I think that if this lasts another two months, there will be shortages all over the world. What is the timeline that you're expecting for the war? That's a great question. I think we're entering a period that will require the biggest money printing in the history of human existence. Earlier you said we're expecting, in your words, the biggest money printing in human existence. Would that equate to also the biggest market rally in human existence? It sounds like... Jay Singh joins us once more. He is a founder of Special Situations Research, and we'll be going over the special situations that the markets have presented themselves today. The Iran war, tech earnings, and what's next for monetary policy. Jay has everything covered. Welcome back to the show, Jay. Good to see you. It's been a long time. Happy to have you back. Great to see you, David, and I appreciate your time. And I appreciate your patience while I've been traveling. Well, I appreciate you coming back. You're always a popular guest. So big tech, Iran, and monetary policy. Let's focus on these three main themes. So today we have a series of news that we can talk about. First of all, the Iran war is now in its sixth week. Yeah, just about. Well, actually more than that. A second month. Meta will be cutting 10% of its workforce. We're talking about that. And also, Trump just reclassified state-licensed medical marijuana as less dangerous. That's a historic shift. Before we get into specific special situations, maybe help us understand here, Jay, the biggest risk and opportunities investors are facing right now. Absolutely. So what I'll do is I'll give pros and cons. Because in this environment, we do have a tale of two markets. Okay? what we have is the best earnings backdrop for the S&P 500 in many years. For the past three years, we've had very stellar earnings. In fact, the S&P 500 margin is now over 14% for an operating margin. And if you ask anybody 10 years ago, if it was possible for the S&P to have a 14 to 15% operating margin, they would have said you're crazy. And the reason for that is, you know, big tech is about a third of earnings. And big tech has very high operating margins and even. So what we're seeing right now is roughly 20% of the S&P 500 companies have reported. And about 87% of those companies have actually beat on earnings. And it's actually across five sectors where you have material beats. This is according to the fact set data. If you were to see the year on year comparison, last year versus this year, or even the last three years versus this year, on average, you usually see earnings decline between January and April going into the first quarter print by two or 3% as analysts revise numbers down. This year has been very unique. And last in the end of last year was also unique, you're actually seeing analysts earnings estimates rise going into this earnings print. So we've actually seen earnings estimates rise by 4% from January to April, and earnings for the year expected to be up 15%. A majority of that earnings growth is coming from Sandisk in the memory space, Micron in the memory space, NVIDIA, and Eli Lilly, right? So it's a very concentrated group of names contributing. Now on the risk side, so we understand why the market has been so resilient on one side. It's also been six Trump job-owning events we can talk about during the Iran War. But on the risks, we have the Iran war, which I would say is the pivotal geopolitical risk event of the year, right? We all know that the Strait of Hormuz controls about 20% of the world's oil, 20% of the world's LNG, one third of the world's agricultural fertilizer, specifically nitrogenous fertilizer, which is key to growing corn and grain. And, you know, 50% of the helium that goes into Korea for memory chips, which we'll talk about later. And a third of the world's sulfur, which goes into copper mining operations, which is used to leach copper all over places like Africa. Right. So this war has resulted in plastics prices doubling. It's resulted in fertilizer prices going up 70%. It's resulted in jet fuel prices rising over 100%. In fact, there have been 12,000 flights canceled all over Europe from airlines from Lufthansa all the way to the budget airlines because of this war. The second biggest risk is private credit. Private credit is a $2 trillion industry, which grew from nothing over the last 15 years. It's a $1.8 trillion industry. And of that $1.8 trillion industry, we are likely going to see $50 billion of redemptions from interval funds. And we are going to see banks, $300 billion of bank lending. Banks are going to raise on the revolvers that go to these credit funds. They're going to raise their borrowing rates. Okay. Now that is going to result in a, in a credit crunch at the same time. You must realize that 25% of private credit is software where the terminal value is now being questioned because of Claude and other AI products, which can easily build a front end and a back end. Right. Even if you are a system of record and software, okay. It can easily build that and, and replace the software over several years. Right. You still have to build the customer relationships. Okay, now, once the terminal value is under question, these companies that were 20, 30, 40 times EBITDA in terms of their valuations, and they're being lent at eight times leverage, only 40% LTV. Now, if those valuations come down to 10 to 15 times, like we're seeing the public markets, you all of a sudden are looking at companies that could be levered at 80% LTV. And when you take away the adjustments, because 37% of EBITDA in the leveraged credit markets is fake. It's one times fees, transaction costs, management compensation, synergies. Once you take out all the ad backs to EBITDA, you're looking at