Making Hay Monday - January 27th, 2025
A note on coal and a few other things.
In a recent highly illuminating podcast with Adam Taggart, liquidity maven Michael Howell showed the above chart at about the one-hour mark. As you can see, based on his analysis there was almost $6 trillion of what he calls not QE, QE and Not YCC (Yield Curve Control), YCC. These were Fed and U.S. treasury machinations such as the Bank Term Funding Program implemented when three large banks failed, as well as the roughly $1.5 trillion draw-down of the Reverse Repo Program. An example of stealth yield curve control was former Treasury Secretary Janet Yellen’s decision to mostly fund the federal government’s unprecedented peacetime/non-recessionary deficits with T-bills. This had the effect of suppressing longer term yields. Additionally, the Treasury also sucked out several hundred billion from its “checking account” with the Fed, the TGA. The synchronization with when stocks bottomed in 2022, then took off, and this monumental improvement in liquidity conditions could be coincidental but that seems improbable. There may be no better indicator of a bull market’s ability to climb the proverbial “wall of worry” than trillions upon trillions of government-injected credit and/or reserves.
The dark areas in the above visual is thermal imaging of the black soot emitted by burning coal. Thanks to Germany’s total shutdown of its nuclear fleet, combined with the dramatic reduction of cheap and clean Russian natural gas, coal effluents are now choking its skies. In France, where atomic power plants produce about 60% of its electricity, pollution levels are far lower. What is present in the above image appears to be leaking over from Germany. In Asia, of course, coal-fired electricity generation is growing rapidly. Prevailing winds blow that soot cloud over to North America, including the state of California. This undoubtedly is undercutting the once Golden State’s fantastically costly effort to lower carbon emissions (as are its recurringly out-of-control fires).
"We're protecting Germany, we're protecting France, we're protecting all of these countries. And then numerous of the countries go out and make a pipeline deal with Russia where they're paying billions of dollars into the coffers of Russia." -Donald Trump, July 2018
From Luke Gromen:
“Legendary market analyst Walter Deemer weighed in on the Trump meme coin this week…”
King Coal Still Reigns
One of the benefits I seek to confer upon our subscribers, particularly of the paying kind, is to share the insights I receive from the numerous highly talented people who have become friends over my soon-to-be 46-year career. Some are even more advanced in years than is the senior Haymaker, as hard as that is to believe. Others, such as the focus of this Making Hay Monday, are younger than my sons.
Trader Ferg is in the latter category, not yet 40. Despite his youth, he has become one of my go-to experts on an investment theme for which I have a soft spot: hard assets.
Last week, we did our monthly webinar for Haymaker Founding Members as well as for clients of Evergreen Gavekal, where I am co-chief investment officer. (A small plug for Evergreen: it now has over $5 billion in assets under management, a feat for which I personally deserve very little credit.)
To kick off our discussion, I pointed out how, unlike for the S&P 500, natural resource-based stocks and, for the most part, the commodities themselves have been in almost a three-year bear market. He readily agreed and this image, from one of his recent missives, conveys his feelings about the pain he has endured since the first half of 2022.
Unlike yours truly, Ferg is able to go into detail about the individual securities he likes. In the very near future, we will be providing snippets of his comments on them. Naturally, we’ll limit to those who support this newsletter and its mission to make money even through more challenging market conditions (trust us, those will happen again). As anyone who has been around financial markets for several up and down cycles realizes, those typically occur every few years. Admittedly, this hasn’t been the case for most of the last 15 years and that’s a good segue for a brief diversion…
Amany of you know, I was recently a repeat guest on Adam Taggart’s hugely successful Thoughtful Money show. Thus far, our chat has garnered about 60,000 views. Candidly, it’s a bit nerve wracking to do these when you realize how many folks, many of whom are quite sophisticated, will be watching them. But Adam does an extraordinary job of making his guests feel at ease while asking relevant and, appropriately, thoughtful questions.
Because I went over the long list of facts (not opinions) on the U.S. stock market’s extreme overvaluation presently, and the investor euphoria accompanying this latest equity bubble, I brought up that I am often pigeon-holed as a perma-bear. (As anticipated, some of his viewers did accuse me of that bias.) That is despite the reality that every week we publish a bullish write-up on some sector or style (like Mid Cap Value). We also list a condensed version of what are essentially our Likes, Dislikes and Neutral ratings. For those who want to see the full rundown of those, which sum in the several dozens, we include a link to them.
This stereotype also ignores the fact that as longtime readers of Haymaker and its predecessor publication, the Evergreen Virtual Advisor (EVA), recall, I recommended aggressive buying of almost everything during the Global Financial Crisis. That was when most investors were tightly curled up in the fetal position.
In the midst of the March 2020 pandemic panic, I also strongly suggested aggressive buying, again of nearly all risk assets (like stocks, corporate bonds and precious metals). Shortly thereafter I began to forcefully pound the table on mid-stream energy issues which had been utterly destroyed. (As you will read in the Promising Picks section, boy, have things changed for that energy sub-sector!)
In the throes of the bear market of 2022, I also suggested investors get out their checkbooks. However, I will admit I tended to be more positive on bombed-out corporate bonds than on equities in general, with a long list of attractively valued exceptions. Further, I’ll concede that I did initially believe the recovery coming out of 2022 was of the bear market rally variety.
By December of 2023, I came to the conclusion that the Fed and the U.S. Treasury were mobilizing to prevent a Donald Trump re-election by drenching the economy and markets with immense amounts of liquidity. Michael Howell’s graphic above indicates this injection of fiscal and monetary largesse approached six trillion, far more than I suspected. Thus, I became convinced gold, silver, and the miners were likely to have strong 2024s. Shortly thereafter, I also touted the financial sector due to its impressive breakout early last year.
When it comes to prior bubble warnings, I was quite bearish on tech stocks in the late 1990s, at least a year too early. However, I did buy aggressively into their plunge during 1998’s Asian Crisis. By 2006, I was cautioning of a looming disaster in housing and sub-prime mortgages. In 2021, I was calling out the Everything Bubble, particularly the insanity of profit-free stocks and negative-yielding bonds. Basically, those were some pretty good calls. Frankly, I doubt those who characterize me as a perma-bear can make similar claims.
For now, that’s enough on this topic though I will revisit it in more detail in a future Making Hay Monday (MHM), likely this spring. (Perhaps after today’s pummeling of some of the most highly valued growth names, there might be a bit more receptivity to my warnings.) However, on the uber-essential topic of liquidity and what happened early last year in that regard, I’d strongly recommend you click on the link to the podcast Adam just recorded with Michael Howell. Michael is one of the world’s experts on sources of liquidity which is a very complicated subject. (If you want to jump to the key section on that, go to around the 59-minute mark; that’s where he discusses this MHM’s first visual.) Now, back to Ferg.