Making Hay Monday – October 20th, 2025

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David Hay

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Haymaker

Making Hay Monday

Returns: Of and On

“In credit, the returns are contractual. Somebody asks for money, you give them money, they promise to pay you interest periodically, and then they promise to give you your money back at the end.”-Howard Marks, co-founder of Oaktree, which manages roughly $209 billion, with a focus on bonds and mortgages.

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Returns: Of & On

During the Great Depression, humorist Will Rogers famously opined that he was more concerned about the return of his money than about the return on his money. These days, such a quaint mindset seems as relevant as that era’s disastrous Smoot-Hawley tariff legislation. That blunder could never possibly be reprised in 2025, right?

Presently, it is a completely inverse situation. In the U.S. financial markets, it’s a case of greed uber alles. Remarkably, an increasing number of long-dormant commodities are joining in the speculative frenzy. This is a development that seemed nearly impossible as recently as six months ago.

Cryptocurrencies had been even more bubblicious… please note the “had been”. The poster pup for mindless crypto speculation, the intrinsically worthless (according to its creator) Dogecoin, has now been cut in half from its mid-January apex. Incredibly, given the utter lack of underlying value, that amounts to a loss of $30 billion, at least on paper. This means there could be another $30 billion that will eventually be gone with the wind as this dog converges with its intrinsic worth… somewhere around zero. Even the 800-pound gorilla in Crypto Land, the truly scarce Bitcoin, has eased 11%, or about $270 billion, in recent weeks.

Despite that valuation reset, most other risk assets remain in vogue, particularly precious metals mining shares (at least until Friday’s to-be-expected bloodbath; that shakeout reinforces the appeal of systematic selling into vertical moves). Their continuing ascent made the tech sector look passe, up until Friday.

Actually, it still does.

While the ultimate AI darling, NVDA, is up a commendable 36% in 2025, the main gold miner ETF, GDX, had ripped by 150%. Notwithstanding Friday’s carnage, GDX remains up 136% through mid-morning, Left Coast time (both it and GDXJ are rebounding today).

This type of upside explosion by the gold miners isn’t merely extraordinary, it’s extra-extra extraordinary. Three “extras” might not even do justice to what has occurred with an asset class that was, not long ago, the most neglected niche of the financial markets.

Prior to Friday, this moonshot had called into question the Haymakerapproach of gradually selling into wild rallies. Yet, as phenomenal as it has been, this leap still trails what GDX did from the spring of 2020 to the late fall of that year, when it erupted by 250%. Of course, that was coming off the bombed-out level seen during the darkest days of the pandemic panic. Consequently, it may have justified four “extras” to adequately describe the magnitude of that prior going-postal event.

Candidly, the last two words I expected to be linking in the fall of 2025 were “gold” and “bubble”. This is even more the case with the precious metals miners. There’s no question that selling into the type of upside explosion seen this year is challenging for our instant gratification-disposed modern human nature. Even the type of piecemeal position size reduction we advocate can cause pangs of serious regret when prices make one new high after another, with 20% surges almost overnight.

Therefore, it’s difficult to maintain a disciplined approach to securities that are experiencing bubble-type conditions. Yet, this is exactly what a dollar-cost-averaging program – in this case, selling not buying – requires when prices seem to be defying the laws of gravity.

Unquestionably, there are many other sectors and shares that have also experienced vertically asymptotic (geek-speak for straight up) moves. The natural question is what, then, to do with the proceeds generated by any partial gain-realization? The fact that retail investors as a group are charging into extremely extended areas, which now include hard assets, definitely renders this an against-the-grain action. (Yes, I realize that, for the most part, despite the enormous recent appreciation, the stereotypical U.S. investor has precious little exposure to precious metals.)

However, there’s scant doubt about how overheated conditions have become for “The Barbarous Relic”. This little snippet from Bloomberg speaks to that phenomenon, one that has unquestionably gone global.

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AI-generated content may be incorrect.

The polar opposite of the precious metals space right now is traditional energy. This is in contrast to “new-age” energy, like small modular nuclear reactors, where enthusiasm is even greater than it is toward the gold and silver miners. Oil prices seem to have no floor just as gold prices appear to have no ceiling (notwithstanding Friday’s mild correction in bullion, in contrast to the thrashing of the miners).

Underscoring the intensity of bearish sentiment relative to crude, the following chart shows we are now at levels that represented past investor/speculator capitulation with regard to West Texas Intermediate (WTI) crude. The white line shown below is the key element on which to focus and it’s below even the pandemic trough. As you will notice, the sole instance when it was around this level was during the worst months of the 2015/2016 oil bust. (The blue line in the bottom panel measures relative strength or, in this situation, acute relative weakness.)

15-year Chart of Speculative Positioning In West Texas Intermediate Oil

Bloomberg

Past times of such intense bearishness, or even close to it, have consistently preceded big oil rallies. Will that happen again? In the Haymaker view, the answer is in the definite affirmative. Yet, that’s not to say another flushing-out down-leg is unlikely; in fact, it may happen soon. However, should oil melt to around $50, that has a high probability, bordering on certainty, of crushing drilling activity, which is already squishy.

This is why the old commodity pit saying “the cure for low prices is low prices” continues to ring true. Regardless, every time oil is in a big bad bear market, the majority of participants behave like it is nothing more than a clever, or not-so-clever, myth.

Next week, we plan to delve into oil’s continuing nosedive. In the meantime, though, we want to call your attention to a security that is likely to provide a much higher return than merely moving into a money market fund should you opt to raise any cash. Yes, it is a four-letter word — as in, bond — but with an almost five and a half percent inducement…