really, of nuclear power generation in America, certainly one of them Alvin Weinberg. So he’s from Oak Ridge National Lab in Tennessee. And they developed molten salt nuclear reactor technology in the 60s. And it ran for years and years and years, and it ran flawlessly. And it’s a it’s a walk away safe approach. And a company that I’m an investor in again, I’m not recommending this to your listeners, because it’s very high risk. They don’t have a single order yet, if they get an order. That’s going to change things drastically, particularly if it’s one of the one of the major nuclear labs. I won’t mention any names there, but they’re close. But I do think somebody’s going to because really, the technology was already proven. And this Alvin Weinberg was just a brilliant man who don’t and he was very concerned about Light Water Reactors not being as safe as they were supposed to be. But he got outmaneuvered by Nixon, because Nixon was from California. A lot of the whitewater wreck reactor technology was being developed in Southern California and Chad Holyfield, another very powerful California politician. And so he got the Squeeze Play he wanted, he was on the wrong end of the Squeeze Play. And unfortunately, we didn’t develop more Molten Salt Reactor technology for the last 50 years. And but I think that’s changing. It should have changed a long time ago. But it’s, it’s very impressive stuff. And you mentioned the video, you’re there is a good video that was created by macronuclear, the company that I mentioned. And again, I’m not sure that these guys can pull it off. It’s there’s a lot of things that could go wrong wrong from a regulatory standpoint. But somebody is going to do it. And I think that the the answer is going to be molten salt. There’s a guy named Adam Rodman, who’s a genius, brilliant guy, you go to macro voices voices website, you can hear his some of his interviews, he’s, he’s not an investor in micro nuclear, but he really believes molten salt is, is the wave of the future.

Adam Taggart 55:41
There’s a whole bunch of benefits of Microsoft of molten salt fuels, and I honestly need to brush up to remember all of them. But but when I remember, this was described in the context of thorium, which I know we don’t really have any working thorium reactors right now, I don’t know, it may be true with uranium. But one of the one of the quote unquote safety benefits there was that if you ever did have a core breach, the molten salt would just drop out. And it would, it would cool and it would just pardon. And then you can literally pick it up, put it back in a repaired core and heat it back up again. So you didn’t have to worry about these sort of, you know, core meltdowns that just sort of melt down to the center of the earth. Basically.

David Hay 56:26
You’re exactly right. Now that’s, that’s true. And it is a huge advantage. The other thing, that’s interesting, too, and if your viewers listen to this podcast that I did, about 10 days ago with Doom Berg, who’s pretty well known in our industry, and then my friend who’s this nuclear energy actually has been in the nuclear power business since the mid 60s. He was a Navy new guy and a Rickover. And a lot of the people that are involved with this company are former Navy nukes, and you know, that’s the thing is that Navy’s been using nuclear propulsion, safely for, you know, 60 years. And, you know, why can’t we figure out how to use that in civilian applications. Now, frankly, they don’t use molten salt. Rickover, who again, was Father nuclear Navy was a big lightwater guy, but they are smaller reactors. And you know, one of the advantages of these things is because what kills these lightwater reactors is that, especially in the United States, they’re all customized in Russia and China don’t do it that way. They use more standardized designs for their lightwater reactors. But with the smaller ones, you can literally do an assembly line type of production for them, right. So that that’s a huge advantage. And it’s also they can be distributed power sources, because one of the greatest problems that we’re going to have with what I call the Great Green Energy Transition is the grid, the grid is already very fragile, it’s going to get more fragile, as we introduce millions of more EVs have to charge off the grid, the battle over transmission lines is absolutely, it’s intense, unbelievably intense to get new transmission lines built. So if you can put these small modular reactors, you know where the where you need the power where you don’t have to rely on long distance transmission lines, that’s a big advantage. The other thing is, is my navy new buddy says that we look at our nuclear waste that we have already, which we can’t, for some reason, put it yucca, but we have it, it’s not stored as safely as it would be if it wasn’t yucca. But he says it’s not a liability. It’s an asset, because with the small modular reactors, you can use that you can recycle that nuclear waste and put it in the molten salt reactor. So yeah, if I sound, nobody really ever accuse me being a starry eyed optimist, but I really think that this technology is ready to go viral. And it could be in its own way in the energy world almost like what happened with Chet GBT?

