MacroVoices #536 Larry Mcdonald: The Migration is Upon us

To try to answer that question and several more, we're bringing back best selling author and bear traps report founder, Larry McDonald, is this week's feature interview guest. Larry and I will discuss what's driven this sell-off, whether the Iran conflict had anything to do with it, and where the opportunities lie in today's market. then be sure to stay tuned for our post game segment for Patrick's trade of the week and our usual coverage of all the markets.

The July WTI crude oil down 624 basis points, trading at 90 spot 03, relentless grinding against this macro backdrop. The July RBOB gasoline down sixty four basis points to three eleven. The August Gold Contract down seven hundred and forty eight basis points, trading at forty one thirty three.

gold experiencing a material breakdown to a multi month low. The July copper contract down three hundred and fifty four basis points to six twenty seven, the June Uranium contract down one hundred and sixteen basis points to eighty four ninety, and the US ten year treasury yield up five basis points, trading at four fifty three. The key news to watch next week is the much anticipated FOMC for Warsh's first meeting as chair.

This week's feature interview guest is Larry McDonald. Eric and Larry discuss why markets may be entering a new inflation shock regime. How massive tech IPO supply and insider selling could pressure crowded growth stocks, and why investors may be starting to rotate. From financial assets towards hard assets, value, healthcare, energy, and materials. Eric's interview with Larry McDonald is coming up as Macro Voices continues right here at macrovoices.com.

Larry, it's great to get you back on the show. It's been way too long. I want to start with what is it exactly that started last Friday?'Cause it certainly seems to be the beginning of something significant in the market. Is this the market finally waking up to the Iran conflict, or is it a reaction to the jobs reports and maybe expectations of of rate cuts being harder to come by, or is it something else? And by all means refer to the slide deck as we dive in.

Equities lost about thirty-five, forty percent pretty quickly between two thousand twenty one and twenty two. Uh the Nasdaq lost about seven trillions eight seven, eight trillion dollars of valuation. It's so you have a decent economy, but the Strait of Hormuz closed for a hundred days, all this AI cap And it's really just crushing the little guy as inflation is just so sticky. And it you could see here on on slide two. One of the things, Eric, I wanna make very clear, there's no IN team. So

As part of the Bear Traps Report, we host a conversation every day with the biggest hedge funds, mutual funds, and pension funds in the world. And what I'm going to do today is kind of share the insight. the valuable insights that I'm getting from the top institutions around the world in triangulating that information and

That's why I love this platform because I want to democratize the information. I want, you know, your phenomenal audience to to really have a front row seat as to what the in top institutions are talking about. The biggest thing in recent weeks is the consumer, oil, inflation, and you could see here on slide two, junk bonds. The high yield market as a whole is okay, but the tertiary part.

And these are the typically the leading indicators. The tertiary part of the high yield bond market, which is triple C's. As you can see there really kind of blowing out. The last time stocks were all at the all-time highs, triple Cs were much lower in yield. I think that's, you know, really telling you a lot about the consumer.

The biggest IPO ever was Saudi Aramco at$25 billion. So if you do the math, if you take The secondary offering from Google last week of shares,$80 billion plus the SpaceX, you get$150 billion. A hundred and fifty billion. And so net net a lot of people have to sell stocks in the market to make room for these two absolute beasts.

There's about two hundred, two hundred and fifty billion of immediate raise. But here's the thing that I'm actually focusing more on, Larry, is six to twelve months after that All the insiders and the VCs and the early investors in those companies, it's not two hundred billion. It's like three trillion of capital that gets unlocked as those uh restricted shares become unrestricted.

somewhere between six and twelve months after the IPO. It seems to me that's the point where, you know, how do we absorb all of that equity into the market?

And I think what's happening is the VCs were and think about capitalism in America. These companies are coming public. Think of Tesla, came public at a two billion valuation, right? Facebook at 100 billion valuation. And now here, SpaceX, two almost two trillion valuation. So it's like it's essentially 11, 12 times the size of Facebook.

So these companies are coming public much far later in the in the maturity cycle, which means that the IPOs are very, very unattractive and you're m much better off Waiting. If you have to buy a little bit of the IPO, but you're gonna probably be able to buy SpaceX IPO 50% off sometime in the first year.

to a little bit negative since October now. They're selling the big mag seven equities, which are very liquid, and they're raising capital for all these IPOs. That's in a like you said, the Time Warner deal in in nineteen ninety nine, two thousand. It's just too much coming into the market at the same time. Plus we have a lot of private equity deals coming uh out in recent months. There's just too many sellers. And the last thing, remember, in the nineties, I founded ConvertBond.com.

