Ep 157: The Everything Bubble and How You Can Profit with David Hay

It's kind of a frozen market right now for that reason because there is just a reluctance for people to give up these low cost mortgages. And you know, I can certainly relate. I look at some of the properties we have and the mortgages we have on. There's no way.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larsen. If you haven't yet, get a copy of our book for free at our website, Next Level Income.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in.

On today's show, we have David Hay. David Hay is the co chief investment officer and partner at Evergreen Gavakal and the host and author of the Haymaker newsletter. He's been helping clients build their financial legacies for more than 40 years and has also built Evergreen Gavakal, a business that manages $4 billion. He's an expert on the financial markets and can often shed light on overlooked segments of the economy such as some of which we're going to talk about today. David, welcome to the show.

Thank you, Chris. Pleasure to be here. An honor. Thank you.

Yeah, no, I'm excited. We're going to talk about several different topics here today. It's, you know, between the debt ceiling and interest rates, cpi, you know, home prices, there's, there's so many things that we can talk about today. Before we do, I'd love for you to share a little bit about your background with the audience.

Well, I'll just say that I started in the financial industry many, many presidents ago, back when Jimmy Carter was oval office. And he's still with us amazingly. But yeah, so 1979 and it was, it was a good time to start the business because there was that something that happened that was a little bit more influential or impactful than me joining the securities industry that year, which was Paul Volcker becoming head of the Fed.

Yeah.

And Volcker, of course was able to destroy inflation or bring it under control, but he did destroy a lot of, a lot of businesses in the process. Very painful time. And maybe that's relevant to what we're going through right now. But anyway, that event did kind of shape my career because for about 40 years I was a continual bond market bull and a believer in disinflation. And that really drove a lot of my positioning client portfolios with a few times where we would be late in an economic cycle. And I thought it made sense to short maturities. But whenever you get converted yield curve like we have now, you know, I would extend which, you know, early on it was tough to get people to do because I was young and they thought I didn't know anything. And they were right. But the idea that, you know, it's just contrary to human nature, right? To when short rates, it's like right now, well, if I can get 5% on a T bill due two months, why do I want to go out 10 years and get a yield of only, you know, 3.8 whatever on the treasury note? But of course, when you go into a recession, interest rates typically fall and you get first of all, you've locked in your yield and you're going to get price appreciation. So that was a game that I played for most of my career. But when we hit the and you know, just so people realize that I started out as your dialing smiling stockbroker at Dean Witter, which is now part of Morgan Stanley, went to Smith Barney in about 12 years later because they gave me an opportunity to be a portfolio manager kind of with training wheels. And that that also is now part of Morgan Stanley, ironically. But I went on my own in 2002. So over 20 years ago, Evergreen, which is now Evergreen Job affiliated with Gafcal Research, which is one of the most prestigious macroeconomic research firms on at it. They have most of the big money managers as their clients. It's global, they're headquartered in Hong Kong, but they have offices all over the world. We have offices kind of up and down the left coast, west coast. And anyway, so we do this for a living. In other words, we're not kind of, you know, like macro tourists or whatever. We really. And we do not just the big picture stuff, we analyze companies, which is kind of a dying art. And we've got a large team because it's an expensive process to, you know, really drill down. And we're willing to go anywhere in the capital structure. And we do have a tendency to prefer high cash flow, whether it's paid out or not paid out. But a lot of our clients want the cash flow. And either cash flow, their paycheck, they're often retired, they've sold their business, whatever. And so we need to provide livable income to them, which fortunately, thanks to what's been doing, is a lot easier than it was for many years when interest rates were eliminated. And you know, that's kind of the positive of this course. Last year because of what the Fed did in terms of tightening at such a rapid clip, really the most rapid since Volcker was at the head of the Fed is that it created the first year for balanced portfolios since 1871. That's kind of a long time. So the pain was experienced last year and now, you know, hopefully there'll be some gain. But anyway, that's a little bit of a lead in.

