David Hunter: Stocks Aren't Done Going Up, But the Big Crash Is Coming

A

I'm predicting whether it'll happen or not something like a 70 or 80% bear market in the global bust. The reason I'm calling for something bigger than just a normal recession is because of leverage. We have far more leverage today in the system than we had in 2008. 09 and that was off the charts then. That being said, I think the next few months are going to be really strong. The market could be up 30 to 40% in the next six months. And as you approach that high, you're drawn back in by the narrative that says, oh, this is not even close to a top. That should perk your ears up and make you nervous. Doesn't mean you're right at the top, but it means you're beginning to see the, the shift that tells you that this thing could roll over at any time. What will cause it? Obviously nobody knows for sure, but it's usually.

B

Hey everyone, welcome back to the show. It's been a while since we've heard from David Hunter the contrarian. He works with Contrarian Macro Advisors and he's here to share his take on why he thinks that we are pretty much in for a melt up that's going to lead to a global bust. Right. We've still got a ways to go with equities in this rally that we've seen. And I want to break it all down because you have been one of my most popular macro guests. David, it's great to see you.

A

Yeah. Hi Natalie, it's great to see you.

B

Well, let's go ahead and start with maybe a zoom out version of what's your macro take on the economy and on markets right now.

A

Sure, yeah. I think the economy is still surprisingly intact. I have always talked about a have and have not economy. Some people call it a K shaped economy. And I think that's still the issue is that half the population doesn't feel like we're in a booming economy at all. Probably more than half. And frankly we are seeing signs that things are moving towards a recession. We're not there yet, I don't think. I know. There are a few people out there saying that based on some numbers. You could argue we're in recession now, but I think we're moving that way. The economy's slowing, but amazingly it's still intact. You could have made these same comments a year ago and it's still kind of pushing along. But I do think as we get closer to the end of this year we could be in a recession and if not very close, you know, Manufacturing, because of the reshoring and all that's going on with AI, that's really holding the economy up. And that side of things looks really good, as you might see in some of the industrial stocks, et cetera. But, but it's the other, you know, the consumer, half the consumer really is struggling. Amazingly, consumption's still fine, but you are seeing signs they're having to pull more out of savings to keep their shop till you drop spending going and that's obviously can't be sustained. So they're, you know, jobs are slowing, but every time you think they're really going to start giving you bad numbers, they kind of pull themselves back up. So we're just kind of, I don't want to say steady as we go, but we're skating along here in positive territory. On the economy side, the markets, I am as bullish as ever. I do think it comes to an end maybe before the end of this year. But right now my numbers are, if you go to my targets, you're still looking at more than 30% upside in all the indexes, all the, the four indexes I, I target. So, you know, Dow, I just raised my target in my July letter to 10,000. I had been at, no, I'm sorry, not 10,000, 70,000. I had been at 67,000. My S&P number is 10,000 and I didn't raise that one this time, but I'm at 10 there. I'd raised it in early June. I'm at 36,000 on the NASDAQ and raised that in early June. And I'm at 4,000 on the Russell. And you know, for a long time I got beat up for my Russell bullishness because it lagged the others. But it has certainly caught up this year and I think still has, you know, good upside ahead. So what I see out there is really, I think the next few months are going to be really strong. Whether this takes, you know, I get people on X constantly wanting me to tell them what time it's going to top, you know, and I say it can happen very quickly because I think we're, we're in a parabolic. If you look at the monthlies on the charts, you can still argue in spite of a June consolidation, you can still argue that it looks very vertical here and that it's going to just get steeper from here. So if that's the case, if we don't go through a long, drawn out consolidation, you know, you can get to those numbers, believe it or not, within a few Months. But if, you know, if it takes longer, it takes longer.

B

Well, and I think you've mentioned that in sort of these late stages of parabolic moves, the sort of melt ups, there's cash on the sidelines waiting, thinking that no, it can't go higher, it can't go higher. And then all of a sudden it all piles in because it's like, wait, I don't want to miss out on the continued rally. And at that point is when you sort of go off the cliff. Right?

A

Yeah. Psychology is a big, plays a big role in markets and I'm a contrarian, have been for 50 plus years for a reason. It's because at tops people are most bullish and at bottoms people are most bearish. In between, you're kind of in the middle of that. So I think at the top everybody will be all in retail and institutional. We'll be talking about this thing having years still to run and they'll have, you know, there'll be a narrative out there that's very convincing. Institutions will be spewing it as well. Not, not for any reason other than they believe it. But that's how psychology works. There's fundamentals out there. I mean, earnings this year have been stupendous and look like they're going to be strong into next year. So there's fundamental reason to be bullish. But technically things look great. I mean, still, you know, we're coming, as I say this is, as of August of this year, we'll be 44 years into what I call a secular bull market that started back in August 1982. So we're late in the game. This thing can't go on forever. Valuations are high in lots of stocks, but not in all stocks. But fundamentals are just so good. You don't end bull markets on valuation. You end it when you know, looking ahead, there's something fundamental that's going to change. So at this point, I mean, I am very bullish, but also know that there's another side of the mountain coming.

