Last updated on October 23, 2023
A short actionable highlights reel from this podcast was released to premium subscribers last Thursday, Oct. 12 — the same day it was recorded. The full episode and transcript were made available to premium subscribers the following day. Become a premium subscriber by signing up on our Substack or Supercast.
David Hunter of Contrarian Macro Advisors rejoins the podcast to discuss his views on the economy, Fed, stocks, and bonds.
Not investment advice.
Content Highlights
- Views on the bond market (1:31);
- The Federal Reserve will likely pause again at its next meeting, on Nov. 1 (6:41);
- Views on stocks (11:30);
- Once consensus emerges that the Fed is ‘done’ it will remove a major wall of worry and headwind the magnitude of which few are anticipating… (16:14);
- Targets for S&P 500, Nasdaq, Dow Industrials, 10-year yields… (21:21);
- How the ‘bust’ scenario will play out (27:02),
To contact David Hunter and find out about subscribing to his newsletter, you need to send him a direct message on Twitter. His handle is @DaveHContrarian. The host will not forward your messages.
Quick Video Highlights From Our YouTube Channel
Transcript
Nathaniel E. Baker
It is now my distinct pleasure to welcome back David Hunter to the contrarian investor podcast. David, thank you so much for rejoining us today.
David Hunter
Yeah, I know, Nathaniel it’s been a long time. Great to see you.
Nathaniel E. Baker
It has been a little bit of a long time. And so I’m very curious about your use predictions on the market, on the economy, and on everything else. I was initially hoping to get your views just on treasuries, because those have sold off, although they’ve since rebounded. But then just this morning, after the latest inflation report, the CPI came in a tiny bit hotter than anticipated. Treasuries have sold off again, at least at the short end of the curve. So maybe we can start there?
David Hunter
Sure
Nathaniel E. Baker
Because yeah, we did see a big sell off in treasuries. What’s your view on the bond market right now?
David Hunter
Yeah, I’m a Bull on the bond market. I think what we saw the last couple of months was, obviously, backup after a, you know, some some reports that suggested inflation might be rising again, the Fed, you know, doing the higher for longer mantra. But I think the biggest thing was, that was the big issuance that we had from the Treasury. And we had to absorb all that. At the same time, both China and Japan were selling treasuries for different reasons. So I think the market got very nervous about who’s going to absorb all this supply. And clearly rates backed up to to be able to do those auctions. I think that’s mostly behind us. Now. You’re gonna have, obviously auctions all the time. But in terms of the volume, I think we got through that, that big amount. And it looks to me, I still believe we’re heading towards, you know, inflation continues to slow, we’re heading towards a recession. And ultimately, I still believe we’re heading for a deflationary bust may get stretched out. But you know, it’s it’s next year, in my opinion. And so, you know, yes, the Feds still holding rates high, and they’re still talking about higher for longer. But I think what you’ve seen and the reason, you know, comments coming from various governors, is the consensus is developing around, hey, maybe, maybe we’re done? Or certainly we’re due for, you know, we’re gonna pause for a while and see what happens. I think they’re seeing the strains that are showing up in the banking system, particularly the regional banking system, I think they’re seeing, although the economy is showing amazing resilience, I think they’re seeing that the there’s a very bifurcated economy with the haves have, you know, the, you know, the bigger income groups showing that they have plenty of savings, and they’re still spending. But at the low end, there are some disturbing signs about, you know, delinquency rates on credit cards, and auto loans. And, and obviously, you know, student loans are just beginning to come back into into the picture. So, so all in all, I think the Fed is saying, you know, we’ve done a lot of our job, inflation has trended down and looks like it’s gonna continue, maybe we need to be careful not to break everything.
Nathaniel E. Baker
What do you think is the biggest input for the Fed policy at this stage? Is it still the inflation data? And you think there’s not any risk there that it continues to print hot and forces the Fed Fed to raise further?