Adam Taggart 58:38
So a couple of things. One is the the immediate resistance you always run into when you talk about nuclear is safety, right? Safety of the reactors themselves, and then safety issues around the waist. And rather than try to summarize that into just a pithy sentence, or two, which isn’t going to convince anybody, the last interview I did on nuclear with Bloomberg, we really dive into this deeply. As did I did the same thing in my interview with Justin Kuhn, who’s the publisher of uranium Insider. And so if you’re having trouble kind of getting on board, this train that David’s talking about because of those concerns, just go listen to those videos, you’ll at least hear the detailed rationale for why the risks are potentially far lower than the public’s perception of them. David, you talked about something that I think is really important, and maybe not super well understood is that pretty much every nuclear reactor that’s been built in the US so far, has been a one off. Right. And so from a design in a construction standpoint, it’s it’s an experiment, right? It’s the first time doing this, you get to go through all these local laws and everybody puts their own little, you know, twist on it. And you talked about the multiple multiple redundancies that are being put on now. Right? So if you have a modular approach, when you get tremendous economies of scale, it gets these things get much More cheap to build and to operate because everything is standardized. And also makes, presumably, I think that the red tape especially at the federal level, a lot easier to cut through because folks know exactly what they’re dealing with. You don’t have to explain every single new design to them every time around. Also lightwater nuclear reactors we have right now they’re, they’re massive. And so you have your limited of where one can go, because you need to have the water sources and have all the environmental studies done. And these things can have big environmental impacts and their construction or their safety zones, they have to buffer around them, when you get to these smaller reactors. Everything gets easier, you can put them in way more places, you can put them closer to population centers. You don’t have to be dependent on massive, you know, rivers or oceans. And so there’s just, you know, what you’re talking about is if we can unlock this new type of design. There’s just tremendous deployment opportunity out there. You’re nodding, as I’m saying all this, am I describing this correctly?

David Hay 1:01:00
You’re doing great. Couldn’t I couldn’t disagree with the thing that you said. Although I would add, again, think of the grid that if you can avoid being reliant on the grid, because it’s just memory, how would big deal and competing was distributed computing? Well, this is like distributed power. So it’s, I do think it is a game changer. I know that’s an overused phrase, but I do believe it is. So yes, I think that’s good. So I would also say anybody that’s really interested in this, Google Alvin Weinberg, just go back and read about this guy and read about how he got bushwhacked, frankly, by by Nixon and some of the other powerful California folks. And it’s, you know, I, I’m not a fan of Nixon, because of what he did with the gold standard. But as I read more to this story, it’s like, you know, he was just doing what politicians do. He’s trying to get jobs in California. But still, it was, unfortunately, a terrible decision for the country, and one that Alvin Weinberg was able to foresee. So he’s quite a guy. And other than that, I guess, yeah, be sure to if you if anybody’s interested, be sure to access that link to that video, I know, you can also go to our substack site. And you can go to the end of the timestamps, and it’s there as well. But I think you’re gonna put a link up so people can access easier I am

Adam Taggart 1:02:11
if you want to go watch this video that that David’s talking about with him and Newberg and the nuclear expert, which I highly, highly recommend everybody go watch after this video, just go to M R, and go watch it there for free. David, great discussion, it’s a fascinating topic, it’s one, I really do look forward to having you back on to get get more deeply into the opportunities that are going to be unlocked by this because, you know, huge fan of renewable energy sources, right, you know, we should do wind and solar when it makes sense. The thing just to consider, though, is that throughout human history, we’ve always moved from a less dense, less dense energy source to a more dense one, renewables are actually a step backwards, they’re less dense, dense energy source and, you know, to, to really try to make up for the capacity that we’d be losing by by trying to wean ourselves off of hydrocarbons. Just just the footprints and the amount of materials that we need to be mined to create all of the solar farms and all the wind farms, even if they work perfectly, even if we put aside the fact that you know, there’s intermittency and both of those, they just become tremendous, right? Where nuclear is so concentrated, so much denser. It’s such a, it’s such a better option on so many of the different metrics that we look at. Look forward to