No, I think that's terrific. And yeah, I don't know if a lot of people realized that last year, especially even investors realized that what the Fed did last year, it just broke the 6040 model in a lot of ways. And modern portfolio theory, balanced portfolio, however you look at, did not perform well. But that happens. We go through cycles and different things. And I'd like to start with that. David, you've seen a lot of cycles during your time, during your career. I look back and I see things through real estate cycles. You were there during Volcker and you were there kind of during this prior generation of inflation. My view is that the baby boomers came in and really pushed the cost of money, supply of money, because they wanted money, they wanted to buy things, they wanted to buy homes, they wanted to buy goods. And I see interest rates as kind of the cost of money. Right. Which is. Or the demand side of that. And to me, it's not surprising that we're seeing inflation again. It is surprising to me how quickly it ticked up in some sense. But then I guess we can look at it through Covid. But to me, we have millennials coming in, which are actually a bigger generation, a little bit more spread out than the baby boomers. So it's not a shock to see that inflation is rising again. What's your take on this and how do you feel that the Fed or the government is handling it today compared to how they handled it during the late 70s, 80s?

Well, I'd say it's very different than the late 70s in that Volcker really rates up way above inflation. Whereas today, as much as Powell has raised rates on which inflation measure you use, he's either kind of a maybe a tad above it or below it. I mean, it's. There's a lot of different inflation measures out there. Most people seem to believe inflation is being underestimated by the government right now. Yeah, certainly the methodology was much different back when Volcker was there. They didn't do all these hedonic adjustments and things which tend to under inflation. But even ignoring that, I mean, this is not like, you know, 8% above inflation, which is what Volcker was able to achieve. And no wonder, despite what you're correctly saying, that at that time there was a tremendous amount of demand for everything from the boomers, which was kind of inherently inflationary. But lacking that today you still have surprisingly non transitory inflation, at least surprisingly to the Fed. So kind of linking back to what I was saying earlier in the summer of 2020 when Covid was still raging and the global economy is largely locked down, the 10 year treasury down to a half a percent yield, you would have thought the government might want to term out its debt at that point, which it was producing in, you know, enormous quantities because of the fiscal deficits at that point. But you really had to your point of, you know, where did the inflation come from? This is what really turned me from being a bond bullet on bear was we were effectively doing modern monetary theory at that time, mmt, which meant just, you know, don't worry about any kind of budget restraints, just you know, if you need to spend the money, spend the money and if there's not enough demand from the bond market at interest rates the government can afford, then the Fed just steps up and buys the dip with their magical money machine, as I call it. So I think that's.

Yeah, and that's if you don't mind, if you can go back and just for the audience, do a quick primer on what monetary, I'm sorry, modern monetary theory is. I know you just mentioned it, but if you could just expand upon that.

Just for a moment. Sure. Well, so in my newsletters and I, you know, I am, I was writing a newsletter since, I have been writing a newsletter since 2005, really started writing about the housing at that point, which I thought was going to be a disaster. But in the spring of 2019 I really went on a bit of a tirade against our monetary theory because that's what was first being really advocated by particularly Stephanie Kelton, but others and eventually endorsed by Paul Krugman. And to me it was, you know, always the problem was going to be with inflation. So this idea that you don't need to have any kind of governor on the federal government is really kind of the essence of mmt, just if the money needs to be spent, just spend it. And again, the trouble is that if you run these massive deficits and there's not the demand there and there's not the demand that there used to be for US government debt, for one thing, we have central, foreign, central banks that are sellers, not buyers. So when you do An MMT type of thing, which is this just spending tsunami. So it's, you know, that's a good point to contrast that versus QEs because you know, QE1 was launched in 2009 and shortly thereafter QE2, 3, I call them the ocean liners. And then unofficially QE4 during the repo crisis in 2019. But it didn't really create much inflation in over 10 years, all those trillions that were again produced by the Fed's magical money machine. But then those QEs went to kind of put into hyperdrive because during the COVID period you had these, you know, the trillions of dollars that were sent out in stimulus and other, you know, PPP and some of these things still going on, you know, this payroll protection plan which is still happening now and New York Times just wrote an expose on it that it's you know, like 100 billion over budget and rife with fraud. And anyway, so trillions of dollars were not only spent by the federal government, which was different than during the qes where yeah, running deficits, but nothing like it was an absolute spending explosion during COVID and it was financed by the Fed. So you before it was mostly monetary stimulus, then it became fiscal and monetary and of course you had shortages in the supply chain. The global supply chain was severely compromised. So just a perfect recipe for inflation to go ballistic. And so in the late 2020 period, in early 2021 in particular, I really jumped on, have a lot of inflation bandwagon and to get into some opinion exchanges, you know, later that year at the Malden Strategic Investment Conference, Holden's deal with.