David Hunter
I mean, it’s always a risk. Certainly in the short term, you know, you get month to month numbers, and you never know, we’re playing games when we worry about a point 0.1% A number it comes in 0.1 hot, and we get upset by that. Frankly, I think the Fed they give lip service to leads and lags. I don’t think they really understand the lag effect and their history is that they always stay the the tightness too long. And I think this this time, it’s even more dangerous that they’re doing that because the leverage in the system is so much higher than ever before. And I want to stress that we had plenty of love origin 2008 Nine and that’s why we pay the price certainly played a leverage in our banks. But the overall system today it has leveraged so much higher than we even had last cycle last down cycle so I you know if if the Fed makes a mistake here by staying too tight for too long and and underestimating the lag effect, we’re gonna see a much bigger downslide I think that we even saw in 2008. Nine. And that’s why I’m talking about a global bust. Yeah, yeah. And again, it’s not it’s not just the Fed its central banks around the world. They’re all kind of mimicking each other. And they’re all staying pretty tight at a time when Europe doesn’t look like it’s in good shape. Certainly China is struggling. And, and Japan’s its pans in its own little world right now. But, you know, monetary economics have not been, you know, you haven’t seen that go away in Japan. I think it’s just taking longer to show up. But you’re beginning to see where their interest rates are starting to break above their bands, meaning they’re having a harder time containing them. And given the policy they’ve pursued for several years, once they break above, you know, and if they break out anything like here, they’ve got a huge problem on their hands, you know, because they’ve, they’ve monetized everything. You know, they own all the bond market.
Nathaniel E. Baker
Yeah. How soon do you expect the Fed to cut rates?
David Hunter
I’m not sure I actually have a I’ve suggested I will call a theory. But I think there’s a possibility that what we get here is a pause. Pause. I’ve said this all year. And probably before that, that’s all you really need from the market, if you get a pause, and the market takes that as the tightening is over. That takes that stiff headwind out of the way, it doesn’t have to be a tailwind, you don’t have to cut rates. But if you take that stiff headwind out of the way, there’s enough other things that are going to push this thing and including, you know, all the bears out there, they have to reposition. So, so I think pause was most likely things until we hit the bust. However, I think the risk here is that they pause. And if we get what I’m talking about, we can talk about this in a minute, but melt up to six or 7000 on the s&p given the Fed history a year ago, you know, they bought into Bill Dudley’s thesis, you got to get the market down to tighten conditions, they’ve kind of abandoned that this year, because it took them smacked in the face, they, you know, they kept trying to jump up and jump on the market down. Instead, the market went up 30%. So, you know, when they came into this year, as they move into the air, they started kind of backing off on the job opening. So I think the market is no longer that they may be watching it, but they’re not trying to tuck it down as much. However, if you get a melt up to six or 7000, I think they will come right back in and say hey, you know, look where the market is, we’ve got a we’ve got a tight. So even if the economy is not in great shape, either in recession or very close, they could ignore that and focus on the stock market if we’re up there. Because I think I think they’re still very nervous that they don’t want to be perceived as the Fed put, you know, the the whole criticism over the last couple of decades is the Fed, you know, recklessly propped up the markets when they shouldn’t have. So even though they’re not doing that now, I think that would make them nervous if they saw the market up there. So so what that might mean is that we get, we get applause, and then they come back in retightening starting to hike rates again. And they might be doing it on the eve of a disaster on the eve of a bust. Because they don’t realize the leads and lag. So I think that’s the possibility. Less likely possibility is obviously that the things break pretty quickly here, and that they do cut rates sooner rather than later. But everything you look at right now, the economy’s still showing that it’s not imminently close to nosediving. I think we’re gonna see kind of this slowing but but steady as she goes type of economy for at least a few more months.
Nathaniel E. Baker
So it sounds like you’re thinking it sounds like you’re saying the bigger risk is to further tightening and over tightening by the Fed, right?
David Hunter
Yeah, actually, I think the Fed’s already I say the seeds are sown for a bust. So I think Fed’s already done its damage, it’s just you won’t know it for several more months. However, if they’ve done that damage, and then they come back and do more damage, it makes it even worse. So, you know, whether they tighten more or not, I think they’ve gone too far. And as you know, they’re continuing to take money out of the system. And I saw a comment recently that made me very concerned, that forget who it was, it might have been Kashkari, but somebody said that, they think they can take money back to the levels of balance sheet back to level it was pre pandemic, if they do that out, oh, this thing is gonna crash big time. So I mean, that’s, that’s longer term thinking. I think they’re not going to do it quickly. But they are continuing to do QT. And at some point that’s gonna bite. So both rate hikes have done a lot of damage in the last year, a year and a half, because you went from zero rates to 5%. Hurry, unprecedented. So that was the real tightening. But certainly in the last, you know, many, many months, they continue to, you know, shrink the balance sheet, and we’re, we’re down at trillion from the peaks. And they still no signs that they’re going to stop that. So. I think that’s the other concern. Okay.
Nathaniel E. Baker
But you’re still bullish on stocks here?