And for investors listening to us right now, always remember the smartest sellers in the world. our chief financial officers. And guess what, Eric? The amount of convertible bonds that have been coming to the market in the last couple of weeks, from say three, four weeks, is up a lot over last year. It's up on two and the same thing happened in two thousand twenty one in the third, fourth quarter. And so what's happening is as the stock market rips

CFOs see, oh, my stocks up a lot. And they're coming to the market with convertible bonds. Inside those convertible bonds, there's lots of equity. And so right now chief financial officers are selling their equity in the convertible bond market at a very fast rate of change speed, which is similar to 2021 in that third, fourth quarter and never forget.

What happened in 22, 30, 40% drawdown. So I think the CFOs smell something and they're coming to market and they're also dumping. So you have Elon's dumping stock, right? With the SpaceX crowd. Uh you got Google dumping stock. And you got CFOs across all these different companies, iron, uh I could this like seven or eight companies, they're also dumping a lot of stock at the same time.

We're really only looking at I don't know, it's it's nowhere close to a thirty-eight percent. It's about twenty-five percent has been retraced at most. How far are we going? Is this just the beginning of something really big, or are we just looking at a blip here? W what do you think is coming?

to$41 trillion in less than 50 trading days. Nothing like that's ever happened in the history of markets. But let's go back to 2021-22, the last time we had the inflation shock. Look at what happened the last time the convertible bond market was on fire too. A lot of CFOs selling stock. So two thousand twenty one, twenty two, we were up near nineteen trillion of value in late twenty one. And we went down to twelve trillion in literally four quarters.

That's an example of what's about to happen, I think. So that kind of drawdown and think about it. So we went from nineteen trillion in the fourth quarter of 2021 to twelve trillion in the fourth quarter of twenty two. And then that all the way up to forty one trillion. And that's why I think as money rotates out of financial assets, which are bonds and tech stocks,

When you see this kind of value, the rotations can be amazing. If you look back to two thousand twenty two, what were the big winners? Energy stocks were up a lot. I think well over a hundred percent. also materials. I think the same thing's gonna play out this time round again. It's a repeat, two point oh.

So there's like two different markets. One part of the market, technology, is really at the highest valuations almost ever. And then but in the energy space In in the material space you've got beautiful free cash flow yields, which are probably the cheapest part of the market.

I mean Home Depot almost thirty percent off. Think of these brands, Lowe's, Home Depot, McDonald's, all these stocks are essentially close to twenty fifth nineteen to twenty percent off. Home Depot almost thirty percent off. And so it's once again, it's it's two different consumers. One one part of the market's in a lot of pain and the other part of the market technology and semiconductors are partying like it's nineteen ninety nine.

W what what gives first of all with that? Is that about inflation expectations? Is it gonna continue? And why don't we transition from there into the slides and and what you see in terms of the gold miners?

to potentially one rate hike in terms of the sofa futures or the expectations market of the Fed fonts. So when you go when you to go from like rate cuts, three rate cuts to one hike, that knocks a lot of steam out of the gold miners.

The best trades in the world, Eric, the best trades of our careers are what I call the hot money flux. And so I love a sector that just had what we call a hot money flush. Think of a poker table, a lot of weak hands at the poker table. And that's the gold miners. So in the third, fourth quarter and the first quarter of last year. So many tourists Derek.

So many tourists came into the gold miners. Think of the heavyset guy, the Hawaiian shirt, and the glasses and the camera, right? That's the type of investor we can't tourists. getting off the bus, buying the gold miners with both hands in the third, fourth quarter. Next thing you know, they get hit over the head with central banks, with this shock with the Middle East. Think of Turkey too.

all these emerging market central banks co there's a lot of countries in the emerging market space that don't have a lot of access to energy. And so when you have an energy shock, They have to sell something to raise cash. So emerging market central banks have been dumping gold the last couple of months. And so you had

The kind of the problem with the rate hikes and and inflation and then the the all never forget the one year Treasury twelve mu is up about forty basis points. So think of like on a million bucks, you're getting close to 40 grand a year. Forty grand a year of interest on a one year treasury versus say maybe thirty grand a year six months six, nine months ago. I'm exaggerating a little bit to try to make it simple. So the bottom line is

The gold miners have been hammered. Look at Agniko here. It's trading at 40% off, right? 5.9 enterprise to EBITDA. And we can go back 20, 30 years. That's one of the cheapest valuations. They've got six to seven billion of free cash flow, Eric. Six to seven billion of free cash flow. They're buying back two billion dollars worth of stock. When I sat down with David Einhorn of Greenlight Capital, the famous hedge fund manager in my new book, he said, Larry, I love to buy.