Oh yeah, I know, yeah, yeah.

And I was. So it was, you know, I was very much in the non transitory camp and I was kind of a lone ranger. But there were, you know, Jeremy Siegel kind of on my side and my partner Louis Godd, and I was the only one. But it was, you know, somewhat controversial to believe that and very different than what for the first 40 years of my career. So it was a, it was a tough transition. But modern monetary theory was always my belief that Phillies heel was inflation. And this idea that, well, as soon as inflation shows up, the government can take care of it, they can raise taxes, the Fed can raise interest rates, and it's just proved to be a lot tougher to deal with than the optimists contended.

Yeah, and it doesn't seem like, as you said, it's non transitory. It doesn't seem like it's disappearing here. And I'd love to Talk about how investors can take advantage of that. As we speak, we just. The cpe, I'm sorry, the latest Case Shiller home price index came out and you can look at it seasonally adjusted, non seasonally adjusted. One says one thing, one says the other. But as we were talking before we start recording, David, the bottom line is prices of homes are the highest they've been. And without a doubt, prices of homes, if you take the cost of a mortgage with rates where they are, are the highest they've ever been in history. What's your take on that and how do you feel like that kind of ripples through the market?

Well, I think it's just suppressing volumes because you people want to buy a house, but. And there's people that want to sell a house, but. Okay, let's think about the seller, which I don't think gets enough attention. If you want to move, let's say you, you were, you know, smart enough or you bought when interest rates were very low. Do you really want to give up that mortgage and move someplace where your mortgage payment is going to be? Your interest rate could be double or triple initially. That's a tough one. So that's limiting supply. And then builders are obviously reluctant to create a lot of inventory. When they look at the affordability, they can see the numbers as anybody else, probably better. So you have this odd situation where prices really should be falling given how high prices are and how high interest rates are. But they're not. They're falling a little bit. Kind of like we were saying with the Case Shiller. And you know, I just read with David, David Roseberg, the famous Canadian economist. I know you've got a Canadian wife, so you probably like Rosenberg, but you know, he's saying that and he's citing. I forget what source it is. I don't think it was Case Shiller, but it was an official source that prices are down something like 70 from the peak in some markets. I think he got, you know, down More like 20 or 30%.

Yeah. San Francisco, New York, you know, some of these, you know, bigger markets where, you know, you've lost a lot of population. Yeah, you're certainly seeing double digit plus declines.

But it's compared to the office building market. The housing market is a port in the storm. I mean it's, it's relatively tranquil by comparison. But sure, you're seeing some of these just horror stories about trophy office buildings. 350 California street in San Francisco is, you know, was 350 million or at least the last transaction, that's 60 million that they're talking about selling it for and hearing about even, Even in Texas, 25 cents on the dollar transactions happening with office buildings. And so that's the weakest point of the, of the real estate food chain right now. But I know you guys have a lot of interest in apartments. Apartments are an interesting situation, very different than housing where you could argue that there has been overbuilding. I think in certain markets unquestionably there's been overbuilding. And I know there's a lot of demand because you get quite a few people that can't afford to buy a house. Just like we talked about. You've got boomers that are supposedly, you know, in some cases selling their home and renting because they save money and lower upkeep and more mobility. But it's, it's kind of a frozen market right now for that reason because there is just a reluctance for people to give up these low cost mortgages. And, and you know, I can certainly relate. I look at some of the properties we have and the mortgages we have on, there's no way you could.

Yeah, it really is an interesting market. You know, we have, we have some residential stuff here locally in Asheville. And what we see is that buyers that are coming in, they're selling their house and say the Northeast and they're just paying cash, so interest rate's not a concern for them. And you know, in our, on the apartment side of things, what we're seeing is that we have, we have a tremendous demand. Our build to rent communities are, or vacancy rates are almost non existent because there's people can't buy because between the down payment and you know, then the mortgage, you know, that's typically say 30% higher, maybe even more than what they're paying for, you know, a nice build to rent, luxury builder and community with amenities, you know, they don't have the, the ability or you know, it doesn't make a lot of financial sense to do that. So you know, we're seeing, and then we're seeing those kids, those millennials moving out of their baby boomers parents basements and saying, hey, I want to go live on my own or I want to form a family. So it's a really interesting market and it certainly is regional or local, I would say, where you have people that are moving to the southeast, they're moving away from certain areas. San Francisco is interesting. There's a lot of different things politically, you know, as well as financially with different things that are happening there. But the bottom line is I think you're, you know, what you said is we have to underscore, which is we just have not seen the transaction volume this year. It's been the slowest we've ever seen. It's been pretty, pretty incredible from that.

