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Season 2, Episode 30 Transcribed: David Hunter on Why ‘The Real Melt-Up is Still Ahead of Us’

Last updated on March 22, 2021

This transcript was made available immediately after the episode aired to premium subscribers. Become one here for just $9/month or $99/year, or $199 lifetime and get a host of other benefits including the new daily podcast released each market morning by 7 a.m. 

Update: David just guested on another episode of this podcast, which is now available to premium subscribers, where he updates his views.

David Hunter of Contrarian Macro Advisors rejoined the podcast to update listeners on his vision of a “parabolic melt-up” in risk assets that will presage the next market crash.

Nathaniel E. Baker 0:36
I am here with David Hunter of the contrarian macro advisors, and author of the Contrarian Value Advisor newsletter. David, thank you so much for rejoining the Contrarian Investor Podcast. This is your third visit, which if I’m not mistaken, you are the first three time guests, so congratulations on that.

David Hunter 1:00
Oh, I feel honored!

Nathaniel E. Baker 1:02
Yeah, me too! And so now you have had some views here. Some very prescient views on markets. And earlier this year, when the market was in the doldrums, of immediate post COVID. You came out with a prognosis for the s&p 500 of 4000. And you’ve been using this word melt up for what you’re going to you’ve been describing as what happened, which at the time seemed outlandish. But indeed, if we look back at the rally in the late spring and summer, that is very much what happened. The target of the s&p 4000 on the s&p didn’t quite get there yet. But with all that in mind, I thought it would be great if you could update us on your views of this, of the melt up of markets, and where you see things as they currently stand.

David Hunter 2:01
Sure. First, thanks for having me, Nathaniel. And yes, I, back in March, I had been calling in fairness, I had been called for a melt up even before the march sell off. So I was a little taken by surprise, by the by the sell off the magnitude of sell off, I expected a 10% pullback from the highs of February. And we obviously got 30% Plus, but I took a look at the work and said no, this is not. This does not take away the melt up scenario. In fact, this is kind of a fake out, sell off. And yes, we penetrated some trend lines, etc. But I do think we’re going to record regroup, and we’ll see the melt up later this year. And that’s essentially what I think we are getting. And believe it or not, I still don’t think we’re in the melt up phase. I mean, it’s been a hell of a ride from March. certainly surprised the vast majority of people, the vast majority of investors and pundits. But I think the melt up is still ahead of us. I described the melt up as that parabolic phase. And although you can look at it if pull back, you can look and see a parabolic here, I think the steepest part of that rally is still ahead of us. between now and the end of the year. A lot of it I think between now and election, believe it or not. So I’m still looking for and I actually been using since March, a 4200 to 4500 number for the s&p, I think the NASDAQ could get 15,000. And I still believe those numbers. We’ve been through a bit of a rocky period here in September. And frankly, you know, kind of up and down through the summer and into September. So I think we’ve consolidated a lot of the gains from March. And I think we’re poised for the next leg up, which I think will be the final leg or the final move into a secular top.

Nathaniel E. Baker 4:01
Okay, and you see that happening November 3, before the election?

David Hunter 4:06
Yeah, I don’t want to say that it’ll all happen before the election. I think we could have a strong October, and it probably carries on beyond the election. But, you know, it’s a parabolic so who knows how much ground would cover how fast you know, it’s an awful lot to expect it to go from, you know, 3350 to 4500. In in a month’s time. So I’m not pretending say that’s a given.

Nathaniel E. Baker 4:33

David Hunter 4:33
But in a if this thing really gets going, let’s say we get an aid pack up, you know, relief package. And then you know, in the next several days, you get a, you know, kind of the feeling that the momentum is shifting back upward. I think you’ll be surprised to see there’s so much bearishness in the market, how fast that could build on itself and become a feeding frenzy.

Nathaniel E. Baker 4:58
Wow. Yeah, timing is Everything and you know, I’m realizing now that I was, I was going to put this out this podcast out next week. We’re recording this on September 30. But I think I’m gonna have to do so sooner. Because we’re October is upon us literally, tomorrow. And you know, is October for all intents and purposes? It is October because it’s the markets are now closed on September 30. Right. So you mentioned the stimulus talks, that is obviously a big one. What else do you see driving this, this melt up or that parabolic stage of this melt up?