Companies that are producing beautiful free cash flow and buying back the stock when the stock's down 30, 40 percent. Because

So to me, your risk reward of buying AgNico here is probably ten, fifteen percent down and two hundred percent up. Because this time next year with that wounded conser consumer, the Fed really can't hike that much. You go into a Slow growth economy with high inflation, gold should be sixty five hundred an ounce this time next year, which would put Agniko Eagle up much higher, potentially a hundred percent higher a year from now.

I think it's because of those rate cut expectations, exactly as you said. But here's the thing. I I agree with you completely that for a long-term trade in gold, it's going to be just an incredible buy and it's going to pay off in spades.

Is there a chance that it's still too early? And the reason I say that is It seems like it's pretty darn clear that it's the Iran conflict and the Hormuz closure and probably some of those central banks in the Middle East selling their gold is playing into this. I don't think this Hormuz thing is over yet. I don't think it's close to over. I think it's got a long way to go. If you have that view, is it time to buy gold now or is it time to sit in the sidelines a little longer?

We did a nice exit in the first quarter in the goal in the GDX. But as you can see here in chart uh number six, you have to be very careful on entry. But net net, I do like buying gold miners like AgNico down forty percent. Okay, now are they gonna drop fifty percent? Possibly. But if you look back to two thousand twenty one, twenty two when we had that big inflation shock.

front end treasuries went up a lot in yield. And I know it's for people listening to us right now. Over time gold degraded inflation hedge. But let's make something very clear. When front end yields on T bill, go up a lot, it sucks money out of gold. Because if you can get forty grand a year in a one year T bill instead of thirty or twenty, people just naturally will buy that. But so that's what creates the buying opportunity. So yes.

Probably a little early here, buying we're buying in thirds and quarters and we're looking to add on further weakness.

as people are concerned about longer term growth with the consumer. And like I said, the McDonald's, the Home Depots, the Harley Davidson's are all off twenty percent in some case is more. And so and that if you look at the Home Depot suppliers, I went through on Bloomberg, there's probably fifty percent of Home Depot suppliers are down twenty, thirty, forty percent. And so that means the growth expectations are coming down, but at the same time you've got this

shock in the Middle East where the Fed might have to hike and the muscle memory of, okay, inflation, the Fed has to hike. This is to me a facade. The Fed really can't hike. Never forget interest on the debt today. is at tw two one point one trillion over the next twelve months. One point one trillion. When the last time they started the hiking cycle in twenty one, twenty two,

It was 300 billion, right? So the muscle memory in the market thinks the Fed's gonna hike. That's causing this flattening of the curve in twos thirties. But to me it's the facade. It's a what's it's a mirage. They really can't hike that much and that means the curves are gonna steepen a lot over the next year.

In Washington,$1.9 trillion deficits. You have the Strait of Hormuz closed for a hundred days and all the supply chain risk that comes with that. There's a lot of inflation coming at us. So this chart basically tells us that inflation's going back to five, six percent. And today, Eric, super core CPIs, the supercore, which you can't fake supercore. It's all the big macro people look at it.

If you annualize the last three months of the super core inflation that came out, you're coming out to 5.2% by year end of super core inflation. That's that means Core inflation or inflation headline is gonna be five, six, I'm more like six, seven, eight percent a year from now.

stubborn oil prices and a war. What that does is it creates a rotation. And if you look at Supercore, we're at 3.7%. Look at that lost world. That previous decade, your high was three percent. So you're in a whole new regime which is creating a colossal migration. from what we call financial assets, which are bonds and stocks and a lot of tech stocks. You can see the software's name.

are really being sold. There's other parts of the market that are being sold. And people are moving into hard assets and companies that control hard assets and not paper certificates. So we're that's where it's really what we call in the book the Great Migration is coming out of.