David Hay 1:03:31
Amen, brother. That was a great sermon. And I totally agree with what you said. Okay. When it makes sense, wind and solar when they make sense, but you’re exactly right. That’s a that’s a point that I’ve made repeatedly about the Great Green Energy Transition that’s moving from high density to low density, it’s just contrary to human civilization. And this is a way that we can achieve the desirable outcomes we’re looking for, without doing that. It’s subtle.

Adam Taggart 1:03:56
And we’re learning this right, the challenges of our current policy and our current trajectory in Germany right now, right, where, you know, they they, you know, for green reasons, and you can laud their their intentions. But they really over invested in wind and solar and they decommissioned their nuclear fleet. And then we had last year happen, and they basically ended up burning more coal than I think they they never would, or previous year, because even

David Hay 1:04:24
dirtier than coal. They burn, if we had something like 15% of their electricity now comes from burning wood, which mostly comes from the United States. And there’s real controversy about that, you know, the forests that are being cut down to supply that, including out of Eastern Europe, not just the US. Yeah, so there’s in you know, coal usage worldwide is is increasing. And Asia in particular is, is really, you know, in a dramatic build out of coal plants right now, both China, India, Indonesia, so it’s, you know, that’s really the sad thing about this is that in some ways I prematurely trying to get to the renewable power sources we are actually hurting the environment. So we need a break. We need an A breakthrough and I think this can be alright, well look,

Adam Taggart 1:05:13
reminder folks, please go to to watch that video after this one. David fantastic discussion wonderful having you back on the program. Thanks for coming back on for folks that want to follow you and your work. Where should they go?

David Hay 1:05:28
They can kind of see that behind me here the haymakers stack so it’s it is AppStack we’re sub Sacher. So yes. Do you go to the net and sign up our newsletter is free. So it’s, it’s something that I think will benefit anybody that cares about the financial markets, we tend to be contrarian, but I think we pull one thing out of like, you know, I’ve got so many people that I respect, I’ve quoted a number of them today. And my my rolodex digital Rolodex is, I’m just very, very blessed. And it was many people as I do that are far smarter than I am. And I tried to convey their thoughts to my readers.

Adam Taggart 1:06:01
And as a subscriber to your substack, I can personally vouch that it’s a phenomenal asset, the fact that it’s pretty is almost criminal. But definitely, if you’re if you’ve enjoyed this discussion with David, I recommend everybody go subscribe to that right now. Okay, well, in wrapping up here, David just did a phenomenal job of describing all the cross currents. And as you said, this is he’s a highly experienced capital manager. And this may be the most challenging time that he can remember trying to figure out how to, you know, intelligently and prudently navigate capital through through what’s going on right now. So I highly recommend, as usual, that you navigate this using the guidance of a good professional financial advisor who understands all the macro issues that David and I talked about, and is using that insight to create a personalized portfolio plan for you in your wealth, but then executing it for you and keeping you informed along the way. If you have a good one who’s doing that excellent stick with them. Definitely, they are very rare and worth their weight in gold. But if you don’t, or you’d like a second opinion from when it does, consider scheduling a free consultation with one of the financial advisors endorsed by Wealthion. To do so just go fill out the short only takes you a couple of seconds to do so. These consultations again are totally free. They don’t cost you anything. There’s no commitment to work with these advisors. It’s just a free public service they offer to help as many people as possible, Bruton positionally couldn’t position prudently. Now, in advance of some of the things that David said may be coming. With that being said, if you’d like to see David, come back on this program again in the future, please help encourage him by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it, David, it’s been wonderful, my friend. Thanks so much for giving us so much your time today.

David Hay 1:07:48
Thank you, Adam. I really appreciate it. Look forward to next time.

Adam Taggart 1:07:51
Thanks, everyone else thanks so much for watching.

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