David Hunter
Yeah, I’m as bullish as there is on the Street, I think, and probably more than almost anybody. I continue to think that what we saw in the last two months was a consolidation of the run from last October. So you had a 30% run in the s&p 31%. And I think you had a 40% run in NASDAQ. It was, you know, it was falling all the way up, the bears just kept calling a bear market rally and thought it was gonna roll over until we got up above 4300. And then the last couple 100 Point run to 4600. You know, the investors kind of jumped on the bandwagon and got bullish and started talking about, hey, we’re going back to the highs, that was a sign that we gotten back to the sentiment back to the wrong side of the, the equation. And, you know, consolidation, I called, I pretty much called that we’d have a consolidation, I didn’t know if it’d be five or 10%. And it turned out to be nine on the s&p Anyway, so so when I saw in the last two months was just classic, you know, need need to consolidate, rebuild that wall of worry, before we move higher. And I think we’ve completed the consolidation, we’ll see, there’s always chance you can go a little lower, but I think we probably completed and that the next stop is, you know, up around the highs, 4800. area. And if we push through there with any warmth, we’re off to the races in terms of melt up. So you know, the only question I really have is whether we, we pause at the highs for a little bit. I don’t think it’ll be a two month pause. But we might pause there a little bit back off, before we push forward or whether we just kind of blow through there and keep going. So I think fourth quarter is shaping up to be a very strong quarter in the equity markets.
Nathaniel E. Baker
And to your point, we haven’t even had a correction, you know, this drawdown the last couple of months 9%, moisture, maybe a correction for the NASDAQ, I don’t even know.
David Hunter
I guess that’s semantics, I view it as a correction. I use correction, pullback consolidation all are the same. I don’t. Some people want to define, you know, bear market is over 20% correction is under 20, whatever, we had a correction. And it’s what you typically see in a bull market. And we’re in the new bull leg as of last October, which I said at the time, that we’re starting new bull leg. You know, like I said, we were up 30% on the s&p. And so what you have is a stair step process, you have to constantly rebuild that wall of worry if you if the market gets if investors get too bullish and get ahead of it, it’s gonna burn itself out. So what I saw was a two month very healthy consolidation. Obviously, those that got you know, those that were bearish all the way up and then got bullish the last couple 100 points. They were bullish without conviction, as what I call it, because it didn’t take them much. You know, this 5% sell off and they were all back on the bear side again, you know, 9% so often they’re talking about a crash again, so. So I think what you’ve got out there is a lot of them, rightfully so I guess people looking at valuations and things and they’re having a hard time understanding even why this market is up here. But, you know, again, I think people are overlooking how powerful it can be. If consensus moves to understanding that the Fed is done, or at least looks like done, that takes away that tailwinds. I mean that headland has been there. Really, since the middle of 2021. In the summer 2021 began talking about the Fed, maybe needing to tighten, it kind of spent the second half of 21 still pushing up. And then obviously, 2022 was bear market and fed tightening, but so that hyndland are concerned about when the Fed would start going the other way, started in 2021. And it’s been with us ever since you take that away. And what you get is investors starting to say, I’m looking over the trough, I can start looking for the next cycle earnings, and discount out a little ways that that can end if everybody does that in a very short period of time. That’s how you get a melt up. I mean, that’s, that’s basically my thesis.
Nathaniel E. Baker
Yeah, you have also though employment still running quite hot. And Unemployment Claims haven’t gone anywhere, we’re pretty much at full employment. Is that not the type of thing you think that that could could move the Fed to keep tightening, or at least keep making, you know, the comments that they’re going to tighten?
David Hunter
Yeah, it’s funny all through my career, I’ve never been big on the jobs numbers as an important, obviously important to the economy. But But I think we, you know, there’s the birth deaths, adjustments, there’s questions between the household survey and the other, I just think those numbers are subjected to a lot of error, or a lot of misleading, you know, they can be a misleading indicator. And, you know, this last, this last report was no different. Most of that report most of the strength that everybody reacted to, and you saw, the reaction didn’t last long, the reaction was because it looks strong. When you look below the numbers, you’re getting a lot of part time help coming in, probably because the lower end of the income scale, is having trouble staying or keeping up with the standard of living or, or just basically affording necessities. So they have to get two jobs. And so, you know, underneath the surface, I don’t think the jobs picture is very strong at all. And what we’ve seen in past cycles, is you can, you can look good, right up until you don’t, and then all of a sudden, things deteriorate over just two or three months. So, so I, I have never been a big fan of using jobs as your most important indicator besides inflation. You know, they’re trying to balance that those two. And I think that’s leaving some of this error that they’re making.
Nathaniel E. Baker
Okay, so short term bullish for stocks, and for bonds, what are your targets?