Growth versus value has failed here a lot since 2019. Big move over the last week. Big move. And I think this is the beginning of a colossal move. over toward value.'Cause if you think of value companies like look at Buffett. Buffett, Berkshire big outperformance the last week or so from Berkshire. But they own a lot of companies that control hard assets, the occidentals of petroleums of the world, right? So value companies, many of them today, control oil and gas, natural gas.

materials and so that's a really colossal underowned part of the market. And so if you have forty one trillion in the Nasdaq one hundred, which was a lot of that's growth stocks, and you got this big IPOs and kind of like a massive overdose in the market on technology. When this rotation comes, you're going to see a big move out of growth into value. You can see it's really started this week and I see a lot more ahead. And then on slide twelve, if you look at right there, big move.

out of the S P five hundred, which is a lot of tech stocks, over toward the Russell two thousand and you got a you're breaking that down wedge there, which I think is a pretty powerful move. So if you go into a period where there's too many IPOs that are coming in, there's too much money being sucked out of the market with new offerings and bond deals.

you'll see a great migration out of the S and P back over toward the Russell two thousand. And so that that's an important part of this trade. The the next one is oil services on slide number fourteen. Big outperformance this year. A lot of value names in there. The Weatherfords of the world, the Slumberger's. They control a lot of valuable assets. the artificial intelligence potential of Slumberger or SLB is literally the one of the most exciting

trades or investments I can think of in the market today. Everyone's in the chip People have to start thinking of other parts of the market they're gonna benefit from artificial intelligence. Uh, the oil services is a big one and you can see their big outperformance versus the S P.

You have every analyst has been preaching this for the last 15, 20 years. And lo and behold, healthcare is a percentage of the SP 500 has gone from 16% to 8%. with all of these baby boomers. One of the reasons why it's accelerating is people are selling healthcare stocks to make room for tech stocks, right? To make room for the space X's of the world. So the cheapness of healthcare relative to tech.

Is extremely attractive. And it goes back to the year 2000, like you said, with that AOL time Warner deal. You kind of had a big break. and healthcare and staples really destroyed technology from two thousand to two thousand two. But at the end of the day, healthcare today is such a cheap part of the market and you've had in the last

Two months, you've had an not only people selling healthcare to make room for tech stocks, but you've had a lot of quantitative momentum players in the market. And guess what they're doing? They've been going long momentum. which is what we call high momentum stocks like semiconductors, and they've been short, low momentum staples and healthcare. So it's like a perfect storm. You've got a lot of quants playing this game.

that are they're really creating incredible cheapness in the healthcare space. But at the same time, you have a lot of asset managers that are selling down healthcare to make room for all these big tech IPOs. To me, this creates a colossal opportunity, an incredible opportunity, uh, looking forward for the next five years. You want to be selling down your exposure to technology and increasing your health care. Look at slide number twenty, Eric.

Look at this factor, momentum, momentum factor. It's way, way out of whack relative to the previous regimes. And so once again, momentum, you see there, everyone's long. aggressive momentum, which is the semiconductors, everyone short healthcare. And as you can see here, we're at very rare territory. And I think with quarter and month end coming up at the end of the month.

into the second half of the year. The probability that we have a huge turn here, I think, is a very high probability of a move out of high momentum. into low momentum. So out of the semiconductors and aggressive growth over toward health care, I think it's going to be a big winner the second half of the year.

is they're selling their equity to bag holders as fast as they can. There's a race on right now between Anthropic and OpenAI and SpaceX, all of th these big technology private unicorn companies are either going public or in the case of Google doing secondaries. Seems like everybody's trying to sell stock to retail at the same time. Am I interpreting that correctly as reinforcing what you just said about this transfer from momentum to value?

Is that once you get near 60%, 65% passive versus active, and all that means is so much capital is in indexes that are not thinking. They're just owning things. And when that happens, the indexes become can become more and more and more gameable. And you're seeing this on SP 500 inclusion. Stocks like Lululemon come into the SP 500.

Everybody the you know the the the in-the-know crowd knows this and they buy it up ahead of time. It's so the same thing with these IPOs. The billionaire investors on the West Coast, the venture capital people, they have Think of think of SpaceX, right?$30 billion valuation in 2019,$30 billion to now$1.8 trillion when it comes public. And so when they come public and they they are accelerating these these uh IPOs into the indexes like you saw with the Nasdaq, the S and P.

It's gonna be over the next year. So passive investors are the bag holders.

And they made the point to me that they love the surgicals of the world, the Baxters, because guess what? Just think of intuitive. They have the best data. the best data. It's all think of like Tesla 10, 20 years ago or 10 years ago. What they've done with the data on the roads. Like every road system in the world now, all that data is in the hands of Tesla, right? Same thing with intuitive surgical. Doctors today with robotics can operate on patients in other countries.

And the data in the future of artificial intelligence, the big beneficiaries are companies like Intuitive that have that incredibly valuable data. I think, and I'm hearing this from the you know, like I said, the top family offices in the AI medical field, these stocks are unloved, underowned, everyone's in the chips. And if you buy intuitive surgical now on the two hundred week moving average.