companies that are going to be levered over 100% LTV. So that could result. There's $900 billion of credit that's maturing of the $4 trillion leveraged capital markets in the United States across high-yield private credit leveraged loans. There's $900 billion maturity wall. across the US and Europe approaching in 2028. So that could be the catalyst. Already, if you look at Finch, Finch is raising its default expectations to above 13%. If you look at Lincoln Financial, which has gone through 4,000 private credit transactions based in Chicago, they're actually saying that the bad pick ratio, okay, pick or payment in kind is 13% 15% across private credit. Half of that is bad BIC, which means companies that were paying cash that are now PIC, which means that they're actually defaulted. Because if you stop paying interest in the public market, you've defaulted. It's just in the private credit market, they have fancy words like non-accrual, which get around the fact that this is a payment default. And you've seen mega deals, right? Like Medallia, Blackstone, and Toma Bravo, along with a consortium of lenders had to take a massive write down. Toma Bravo is going to take a zero on this $5 billion deal. Blackstone has already marked it down to 70 cents. This is on top of CryColor and several other deals that BlackRock and FSKKR and others have had to mark down to zero. Because in private credit, as you know, names are often valued between 70 and par based on mark to model. unless you actually have a Chapter 7 liquidation where they have to market to zero. So that's a second risk. And the third risk ties into all of this. It's a combination of tech valuations falling and interest rates. Now, we all know from the 2022 crisis that as back-end interest rates rise, as the 10-year rises, which it had been in March due to inflation expectations increasing, you have valuations falling and now you compound with what we talked about earlier with terminal values declining because of software disruption and you could have a situation where there's a big drag on the overall market as software is about 12 of the market before we continue with the video let's talk about a topic that's been on a lot of precious metals investors minds How to generate income with your gold holdings. Most assets either generate income or rely on price appreciation. Gold has traditionally fallen into the second category. Our sponsor today, Monetary Metals, has found a way that lets gold do both. Instead of just holding gold and waiting for price moves, investors can now earn a yield on it paid in physical gold. Through the leasing platform, investors can earn up to 4% annually with yield paid monthly in ounces. That means or holdings increasing gold over time. The metal remains in your asset base and can be redeemed at any time. Thousands of investors are already earning monthly interest in gold through monetary metals. So visit monetary-metals.com slash Lynn in the link down below or scan the QR code here on the screen and make the most out of your gold today. Right. Okay. And IGV itself, if you look at the companies within IGB, many of them are already down 50%. We're talking about the best companies in the space, right? We're talking about names like Adobe. We're talking about names bellwethers like Salesforce. We're talking about names like ServiceNow, okay? And if you look at a handful of these names, it is quite concerning that these are some of the best companies in the United States, right and europe like sap sap is down 40 year-to-date okay shopify is down 20 year-to-date salesforce is down 35 year-to-date okay intuit is down 43 year-to-date adobe is down 32 year-to-date now is service now is down 45 year-to-date after announcing a share by that plan so you're having companies announced $25 billion share by plans like Adobe and the stock is still down 32%. What this means is that the fear is real. If you look at names like even Snow, which was a crowd favorite across Fintwit, across growth managers, down 35% here today, Autodesk, down 22%. So we can move on from this. But what we've seen, okay, is you have three major risks, But the backdrop to the market is that earnings overall are so strong. And outside of the MAG-7, earnings for the S&P 493 are expected to accelerate. And that is resulted in a capital flight from some of the megatech names into the equal-weighted, the other names in the S&P 500. And it only takes, you know, because tech is like 35% of the index, you know, it takes only a small change in fund flows from tech to another sector to cause a massive rally, right? So we've seen asset classes like gold, right, double in a period of a year. Okay, we've seen miners see massive rallies, not just because of the flight to safety, but because central banks around the world, everyone from India to Poland to China to Russia, are now replacing treasuries with gold as a reserve asset. And it went parabolic for a short period of time. But silver and gold then also sold off in March with the rest of the market. But because of earnings, the reason why the market has been so strong is one, because Trump is jawboned six times with no real resolution to the Iran war. And then two, we are entering, as I started to call, a very robust earnings backdrop. Right. So since the war started on February 28th, we've had several discussions and you have essentially M.V. Galibab, you know, in Iran, they're meeting the Met in Islamabad. They have a 10 point treaty that they're discussing on the other side of the Atlantic. I believe the UK is planning a 44 nation conference on the street of our moves. So the rally that you've seen in the market since the end of March has been the sharpest bear market rally since 1982. It has been absolutely unbelievable. According