David Hunter
Okay, for stocks, it’s s&p 6000 to 7000 a broad range, I have most of my other indexes, I have just one target. And as I said, yesterday, on Twitter, basically, those are my minimum expectations, the s&p because I tend to talk about the s&p more as a proxy for the market. I’ve I’ve got a lower upper target so so I actually think we’re probably going to go above my minimum maximum patient. So all my other targets NASDAQ 20,000, Dow Jones 48,000, the Russell 3000. So I think those are minimum expectations and could go beyond that, if we get into this meltham slash blow off, I think is going to be obviously very driven by emotion at the end, and be vertical. In a vertical market, when you get into what I call a top of a 41 year secular bull. It can go wherever it wants, in a very short term, I won’t stay there very long. But you know, if if you got a lot of money chasing things, I think we’re going to find, you know, this can be a buying stampede where you were going to find that there’s not as much stock liquidity as you might expect, you know, that if everybody’s been on one side of the boat for so long, you know, mostly bearish and cautious. If they all in a very concentrated period of time, move to the other side of the boat. You know, I think you’re gonna see a lot of price movement as people tried to get into the market. So you know, they’re short covering and there’s just people needing to reposition, hedge fund this, I think are pretty short. So on the stock market, I’m obviously the bull on the street.
Nathaniel E. Baker
I think that’s 50% Upside from current levels?
David Hunter
it can happen in three to six months. Okay, so it’s not, you know, people may say, oh, six houses not so bad, I think we could get there in a couple of years. That’s not a melt up, you know, melt up is something that happens, much steeper fashion. So, so you know, whether it’s before whether we got most of it before the end of the year, or we see it into the first quarter I, you know, who knows? It seems crazy when when you hear, but it seemed a lot crazier. And I was using those same numbers, you know, when the SP was 3500. So and on the bond side, probably the bowl and bonds as well. And it’s not gonna happen in one fell swoop. But I think we basically have topped out in rates. And I think you’re going to see, the 10 year get down to two and a half percent during this melt up. So again, and probably not all in the fourth quarter, I’d say fourth quarter, first quarter type of move. And again, because everybody, we’ve probably got a more bearish positioning now than at any other time I saw hedge funds are extremely short, historically short on bonds. So So I think you’ve got a lot of repositioning there to go. As you know, it shows that inflation is actually going down. The other dealer story in bond, I think is I have a view that and I was getting beat up at when WTI was 95. Because I called the move down to the 60s. And then I said we could be trading range between mid 60s and mid 80s. Well, blue classic mid 80s and was 95. And everybody was assuming it’s just, you know, a few days to 100 and then 120 aren’t 50. And I continued saying no, I don’t think this has legs. While finally you know, rolled over. And I do think we’re probably heading back into the 60s and maybe down to 60 in the bus, which is, you know, still a ways off next year, but in the bus to when we have global bus being something worse than 2008. Nine. I think demand is gonna fall like a rock globally. And you could get oil down to $30 $35. Somewhere down there. So so um, you know, if, but just looking at the near term, if oil goes to into the 60s again, that’s another tailwind for bonds. I mean, you know that it will help the inflation story, obviously. And I think inflation has pretty much peaked out, even the short term blip and should roll over. So. So you know, I think both short and long term rates ultimately will come down. But for the 10 and 30. Year, I think you’re going to have interest rates coming down in the bond market going up during the melt up. And then the bust. You see the last part of it where I’m calling for 0% or below tenure in the book. Wow. Okay, so So there’s I would say there’s probably a few but the vast majority people think we’ve seen the lows on rates for this cycle, right? The point four we had on the 10. Year back in 2020. Most people think we’re not going back there. And the 30 year get down to what point nine wherever it was, I believe you could even see negative rates on the 10 year will certainly I think see to negative rates on short rates. And we could see 30 year down to a quarter or a half percent. The reason I can get there is in a bust, I believe you’re gonna see all central banks will focus on the Fed, but all central banks flooding the system with money like we’ve never seen before. Because your bust means you’re having a financial implosion, you’re seeing the banks around the world Domino and across the world with failure. You know, less so in the US this time because we got hit so hard in 2008 there, they’re bad recapitalize. But that doesn’t mean we won’t see one or two or three here. And certainly in the regional banks. But over in Europe, over and you know, in Canada and Australia, those banks are highly leveraged, their systems are leveraged. So I think what you’re going to have is a deer in the headlights moment where the all central banks gonna say, we don’t have a choice, we got to turn on the spigot again. And they’re going to I predict, again, what do I know, but I predict that it’s going to take an expansion of the Fed’s balance sheet from what does a trillion now up to something like 30 trillion. So if you get another 20 Plus trillion pumped into the market, we had 5 trillion was unprecedented and that was you know, we saw that in 2010. money. If this is four times, four or five times, imagine what that does, because that means you’re monetizing the bonds, right? Yeah, you have to put money in the system, you have to buy bonds. The Fed will be monetizing a lot of new issuance, because accompanying that, that monetary Terry input will be big expansion of fiscal, there’ll be doing everything they can to pull us out of a nosedive. And we’ll see that all around the world. So but, but you can get a zero when people say, Well, I don’t see how you could ever get rates to those lows, again, because you don’t have China buying a Japan’s not buying, well, that’s all going to be replaced by Central Bank buying and then some. And of course, you know, as rates come down, and the economy’s headed south, you can see a lot of institutions buying bonds again, so there’ll be plenty of demand that can get us there. If if I’m right on the bust.