David Hunter 5:32
Yeah, a lot of it is the, you know, obviously, what drove drove markets since March has been this tremendous liquidity push from both the Fed and the Treasury. And what has kind of caused some of the setback here is the narrative out there that the feds on hold? You know, there seems to be no ability for Congress to reach an agreement on our relief package. So the economy is faltering again. And that’s going to go you know, down again, I tend to think, you know, it’s possible because of the election shenanigans, it’s possible that the democrats won’t play, you know, won’t reach an agreement because they want to keep things under wraps for the election. Trump, I think more likely, though, they realized that could hurt some of their members, as well as they are seen as obstructionist. And frankly, the republicans are also kind of holding, I think they’re making a mistake and not understanding just how badly how hurt a portion of the economy is we’ve had a sharp step back, I’ve been on record as saying we’re going to have a V recovery here. And I think that’s exactly what we’re having. We could have a 30%, up third, third quarter, and fourth quarter, probably quite a bit less than that, but still up. And that’s because of all that liquidity pump. So I think that will be part of it. As that comes out. Even though that’s all news now. It’s still probably going to surprise people to some extent on the upside. And I do think the feds going to come back in here. Yeah, they pause because they didn’t know where they had overdone it. But they haven’t overdone it, they’re going to need more. I really do feel like a relief package is a higher probability than the street is giving it. So if we can get that, then I think we get the run. And frankly, like I said, a lot of this becomes momentum begets momentum if if you start seeing the technical breakout, and you get back above the highs, you watch how fast the sentiment shifts, and sentiment right now. It’s been all the way through this thing. There’s been a huge wall word. It’s one of the reasons I was confident we would continue to rally. And every time we get a sell off like we’ve had in the last couple of weeks. It’s amazing how fast everybody starts talking much lower numbers. So the bearishness comes in quickly. And that just gives you the fuel to run it up again. Mm hmm.

Nathaniel E. Baker 8:06
There are a couple of items and you touched on one that are adding to the or creating the fear that we see that’s been leading to some of the selling. One of them, of course, is the election, and not so much the election but the possibility of a contested election outcome that will drag on for weeks and months. And I don’t know if you saw this debacle last night of a presidential debate.

David Hunter 8:31
Oh yes.

Nathaniel E. Baker 8:32
I think we all did, or at least highlights of it, unfortunately. But the both candidates were very clear that they are basically digging in for the long haul on the election outcome. And, you know, futures kind of reacted potentially to that, I think, at the time and they’ve since rebounded, and then some but so that’s that’s the one concern. And then the other of course, is with the Coronavirus and new cases and the renewed possibility of lockdowns that would then of course, you know, slow the economy to halt again. At least from where I see those seem to be the biggest concerns that are facing the markets right now. And they ebb and flow with the news, but what do you make of those two items?

David Hunter 9:18
Let me take the virus first. I feel frankly, the I, again, there’s, as we all know, there’s a true bias against Trump in the media, you know, a very big bias. And so, I think the markets really if you look back since March, by and large the markets ignore the media narrative, which is that the Coronavirus is going to, you know, create this debacle and that, you know, every time we if we open up we’re going to see we have to shut down again and you know, that very bearish story out there, the media was really helping to drive that narrative. And yet the market kept climbing. Right? So I, I think that narrative is really more of a political narrative. If you look at the evidence, I mean, this virus is horrible, it’s not something to downplay or to underestimate. However, if you look, what we’re seeing is in the opening up, you know, particularly the one when we went down south in Florida, and Georgia and Texas, Arizona, started seeing their cases pick up. And you really, you know, that was back in mid summer, you really had the feeling that this thing could really get out of hand, again, what we’re seeing is the curve has really been been and and that you get the one you open up, you do get this rising cases. But the hospitalizations are nowhere near what they were up in the northeast, when this thing, first hit, we’re learning to handle it much better or understanding it much better. The deaths are way down. The media does not focus on any of the good news, they only focus on the news that they think will hurt Trump. So I would argue that becomes almost, you know, ignore the narrative and focus on other things. So that’s first, in terms of the contested election, I put it almost in the same camp to some degree, in that the media, again, in an effort to distort, you know, the the views on on Trump are misstating what he really, and he doesn’t always do himself favors because he doesn’t state things clearly. But what he’s really talking about is the you know, rather than absentee ballots, which we’ve always had, and you’re gonna have a lot more of them because of COVID. He’s not against that he is really talking about this, you know, blanketing the country with ballots that are unsolicited. And then having laws change in these states, various states and saying, we’re going to allow the ballots to come in after election night. And that all just is really an effort to say, hey, if we have to keep bringing in more belts, we’ll keep counting until we get the win. So I think that’s what the whether it’s gonna happen that way, or whether it’s true or not, that’s that’s really what I think Trump is saying when he’s saying I can’t tell you whether I’m going to contest or not, because, you know, if it’s shenanigans, I’m not going to just walk away. So that’s what he means. On the other hand, you know, the the ballot stuffing and, and lack of any accountability on ballots is problematic and could lead to something that’s, you know, 10 times worse than gore bush was when that happens. So let’s hope not. That’s one of the reasons why I think a good part of this rallies probably come in before the election. If it gets really messy after the election. I don’t know how much further you can ignore that. And keep climbing. So yeah, so it’s certainly an unknown and uncertainty and markets don’t like uncertainty.