To us that's a really screaming buy because over the next ten years, five years, the data and the artificial intelligence that's gonna take that data, it's gonna turn intuitive surgical into a uh absolute profit beat.

This is the next artificial intelligence play. So think about this. There's supposed to be eight hundred to a thousand data centers built over the next five years in about around.

Guess what? There are companies like Termaline in Canada that have gas. It's trapped. It's difficult to get to. Over the next five, ten years, all of this trapped gas in Canada, and especially in Texas, is gonna be harnessed and extremely valuable because you're gonna be able to take those data centers and move them in and create a a like a private turbine near that natural gas and really harness that cheap, relatively worthless natural gas because it's trapped.

And so you're taking trap gas and you're making it available to data centers. And turmaline's in discussion with hyperscalers right now. I think this is one of the best trades over the next five, ten years, plus the political backdrop. Carney in Canada relative to is far less hostile to this. investment philosophy.

The last thing is with the war, the one of the points that the big uh hedge funds have been making to us in the chat, this war in Iraq and the Strait of Hormous and LNG, what it's doing. It's just making US natural gas and Canadian natural gas much more valuable because if you're a global buyer of l LNG and your g and your gas has been trapped in the Middle East.

You're not happy. And it's almost like America, you know, attacked Iran, but what they've actually done is they've increased the value of US and Canadian gas assets. I don't know if that was intentional, but think about the buyers of natural gas globally, of LNG, that it's gonna benefit Termaline and US natural gas exporters dramatically over the next five, ten years. I think your I think tourmaline, your downside's fifteen, twenty percent, your upside's two hundred percent.

I couldn't possibly be more long term bullish on uranium and uranium miners because I think the nuclear news flow couldn't possibly be better even before you consider all these SMRs and advanced reactors and all that stuff. We already had a uranium deficit on the horizon that just to run the reactors that are already in place that haven't been built yet. So I just can't think of any reason not to be bullish long term.

Except for one thing, which is this is a famously high retail participation, high volatility sector. Not so much the Sprat Uranium Trust, but the miners are a really high volatility sector.

high retail participation sector. And if what we just talked about a few minutes ago about the momentum stocks maybe uh being right on the the precipice of a big sell off If we get a broad market risk event, if this Iran war gets worse and and it leads to a bunch of negative events in the market, I can't imagine the uranium miners not getting slammed by that.

What do you do in a situation like that? Um you know, I can be super bullish on one hand, but I'm really concerned about what could happen in the market next.

much more than the commodity or in general. So it's uranium, gold miners, they're a very high beta sector. What's interesting with uranium now, the S R U F, it's down five percent year to date. It's almost six. But Camico's up four percent still. So The underperformance of the commodity gets me excited right now. And I think I want to buy the URN or the NUKZ, which is the ETFs that own these companies. I want to buy them on a little bit more pain.

like we had last April, May of two thousand twenty five with the trade war. you look at the drawdowns, like you s just like you nailed it, Eric, these companies really are susceptible to market volatility. And so you wanna be in the commodity if you expect volatility ahead. And then you want to rotate into the miners during that big kind of puke drawdown in the market. So

We hosted a call two weeks ago with a famous family office in the uranium space. And he made a couple of great points. First of all, he completely agrees with you around the 2027-28 deficit. And but I think the sexiest part of his story is supply and demand. And his p the point that he made to me, and I'm hearing I'm hearing this.

from some of the most sophisticated investors in the world. And that is on the supply side, the next gens, the Camicos, the Dennisons, they tend to overpromise on production.

because of bec because of y kind of over exaggeration of production in the years to come. So that that's where the supply problem is. On the demand side it's so obvious with what we're doing in the United States, we need the we need to build I mean, the United States, this is a real This is a real national security problem. And so we're gonna really ramp up nuclear power the next two, three years in terms of in terms of nuclear power plants. It's gonna take a while, right? And around the world

Countries are more friendly now. The Germanys of the world, the Japans of the world. So you have this increase of demand that's coming at us. You got a shortness of supply, the amount the about a time that it's gonna take next gen to get that facility up and running, and then you have the big brain drain. So if you think of brain drain, think of like Saskatchewan and think of like

uranium assets around the world. They're hard to get to. There's environmental regulations. And a lot of the talent has moved into Bitcoin mining, for example. Like a lot of times what happens in bear markets is that the bear markets over five or ten years that are really grueling nasty bear market.

they actually you see the best engineers, the best intelligence, the best brain power kind of leaves the sector for other hot parts of the markets around the world, whether it be artificial intelligence or whether it be Bitcoin mining. It's so to me that's a really sexy part of the story. And so That's once again, that's a supply issue. So we're looking at 2027, 28, 29 with a massive supply-demand problem. So SRUUF, we sold some in our trade alerts in the first quarter on that kind of move up.