Nathaniel E. Baker
Yeah. And the Fed is the biggest single purchaser of treasuries. So there’s, there’s that bigger than any foreign anybody’s, or anybody, or domestic,
David Hunter
I should say, though, cuz some people misunderstand, I am not, this is not an endorsement of what’s going to happen. I’m just saying, basically, because of where we are in the supercycle. And because of all the excesses, this is what I predict this is going to be the response.
Nathaniel E. Baker
So you don’t think the Fed has learned from their mistakes, basically, because they did this already. They’ve done this a couple of times. And they didn’t have inflation until this last round the in the 2020. And that’s what led to all this inflation, and now they’ve arguably overdone it on the tightening side. So you don’t think they’ve learned from this? And they’re like, oh, we can’t flood the market?
David Hunter
Yeah, they think they’ve learned let’s put it this way, they certainly are currently saying, we’re not going back there, you know, QE is done, we are not playing that game anymore. That’s easy to say. And when you’re in your gradual policy moment, when all of a sudden, you know, stuff hits the fan, and you’re sterile, I guess it’ll be deer in headlights, you’re staring at something far worse than the spring of 2020. They’re not gonna sit there and say, Well, gee, if we do this, it’s going to be inflationary down the road, they’re gonna say, what do we do to save the system? Because what’s going to be hitting them right in the face is, you know, what we saw in 2008 times 10, you know, there’s going to be banks failing quickly, like we saw in, in the fall of 22,008. Like I said, more concentrated overseas this time, but the Fed is still the primary provider of liquidity in the world. And we’re gonna be too, so it’s not gonna be easy here. But, but there, I think it becomes inevitable. That’s the only tool they can use quickly. Because, you know, if you say, Okay, we’re not going to use monetary tools, this time, we’re going to maintain our discipline on money. And we’re going to let the government handle let’s think about how long it takes for the government will be in caves. I mean, it just, this thing will happen in days and weeks, the government takes months to come to conclusion to come to agreement on things. So they did very well, considering back in March of 2020, but I think also everybody’s mindset now is we don’t want to do that again. So the first response is going to be, we already tried that. We don’t want to get into that trouble again. But then, you know, day after they say that, they’re going to be seeing more more problems. And ultimately, they’ll reach their conclusions. But so it’s going to take a massive fiscal and monetary response, to stop a freefall, basically, looking at if you don’t react, you’re looking at the implosion of the Western financial system, maybe the worldwide financial system. And, you know, I don’t as long as they have the wherewithal, they will try to stop that. And by the way, the other key component is, and again, I don’t think there are very many people with this forecast, but I think we’re going to be in deflation next year. Once the bust it’s not before. But once the bus tickets, if they have deflation. The last thing they’re gonna be worrying about is inflation, and deflate you know, and once you’re in that deflation, it doesn’t turn around quickly, the monetary the inflationary lag effect to the monetary response is, you know, 18 months to 24 months, you’re not going to be you know, they’re not gonna be thinking about inflation when you’re looking at deflation. So, so that gives them almost infinite ability to pay Right, because the problem of that printing is down the road. The, the thing that they’re facing immediately is the deflation and the implosion.
Nathaniel E. Baker
and fiscally, you think that the government will be able to summon the wherewithal and the practicality to actually get things done after this happens again?