Nathaniel E. Baker 13:15
Yeah, but that’s just Trump. I mean, Biden too now has said that he thinks that these, his might have to be at least a couple days before these, all the ballots are counted, and that people should be prepared. So it’s not just Trump saying this like that. I mean,

David Hunter 13:30
Both sides are saying they’ll contest it. Their reasoning is different. You know, Biden is saying, you know, and again, it’s, it’s self serving for him to say, and what any candidate might want to say, is to say that, you know, to portray Trump as saying, I’m not going to leave office, and that’s not what he’s saying at all. Whereas Biden’s idea, I think is, you know, he is part of that strategy of let’s keep the balance coming in. You know, in other words, it’s to their advantage. If they think Trump, Trump’s chance of winning is probably, you know, by election night, they obviously their their tendency is to want to have balance that can be continually counted beyond that. So that’s, you know, I think that’s the issue. There is, one one is worried about balance stuffing and and shenanigans there and the other one wants to make sure they still have a chance, even if the election night isn’t in their favor.

Nathaniel E. Baker 14:29
Right. Okay. Now, what do you see from the Fed? You said the Fed would start doing stuff again. I mean, they obviously do have some things in their arsenal. So what what do you expect? how aggressive Do you think they’re going to be?

David Hunter 14:40
Yeah, I’m not I’m not great at the short term. I mean, trying to guess what Jay Powell and his his crew are going to do in the very short run. I don’t know my, my, my sense is they’ve already started kind of loosening up again. Not in a not in the kind of major way they did back in March, April May but but I think they have gone From the pause to where they’re beginning, again, what I do say from a, you know, intermediate to longer term basis is, we are not even close to done here, whether they recognize it or not, oh, as and we’ll probably get into this later. But, you know, my view is that we have a couple quarters here, thanks to all that liquidity, that we got a couple quarters of reprieve, and then we go back into what I call the second phase of the bust, the first phase started in March. And that in that, I expect that the degree of a much tougher phase, and in that you could see the balance sheet, the Fed’s balance sheet grow to as much as 20 trillion or more. So we’re at 7 trillion. Now. That’s, that’s beyond most people’s ability to comprehend, including my own mind, but but I think we are going to see, that’s why I call it a global deflationary bust, I think we’re going to see something that includes a very large financial crisis, probably the largest financial crisis in history, including major bank failures, not so much here. But Europe, maybe Asia, banks, and also a lot of involuntary liquidation, it’s kind of like you get, you get the first wave through, and then the government steps in and try to give you some ability to get through a period of time. But if you can’t get the economy back up on its feet, and restaurants open and all of that at normal levels, they only have staying power for just so long. And then you get that second wave where it’s the insolvency part of the crisis. And where you do get, you know, many, many companies that hung on for this year, not being able to hang on longer.

Nathaniel E. Baker 16:49

David Hunter 16:50
And so that relief package is very necessary, but I’m not sure that that even solves anything.

Nathaniel E. Baker 16:56
Right. Right. Okay. Yeah. So so let’s talk obviously, timing is a you know, nobody can knows the exact timing, but just to have an idea of the timeline, if you would. So the melt up goes through, you know, most of it by election, and then the rest through the end of the calendar year. 2000.

David Hunter 17:13
Just to refine that. I just say, because I really don’t like putting myself in a corner where I think, because I’ve made the mistake of saying, No, in March, I said we could see all by play out by Labor Day. Yeah, that’s what I know is you get to July or early August, and people are going well, I guess you’re wrong. It’s not gonna happen by labor. Say what happened today? So that’s the, you know, there’s a possibility it could happen that fast. Same thing here. I’m not saying it will happen by election day. I’m just saying the possibilities. You could see a very steep run here. So So sure, certainly, certainly next couple months to three months,

Nathaniel E. Baker 17:49
and credit to you to put it for putting a time on it. Most people don’t don’t even get that specific.