Perspective and that's amazing. And your market is hot as it is, as you just said. But I think what you're touching on is that we are seeing so many ways, but it certainly has big impacts in real estate, this north south migration. And I think that trend has legs. I think that's going to continue to play out. So I think it's going to benefit you guys. And if you can find properties that have great fundamentals in those markets, you're going to do very well.

Yeah, David, you and I could talk about macroeconomics all day long. I love this stuff. Hopefully I'll get to meet you at Malden's event here in the future. But I would like to talk about your book. I'd like to talk about how people can get it. We can share that at the end here. But bubble 3.0, I remember reading it about kind of the bubble here 20 years ago. And so with rates where they are, with inflation where it is, with the stock market and the housing market at all time highs, where can investors go for income? Where can investors go for returns? And if we're in a bubble, what do we do?

Well, first of all, I think the bubble, I think we're in an echo bubble to get right to the bottom line. I think bubble 3.0 hit its crescendo in 2021 in what I would call the peak insanity period. So that's when the meme stocks went absolutely ballistic. And you know, GameStop went from 5 to $485 a share. You had the SPACs and, and the NFTs and just online, of course the cryptos. And it is amazing to me that, you know, bitcoin continues to trade is and some of these other related entities. When you've had just one scandal after another and trillions of dollars of white wealth wipeout, you would think people would be very, very leery. And I realize bitcoin's got special attributes that a lot of the other ones don't have. But I mean Dogecoin is once again going nuts. And that was the one that I focused in on the most in my, you know, the biggest bubble ever chapter was Dogecoin having an 88 billion dollar market cap founder Billy Marcus said it's worthless. What are you Thinking you know that's like more market cap than certain blue chip companies. So you know, way in the world when Nvidia is trading at a trillion dollar market cap, 88 billion doesn't sound like that much. But for something that no intransic value and had a ton of imitators made absolutely zero sense. But it was just kind of the, the signature bubble within the biggest bubble ever. But I think it's important to understand the connection between bubble 1.0 which I'm touching on which was the tech bubble of the late 90s which then because it burst and of course the Nasdaq went down almost 80%, a lot of wealth was lost and that create actually a fairly mild recession even before 9 11. And then the Fed kind of panicked and they run over a lot of pressure. Mentioning again Nobel prize winning economist amazingly but he really pressured the Fed to. This is where I think he, you know people really were asked about his reputation. They would give a lot more heat for this. But he really put a lot of pressure on the Fed back in kind of the 2003 era to create a new bull. And he specifically recommended housing. And guess what they did? They pushed interest rates down to great depression levels. Left them there even as the economy started. Housing was going nuts Tom. And they finally started to tighten in 2004 but they did it very slowly. A quarter of a point over, you know, several years did get the rates up about where they are now. But of course inflation was a lot lower so it was a more of a real interest rate. But again just the predictability and the nails pace of it didn't puncture the housing bubble early enough. So it got greatly inflated. And of course all those mortgage products that were created, you know, all those CDOs and you know, transforming subprime mortgages into AAA rated securities and you know the banks were loaded up with that stuff. And when those AAA securities went down to you know, 40, 50 cents on the dollar, virtually every bank in the country was broke. Which you could make the case today. And this time it's because government securities mostly. But even you know, the mortgages, if you mark these, you know, two and a half percent mortgages to market, I mean Chris Whalen is a genius on the banking industry. He was early to say hey people are way too sanguine about higher rate banking system. He thinks that you know, virtually every bank, if you mark, truly mark their everything to market has a negative net worth. And that's what we had even worse back then. And we had a Mark to market rule. So these guys had to, you know, actually take hits on that. And it was the perfect storm. But so that we know how that turned out. But that's what really caused the Fed to do all those QEs and eventually to. Well, obviously Covid played a big role in why MMT was implemented. So these things are all linked. Bubble 1.0, tech bubble 2.0 housing and then what I call the everything bubble bubble 3.0. And the reason I think it was so huge is because interest rates went down to virtually zero. In fact, in most of the world, a lot of the world, they were negative. Certainly in Europe you had $18 trillion of negative yielding bonds. There were homeowners in Denmark getting paid to take out a mortgage. So you created a massive real estate bubble globally again. And some of these markets are really having a tough time sometimes some of these markets, the prices are falling much more than in the United States and they don't have the protections that we have. We have in a lot of states, non recourse mortgages. We also tend to have long term fixed rate mortgages as in a lot of these countries, like the Scandinavian countries, Canada once again, Australia, New Zealand, the mortgages are shorter or they're variable. So the higher interest rates are having a very severe impact on people's cash flow for getting affordability. But just I saw that in, in Canada it's like 70% of the average disposable income is, is going to basically just the essentials of life, including mortgage payments. And yeah, anyway, so it bubbles are dangerous and they're especially dangerous when they involve the banking system which actually I didn't think this one would, but it clearly has. And you know, right now we feel like the banking crisis is over. I don't think so. I think there's more lurking out there because we're still in this process of investor depositors realizing why do I have my money in a bank account that's paying me nothing when I can get 5% on T bills? So they're, you know, it's, it should be happening faster is, but it is happening where money is moving from bank accounts into T bills or government guaranteed money funds. So what does that matter? Well, it matters because when the money's in the banking system and bank deposits, it's high octane money as we know, it's a fractional reserve banking system. So money can be lent, you know, exactly the money multiplied by one. So when it goes from, from a bank account into a government debt, security is basically going from high octane to low octane, we have the money supply falling for the first time in decades. And now you're going to have velocity falling because the velocity of money is definitely impacted by that, that transition I just described from high octane to low octane. So falling money supply, falling velocity. I mean, that's a major issue because if you, the old fishermen equation of money supply times velocity equals basically nominal GDP or total economic activity. So it's a big deal. See what we're seeing. But I don't think people are really focused on that right now. I think they're, you know, they're focused on AI and Nvidia and they're kind of ignoring some of these more powerful trends.