David Hunter
Yeah, I think so not, I’m probably probably not immediately they’re probably gonna bail. You know, the Republicans are gonna look at and say, fiscally eonic, but they’re not going to have a choice, I don’t think they’re going to have to be bailing out all kinds of things. And so, again, this is not an endorsement, in the end, this will end very badly, but you’re going to be kicking the can down the road for one more cycle. Ultimately, what this begets, is an inflation cycle that will blow away the early 80s. I mean, I think you’ll see 25% inflation by the end of the decade, you’ll see. And you’ll have, instead of having 300 Plus trillion of debt, today in the world, you’ll probably have 450 and 500 trillion with, you know, our debt in this country’s being, you know, if not double, certainly up 50%. How do we solve that equation? We can I mean, I’m, that’s why I say I’m not endorsing this, because what’s going to happen down the road is, by by sometime late this decade, we’re going to be bankrupt, I mean, the, you know, the interest costs of finance, of servicing that debt, are going to be the entire budget. Feds not gonna, the Feds not gonna be able to print a penny, because inflation is roaring ahead. And every, every extra dollar, he presents just going to create more of a forest fire. So so, you know, ultimately, this ends very badly, I think the 2030s is a collapse of the financial system. And who knows what’s come what comes out of it. But there’ll be I say this, without having any ability to know whether, you know, I can’t, it’s not coming from any real analysis, but we could be looking at 50% Plus unemployment in the 30s, with no unemployment, no welfare system speak of little or no Social Security or Medicare, I mean, because the government will be bankrupt, and certainly, you know, a military base, which is having trouble now, that will be unable to be finance. So, I mean, it’s not a pretty picture. And again, it’s because we’ve been doing this over and over and over again, for eight years, you know, it started post depression, post Great Depression, the excesses built up gradually, and then in the last 20 years, they’ve, they’ve accelerated, and we just have put ourselves in a place where I think it’s like the rubber band, it just keeps getting bigger, you know, wider and wider, every cycle, you have greater excesses, and and the responses, those excesses create bigger problems. I think we’re at the end, you know, we’re we’re nearing the end of what it will ultimately be at 90 or so per cycle.
Nathaniel E. Baker
Yeah, now, we did have some periods in there, where we had, it was driven by productivity, but we had low inflation and good growth, you know, the 90s. Basically, maybe that wasn’t engineered by the Fed, you could say the housing bubble was in the early 2000s, et cetera. So you don’t think there’s a chance of that could happen that basically, we can actually get out of our own way and have some healthy economic growth for once?
David Hunter
with AI and things, there’s talk that we might have a surprise boost in productivity that can really help the situation and keep inflation low, etc. I guess my response is that I think we’re so far along in this, that what’s taking place with Sutton play already, meaning the seeds are already sown. First, get you what I call a bust, and then get you the response to the bust. So the macro just blows away? what would otherwise be benefits that could maybe stretch this thing out and get us out of it. But I just think we’ve put ourselves so far down the road, that I don’t, I don’t think those offsets are anywhere near gonna be able to take care of what we’re facing.
Nathaniel E. Baker
And don’t forget, we also do have a declining population, which would factor into that as well. I mean, at that point, doesn’t everything I mean, politically fall apart like civil society. I mean, if you can, like you’re saying if you can’t service unemployment benefits if you can’t pay Medicare if you can’t pay Medicare, I mean, that’s what
David Hunter
Yeah, I think military. Yeah, they say I think it’s it’s impossible to predict What comes out of that, but I would worry that totalitarianism comes out of that. You know, there’s obviously there’s the fourth turning story out there. And some people want to say, well, you know, we’ll click on this thing and start all over. And there’ll be a new capitalistic cycle. I hope that’s the case. I mean, I, as I tell people, as it’s not that far away, you know, the 30s is the next decade. But there’s so much between now and then to happen, you know, if I’m right, a melt up here, then a globalist and what could be an 80% decline in the stock market, you know, what I call historic bear market. And then, out of that, a huge inflation cycle that will drive commodities through the roof, so that you can make the others another cycle to make money. So to look over all those historic things, and huge moves to something that’s an unknown, I just, I don’t want people losing sleep over something that will, we’ll get more clarity as we go along. That’s just my kind of my sense doing. I’ve done long term macro stuff for years, looking at all the, you know, all the things that go into the equation, I just don’t know how we solve it without something quite dire in the 2030s. And then, you know, beyond that is just, it’s too foggy to know, I know what that fear, but I can’t say that’s what will come out.
Nathaniel E. Baker
Yeah. And, you know, the 1930s Certainly sets a bad precedent for this in terms of, you know, fiscal problems and economic problems that lead to totalitarian governments in various parts of the world. But for on a more on a brighter note, the next it sounds like there are still opportunities here, a couple more cycles, in fact, for people to make money, like we have, you know, stocks and bonds now Until when do you see this concluding, you think, some point mid 2024?