David Hunter 17:55
I appreciate. I put targets on I put times out that’s probably a dangerous thing to to put both out there. Yeah, forget no time, or time and no target.

Nathaniel E. Baker 18:04
But it makes you a lot more a lot better to cover from a media perspective than people who are just like, “well, we think it might do this, or on the one hand, on the one hand, other hand, it might do that.” But anyway, okay, so, so roughly, roughly end of the year. And then now what causes this, you know, the second sell off here that you think is going to be the catastrophic event with the bank failures and such, what do you see, you may,

David Hunter 18:27
I think part of it is going to be a Fed policy mistake. So let’s say you get to my 42 to 4500 on the s&p, so we’ve, you know, let’s say we’ve run the market up, you know, 1000 points, plus, you know, everything, you know, you just came through 30% plus GDP print. And everybody’s ebbulient and talking much differently than they are now and talking about this thing, finally, where we got, let’s say, we get a vaccine of some sort, it looks promising. And all of a sudden, you’re gonna have an awful lot of people saying, okay, we had our bad times, good times, are here now and they’re gonna roll on. I think with all that money sloshing around out there, the feds going to become very worried about the excess of risk in the market, and probably do more than just the pause we saw this summer and maybe step back a little more aggressively than that. And again, as I said, because this bust and people think I talk about a bust in 2021, as a separate bust, I go it’s all one bust, it just was separated by this, you know, liquidity driven respite. So, you know, the second phase of the bust you you’ve got still an awful lot of fragility in the system, you know, big chunks of the economy that are nowhere near getting the benefit of the you know, the recovery and, and all those things start Coming back at you. And if the Fed pauses, I think this thing could unwind very fast. And let’s remember, this is a global bus. So it may not even be the US. That’s the main problem. Next year, it may be Europe, it may be, you know, some mistake in Asia, there’s, there’s so many problems out there because of what the virus has done across the globe, that I just think it’s unrealistic to think we go merrily along. And and if the central banks, who, you know, let’s face it, we entered this cycle, you know, we, when the Fed had the problem back in 2008, October 2008, they grew the balance sheet to, you know, $800 billion. Now we’re at $7 trillion. Of course, any, any central banker is realizing that we’re way beyond anything that is unprecedented. So they’re going to be at any chance that they see that they’ve gone too far, they’re going to be sensitive to be pulling it back. So that’s why I think you could see a policy mistake combined with just kind of the fact that, you know, busts happen over time. They don’t all happen in a few months. So the second phase of it is because you had a respite and then the wave comes back at you. Mm hmm.

Nathaniel E. Baker 21:22
And that would certainly be consistent with what’s kind of caused the bubble to pop in prior cycles. Right, going back to the Bernanke Fed, what When did he start raising rates? In ’05 was it, I think? And gradually doing it. But that and but in retrospect, it was probably too aggressive. Right? And then,

David Hunter 21:42
frankly, Jay Powell did that. I mean, I was on record, through many of my letters, in 2018, in and first half of 2019, as saying, Jay Powell’s you know, learning on the job, he has no idea what he’s doing. His an attorney he’s not an economist and doesn’t have the experience. And he’s, he’s way over tightened. And he’s the reason we got a recession. But the truth is he, you know, wasn’t fast learner can come March, I mean, he really I give him, I turned around on him very quickly in March and said, you know, all all the criticism I had, and I was probably his biggest critic. For a couple years, I reversed myself and said, he’s, you know, right now he’s really doing all the right things. And he was getting criticized from people for doing too much then, as he was not doing too much at all. He’s really doing, you know, the right things are doing very quickly. So. So kudos to him for, you know, a fast on the job training, I guess. And, but, but he did, he did overtightened earlier on, and I think, you know, fed fed bankers can be guilty of, you know, that again, and of course, he’ll get plenty of people out on Wall Street, who will be asking me why he’s still printing money. So he’s gonna have plenty of advice, telling him to pull back.

Nathaniel E. Baker 23:11
Now, if we do get it by an administration, that would also bring a new Fed chair, right. Typically, that’s how these things work, isn’t it?

