David Hay: Recession and Higher Rates – The Mega-Risks in 2023
Tom welcomes back David Hay author, CO-Founder and CO-CIO of Evergreen Gavekal. He recently released his book “Bubble 3.0” which is a warning
David isn’t surprised that Powell intends to maintain these rate levels, which remain well below the CPI. He is trying to cool the markets down, yet bond spreads have recently narrowed. Fixing the problems today is a conundrum, as deficits are rising. He expects credit spreads to widen, resulting in a downtrend for stocks.
What happens if government tax revenues decline while the Fed tightens and debt servicing rises? Things will become painful quickly. Central banks’ acquisition of gold is running at record pace, and they are not buying U.S. Treasuries, which could be a real problem for the Fed. What if rates have to rise during a recession?
We are seeing the weakness in housing markets, especially in Canada, where prices are starting to crack, and commercial real estate is already a disaster.
We are in unprecedented territory, where fake GDP growth could occur. This is why people are suffering, as inflation eats up any wage improvements. Monetary policy works with lags, and these are variable but likely inevitable.
It is encouraging to see nuclear coming back as energy realities return, even though coal usage is setting records globally. He discusses how the nuclear regulatory commission should be renamed to the anti-nuclear regulatory commission.
David believes the uranium market is poised to outperform, as dozens of new plants are being constructed in Asia. He explains why SMR technology could be beneficial for stabilizing the grid, by creating power at a local level.
Talking Points From This Week’s Episode
- Central banks are not buying U.S. Treasuries, which could be a real problem for the Fed if rates have to rise during a recession.
- We are in unprecedented territory, with questionable GDP growth, and inflation eating away at wage increases.
- Uranium is poised to outperform, as dozens of new plants are being constructed in Asia, and the benefits of SMR technology.
Time Stamp References:
0:00 – Introduction
0:42 – Powell & Higher Rates
4:18 – Corporate & Gov’t Bonds
6:22 – Inflation Factors?
13:47 – Fed & Political Risks
17:30 – Debt Servicing & Ceilings
22:36 – Housing Bubble Concerns
25:23 – Consumers & Consequences
27:50 – Outlook for the Economy
30:50 – Fundamental Shifts?
32:43 – Policy Effects
33:16 – Gold Ratios & Recession
35:20 – Copper Prices & Demand
36:47 – Recession Probabilities
38:55 – Energy & Inflation
42:00 – Best Energy Options
45:37 – Anti-Nuclear Commission
53:34 – Gold Triggers & Trading
55:00 – Bond Opportunities
57:04 – Wrap Up
David Hay is a longtime investment advisor and financial author from Bellevue, Washington. He and his wife, Mindy, now split their time between the Northwest, Southern California, and a few places in between (their two dogs love long road trips). They have six grandchildren, three of who live on the West Coast and three on the East Coast. Dave is desperately hoping for a better world for his grandchildren to grow up in than the one we have right now. In that regard, Dave is an ardent supporter of No Labels, a bipartisan political movement that currently includes roughly 70 members of Congress. He is the recently appointed Co-Chairman of No Labels’ Washington State organization. You can find his financial writings on his substack linked above on a weekly basis.