B

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A

Yeah, I mean that's as John Maynard Keynes said. I'll paraphrase because I don't remember the exact quote, but it's when the facts change, I change with them. What do you do? Dear sir, you know, it's obviously there's been, I haven't changed my bullish view all the way through, but people get upset because I've been talking about a bus for, you know, five or six years and they go, yeah, well you called the bus six years ago. You've been wrong. And I said, no, I've been bullish the whole time. It's the bus follows the end of the bull market. What will cause it? Obviously nobody knows for sure, but it's usually some sort of misstep in Fed policy. So they might tighten when they should be easing or they may not ease enough, or they might not recognize the need for more liquidity. Obviously, if you get a very bad inflation story, and not for a month or two, but if that were to, if things went wrong in Iran, oil went to 150, those kind of things can really turn the economy down and the markets would react ahead of that or at least react pretty quickly to signs that that's going to come. As I say, the reason I'm calling for something bigger than just a normal recession, something that I call a global bust, is because of leverage. We have far more leverage today in the system than we had in 2008. 9. And that was off the charts then. So 2009 happened because of the leverage, or it was far worse than it would have been Otherwise because of leverage. And this time we're far beyond the leverage we had then. And I define leverage as the debt obviously is leverage on the financial system, on the economy and derivatives are leverage on the markets. And we've been, you know, really since the 80s, been creating all these derivative products that are now mainstream in retail as well as institutional. And it's that leverage both on the debt side and on the, both on the credit side and on the equity side. There's just all kinds of leverage in derivatives. So that when this thing does turn down that leverage, both debt and derivatives exacerbates the downturn. So what, you know, what kind of enhances on the upside options and you know, margin, if you're right, you know, that can really give you the chance to make more money. But when things turn down, that leverage really exacerbates the downturn. So I think that's the biggest reason for something worse than just a plain ordinary recession that we have every number of years because things go to excess in the economy and in credit markets and they just get corrected.

B

What do you say to investors listening to this who say, no, we've, we've outlawed recessions, we can't have a bust because they're just going to come in and print their way out of it like they always do. And the markets have seemed to come to a consensus that they'll be taken care of.

A

Yeah, so, so I've been a follower of the Fed since I entered this business in 1973. And I the one thing I can say with assurity is that Feds lag, policy lags. So it's almost guaranteed that they're at one time or another going to misstep. And you know that plus the fact that when the reason you get to ends of cycles is because of excesses and imbalances, in 20089 it was subprime, among other things. Now it might be private credit. Certainly private equity is very leveraged. People get over their skis in terms of bullishness and exaggerate what you know. They kind of extrapolate what's happening now and think it can go on forever. Ultimately, I think 2008, Nine almost guarantees that the Fed is not going to do that this time, at least on a timely basis. Because you heard Jay Powell say it several years in his reign that we're not going to make that mistake again. We're not going back to QE infinity, we're not going to see zero interest rate policy ever again. And Kevin Warsh I think has Put an exclamation point on that same thing of saying he's a monetarist and certainly of that bent and knows that money causes inflation. You hear him talking ever since he became chair, that his first mandate is to control inflation, to get interest rates, that interest rates will, will follow inflation down. And that the Fed's mandate first and foremost is to make sure that inflation doesn't break out. So, so he's going to be focused on that, which is we're not going to let you know, we're not going to print money ad infinitum and create that inflation. I know would come following that. So, so what that means is because of 2008, nine, they're fighting the last war. They're basically when things start turning sour, they're going to be reluctant to put money in and they're going to put some in, but they're going to be very gradual and reluctant. And if I'm right, that because of leverage we're going to have something bigger than normal. It's a real conflict that the policy is fighting. You know, doesn't want to go back and make that mistake again. And yet the policy that's demanded is actually more, not less. So you're going to have that problem somewhere down the road. Timing is obviously the question. I think it's next year, but, you know, can they kick the can down the road further? It's possible, but we are seeing more excesses and balances starting to build and you know, troubling signs in credit, you know, delinquencies on debt. Those kind of things are the things that once they go over a certain threshold, you're in trouble.

B

Yeah. And at some point their hands are tied. Don't you think that there are some folks out there who are just waiting for us to go back down to near the zero bound, you know, waiting for those interest rates to come down so that they can get the house. Because we saw those historic low interest rates and mortgage rates a couple years ago and it's, I mean, that's one of the reasons why I think we haven't seen massive shifts in the housing market. Because it's like, why would you let go of a 2.9%, 3% interest rate? You're going to hold on to that house even if maybe you don't even want to live there anymore?