We're buying, we've been buying down here. And, you know, I really see a beautiful outlook over the next two, three years. And guess what? The most important part of this story. It's the contract.

They see the contract buyers really starting to get nervous behind the scenes. You're gonna see a ramp up in purchases. In other words, uranium's not a spot market, like in the commodity market, there's no futures. So these contract buyers are really gonna have to step up the next twelve to eighteen months because they see the supply and demand problem. So the risk rewarding uranium now is absolutely one of the most attractive entry points for the commodity that I've ever seen.

some weak hands at the table and all that means is m you know imagine you're playing a poker game, somebody does a big raise and that's like the same thing as a big shock in the market. A shock in the market knocks a lot of the tourists. back on the bus and then they leave and go home with the they take their ball and go home.

Because once again, it's an institutional platform where we share information, democratize information, but we want to make it affordable for the smaller investor as well.

So rather than chasing the sectors that have already absorbed the majority of the speculative capital, this week's trade of the week is about positioning for a rotation back into healthcare.

one of the most underowned and unloved parts of the market. From a trade construction standpoint, I want to express the view through the XLV, the healthcare sector ETF, With XLB closing around$152.85, the primary position is simply to own the shares and participate in what appears to be an emerging rotation back into healthcare.

Now because broader equity market volatility remains a risk, I want to overlay a low cost option caller structure to define the near-term downside while still leaving room for upside participation. Specifically, I'm looking at buying the August 145 put for roughly$1.90, which sits near the March and April lows and creates a logical downside protection level.

To help finance that hedge, I'm selling the August 165 covered call for around$1.24. That reduces the net hedge cost to approximately 66 cents. creating a carry efficient collar around the long stock position. The idea is to maintain strategic equity exposure to the health care rotation

while using the options market to define a short term risk budget around the position. From a payoff perspective, the protective put defines the downside floor to$145 limiting risk through expiration to approximately eight dollars and fifty one cents per share, while on the upside the covered call cap gains to about$165, leaving approximately$11.49 of upside potential over the next few months.

The result is a stock first investment in a potential healthcare rotation with a defined risk option overlay designed to protect against short-term market turbulence while still allowing meaningful upside if the XLV continues to break out.

We've got the three biggest IPOs ever, ever. I mean, by a lot. The biggest one ever was twenty five billion. Saudi Aramco. Now we're talking about trillion dollar capitalizations, eighty billion dollar raise on a single IPO, and there's three of them on that scale, between SpaceX, OpenAI, and Anthropic, all on deck in the next probably six months.

So where is the two hundred to two hundred and fifty billion of immediate capital raises, where's that money gonna come from? Well of course it's gonna compete with other equities, the rest of the stock market for capital allocation. I think the biggest tell here though is all the smartest money in the world, the billionaires that run these companies, the founders, the Elon Musks, the the Sam Altmans.

These guys are all at the same moment deciding their next move should be to sell their private equity to public market bag holders, or at least that's the way I'm seeing this. But I don't think the real story is the IPOs, Patrick. I think it's the overhang in those stocks. For anyone not familiar with that term, overhang refers to the number of restricted shares, the founders, the venture capitalists that funded the early stage development of these companies.

Their shares are all restricted at the time of the IPO, but they all come out of lockup. In the case of SpaceX on a pretty aggressive schedule, it's before the end of twenty twenty six, I think, around December or so. So don't worry about the paltry little two hundred to two hundred and fifty billion of IPO direct raises.

Think about the three trillion dollars of restricted shares that are going to be unlocked by the end of twenty twenty seven. A trillion here, a trillion there. We're talking about real money, folks. The Iran conflict, meanwhile, is not going well. So just think about what twenty twenty seven is gonna look like. There's gonna be three trillion dollars of Equity that's being unlocked that people will be tempted, especially if markets are selling off.

to get the heck out of and cash in, you know, collect their winnings from from the last however many years they've been in those private equities as a illiquid investment. If the Iran conflict continues to not go well,

Well, what's the US political picture going to look like in twenty twenty seven? If the Democrats take both houses of Congress in the November election, we'd probably be looking at more impeachments, partisan gridlock, And three trillion dollars of insider shares coming out of lockup all at the same time sounds like a recipe for m maybe a lot of people panicking and just getting the heck out of the stock market.