Yeah, I think that's an excellent point. I've last panel that I was sitting on, we talked about, you know, is this debate where we're going into a crash this year. And this was early. I forget if it was late last year, early this year. But my point was you have to look at credit creation. At the time, credit was still being created, so it's probably last year. But now as money exits the system, credit is shrinking and purchasing power is shrinking, whether that's for real estate or otherwise. And that's a real multiplier effect. So that's what I think kept inflation low for so long after the great, the Great Recession. Right. We had such a destruction of credit that came out of there. So, David, I know that your firm has really focused on helping investors find income. And as you mentioned, it was really hard for a lot of years to do that. In the new world disorder, as you call it in your book and in your substack, where do you see opportunities for investors here in the future?

Well, I think they're going to be more attractive in a few months than they are right now. And so you were just saying credit. And so I wanted to take that and add another word to it, credit spread. So this is kind of a big caveat about why I don't think you should be fully invested right now in, say, corporate bonds, which superficially look good. And there certainly are some opportunities. But I, I do worry that credit spreads right now are way too tight relative to some of these trends that you were just talking about. Like, let's explain that.

Explain what a credit spread is. Just.

Absolutely, they'll do that. And then I want to explain why I think they're going to widen out. But so a credit spread is very simple. It's the difference between what a corporate bond pay and what A government bond pays even though it's simple. It's also extremely powerful because if you really look at the big bad bear markets that have happened even last year, it's because spreads have widened out drastically. If you go back to the 0809 market, which really was a bloodbath for stocks and particularly for corporate debt, that's when junk bonds went to over a 20% yield and you had a bear market in stocks, but you had a mega bear market in yield instruments like corporate bonds and pipelines and REITs and so forth. So credit spreads actually got as wide back then as they did in the early 1930s. So it was the buying opportunity of multiple generations and I don't think we're going to see that. But right now we've got credit spreads kind of normal and they weren't last year. Now last year they did widen out significantly. That's one reason why a balanced portfolio had such a tough time. So, and then we, if you look at when credit spreads started to narrow, which was, you know, kind of last summer, and they're still fairly wide in the fall, but then they've narrowed significantly then, which has created a very nice tailwind for the stock market but also for these yield instruments. But you were talking earlier about the changing of the bank, bank attitudes towards lending and the credit standards. So the senior lending officer lending standards are, have tightened drastically. I mean they are really at, you know, five fire levels. So these banks don't want to lend money. And if you look historically, the correlation between credit spreads and that is very tight. So what, what I'm saying is I think you're going to see another move out in credit spreads which is likely to put downward pressure on the stock market, corporate bonds. But there are opportunities out there. I mean the biggest copper producer in the, in the United States has got bonds trading at about a 640 yield right now in 11 years. You've got a lot of the energy, high quality energy, EMP companies, including Warren Buffett's, one of his big energy plays. Their bonds are yielding about 6% with a kind of a similar maturity. So those things look attractive. But could they go to seven and a half or eight during a major spread, widening event? Yes, they could. And that's why be careful. I think it makes sense right now to do a little nibbling on those kind of things. But I think it does make sense for an investor to have a lot in short term treasuries and get that 5 yield. Now that yield, you know, once, once we go into Recession, which I think is coming, the Fed is going to cut. My joke is they're going to cut like a chef at Benahan. He's going to chop, chop, chop, chop, chop. Yeah, but, but we're not there yet. I mean right now there's enough inflation in the system. You know, the Fed doesn't want to stake in the 1970s where they ease too early and then they had a tighten again. And so I, I think we are, you know, we're a ways away from kind of this ideal moment to be an income investor. But