A

Yes, for sure. That's, you know, I, I think we're going to actually see that, you know, but it's going to come at a time when the economy is in the dump. And you know, the, so people who today say they'll buy when, when rates get down or you know, feel like they have to wait for rates to be lower. When that happens, even if they want to buy, they may not have access to credit because the banks are going to be much more stringent. And secondly, they may have lost their job, they may not feel secure in their job. So it's a bad economy and low interest rates is not a conducive to a better housing market. I think we're peaking in housing. You know, can it bounce as rates? Because I do think rates are going to roll over here. Can it bounce for a few months as rates come down and you get some, you saw that early in the spring, you know, when rates turned down for a little bit, you had some pent up demand that said, oh, I better jump now because rates are down a half a point or a point. But then the war hit and rates went right back up. But I think we're at a peak in housing and you know, going forward it's going to be hard to exceed the price levels we're seeing. Obviously, you know, different regions are in different places, but I think the price, the highs in prices this cycle may not be seen again next cycle because of a different economy. And I think the consumer is going to get hit pretty hard in the downturn. I'm predicting whether it'll happen or not, something like a 70 or 80% bear market in the global bust. If you get the combination of that and say a 30 to 40% hit to housing prices, you know, the whole wealth effect is huge and you don't come back out of that quickly. So even if rates fall to what I expect them to fall to because of the bust, even if rates go to, I think the 10 year can go to zero in the bust and then be slow to come out of, you know, from those lows for the first year or two. So in the recovery following the bust, even if rates are, mortgage rates are, you know, two and a half or 3%, it's, it's going to be very hard to see very many people that are in a place to buy homes, either psychologically or financially. And then because of the response to the bust, again, the Fed's going to be slow to respond. But it's inevitable that in a bust the only thing that can turn it, and this is global, the only thing we'll be able to turn it is money. Because fiscal policy just doesn't move fast enough. Even if they can agree on something so you know, money will be coming in big. I'm talking about the Fed maybe going to 20 trillion in new money. You know, they obviously did 5 trillion in 2020, 2020, 2021. But I think this time because of the leverage and because of what I think will come as a result of that, it may take 20 trillion out of the Fed and who knows, maybe 50 trillion globally out of the central banks to turn things. And that will with a lag. Kevin Warsh is right. With a lag you will see inflation and inflation like we haven't seen in this country. Even back in the early 80s, you know, I think you could see by, by the end of, probably by the early 2030 sometime, meaning 2032 or 3, you could see 25% inflation. And you know, obviously interest rates follow inflation. So you know, rates would be certainly high. Double digit mortgage rates would be in that place too. And there's just no way you can afford housing at those kind of rates.

B

What do you think of Kevin Warsh? Is he the right man for the job as the new Fed chair?

A

I think he's great. I mean I think he's almost made for that job. His basically a monetarist myself. I do think he understands that over time, not, not short term, but over time money printing leads to inflation and if you allow inflation in your country then you're going to, you know, you're going to have all kinds of problems. So I think he has right mindset, he's a long term thinker. He's not trying to call rates between each meeting. I like his idea that we should be doing less talking as a Fed. It got out of hand not just under Powell, under Bernanke, under Yellen and before that maybe some under Bernanke where it was like they were almost rock stars. You know, they wanted to see themselves out there making their pronouncements about what they think the next rate move is. And I mean years ago when I was following the Fed, we just didn't see that. Certainly under Greenspan we didn't see that. And even before that, you know, it was, it was, the Fed was, the Fed was in the background. They weren't, they weren't up front and center and on TV all the time.

B

Well, and we saw Trump get so sick of the last Fed chair he nominated, Warsh. But Fed Trump really wants easier monetary policy. So do you think there's going to be some friction there?

A

I don't think so. And it'd be interesting to know what the, you know, the conversations were before he got nominated. But Kevin Wash is an inflation fighter, and he's somebody that really understands you. You know, you lower rates prematurely and you're going to have higher rates, not lower rates. You know, if you ease too soon, you're going to have inflation problems and rates will follow. So he, he understands more than anybody else. I think that. And I've always said this, markets determine rates, not the Fed. So, yeah, the Fed can control the overnight money rate, but it doesn't control where rates go longer term. And so it's kind of, you know, again, Trump's a real estate guy and he always wants lower rates, but the Fed's not in control of that. And we, we saw that obviously, a couple of years ago when they cut rates in August, I think, or July or August, prior to the election. And, you know, long rates went the other way. So I think Kevin Wash is his own man. I, you know, I think people somewhat misunderstand. Trump was more upset, I think, with some other things that went on with Powell that made him feel like he's just another TDS guy, you know, whether he's right or wrong. I defended Powell a lot through those years, even though I do think Trump has been under the gun from a lot of people. I did defend Powell saying, basically, if you look at the Fed, how can you fault them? They've brought rates down and kept the economy going, or, you know, they brought inflation down and kept the economy going through most of his time. And, you know, he was. The Fed was more right in what they were doing. They were getting criticized for not not fighting inflation enough or not easing enough. And yet in the end, they had it kind of just right.