David Hunter 23:19
Yeah. Not always used. And given the, you know, the situation out there? I don’t I don’t think Jay Powell is particularly a Trump guy. I think he’s basically a straight shooter. And so I wouldn’t be surprised if Biden looked at situations. You know, I think we we don’t need change at this point in time. If things are you know, this Rocky, so? So at least for right, at least for his first year of the next term? I would think Paul’s still gonna make sense. Makes sense? Yeah.

Nathaniel E. Baker 23:51
Yeah. All right. So then you have this overreaction by the Fed, which, again, would be historical, they’ve did that, you know, Greenspan did it too, right. So being too aggressive in raising rates, and then also being he was probably too aggressive, leaving rates as low as he could for as long as he did. But that’s another story for another day. But what can and each time this has happened, there was a dramatic sell off and a pretty dramatic recession, at least early. It’s the start of one. And, you know, both times the Fed came back and are the last, you know, the last three times, I guess the Fed came back and cut aggressively. And you like you said, you know, the balance sheet was $800 billion, in ’08 and now it’s $7 trillion. I mean, they’re the ones printing the money, why can they just print more? Right?

David Hunter 24:36
Well, they will. What I’ve said this for many years is because I’ve been talking about the bus coming at some point for a long time. And when people say, Well, if you think the feds gonna print money, why can’t they just stop the bust? And I go, if you look at the history of the Fed, the Fed is reactionary, it’s not anticipatory. And so I have no doubt that’s why I can say I think we’ll see a $20 trillion balance sheet, I have no doubt that they’re going to react, I have no doubt that they will get there. But it won’t be to head it off, it will be in reaction to rather than in, in anticipation of. So, you know, I think, second half of next year, you’ll see more money created in this world, by a factor of many than we’ve ever seen in the history is, it’s gonna be you know, and the reason, the reason I think the balance sheet, not only this, not only our central bank, but central banks across the globe will be printing like they’ve never printed before, is because you’re gonna have major bank, financial crisis, you know, you’re gonna have, you’re gonna have to provide money to prevent a total meltdown of the global financial system. You know, it so. So that’s, and that’s basically the only tool they have that can be put out there quickly. So and, you know, most people look at monetary policy through the prism of interest rates. I look at it through the quantity of money. And I think I think that’s the only answer that we have. does it end well, somewhere out in the future? No. But they’re going to be dealing with the here and now and they’re not going to be they’re not going to be saying, Hey, I can’t print more money because that might be inflationary two years, three years from now, they’re going to be saying I got to deal with what they have in front of me.

Nathaniel E. Baker 26:26
Okay, so you have the melt up the rest of this year, you have a sell off caused by fed overreaction fed early tightening. And then you have well, that will then cause the Fed to do more liquidity injections on and growing the balance sheet to up to 20 trillion. And then you have inflation.

David Hunter 26:52
Yeah, exactly. Yeah. Typically, the economy lags monetary infusion by, you know, maybe six to nine months. So you printed in, you know, the big infusion was in March, April, May you get the economy now. It’s just starting, I think you’re gonna see some real acceleration here. But inflation lag to money infusion is is less certain, but longer, and I would say probably, normally a couple years, coming out of such a long term period of disinflation, and then next year deflation and again, that’s first deflationary widespread deflationary cycles since the 30s 1930s. So, coming out of that kind of economy, the lag could even take a little longer. So but so let’s say 2021 is deflation. I think your real inflation begins in 2023. And beyond, you know, you’ll have a little bit of an uptick in 2022, maybe, but it’ll start gradually and then really accelerate as you move through the decade. So So I think, next year is the secular low and rates, I think the 10 year can get to zero percent and the 30 year probably get down to a half or below. And then I think you’d begin to climb that this is going to be a call that people want to lock me up for, but I think I think you will see a full retrace, potentially a full retrace of the last 40 years of declining inflation and interest rates. So in 1981, year 20% t bills, you had 20% inflation, yet 15% long bond. I think by the end of this decade, you could be back there.

Nathaniel E. Baker 28:44
Okay, that is huge. Because the again, the central banks at that point will have no choice but to raise rates, right, just

David Hunter 28:52
Well, it won’t be the central banks. It will be inflation and the market, you’ll have an overheated economy out in the middle of the decade, as a result of the balance sheet grown to 20 trillion and every central bank’s balance sheet proportionally growing. Similarly, you’ll have a global boom, an overheated boom, and it’ll be industrial driven, in my opinion, first industrial recovery since the 1970s. We’ve had 40 years of consumer recoveries, disinflation, we’re gonna have the first inflation cycle and industrial boom, you will see commodities go to places you can imagine, you know, I have a $10,000 Gold forecast I have, you know, copper can go from probably $1 next year to you know, $15 not oil can go from $10 next year to probably $300 plus, so you’re going to see some huge inflation numbers. Again, probably not starting till, really starting till 2023. But, but that really

Nathaniel E. Baker 29:57
don’t you need demand from consumers, though, to make inflation?