I do think things like midstream energy, you know, the pipelines are attractive. You know, they yield 7 to 8%, sometimes even little digits. One of our favorite names actually is up 40% today. It had been our dog, but it's part of this budget debt ceiling relief. Their pipeline is going to get approved, which is like 90 done. It's been one of the real travesties that this thing has not been allowed to be completed. So you know, there are opportunities out there. I think you just have to be specific. I think some of the energy producers themselves pay very good dividends and you know, bonus dividends when times are good. They're not going to. With oil at 70. I do believe oil is going to have a major up leg here over the second half of the year. I've been saying that and it just keeps getting pounded and, but I do think the, I think OPEC is very unhappy with oil prices where they are and there's a massive short position on the futures oil market right now. So in a, in a some kind of additional supply squeeze, those guys can get squeezed hard given how many are, have negative bets on inventories. As you know, if you adjust for all these SPR releases, petroleum releases that were going on, oil inventories are not just low, they're just alarmingly low, you know, multi decade low, especially relative to demand. So it's odd to talk about an odd situation. I mean the fact that you, you would think that with, with inventories as low as they are now, oil would be $40 a barrel higher than it is and I think it'll be before too long. So I definitely think there's opportunities in energy and you can get paid in many cases very well to be in that sector.

Yeah, it's always interesting to me if you look at democratic regimes have served the oil markets very well historically in this country. It seems that that's going to continue here. Another interesting topic you mentioned during one of our conversations was uranium. Would you mind Touching on that for a couple minutes, David?

Sure, absolutely.

Because one of the, it interests me a lot. I think a lot of people aren't, aren't really, don't really think about that.

No, they don't. I would, you know, I would suspect that the average investor has either zero or a very, very small allocation to anything uranium related. And there is an ETF that from Canada, but it trades in the US as well that provides very easy access to uranium, direct uranium ownership. But I think, you know, there's a negative stuff out there. I mean it's, it's probably the scariest time I've ever seen in my life. I mean, I think we are facing a, and I call it the four Fs scenario, a federal fiscal funding fiat in the second half of this year, which this debt ceiling is only making worse. So the government's going to be just selling a slew, I mean a couple trillion dollars of debt over the next half of this year. And especially with the Feds, you know, they're doing the opposite of qe, they're doing quantitative tightening. So you've got shrinking buyers and we're talking to the foreign, they've gone mia. So you've got this explosion of supply with shrinking demand. It's a recipe for you could actually have a failed treasury auction. I think that that's a greatly underappreciated risk right now. And if you listen to Stan Druckenmiller, he's a brilliant guy, he's saying our present value of our entitlements are about $200 trillion. That's relative to an already horrifying 31 trillion of on budget debt. There's no way we can pay that much less all these entitlements. So it's, there's just, the math just doesn't work. And it's just a question of when do we really hit this, you know, Wiley coyote off with moment. And I think there's a very good chance it could be the second half of this year. So that's a, you know, big negative that scares me a lot. But there's an emerging positive out there and it's gaining more and more focus and that is small modular nuclear reactors. I think they are fine. They've been, there's been a lot of promise about them for many years but they're really starting to get a lot of support from the federal government which has been missing in the, in the so called Inflation Reduction Act. There's support for that and the molten salt nuclear technology which was originally developed in the 1960s by molten salt. So it's another way to, it's a much safer way to cool a reactor core than using light water. Because we've seen three major disasters with these light water reactors. One was, oh, that's Russia. They didn't have very good safeguards in Three Mile island or their safeguards were much better. And then of course Fukushima, which, you know, they had just an unbelievable sequence of things. But I mean you actually had hydrogen explosions there, which is, that's terrifying.