B

Let's zoom in a little bit on the stock market. Again, we've just seen an outperformance in some of the indices. But I had analyst Luke Grohman on recently, and he mentioned that he saw a lack of breadth in the market. Like it's very highly concentrated in a few companies. I thought I heard you contradict that on, on a recent pod. You did. So can you talk a little bit about where we're seeing sort of the most appreciation in stocks versus others that maybe are more lackluster?

A

Yeah, you hear that narrative a lot. And a couple years ago, it was not wrong, or a year and a half, maybe. I can't remember exactly when it was, but when we had The Truly, the Mag 7 were dominating and the rest of the market was really not moving, if anything was moving down and the Mag 7 was keeping everything going up. And it was a narrow market and I even, you know, I've been saying this for at least a couple of years that normally when you're moving towards a major top markets narrow and they narrow into the top so that you do get breath continually narrowing. So I understand the concern when you see a very narrow market and I even then I said I'm bullish and I think we're going to see the opposite, you know, that it's unusual but we're going to see broadening into the top. And that's really what we've seen this year and probably started before that. But I am amazed when people really buy into this narrative that this is AI and almost nothing else. Sure I'm in semis, you know, I've been very bullish semis, I've always had them at the top of my list for performance going back five years or more. But you know, semis, yeah, they've been unbelievable. You know, microns have been unbelievable. If you look at the amounts of the world they've gone straight up. But that doesn't mean other things aren't moving. I just look today and I'm not, you know one of the things I haven't paid much attention to is health care. It's not one of my, my sectors that I've said would outperform but you know, because somebody was on, I forget who it was but from a healthcare company I just looked at the stock and I said wow, you know, if you look at health care, I mean Eli Lilly and this one, I can't remember what it was. Oh, it was Johnson Johnson. I mean their stocks have gone straight up, you know they're, and again those are just a couple stocks. But the industrial sector has been tremendously strong for years now. You know, financial stocks have picked up speed in the last several months and are their charts look wonderful. I mean I think finance is going to be one of the areas that does very well in the next few months. Even basic industry or basic materials looks good now and you've had, you know, the consumers stocks are when you look at sector xly are up there and you know pretty much everything except energy which looks to me like it's rolling over looks everything's go and it's, you know and a lot of them have done well. Plus if you look at it from a capitalization standpoint, you know, small caps outperformed the other indexes this year and through the first half of the year and you know the Russell looks great. So I don't know other than people have bought into what was going on a couple of years ago and haven't looked deeper to understand this is a broadening market. And there are others out there besides me saying that, I mean, and other strategists that have noted it. It's definitely broadened this year and I think that's going to continue. Now, that does not mean that AI isn't going to remain strong or that semis. I, I have a target on SMH which is I think around 600 right now of 800. And I raised that target several months ago from 600. And I, I think we're going to see 800 this year. So that's again from 600, 800. Simple math. That's a third. You know, it's 33%. That's pretty much in line with what I see for all the indexes, you know, the nasdaq. I think my number from where we are today is about 37%, but the others are about 33%. I think Russell's 34 from my target. Not that my target is going to prove exact, but. And the SMH is, you know, semis is right in line with the market. So yes, maybe semis are going to come back to earth and be in market performers rather than, you know, but another 33% upside on what we've already seen is unbelievable. So I, I do not, I mean, I couldn't be more bullish short term, meaning the next, you know, three months, three or four months things. Look, I'm very comfortable with my targets and wonder if I'm, you know, again, I've said this many times before. I thought this time it might not be the case. But I wonder if I'm even going to be low, you know, so it sounds crazy. To have that kind of performance on top of what we've already had this year is unbelievable. But that's what an end of market parabolic is. I mean, as I say to people, all you have to do is look at Micron if you want to, if you want a picture of what a parabolic looks like, you know, look at Micron. It's, you know, it's up. When I did the numbers a few weeks ago, it was up, I think 3.8 times in three months or four months. Three. I mean, almost four times your money in, in less than six months. I mean, that's, that's not normal. And that, I mean, those are signs that we're getting late, I think. But late means within the next six months, not late meaning a month from

B

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A

Yeah. Let me just point out. Yeah. The, the before we go to gold, that the IPO thing is a troubling sign because it's demanding a lot of capital. That's got to come from somewhere.

B

Yep.