David Hunter
Yeah, I think, you know, it, can I use kind of three to nine months, depending on the asset. Like, I think the, the metals are just coming alive after a long period. I mean, they had a great run in the first decade of this century, then they had ups and downs for the next, you know, 13 years, or 12 years, I guess. And they had some periods where they rally, but I think you’re about to have what I what we saw in 2016. And again, briefly, in 2020, after the meal after the coming out, you had two big run in the metals, I think, I think you’re on the verge of another big one here. And where were the metals themselves, I’m calling for 3000 Gold, within the next six, nine months, and probably six months is very possible. And silver could go to 60. And I’ve said, If I won’t be surprised if it goes 75, from where a 22. So those are huge runs, and then the miners will be multiples of that if it happens, you know, you go back and look at 2016. And you had a similar thing. 2020 was shorter, but you know, pretty, pretty big move. So that’s why I think we’re set up for near term in the metals, they’ll get hit in the bus, like almost every asset. But coming out of the bust, commodities, including precious metals will be the place to be I mean, you know, we’ve had this long cycle coming out of 2009. That was really technology. If you look at where they started in 2009, where they are they they’ve had tremendous cycle, the next cycle is going to be high inflation, high interest rates, commodities. And growth stocks don’t thrive in that. That doesn’t mean there won’t be technology stocks that do well. But in general, I think the next cycle after the bust is a commodity industrial cycle. So kind of more back to the 70s except bigger. And, you know, I think oil can go to $500. Like I said, it can go to 30/35 in the bust from there go to $500.
Nathaniel E. Baker
What will that do to gas prices.
David Hunter
Yeah, you’re talking $20 A gallon easily, you know. That’s why it’s gonna be you know, it can’t go on very long, right. Typically, commodity cycles are short. disinflation cycles driven by services and consumer can be long, like the last couple of cycles have been commodity cycles burned themselves out because you can’t sustain those prices. It’s, you know, it’s gonna be a supply demand story where we’ve kind of with with policies have really hurt us on the demand on the supply side for quite some time here and particularly Under the Biden administration, on energy, you know, going away from fossil fuels towards these alternatives, and trying to do it in such a short period of time is just nonsense. And it’s gonna lead to the opposite, you’re gonna have, you’re gonna have fossil fuels are gonna be a big demand, and not gonna have to supply to meet them. Because it’s going to be an industrial recovery cycle, because of because of reshoring, etc. So, suddenly, you’ve got a great opportunity, if gold goes to 20,000, by the end of the decade, and silver goes to four or 500. And oil goes to 500. I mean, you’ve got opportunities, they’re just not the same opportunities, you have this cycle. Every cycle has new leadership. So people have to understand, don’t don’t, don’t go with what got you here, you know, understand that next cycle is going to take no thinking. And carry that a little further. Really, since, you know, the disinflation cycle started in, basically, the early 80s, you know, the three, let’s say, three, four, index funds have outperformed generally most active managers, right, if you were, if you were just and this process didn’t really start to later in the 80s. But if let’s say we had the foresight for all these plans, sponsors to say were, your options are going to be s&p index, and Russell Index and what have you, if you just put your money in there and 1983 or four, and didn’t try to fool around with the market, you made big money and you outperform all these guys that get paid big money to to be money managers, the next cycle is going to be very different than next cycle. Because the biggest thing that indexes have going for them is that interest rates went from 15% down to almost zero, P E multiples went from single digits up to the mid 20s. So the next cycle, you’re gonna have the opposite, you’re gonna have interest rates going through the roof, you could see 20% interest rates maybe higher. And what’s that going to do the P E multiples, that’s going to shrink them. So you know, growth stocks and index funds and things like that are going to have that huge obstacle in their way or that ball and chain on them. Whereas the commodities have the pricing power to produce earnings that will outstrip inflation. That’s the secret.
Nathaniel E. Baker
Yeah. But also, it sounds like you’re saying active management could make a comeback? And stock pickers?
David Hunter
Yep, it’s gonna be the haves and have nots, those that are smart enough to understand that the new cycle is new leadership, and that that leadership is inflation hedge and commodity driven. You know, you’ll have plenty industrials, that will do well steel. A lot of machine tool and things will do well, because I think it’s got to be reindustrialization semiconductors in tech area may do well, because it is the commodity of tech. But in general, yeah, it’s, you know, active management that understands and selects the right sectors, and the right stocks will fire up form indexes.