to Goldman, there's 85 billion of CTA short covering last week as funds were max short going into April. you have big funds who were long oil and effectively short the rest of the market, like Andorand, down 52% in the first half of April because they were so bullish on oil and so bearish on the rest of the market, everybody was freaking whipsaw. So all the factors, they rotated factors, and the trades that they thought would do well actually did not do nearly as well as they thought they would do. We've seen 85 billion short covering last week. It's estimated another 50 billion this week. If we have some semblance of a peace or an extension of this peace treaty, which is unclear at the moment. So if you add those two together, you have 135 billion of short covering in a period of just a couple of weeks. And that is what's driven the market back to all-time highs as of yesterday. And you have seen animal spirits come back into the market. Oftentimes, you know, you know, animal spirits are coming back when you see names like Carvana up 8x in a period of a month, right? Names like Hertz up 30-40%. You know, absolute disaster names where, you know, retail and the whole meme, the meme craze is back. Now, Carvana was a lot different. We'll just spend 30 seconds on that because two hedge funds, right, including Pentwater, owned about 108% of the float. And so, you know, the short interest as a percentage of the freely tradable flow, right, was easily at one point, you know, over 100%. And so that resulted in a squeeze, two squeezes, a short covering squeeze and a gamma squeeze. As every day you had higher strikes being listed, right? You had 600 strikes. And then yesterday you even had 1,100 strikes until you have 1,270 strikes. But you had aggressive haul buying ahead of earnings because earnings were supposed to be May 7. Yesterday we found out there at the end of April And somebody knew that information So they were selling the stock from the pre mid Every 30 minutes they pushing the stock lower because someone had insider information that the company was going to report earnings early. And usually, when a company reports earnings, when they have an elevated stock price, it comes with some sort of an equity offer, right? They already had a 5 million share ATM. But because they're in a blackout period, they couldn't announce a big offering. And because of the risk of a big offering, the entire short squeeze unraveled over the past two days. You had over 30-40% sell-off yesterday, you had a 50% sell-off today, the biggest sell-off in Avis, sorry, Avis stock, C-A-R, in history. And so this market is really a tale of two markets. You have very good earnings on one side, and you have three major risks on the other side that are very difficult to trade because of consistent job boning, six peace treaty head fakes by the Trump administration since February 28th. And a number of trade mechanics due to short covering, CTA flows, and options going into earnings that are resulting in one of the most difficult markets to trade in my career, which leads us to why special situations and high income baby bonds and preferreds are a good way, along with having 10-20% of your portfolio in cash, to find opportunities to generate alpha outside of your typical beta rotation trades. And we, in special situations, have a portfolio with over 30 names. We size based on level of conviction. our biggest positions right now are kind of gold gold miners but outside of that we have a number of our names including something i think you find very interesting which is echo star and echo star you know owns about at the market value of about 1.75 trillion if spacex were to ipo this year they own about 35 billion of spacex stop so we can talk about that in a moment david so so jay let's let's just pause here for a second so let's talk about going let's go back to the tech stocks you mentioned so today we have a number of important announcements uh regarding layoffs metal will cut 10 of its workforce uh as the company pushes more towards ai uh microsoft is announcing a seven percent oh well sorry a uh retirement program a buyout they're calling it voluntary buyout to up to seven percent of its employees mostly senior director levels and below. And Nike is not a tech stock, but it's also cutting 1400 rolls. When you're talking about when you're looking at these headlines, do you think to yourself, earnings is going to improve because of higher efficiency, potentially? Or do you think to yourself, these companies are cutting layoffs or cutting workforce because they need to? Hence, I should be rotating away from some of these names. What's your initial take here? So usually, when a tech company announces such a major layoff, it provides a tailwind to the stock, because the market looks forward a year and said forward earnings will be higher. In the present year, it's not guaranteed that earnings will be higher because there's usually a severance and a charge off associated with a large layoff. So, for example, in Microsoft, Microsoft's doing the first buyout of 7% of its workforce in 50 years, right? And the buyout involves lump sum payments. So it's going to be a short-term drag on cash, but on a pro forma 2027 basis, it will be very accretive to earnings and will allow Microsoft to divert some of the OpEx into CapEx for GPUs and to further build the head start that it has in AI, along with the other hyperscalers, right, like Amazon and Meta and Google. So I do think that you are going to see additional layoffs across all the big tech and software companies this year because they need EPS to accelerate in order to justify valuations in a period of uncertainty. And what you've had in this market is within tech, you also have a tail of two tech sectors. The