Yeah.

Because it takes a tremendous amount. So you know, H2O is hydrogen and oxygen and it's for. That's a. There is unbelievably strong bond between those to keep them. You know, imagine that's what you pour on a fire, right Come that doesn't just explode. It's because the oxygen and the hydrogen are so tightly bonded. But if you can't create enough energy, like in a nuclear meltdown, you can actually break that, that bond which is, creates this enormous explosion. And, and yet with molten salt you don't have that. It's a, it's a much, much safer approach if they're walking safe. And the technology has been around since the 1960s. It was developed by the Oak Ridge National Lab and the father, one of the fathers of nuclear energy, Weinberg, was a very strong proponent that we should go that route rather than these light water reactors because it's so much the bottom line is there is the next generation of their reactors is coming to market now, whether it's five years from now or a year from now, I don't know. I think it's going to be closer to a year. There's a company I'm very supportive of that I think could be at first vision next year, which would be shocking. But these things can be made in, you know, in high quantities, you know, assembly type of thing instead of these customized, you know, 20 billion dollar plants. And so I think that's coming. And the demand for uranium is already soaring. And you've got 16 reactors under construction. Now these are the old fashioned ones, but they tend to be built mostly in other countries. It's so hard to get a reactor built in the United States that I have to go down that path. But of the 60 nuclear reactors globally that are in construction right now, under construction, about a third of them are in China, hundreds more that are in the design stage and reactors that were taken offline are being put back online. So the demand for uranium is surging already and supply is down. So this is like the oil industry and. But you got this great growth kicker of these small modular nuclear reactors. So it, it's a great setup. I mean, there's other ways to play it. That's not the only way to play, but I think kind of the simple way is just say, I want to bet. Bet on the metal going a lot higher. It's traded much higher than where it is now. In fact, it's probably below the production cost for new uranium and mines almost for sure. It is. So it's. I think it's a great setup.

A good time to take a look at it. Yeah, I thought it was interesting the, the finished reactor that just came online, it had such an impact on energy prices that energy prices or electricity prices actually went negative after they brought that nuclear reactor online. So they had to pull back on production to get prices up. So people were incentivized or producers were incentivized to continue to do it. Yeah, it is interesting the way some of these. And look, I'm an environmentalist, so it's really interesting to see how some of these quote unquote, green technologies have affected energy markets. And you look at Germany. So I think uranium and nuclear power is really interesting space to look at. Going forward, I would love to continue this discussion. David, love to have you back on the show, but we have to wrap up for today if listeners want to stay in touch with you. I know we could almost see your substack page entirely here behind.

I should do a little better job here. How about that?

There we go. Perfect. Yeah. And we'll put this in the show notes. It's haymaker.substack.com if you don't mind sharing. How can people get a copy of your book? How can people stay in touch with you, get access to your newsletter as well?

Well, it's easier to get the newsletter because it's free and all you have to do is just. You do have to subscribe. So go to our substack website, Haymaker, and. And subscribe. You just did it. So you found out it's pretty easy. And if somebody wants to get a copy of bubble 3.0, we'll send it to them free of charge to have to, you know, let us know. Just send us an email or, or we've got a Twitter, you know, Twitter account as well that we're fairly active with, so they can also contact there. We're easy to reach and I'd be glad to send anybody a free copy of the book.

Terrific. And we'll put all that in the show notes as well. David, hey, it's been a pleasure talking to you today. Hope you enjoy the rest of your summer here.

Thank you, Chris. Hope to meet you in person soon.

Yeah, look forward to it.

Hey Chris here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.