A

I mean I have long argued that everybody would look and say, well, the Fed's, you know, raising rates or money's not flowing right now. Where's the liquidity that's going to drive your, your bullish market forecast? And I, I said the institutional investor has been skeptical from the bottom in 1982 all the way up. You know, they, they first it was a bear market rally. Then okay, I went to new highs. I guess we got to jump on a little bit. But they kept their, you know, even now most of them are, their targets are right near where we are. You know, they might a few have raised them towards 8,000. But you know, so, so there's been a wall of worry, there's been a skepticism that means there is liquidity that can fuel this but it does become concerning when you have a SpaceX that demands as much capital as that did and there's other AI companies obviously coming behind them. So at some point, yeah, it does. You know, the pot of money isn't infinite. So there, that can be another issue as we move towards this top, but we're not there yet. I just think there's enough signs that this thing has some legs and I, I think that's what's holding this market back is that kind of concern that, you know, people have enough things out there that they can be bearish on if they want to. And certainly that, that question about liquidity is one of them.

B

Yeah. And then suddenly they all pile in. Exactly. Okay. All right. Your take on gold.

A

So gold. I'm, I'm equally bullish on gold and silver. We had that great run from November to January in silver and gold was a longer run than that. But you know, silver got up to 122 from, you know, it had been, it had been in the 50 area when it broke out. You know, that was a long term breakout point. There's 48 or 50 and it just took off and went basically went parabolic, you know, more than doubling in probably 150% in, in three months. And so, you know, people are, you had to correct what was, you know, speculative blow off. People were just through the roof and bullishness and you had to correct that. I thought it correct in a few months, but it's, you know, it's taken five and a half months now and you've gotten a lot of that speculation out of there. Certainly a lot of people jumped in in the last inning of that run. You know, they, they weren't there at 50, they weren't there at 75. They might have gotten there over 100 and all of a sudden they're down in half almost, you know, and so that, that wakes you up in a hurry and turns you bearish in a hurry. So, so I think we have the sentiment there now, the backdrop and sentiment there now where we can come out of this. And I believe normally I'd say a parabolic usually comes at the end of a move, at the end of a big cycle move. But in this case it was so fast and it unwound so fast that I think there's even a steeper move following that. So if you can do that in three months, you can see another. My target on gold is 7,000. My target on silver now is 200. So particularly silver, you know, being where it Is down just under 60. If it can go from 60 to 200 this year and maybe even faster than the end of the year, that's. That's pretty steep. And gold, obviously, if it can go from 4,000 to 7,000, would be an unbelievable move. So that's what I'm. I'm seeing, and that's what I expect. I realize there's lots of people out there in that field, you know, people that follow gold and silver closely who think they both have more to go. You know, there's a. The breakout in silver was 50. You know, gold looks like it could go back 3, 500. And so I can't say that's impossible. Certainly until this thing really gets turned around, you start seeing a little more upside. There's always a risk that, you know, this is just another dead cap bounce and it goes lower. I think based on what I see in sentiment and what I see in, you know, in the charts and everything, There's a pretty good chance we came down to a trend line on silver and gold. Looks like 4000 or 3900 is a pretty good place. And ironically, and I didn't do it for this reason, but if, if my numbers and my numbers may not be right, but if my numbers are right, 200 on silver to get back down to 50 would be about 75%, and it would be exactly 75%. That would be, you know, kind of a normal in the. If I'm right about what equities are going to do and what we're heading for in terms of global bust. Silver is a very cyclical metal and it will get hit almost as hard as equities. 75% would make sense to me. That would take you back to that 50 breakout point that all these technicians think is necessary to get going. So you could have it, but not have it now and have it later, you know, got down to 56 in this correction. Gold from 7,000 to 3,500 is 50%. 50% retracement would be a very normal retracement in anything, but in gold, certainly that would make sense. So whether those numbers are right or not, I didn't get to my numbers that way, But I, the other day I just said, oh, those are convenient, you know, kind of places where it could correct from. So I think the possibility is that all those people waiting here for that last shoe to drop, as often the market doesn't accommodate, you take off from here and you get to those breakouts, you know, those natural places where it should go down to in the bust rather than now.

B

Well, your target of 7,000 an ounce for gold is actually bearish compared to some of the analysts I've spoken with who are calling for over 10,000 an ounce with a plan for the Fed for the government to actually revalue the gold on the balance sheet in order to maybe address the debt or to participate in some kind of monetary reordering like a Bretton Woods 2, which Treasury Secretary Scott Besant has actually alluded to in some of his writing and speeches from years past. Like, do you think that that might be a plan going forward to revalue the gold?

A

I know there's been talk of things like that and certainly a lot of speculation in the markets about that. I guess my feeling is that we're too close to the bust for anything like that because that's going to take time. You just don't all of a sudden roll out. We're revaluing gold, you know, and I'm not sure how we do that exactly. Anyway, it's not like we were in charge of that. So I'm, I'm skeptical of that. Certainly skeptical of it happening before a bust. I, I, by the way, I do have a $20,000 target for gold. It's just that I think that comes in the next cycle when we have all that money going to work. You know, it drives. The next cycle is going to be a commodity cycle, inflation cycle. And I think gold and silver are going to be the top performers in that or among the top performers. So I have silver going to a thousand and gold going to 20,000, just not this cycle. So I'll top them, but just not now.

