Making Hay Monday – April 1st, 2025
Making Hay Monday
Inaugural Post-Retirement Edition: Gloves Are Off
Stoeferle
CTA stands for Commodity Trading Advisor. As this newsletter has often pointed out, CTAs, as well as hedge funds, have had a long and less-than-commendable track record of being bearish at oil market bottoms and bullish at tops. In other words, very similar to how retail investors behave. Presently, CTAs collectively have one of the lowest exposures to oil on record. Prior instances were decent, to good, to (sometimes) outstandingopportunities to be a buyer of oil itself and/or energy equities.
Sand Consumption Relative to Rig and Crew Count
Chart and header text: Infill Thinking
It’s a safe bet most Americans give little to no thought about that critical oil and gas production in-put known as frac sand. Yet, in its absence, America would have remained a mammoth importer of both energy sources, as it was 20 years ago. (The other breakthroughwas the equally essential process known as horizontal drilling.) Considering how gaping America’s trade deficit is these days, it’s hard to conceive of its enormity had the shale revolution never occurred. Despite this, frac sand prices have been in a steep downtrend over the last two years, similar to a wide range of other commodities. Moreover, this is notwithstanding the reality that the amount of sand needed per drilling rig, and the related crews, has doubled since before the pandemic. This is at least in part due to the need to drill longer laterals (i.e, going even further out horizontally) as the inventories of the most productive zones have been increasingly exhausted. (Please see the following write-up of what is, arguably, this energy sub-sector’s premier company.)
“Diversification is the only free lunch in investing.” -Harry Markowitz, the creator of The Efficient Market Hypothesis (the idea that gave birth to the passive investing revolution which now dominates financial markets)
“I have come here to chew bubblegum and kick ass… and I’m all out of bubblegum.” – “Rowdy” Roddy Piper, They Live (1988)
Gloves-Off Time!
Shutterstock
It just seems appropriate to launch my new career phase, and the upgraded Making Hay Monday, on April Fool’s Day. That was one reason we wanted to delay it by 24 hours but, much more seriously, it was because this is the first day that I’m no longer the Co-chief Investment Officer (CIO) of Evergreen Gavekal. In fact, I’m now not even an employee of the firm in which I bought majority ownership back in 2002.
Frankly, this is an emotional time for me. When I joined the financial industry in March of 1979, Jimmy Carter was in the White House. That’s a lot of presidents ago. Accordingly, I recently marked my 46th year in the investment business. It’s been quite a ride, starting as your standard-issue stockbroker and ending as the co-CIO of a $5.5B asset-and-wealth management firm. Come October, I’ll be hitting the mortality-confronting age of 70.
For sure, the last three years have been incredibly time-consuming and stress-producing. Performing my day job while also generating most of the Haymaker content has required an extreme effort, especially for an old guy like me. Then there were the plethora of podcasts I did either as host or guest. As a result, It’s been both exhilarating and exhausting.
Moreover, as most of you are aware, my role at Evergreen greatly limited my ability to mention securities by name, outside of asset classes, and styles (like Large Cap Value). Compliance considerations (Evergreen’s external firm that supervises our activities in terms of SEC and other regulatory agency requirements) forced me to be quite cryptic at times. This undoubtedly frustrated many readers. (Frankly, I share that same frustration, particularly when I see senior representatives of leading money management firms unabashedly touting their favorite ideas on CNBC.)
Well, the Haymaker’s gloves are off! Going forward, I’ll be able to name names… and ticker symbols! The first order of business in this regard is to create a Model Portfolio of ETFs (exchange traded funds). There will be income and growth versions. We’ll indicate the date these were added to the model and also track future performance.
Another retiree, a Brit coincidentally named David Haye. That David’s gloves are off in a far more literal sense! (Note: Mr. Haye is now in the promotion business. His company name, as we can certainly appreciate, is Hayemaker Promotions!) – Image: Wikimedia
We’ll also create Tracked Portfolios, once again both growth and income iterations. These will primarily be individual securities. Now for a super-critical caveat: we will not recommend the purchase or sale of specific stocks and bonds. Those decisions will remain up to you.
Our objective in this regard is merely to make you aware of them in order for you to perform further research. In many (but not all) cases, these will be issues I personally own and I will disclose accordingly (trust me, I am no Nancy Pelosi when it comes to uncannily lucrative stock picks!).
The plan is to start out with heavy cash positions in both equity models – i.e., in both the ETF and individual securities versions. This is partially due to what is essentially a fresh start and also a result of our apprehensions about the U.S. stock market’s outlook, as well as that of the economy.
Particularly with the individual security growth portfolio, it will take time to populate it with interesting ideas. To reiterate, you should not buy any of these without performing your own due diligence.
As you will soon see, we will initially focus on the energy sector in the tracked portfolio comprised of individual names. This is both because the elder Haymaker feels best qualified in this space and also that the bulk of its constituents appear to be undervalued (that’s always a subjective call, of course).
For most of that hypothetical portfolio, we will use ETF placeholders, at least for now. With the passage of time, we’ll move out of those into specific equity securities for you to further investigate.
A pre-warning is that you will likely feel it is overly diversified. But since it is not in any way meant to be a portfolio to be copied, we feel that is irrelevant. It also gives us the ability to showcase more stocks and also to size the riskier ones at small percentages (like 1%). Our plan is for most of them to represent 2% of the total portfolio value.
Position size in the ETF portfolio will, logically, be much larger due to their inherently diversified nature. However, as you’ll see, we’re going to keep the cash level elevated to start with for all four of the templates:
- 1. ETF growth
- 2. ETF income
- 3. Specific security growth
- 4. Specific security income
There will be considerable bond and hard-asset exposure in both income models. The idea with this mix is to provide a hedge against the U.S. government resorting to high inflation to deleverage. If it did so, even a mild variant of what Israel did in the 1980s (per our 3/27/25 Daily), bond holders would be crushed. Actually, a slow-motion version of that happened in America from 1945 through 1981.
Let’s start with the ETF Recommended Growth Model: …
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IMPORTANT DISCLOSURES
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.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
David Hay shall have no responsibility for: (i) determining that any opinion, forecast, projection, risk assumption, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinion, forecast, projection, risk assumption, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinion, forecast, projection, risk assumption, or commentary discussed herein to any particular reader’s investment objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that David Hay has an advisory agreement, oral or otherwise, with any reader.
David Hay serves on the Investment Committee in his capacity as Co-Chief Investment Officer of Evergreen Gavekal (“Evergreen”), registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Evergreen in no way implies a certain level of skill or expertise or that the SEC has endorsed the firm or David Hay. Investment decisions for Evergreen clients are made by the Evergreen Investment Committee. Please note that while David Hay co-manages the investment program on behalf of Evergreen clients, this publication is not affiliated with Evergreen and do not necessarily reflect the views of the Investment Committee. 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.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
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