David Hunter 30:00
The consumer will play a role. I mean, as jobs come back, because the economy’s booming, etc, though, but it’s not going to be 70% of cotton candy is consumer, it’s going to be, we’re going to have reshoring. So there’s going to be new capacity built in this country. So there’s going to be need for steel and, and all kinds of materials to build these plants again, and this could be going on around the globe, China is going to have their Belt and Road initiative, we’re going to have, as you know, money’s nice when you’re in a recession slash depression. But you’ve got to have something to spur that demand, you’re gonna have plenty of fiscal stimulus being pushed in there, you know, there’ll be programs to modernize the electric grid, you know, Evie, you know, all kinds in the military, you’re gonna have all kinds of spending coming out of the government. So if people think our government deficit, the debt is big now, along, you know, the balance sheets are going to grow to 20 trillion, by itself, it’s going to be growing parallel with Treasury issuance, you can have so much more debt issuance from, from the US Treasury, but also overseas. And and it’s going to be coupled with all kinds of stimulus programs.

Nathaniel E. Baker 31:23
And who’s going to buy all that?

David Hunter 31:25
Well, central banks to begin with, okay, that keep in mind, you know, if you’re expanding your balance sheet to 20 trillion, that means you’re doing, you know, it may not be open market operations that may be direct from the Treasury, he may just have them, you know, minuchin and, and policy next to each other. It says, Okay, I’m writing another trillion dollar debt package. How much are you buying? Yeah, I’ll buy it off. So. So you know, the demand is not going to be a problem, because it’s going to be central bank demand. You know, when people talk about, you know, what’s going to happen when China dumps our treasuries? That’s the least of my worries right now, because there’s going to be so much demand from the central banks for treasuries, you know, that’ll be just a small little piece, down the road, down the road? You know, you’re gonna have all this debt out there. And the question begs is, how does government finance it when interest rates go from zero or 1%? Up to 456789 10%? You know, I don’t I don’t have an answer for that. Right. You know, at some point, they’re going to lose access to the capital markets, because people are going to take a look and say, there’s no viable way that they can manage their budget, you know, their, their interest is eating up their budget.

Nathaniel E. Baker 32:46
Right. Right. And more importantly, like internationally, like how we’re I mean, how many, many dollar reserves to these countries have? I mean, if they if they’re inflating their own currency? How are they going to buy US Treasuries? And how, yeah,

David Hunter 33:03
that’s basically it is that everybody’s going to be creating money. And initially, because next year is a deflation year around the globe. Nobody’s thinking about what’s this money? what’s the downside of printing money, it’s going to look like just like mmt is gonna look like a free lunch. It’s not a free lunch, because with the lag, inflation comes, and once they help, but what I was around in the 70s, when Bill Milton G, William Miller made the mistake of saying I’m raising rates, so I’m tightening, but he was pouring money on fire, because he didn’t want to raise rates, you know, faster, inflation was pushing rates up, and he was holding them back, even though rates were going up. So he’s thinking he’s tightening, when in fact, he was the one that created the inflation bubble we got in the 70s that Volcker had to come in and deal with, right. So the same thing will happen here for a while, they’re going to be seeing rates go up and say, yeah, we’re tightening rates are going up. And they’re not, they’re still printing money. So you know, but by the time you get to 20 2024, let’s say, you know, everything flips over and you don’t have you don’t have any ability to print more money, because inflation is starting to really accelerate.

Nathaniel E. Baker 34:15
Yeah. And then what do you do?

David Hunter 34:18
Well, then then we’ve lost, you know, the dollar is going to be going down. The inflation is going to be going up. You’re going to have issues with you know, again, because of the overheated economy, you may not recognize it for a couple years, in the mid 2020s. But at some point your standard of living is dropping because the only thing that has kept us afloat for the last several decades is more debt, more money. And once you lose once Feds taken out of the game when people talk about mmt I laugh at it because there’s no mmt there’s no ability out beyond a few more years for the Fed to even print money. there’s going to come a time when the feds totally shut down. Because every dollar they print beyond that, as you know, inflation accelerates faster. So you end up with an inability to print money and inability to control rates. The market is totally in charge at that point. And then you basically go for the ride. That’s not going to be easy or fun ride.