B

Got it. What about Treasuries? Let's talk about Treasuries a little bit. One of the interesting statistics that I saw, I think it actually came out of a Fed paper was that like 34% around there of the issuance is being purchased by Cayman Islands funds.

A

Really?

B

Looks, yeah. Which looks like a little bit like, okay, well, we're out. We're running out of foreign buyers. And now a ton of the demand is coming from levered funds in the Cayman Islands that might have to sell if there's any issue with risk on stocks. So I don't know, I just, I feel like there's some, some tremors there that might crack open.

A

Yeah, I hadn't heard that. I might turn it around another way, which maybe it doesn't work with the levered funds, but it might be wealthy investors who are running to the safety of Treasuries here see a, see a bargain, you know, because I do think bond market is bottoming and saying, and it may be more a sign of how bearish they are about the stock market which I keep arguing is that wall of worry that's going to keep it going here. So I don't know enough about it to know who the buyers are there. But it may not be the conspiracy everybody thinks it is. You know, I, you know we are approaching a three year bottom in bonds. You know they, they fell, I think it was October of 2023. So, so we're, you know, we're, that's the anniversary for us, you know, the being along the bottom here. I think this is a major bottom from which we will see a major bull market in bonds and obviously a drop in a rollover in rates. So I'm, I'm thinking because the economy is closed, slowing and I was pretty alone out there saying I think inflation, the trend in inflation is still down that you know, sometime in the next few months we'll see the trend reassert itself on the downside. Well, we got that this week with the CPI and PPI and I think, I think the New York Fed president this morning in comments in a speech he had said it's possible we may have seen the peak in inflation back in May, May or June and that we are rolling over. So, and I agree, agree with that. So, so you know, I think it coincides with a bottom in bonds and a top in rates. And you know, my, my rate forecast hasn't changed probably since we talked last. I still think in the bust you could see a 0%, 10 year negative short rates and probably the third year down to a half percent. And, and basically it would be one last lower low in rates, higher high in bonds before we embark on a huge bear market because next cycle is inflation to the numbers I talked about. So you could see you know, 20 per, probably 25 short rates and, and close to 20% long rates if inflation goes to 25%, you know, next cycle. So that wouldn't be until probably 20, 32 or 23. But you know, it would be moving up in that direction throughout that cycle.

B

It's super fascinating. And by the way, yes, it says that the findings suggest that Cayman Islands hedge funds are the marginal foreign, foreign buyers. They're US firms domiciled there and they absorb 37% of net issuance of notes and bonds.

A

I think it's been reported that, I think I was right that the hedge funds, if they Weren't record short. They were certainly very short the stock market in recent months. So this is kind of the other side of the trade tells you where they're putting their money. So it may, it may not be, like I said, it may not be anything to do with foreign sellers and people bailing out of Treasuries and, and somebody else stepping in to kind of make sure it doesn't get out of hand. I think it's probably more natural buyers. You know, I, I keep saying hedge funds aren't the smart money. Everybody thinks they are. I mean, except here, I mean, they are, they are buying bonds short term. But I don't agree with their short the market story.

B

Well, it seemed like the concern was the highly levered basis trade and we also saw that sort of unwind with the carry trade with the yen. Right. But it's interesting to see what's played out with Japan because that seems like an area where things could blow up and have a domino effect. But increase rates and we kind of feel like we're at that spear tip and then all of a sudden things calm down again. And I feel like we've had that sort of wh. Lash of oh my gosh, is this going to break it? No, it doesn't. It calms down. Oh my gosh, the Iran war breaks out. Is that going to break it? No, it calms back down. Like, I think that's why it's led to a lot of confusion with investors.

A

It's also a sign of, I've said people, the institutions have, have had one foot out the door to the stock market, you know, since October 2022 and before, obviously. But, but I mean they just have been skeptical of this all the way up. And institutions obviously look at valuation a lot of, and it's been hard even though there's half the market was really undervalued, you know, because of what was going on. And if you looked at the PE multiples on the market, you go, we have all these problems and yet we're at highs on market multiple in the mid-20s, you know, a year ago. So, so I, I get their skepticism, but they've, they've missed so much because of that. And, and Japan, I agree with Japan is a, I think Japan is a potential trouble spot in the bust. As I say, it's a global bust. And it's been remarkable that they've been able to keep their game going for as long as they have because normally if you, because what they're having to do is print money to keep rates low. And as I said, ultimately rates are controlled by the markets, not by the Fed or by the central banks. You print money ultimately with a lag, it turns into inflation. And if inflation breaks out, you know, rates break out and they're just beginning. That's why everybody's so nervous because I think that's beginning to finally happen. They were for so long you go what's the lag? How can they keep monetizing their debt and not have inflation? But if you go, it was a homogeneous, you know, very efficient economy and they were able to do it. But now we're seeing rates begin at the very low levels, break out. If, if inflation does there what it does anywhere it's ever done, it breaks out and starts going vertical. It slights out. I mean they, you know, they've, they've, they're so levered to that low interest rate situation. That being said, I, I struggle with this idea that there's some big carry trade blow up over there because that happened in August of whatever year that was 24 probably. And I just, people aren't that stupid that they did, they saw what happened there. I don't think you have nearly that that levered trade there. Now there's one, you know, there's some, I'm sure because rates are still low over there. But I don't think that's the big blow up. But, but if, if rates break out there, their whole economy and their, and, and their government is in trouble because they can't afford, with what they, however they are, they can't afford rates to you know, go a lot higher. So I think that is going to be a story in the bus likely unless rates turn down and it bails them out. But.