Nathaniel E. Baker
But you think the commodities can do well, I mean, you need demand off
David Hunter
Yeah, the demand is going to come from Well, first of all, you’re gonna have that massive printing of money. That doesn’t all it doesn’t lead demand to demand and, you know, all at once, but it will flow into the system. And as we’ve seen, you know, a couple of years is a good example. It, it builds momentum as it goes. And so there’ll be a lot of money sloshing around the system that will build demand, the bay, and then the demand will be targeted towards I think we’re building new plant and equipment in this country, bringing it back from China. I think that’s going to accelerate, you know, because we do have geopolitics that overlays all of this. And I think it’s the world’s not going to get easier it’s going to get there’s going to be more attention, not less. So there’s going to be more bringing, you know, I think companies are going to start realizing as they have begun already, that it’s not simply a you know, you can’t just look at the cost of labor or the cost of building a plant in another country. You have to look at the supply chain issues, you have to look at the geopolitics of it and whether those things can get your supplies can get caught cut off because of that. So I think there’s going to be a recognition that we made a big mistake and kind of, you know, this whole comparative economics of shipping all your your capacity overseas and thinking the world’s one happy place. Ace, I think that’s gone out the window now and, and so I think there’s gonna be a huge boom in industrial and industrial requires a lot of raw materials and including fossil fuels. So again, kind of like the stock market, when that all happens, that concentrated period of time, you know, price goes through the roof.
Nathaniel E. Baker
Yeah. And you know, the one thing that you can get Democrats and Republicans to agree on right now is a need to decouple from China. Right there, maybe that’s the one thing that like, so you would think there would be some momentum for them there already is.
David Hunter
And keep in mind, this is a global phenomena. It’s funny how these things, you know, we focus on our own country, but, you know, the inflation travels around the world, it wasn’t just here, you know, the supply chain thing traveled around the world, it wasn’t just here. So you’re seeing it elsewhere, Germany, certainly going to look at that the UK is looking at that. I mean, China, China’s got its, you know, expansion plans, which are industrial, and you know, you’re gonna see a lot of need for raw material. So it’s a global thing. We, we can see it very clearly here. But I think it’s going to be a global story.
Nathaniel E. Baker
All right. Well, there you go. David Hunter, thank you so much for rejoining the contrarian investor podcast and providing us with these updates. Always great to have you. In conclusion, maybe tell if you could tell our listeners how they can find out more about you. I want to preface this by saying that my podcasts, my newsletter is different than David’s I have people subscribing to mine thinking they get you and they get me and they get upset. Well, that’s actually disclosed everywhere that we have no affiliation other than having you on as a guest.
David Hunter
Right? Yeah, we have this we have same name and our and
Nathaniel E. Baker
that’s it. That’s the dozens of people I get every
David Hunter
once awhile, I get an email from Nathaniel, or a forwarded email saying, this person really is intended for you. Right? Yeah. So yeah, people need to be aware of that. Um, yeah.
Nathaniel E. Baker
So how do they find out more about you?
David Hunter
Yeah, sure. I’m on Twitter almost every day, I’m in my handle is @DaveHcontrarian. So not David. But Dave, H contrarian. As I always say to people, there are a lot of fake accounts out there. My hate that Twitter doesn’t take them down. But you know, people that have a decent following, and I’ve gotten a pretty good following. And up, we all deal with these fake accounts, they take your profile page and put it up with and they change one little thing in the in the handle. So instead of F Dave, H contrary, and it might be at the h contrarian, with an M, or some other thing. So I just caution people, because I have, I’m amazed at it. But I have a lot of people who are following what looks like me because it’s got my profile picture and a handle looks similar. But the way to differentiate is I’ve got 193,000 plus followers. Most of these fake accounts don’t have 1000 followers. So I only have one account. So don’t assume it’s me. But with me another account or something, I only have one. And then also, if I might just let people because I don’t advertise on Twitter, I do have a quarterly letter. And it’s it. I charge a fee for it. So if people are interested in it, like I said, I’ll talk about it on Twitter, I don’t put out information on Twitter. But if they want to direct message me through Twitter, I’ll be glad to provide them details about that quarterly letter. So it only comes out every three months.
Nathaniel E. Baker
And that’s the only way to get to get that access to their quarterly letters to direct message.
David Hunter
Direct Message me, there’s no other way.
Nathaniel E. Baker
Do you have any other social accounts?
David Hunter
No. I mean, they can email me but it’s easier just to direct message me. I don’t have a website. I don’t have any other accounts. So I’m not on any other social media. I don’t have YouTube, et cetera.
Nathaniel E. Baker
Okay, all right. Yeah. So again, don’t contact me. If you want subscribe to David, contact him directly. And that’s all we got for today. Thank you all for listening. And thanks again to David for coming on. With that. We’ll shut up. See it back here again next week. Speak then. Bye.