So I think as we really consider what the outlook for twenty twenty seven is, there's a bear case that's pretty darn strong that I don't think a lot of people are thinking about.

To me this is a a very key pullback because the Bulls had a pretty good cushion and they could absorb this type of a sell off without triggering systematic selling. And we are still at that moment where if the Bulls can uh get past a SpaceX IPO and uh keep uh the market pinned to the seventy three hundred area, then we could still see a rally in the markets back to its previous highs and and the generally keep the market elevated. I say that because if 7300 on the other end is given out.

There this is where we're gonna see some systematic uh selling kick in. Obviously there's uh uh no clarity exactly where CTAs kick in and on their selling, but many estimate that uh that selling kicks in around seventy three hundred on the S P. And so if we see any further deterioration, we may see as much as a hundred to a hundred and fifty billion dollars to sell that would be a feedback mechanism of selling as CTAs would be forced to liquidate.

Are we going to see that systematic selling kick in or will the Bulls be able to keep it above the trigger points? This is the puzzle to solve here technically. Uh at this moment, I'm gonna give the bulls the benefit of the doubt because We here we are right before the SpaceX uh IPO and we w many people that are funding this would have already done their structural selling. So It might very well be a key support line. We're definitely gonna watch. Now, the one thing I will say.

If 7300 does give out and systematic selling does dominate, a trip to retest 7,000 on the S P could be in the cards. That would be that 10% pullback from peak to trough. Uh at this moment, uh, that's not my favorite scenario, but we are at the edge of that cliff and if that systematic selling kicks in, that would be a logical first target. All right, Eric, let's uh talk about this US dollar.

and a half on the Dixie. The dollar's eventually gonna top out and roll over and probably roll over hard, but not yet. I think it's when the Iran conflict is really and truly winding down that we see the dollar top out. And then I think it probably has a long way to go to the downside, but I don't think we're there yet.

certainly has all sorts of implications on other asset pricing. It's been a very stable, boring currency market and there's been very little to nothing happening here which means that if we did suddenly get a breakout um that would certainly catch a lot of traders off guard. Uh we are right now trading right up along those highs that euro's been weakening below one sixteen. This is certainly a moment to see whether resistance actually holds or whether or not

The US dollar has that journey uh to one oh two or one oh three uh ahead of it. All right, Eric, we gotta talk crude oil here.

You know, the story last Friday was supposedly a deal was close at hand. We w expected that m Monday, Tuesday, Wednesday of this week is when the final signing was gonna happen. Peace was close at hand. That was the story Friday. Since then we've had a major escalation. The straits completely closed again, kinetic escalation, and oil prices are flat.

On Tuesday of this week, CNN cataloged the number of times President Trump has said a peace deal with Iran is now imminent. It's just around the corner. All we have is just a few. A few little details to work out and we've got the peace deal. He said that a total of thirty eight times since february twenty eighth. I think it's actually thirty nine now'cause there's been one since Tuesday.

So my hypothesis here is speculators have been scared out of the market. Why all of this jaw boning by the president is so effective, I'm not sure, but it seems to be working. It's scaring the speculators out of the market. We're seeing clearly in the price action that every time he does this and says there's another peace deal at hand, it pushes oil prices back down lower. Uh it's amazing to me that that works, but it works.

So the physical market is not forward looking. We don't need to see the physical market reprice anything until we actually exhaust those buffers and storage tanks and so forth.

Once that's exhausted, the physical market does need to rebalance in order to close the monthly futures contract. There has to be a rebalancing of supply and demand. Normally what happens is that outcome would be anticipated by speculators who would front run it, resulting in a gradual ramp up to a final crescendo when the physical market finally rebalances supply and demand.

My expectation is speculators are gonna continue to stay scared out of the market by all these truth social posts, which, you know, hey, they they take ten dollar bite out of the market. in an instant, if you're a speculator, you don't want to be long in an environment when you don't know when the next truth social post is and you have at least a gut feeling that maybe some people do have that inside information and you're trading against them.

Meanwhile, sentiment surveys say that over seventy five percent of market participants now expect lower prices and soon. Now, if they're all wrong, and I think they probably will be proven wrong, the repositioning will be extremely violent once they're proven wrong. So when it suddenly becomes game on time, in other words, when the physical market really does have to resolve an imbalance that can only be resolved through the price mechanism.