B

Right, yeah, I think they have over 200% debt to GDP. Well David, you know I operate in the bitcoin world and one thing that's been interesting to see is normally bitcoin has been correlated to liquidity. And this is one of the, I don't know, less than 20% of times where it has kind of uncoupled from liquidity. And so I know you don't follow it closely but maybe what's your take on why bitcoin has underperformed just like gold.

A

Yeah, so I'm not as much as I say there's enough liquidity to drive the markets. I do obviously we shrunk the balance sheet here from 9 trillion down to 6 and a half or 6.4 now or 6,7 I think. So liquidity is it's not at least traditional liquidity of printing money is not really there. They've had, you know, places where they had to pump liquidity into the banking system because they used up their repo facility pretty much and had played that game for, you know, few years. But I'm not, I'm not so sure that we have this massive liquidity out there that some people want to look at rates and things and say liquidity's, you know, expanding, etc. I'm not sure we have a lot. So I'm, I don't know that bitcoin's really doing what, you know, doing something contrary to what liquidity is. But I will say, because I say this about the other markets as well, a lot of, I think the weakness in bitcoin I did dip my toe in and with, with. Well, no, no, you won't like this. With an opinion on bitcoin at over a hundred thousand.

B

Oh, okay.

A

But it was strictly technical. I put a, I thought it was frothy out there. I'm saying, okay, you know what I read in the charts this thing could go to 70, 75,000 and then I've since said next step may be 50,000. So, so I'm bearish bitcoin, but I'm the first one to tell you I don't follow it. So people should take that with a grain of salt. Strictly a technical read. But I do think what I see in other markets is probably true there too, which is momentum begets momentum. That a lot of the reaction in bitcoin is more to do with the, the negative tape than it is fundamentals, that it's just like silver. There was so many people, you know, you probably know this better than anybody that jumped in between 100 and 120 because it was going up and they were, they saw a sure thing and they're the ones that are underwater and bailing out and then you have the leverage players like saylor and etc. That are going to get stuck because of that. So, so I, I think it's as is true in so many markets is when you get into these bear markets, momentum begets momentum. And you know, it may not be as much fundamental as it is just people going with the tape.

B

Yeah, no, I, I think a lot of people are bearish, at least in the near term. I'm not expecting any new all time highs on bitcoin bitcoin in the next six months or so. But you know, I, I think it's the ultimate contrarian asset. So for someone like you, I'm gonna have to send you my book. Bitcoin is for everyone, as you know.

A

Yeah, send me your book. But as you know, from probably the first time we talked.

B

Yeah.

A

Or, or at least when he really got involved in bitcoin, I always said I want to see it get through the bust. I want to see how it holds up in the bust. After that, I'll, you know, I'll be able to know whether it's something that's as real as everybody says it is or not.

B

Well, before we start to wrap up, can you just let people know what signs to look for? You've covered it on my show a little bit before, but maybe there are some new listeners or new viewers for those end stages. Right. When there is this temptation, well, everyone's piling in. I don't want to miss out. You know what to watch for. And then once we enter this phase where again, all good things come to an end, the music has to stop. At some point we are going to see probably a massive correction. It might not be this year, it might be next year or the year after. I think we're going to head into some tumultuous elections as well. But how should people prepare for when the down cycle comes?