Nathaniel E. Baker 35:23
Yeah, with the USD, though, I mean, if the dollar is going to drop it, I mean, okay, you can have gold rise like you said, but it would also have to drop versus other currencies would net and if everybody every major central bank in the world is doing the same thing. What’s the dollar going to drop against? Other than the Swiss franc? I guess, right. I think the Swedish krone, what have you?

David Hunter 35:44
Yeah, my guess is what’s going to happen is because we have more flexibility, we have more, you know, just just our system allows us far more ability to print, everybody’s going to be doing this, and I say proportionally, but in the end, we’re the big elephant in the room, we’re the ones that are going to print the most, we’re going to be the ones that ultimately end up with the bigger problem. So it’s all relative, you know, currencies are all relative. So I just think at some point, it tips over into the dollars the worst in the room, you know, that we’re the worst in the neighborhood. And I, one of the wildcards, that I don’t know, how it’s gonna work out is China is you could make the case that China is, you know, emerging, and they’re going to take over our leadership role. You could also make the case that everything that has been known as the China economic miracle of the last few decades, and particularly the last couple decades, has been debt fueled their debt is way off the charts beyond anything we have, you know, they are, they are so leveraged that if this thing when it unwinds, they could be the ones that get hurt the most. If you go back to the go back to the 1980s. You know, late 80s, everybody assumed Japan was eating our lunch, and they were going to take over the world economically, we were going to be you know, the stepsister and and look where Japan when they’ve spent 30 years digging out from that. So China may not be, you know, this foregone conclusion that they’re the big winners going forward? Because a lot of it is really smoke and mirrors.

Nathaniel E. Baker 37:24
Oh, sure. Yeah. And I’ve seen that firsthand myself, but right, yeah, but then I guess who? Right. Okay. I mean, I guess somebody will come from in Japan, it’s kind of the same issues, right?

David Hunter 37:37
ultimately, you know, and I don’t like to go out too far. Because then people want to focus on that. Don’t lose sleep over what’s 10 years out, but, but I do feel like, ultimately, we’re looking at a collapse of the entire system that we’ve had since, you know, certainly since the early 1900s. I mean, it’s, I think when you get to the 2030s, it will make the 1930s look like a picnic. I think we’re, you know, you could have, you could have a totally bankrupt governmental system across the globe, particularly in the US, so that there’s no safety nets, you know, the government’s bankrupt. So there’s no social security net, there’s no Medicare net, there’s no welfare net, and you have 50% 60 70% unemployment rates and people out on the street. I mean, I don’t know that that’s going to happen. But how do you solve a problem when you when you run that up to levels that I’m talking, and then you have interest rates go to, you know, high double digits. It’s, there’s no mathematical equation that solves that. So maybe I’m dead wrong, maybe something’s gonna come along. That will surprise people. But I just think, you know, that’s why I call this a secular top in the equity market this year. wherever it goes, whether it’s 4200 4500 or two, too low, and it goes higher. Now, I think, whenever the top is this year, I don’t think we’ll revisit that high for at least a couple decades. And maybe a lot longer than that. And what comes out of this is that doesn’t mean you won’t have a cyclical bull market. Because, you know, I’m talking about an industrial boom. So, you know, by 2022 will be in recovery. And we’ll have you know, you can let’s say we have an 80% bear market, which is what I’m talking about. So let’s say the SP goes from 4500 to 1000. You can go from 1000 back up to 3500 still be 1000 points short of the secular top, but have a you know more than tripling of the market off the bottom so, so there’s going to be plenty of opportunity in the next cycle to make money in the stock market. But in terms of a secular top, I don’t think we’re gonna, I think we’re gonna be a secular bear market going forward for quite some time. Mm hmm.

Nathaniel E. Baker 40:08
A lot of times these, you know, violent moves and financial markets have bring with them other consequences. You know, some good, some bad. I mean, the Great Depression brought us social security and the SEC and some other things, I guess you could argue about whether that’s ultimately a good thing, but that’s something out for somebody else to do. But, you know, I mean, is there. And there’s also, especially now with social media, and everybody’s so passionate about everything already, and being so dramatic about everything, isn’t there kind of a chance that that all spirals out of control, once there is some real pain, even if this initial leg down, and that there is something else that then just kind of upsets the whole apple cart? Before we get back to any kind of, you know, melt up?

