Friday Haymaker

4 weeks ago 118 views 12 min read

David Hay

Editor

Haymaker

Friday Haymaker

VDL On “The Big One”

Hello, Subscribers:

Adam McKay’s film The Big Short includes a scene in which a frustrated stakeholder angrily insists that where high-level investment is concerned there is no difference between being early and being wrong. We understand that sentiment (even though it was the stakeholder who ended up being wrong… but only much later; interpret that as you like.)

A challenge that troubles the eponymous Haymaker himself is that he has had extensive experience with market history and economic fundamentals. Yes, those do amount to a challenge, and for the simple reason that he knows from precedent and from real-time diagnosis when bubbles are forming, and value has been distorted, and when recession is positioned to ultimately strike. What’s tricky — okay, virtually impossible — is nailing down the timing and convincing others to tread lightly, particularly when the getting looks to be good. There are precedents and there is a stubborn present: these are not meant to align perfectly, which is where the very imprecise science of financial forecasting becomes necessary.

Depending on when you want to start counting, the Haymaker has been publicly skeptical of the underlying health of the American economy — at least, backing out tens of trillions of reckless debt creation — for 20 years, and certainly since Bubble 2.0 — the 2008-9 Financial/Housing Crisis, itself covered in the aforementioned The Big Short. Over the following decade, his Evergreen Virtual Advisor — this newsletter’s predecessor — was at turns a jeremiad and an intellectual safe harbor for investors and market watchers who wanted to know where the safe(r) bets were when bubbly symptoms began resurfacing in various sectors. Long-time readers are also aware it urged buying into the periodic convulsions that quickly, albeit fleetingly, brought prices back down to somewhere around reasonable.

The major aberration that would make a mockery of all high-finance predictions was Covid, and more specifically the economic lockdowns that ensued. The immediate aftermath of Covid coincided with the release of Dave’s Bubble 3.0, a book that essentially consolidated his 15-year thesis on extreme overvaluation, Fed lunacy, and Wall Street recklessness.

This assortment of vulnerabilities might inevitably have collided with reality had the Covid apocalypse not unleashed a government-generated flood of money creation of Biblical proportions. Effectively, the rational reasoning yielded by knowledge of economic fundamentals was overwhelmed by nearly endless liquidity infusions. However, this panic-stricken reaction to Covid and its aftermath caused him to realize the inflationary implications of such actions. More importantly for investors, he concluded that these would likely turbocharge precious metals.

And, boy, did they!

A question worth asking is if the distortions brought on by lockdown measures over five years past have ensured that the economic correction we have long seemed due for will manifest as a rolling stop rather than as a brake-slamming event. In fact, one could reasonably argue that’s precisely what we’ve experienced in recent years with some sectors enduring recessions (especially, housing, manufacturing, and trucking) and others in boom times (particularly, almost anything AI-related — until lately).

All of the above sets up today’s guest article by Friend of Haymaker (FOH) Vincent Deluard, who has some thoughts on what he calls “the big one”, and why so many are training their sights on the wrong culprits in anticipation of far-from-certain outcomes. In his recent letter, which we are re-publishing for our paid subscribers, Vincent gracefully weaves an outline in which growing marketplace cracks intersect with political dimensions which, though predictable in their course, could prove consequential in the extreme if pursued as ardently as this POTUS is likely to do.

Before you dismiss his concerns, Vincent has repeatedly, and correctly, believed in recent years that the U.S. economy would continue expanding. This was despite myriad economic indicators that were flashing red — and, in many cases, still are. In other words, he’s no Dr. Doom and, as we know, reality has vindicated his views. As you will soon read, he’s still of that mindset, barring a stock market cliff dive.

In short, this may be a classic situation of caveat investor, at least for those seeking to avoid the first market cave-in in nearly 20 years.

-The Haymaker Team

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This Is Not the Big One – Yet

Vincent Deluard

1 – The November correction was caused by a temporary liquidity squeeze, which is reversing now

2 – Bubbles do not burst on their own: a dovish Fed and buoyant growth should support stocks’ high valuations

3 – 5% long-term yields, $80 oil, and 4% junk bond spreads could kill the bull, but stocks have a six-month runway

4 – A Democratic sweep at the midterms would lead to gridlock, a 2028 swing to the left, and a hyper bear market

“Liquefaction of poorly consolidated soils may cause tremendous damage to both the highway and street systems vital to San Francisco […] The Embarcadero, South of Market, and Mission Bay areas are all constructed on soils that may liquefy.” San Francisco Planning and Urban Research Association, After the Disaster: Rebuilding Our Transportation Infrastructure, 2005

San Franciscans welcome the tremors that regularly shake their homes: small earthquakes relieve the pressure building under the San Andreas fault. A complete rupture of this faultline, which feels overdue after 300 years of relative calm, would liquefy most of the city…

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This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.

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David Hay is a passive owner of Evergreen Gavekal (“Evergreen”), a registered investment adviser with the Securities and Exchange Commission. As of 03/31/2025 Mr. Hay has no involvement in the day to day operations of Evergreen, nor is he involved with any investment research, or investment management performed by Evergreen. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.

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