A

Yeah, two things. One, the thing I get asked this a lot is what, what to look for to determine a time where you feel you're getting close to the top. And for me, so much of it is sentiment. When you see an all in mentality, like I said right now, you still have all the great exuberant and you can't go by, you know, like CNN has their fear greed index that flips around. It's more of a trader's index. You know, one month it's, it's up almost 100, greed. And then, you know, two months later it's back down to a lot of fear. So that's. But it's the bigger picture. Investor sentiment where it truly is. Everybody's all in and telling you you have years to run. You know, that AI is not close to the end or that you're hearing in the semis. For example. Now the semis, you know, people questioning Micron being up on stilts like this and. But the analysts will push back and say, yeah, but they're going to be coining money because there's not capacity to meet the demand. And you know, it's going to take a couple years to get there. That's the signs in from a market standpoint, when the market is telling you, oh, you got a couple years run because of this and that. And the other thing, when everybody's all in bullish, those that are, you know, it's not that the institutions aren't in there, but they're not raving bulls. When they're raving bulls and giving the story as to why, well, we're not near a top that should perk your ears up and make you nervous. Doesn't mean you're right at the top, but it means you're beginning to see the shift that tells you that this thing could roll over at any time. So sentiment is really big in that because the fundamentals will follow. Markets lead fundamentals. So if you wait for the fundamentals to tell you things are turning negative, you're too late. So that's that. Your real question though is what to do. And I obviously can't give advice, but I believe that, you know, if we have a global bust and it's accompanied by a bear, that's the biggest since the 29 crash. So something 70, 80%. I've been saying 80%. That's an. To have an 80% down market, meaning the S&P down 80%. People go, well, what would be down the most in that? And I go, if you're down, if Your market's down 80%, everything's down a lot, you know, so it's not so much choosing what to, you know, get out of. It's going to be everything down a lot or most everything. So it really does. I've talked about how from the mid-80s we've been in this mantra of it's time in the market, not timing the market. And that's been the financial mantra for a long time. And that's proven genius. I mean, if, if people listen to their financial advisors and did that and just kept contributing to their S P index or their 401k and putting in the S P index or whatever, you, you, you look brilliant because you outperform most institutional investors, most professionals, and, and it's easy to get caught in that and say they were right for 40 years. I'm going with that now. But if you think about the scenario I'm portraying, if we go down 80% from here, it's, it's very hard to climb out of that and get back to even, never mind make money from there. I actually think the highs in the stock market probably this year, certainly the cycle will not be seen again in the next cycle and maybe for decades to come, that means buy and hold. You're going to go down with the market, you're going to give up all the gains you've had for decades. And then the way percentages work to come out of a down 80%, you can go up, you could have a great cyclical bull market coming out of the bottom, go up three or four fold in the market and still be far below the highs of this year. So it really does behoove people to maybe understand their, you know, rules are made to be broken sometimes. Rules that work great for even decades don't work at certain point. And it's, I think, I think that's where we're at. On the other hand, everybody's so worried about, I, I think anyway, looking at the big picture on the institutional side and a little bit on the retail side, everybody's so worried about a top being right around the corner and that we're almost at the top and they're really much more focused on losing money. That's one reason why I think we have a ways to run here, even if it's not time wise. I, I think people have to understand if they jump out now and say, I'm just not smart enough to call top boy, I hear what he's saying, I'm getting out now. You run the risk that the market could be up 30 to 40% in the next six months. And as you approach that, that high, you're drawn back in by the narrative that says, oh, this is not even close to a top. And then you defeated your own purpose, you got out, you did the right thing, but then you felt compelled to have to get back in because you missed so much. So just, people need to understand if we're where I think we are in the market and in a parabolic, we can see what would normally take two or three years to get in terms of returns in less than six months and maybe less than three months, who knows? So don't be so quick to react to the big picture yet. Obviously I may be wrong and it could go down and that would be bad advice, I guess. But I just want people to understand that the dynamic at the end like this, it gets tricky. Don't be greedy, but don't be too anxious to get out either.

B

Very good advice as always. David, where can people find your work?

A

Yeah, I'm on Twitter every day, or X I guess we call it now. And usually most of my communication is by reply, almost all of it, because I found a few times I do an original post, I get hit with a shitload of not all nice posts either. Replies but it just gets unmanageable because I really do try to respond to people. So I've kind of turned it into my way of communicating is through responding to people, replying to questions and comments. So for those people that are on X and not seeing and saying I'm not seeing your stuff, I follow you, but you haven't been on in a while. I'm on every day and with lots of posts. So if you're not seeing me, it's your settings, you know, you have to somehow set it so you see my replies and and I do put out a quarterly letter by subscription. I had somebody very nice institutional guy that gets my letter after he got my last letter, he goes, you people are missing something. This thing is almost he. Yes, he charges money for it, but it's almost free. Well, to a retail year free is different than to an institutional year. So I had people thinking that I was, you know, it was going to be a ten dollar letter or something. That's not, it's by subscription which means there is a fee if people are interested it. I will answer on chat with details.

B

All right, well I will link your work in our show notes. Thank you so much for taking the time, David. I know sometimes the replies can be crazy on on X because with market volatility, emotions run high in investing. Right. So we see it on our end too here in Bitcoin. David, great to see you. Thank you so much for joining me.

A

Thanks Natalie.

B

Thank you so much for checking out this episode of Coin Stories. This show is for entertainment and educational purposes only. Nothing should constitute as official investment advice and you should always do your own research. My inbox is open. If you want to share feedback or guest suggestions, just reach out to us@infoalkingbitcoin.com make sure you're subscribed and turn those notifications on so you never miss new content. I'll see you next time.