David Hunter 40:58
Well, let me put it this way, I’m pretty comfortable that we’re, you know, we’re gonna see a big rally here until the top, so, you know, now

Nathaniel E. Baker 41:06
Yeah, but I guess, now,

David Hunter 41:09
then, in 2021, I’m pretty, you know my conviction is been pretty high on a bust, the second phase of the bust. And, and that’s a little controversial, as you know, there’s a lot of people that think we had our bust is over. But I’m pretty sure we’re gonna have a second, you know, second step down of some sort, that’s gonna be pretty rough. I, what separates me from, you know, the, the real gloom and doom is out there that talk about this being beyond, and then a global reset, and, you know, currency resets, that resets and all of that, and, you know, kind of what I’m talking about for, you know, the 2030s, the people talking about it, now I go, the difference between them and me, is that because of deflation, the central banks have unlimited ability to print money, because the problem doesn’t show up for a couple of years. So that gives us that that rebound, you know, next year is going to be very painful. So I don’t mean that it’s going to be straight through from here. But once we come out of next year, I think you’ve got four or five, six years of a recovery, it will be a commodity driven, industrial driven recovery, something we haven’t seen since 1970. So it’ll be very different leadership. But I do think you’ll get that. And then the big question marking because you’re talking about something that’s seven, eight, 10 years out, is what happens if we do get a collapse? And as I’ve said, at that point, you could have totalitarianism, you could have, you know, you just don’t know when when, and it’s not just the U.S., it’s a worldwide collapse. You just don’t you could have World War, you know, you could annihilate the whole globe. Who knows? You know, that’s why I say don’t, I hope people don’t stay up worrying about what is, you know, we’ve got, we’ve got two historic events ahead of us, just in the next year, a melt up, and then a bust. And both of those are bigger than anything we’ve seen in the post World War Two era. So why do you want to look past two very big event? Yeah, right. Right. And pretend you’re worried about something, you know, eight or 10 years out?

Nathaniel E. Baker 43:23
Okay. All right. Speaking of events that are on the near term horizon, I wasn’t going to ask because I don’t like getting into politics at all. But we’ve already touched on it a bit. But do you have any thoughts on who might win on November? or whenever this thing is decided?

David Hunter 43:36
Up until last night? I was. I think the surprise is that Trump is probably going to win despite the polls and things. After last night, I just don’t know. I don’t know how people read. You know, it’s not. It wasn’t his finest night.

Nathaniel E. Baker 43:52

David Hunter 43:52
Um, and I don’t I don’t know that Biden got any real winning points, either. I just think it was a horrible debate.

Nathaniel E. Baker 44:00
Yeah. Do you think there’s any chance if there is a clear Biden victory? And if the democrats take the Senate, that there could be some selling off in November over fears of more regulation, higher taxes, etc?

David Hunter 44:14
I would think so. I mean, yeah, I, you know, it’s, it’s why I really can’t try to predict. I mean, I think we’re gonna get the melt up before the end. But whether we get this real surprise, you know, next four weeks, and then, you know, tops off for whether, you know, we get two thirds of it, and we kind of keep going because there’s still, you know, possibilities in either direction, or, or whether they overlook it all and say, Well, you know, we still have, you know, we still have some sort of divided government, and so he’s not going to be able to put in any radical plans quickly. Whatever it is, I just don’t see this going straight up and topping out One Election Day and then straight down, I probably gonna, you’re probably going to spend some time up at the top before we roll over. Mm hmm.

Nathaniel E. Baker 45:09
All right. Well, I think that’s a good way to close. David Hunter, thank you so much for joining me, Contrarian Investor Podcast. And remind all of you that you can find out more about David and his views in the contrarian Value Advisor newsletter. And to do that you follow if you follow Dave, on Twitter at Dave h Contrarian? Is that what it is? And send him a message there? I believe your DMS are open. And yes, and you know, you can get access to this research. It’s available by subscription. Is there a website anywhere

David Hunter 45:45
on the website? The best way is just DM me on my Twitter account,

Nathaniel E. Baker 45:49

David Hunter 45:50
And this is by subscription. So it’s it’s not a freebie

Nathaniel E. Baker 45:54

David Hunter 45:54
For instance, they can reach out.

Nathaniel E. Baker 45:55
Yeah, sure. And if you want to get in touch with me, I will pass the message along as well. Cool. Thank you all for listening. Thank you, David, for coming on. We look forward to speaking to you again next time.