The specs, I think, will pile in all at once. They've been afraid to get in this market. The that fear, I think, will f shift from fear of getting uh trapped by the next truth social post into fear of missing out on the biggest price spike of all time. So that means that when the physical market forces a price spike, when it comes you're gonna see the speculators that normally would have front run it by several weeks.

all diving in at once. It's a everybody piles on at the same time. And I think the result could be that it makes that price spike, when it happens, both much more sudden and much more violent than it would have been without all the jaw boning scaring specs out of the market. All of this is predicated on my personal analysis that we're nowhere close to a peace deal and that we can't realistically come to one because the disagreement on the nuclear file is frankly irreconcilable.

Now, if I'm wrong about that and the other seventy percent of the market are right, then the big PS deal wins next week, it's all peace, everything's over, you know, it's a completely different outlook. I see that as profoundly unlikely, but hey, I could be wrong. I've been wrong before.

suddenly there was a peace deal that we could see, you know, eighty dollars or less on crude. But there's structurally been uh a huge inventory depletion and there is a higher level of oil that is likely to be with us. And so it'd be very interesting to see whether uh there uh there will be this one moment where everyone realizes that a peace deal is much farther than everyone expects and it causes oil to break back above the one hundred handle, which I think is psychologically gonna be

uh a breaking point that could create uh a rush back into oil and drive a potential advance. Now I'm not looking for that just yet, but listen, we can get that kind of a trigger at any point.

if uh if we see missiles flying in the Middle East and everyone recognizes that this problem is going to be last longer uh than everyone expects. All right, Eric. Let's uh let's touch on gold here.

Well, that's exactly what happened. We've already uh taken out forty one hundred to the downside with the low print so far as of recording time at forty forty seven, four zero four seven. That forty one hundred support line ought to be good for at least a little pause here, maybe a bounce.

But if Hormuz remains unresolved, I think there's plenty of room for lower prices still. And frankly, if we were to see the Hormuz crisis extend all the way to the end of the calendar year, I don't think three thousand is out of the question for the gold market to test that three thousand round number support. uh by be by the end of the year. Now that would only happen if we were to see a prolonged extension of the Hormoose crisis, but I don't think that's out of the question.

And at this stage, there is a lot of headwinds. Uh you have higher interest rates, a rising dollar, things that typically are uh headwinds for gold. And then probably no imminent turn in those trends. And so at this stage, uh, expecting gold to continue to remain in this consolidation phase, uh, is the path of least resistance. The bigger question is how low can it go? I know you're suggesting three thousand. I think for now the most logical short term target is looking back

at the uh October lows, which were around thirty nine hundred. And if that doesn't hold, there's key consolidation levels that happened earlier in 2025 around that 3400 level. Those would be all kind of logical downside targets for for short term moves. Now overall there's gonna be an extraordinary buying opportunity in gold, but it really does look like the summer is going to be rather challenging

for it and we'll really be looking for where's that turning point uh once we get into this second half of the year. So Eric, what are your thoughts here on uranium?

We saw the S P five hundred down hard on Friday and uranium down even harder on a percentage basis. And again on Tuesday. Now I still love the fundamentals, but hey, a popping of the AI bubble and a broad bear market in in stock. could easily mean a washout for uranium on the scale of the twenty twenty four into

April of twenty twenty five uh period. I i frankly the fundamentals were terrific then at the end of twenty twenty four, but it just wasn't registering. This is a very volatile sector with famously high retail participation. If we see people getting margin called out of the stock market, I think it could be a a real disaster scenario for the uranium miners.

doesn't change my fundamental outlook one iota. But as a long term investor, uh I I still believe uranium is the the opportunity of the decade. But I'm bracing myself for more downside before this is over and I'm not in any rush to start adding to my long term uh buy and hold positions in uranium because uh frankly I don't think it's time yet. I think that there's could be considerable more turbulence before we're out of this storm.

back in two thousand twenty-four and twenty-five, the Bull story was also super strong, but in that period the URA managed to have uh two consolidations in the thirty-five to forty percent variety. And so the idea here that we are in the midst of this style of a market correction is very likely

And so now it's just a matter of seeing where and how low it goes and then we'll be looking for the technical bottoming formations for the potential next key buying opportunities. And that's the thing that Overall, things are very bullish fundamentally for uranium. So the question becomes when do the stocks start to behave like there's another bull impulse coming on the upside? And that's gonna be the thing to watch.

and that correlation stay true. That is the thing to watch. Overall, I some stage bonds are gonna be a no-brainer buy, but at this moment, uh the with the current geopolitical and macro backdrop. I think it's a very premature to be looking for a peak in these yields and lows and bonds just yet. And so at this stage I'm staying very neutral and observing and respecting that this prevailing uptrend in yields is still intact.

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