hardware needs have done incredibly well, right? Like Micron has sextumbled earnings estimates in a year because memory prices are up so high. They're up parabolic. The bottleneck in AI right now is memory and power. They don't have enough power generation. We simply don't have enough memory. We do have enough GPUs, which was a bottleneck in the past. But you have companies like Micron and then lower-end memory companies like Sandisk and Samsung and SK Hynix. The reason why the South Korean market is up so much is because 50% of the South Korean market is basically two companies that are memory leaders globally. SK Hynix and Samsung, both of which use Helium from the straight apartments. So it is a very, very interesting market where everything is kind of trading on forward expectations. But there's some black swan risks that I don't think the market is paying attention to either. The Iran energy conflict has resulted in Taiwan essentially acquiescing and playing nice with Xi and China. And what I think is that Xi doesn't even need to take over Taiwan. If Taiwan has an energy crisis, they will have to submit to China because China has 1.4 billion barrels of oil reserves and effectively has unlimited power given how big the renewable coal sector is. So I think we've actually almost handed Taiwan, which is a semiconductor powerhouse, which is a big black swan risk because of the other geopolitical missteps we've made throughout the year. How would you assess the Strait of Hormuz situation from an investment standpoint? Are you still paying attention to that for a trading basis? In other words, do you actively follow that on a day-to-day basis or do you kind of just write that off as an ongoing concern at this point and focus on other issues? So I look at the geopolitical in this environment every single day, right? So I'm monitoring headlines. I'm looking at how many vessels are going through the strait. I'm looking at how many tankers were hit with, you know, who were attacked by either side, usually Iran. attacking VLCCs or container ships or drive-up vessels going traveling through the strait, or more recently, the U.S. Navy and Marines boarding vessels going through the strait that are either Iranian or Chinese-flagged vessels. So there actually have been two vessels that have been boarded, one in the strait, which tried to break the embargo, where they blew a hole through the engine room. And the ship was actually taken over by the Marines. And the second was actually in the Indian Ocean, which is what was so surprising. And, you know, the US effectively tried to enforce sanctions. The name of the vessel is actually on my Twitter feed. But they, you know, they took over that vessel as well. And that's essentially made the peace negotiations a little bit more shaky, as you know, they are set to expire. And the reason why the market sold off today is there's some uncertainty around whether those peace negotiations will be extended. I know the representatives from Lebanon and Israel and D.C. that are currently speaking with the administration. But the biggest negotiation is with Iran. And that negotiation has effectively been on and off for the last six weeks. There's been very little progress made that we know of. right? We are not part of the negotiations, but as outsiders to the negotiations, it doesn't seem like there's been a lot of controversy. Any infrastructure around this issue that you would be particularly interested in pipelines or transport ships, critical minerals that are needed? Yeah, absolutely. So I've actually been long tankers. You don't really hear people talking about tankers, but I've been long a number of major oil tanker companies like FRO. and I actually think that day rates will stay very high even if this or even if there is a peace treaty because there's a backlog now and ton miles have been extended because now ships have to travel further, not just for distances through the Red Sea, through the East-West pipeline, but they actually now have to travel all the way around Africa to get to Asia. So because of the increase in ton miles, BLCCs are actually able to charge higher rates and for over longer distances. So a number of these companies are going to see the highest margins they've seen since the Russia-Ukraine war. It's going to be absolutely unbelievable how high their profitability is. And in addition to the tankers... What does that mean for M&A in the oil space? If WTI is near $100, are we going to see more M&A in consolidation? Or does that not matter? Now, it depends, right? If you see oil at $100, everyone knows that it's temporary. You can look at the back end of the curve, right? The curve is in backwardation, which means that if you look at oil next year, it's trading much lower than where oil is now. So what I think is interesting to look at is I view maybe less opportunity for M&A. But what I view could happen is that energy companies use higher oil prices to hedge further out the curve. and they are able to lock in oil at $70 going into next year. And so they have higher profitability. Those who are, let's say, 50% on edge, they have higher profitability over the next couple of years. If this oil crisis lasts just another month or two further, you are going to have a probable spike closer to a spike closer to $150 a barrel. And if you have a spike up to $150 a barrel, it will take the entire curve will shift higher and it will be a lot more difficult, okay, for companies to navigate that. So whether it's airlines or plastics, where you will see commodity plastic prices, you know, they've already doubled, they'll probably rise another 50% from here, right? We'll have food shortages because we've already entered the spring planting season and 30% of US farmers haven't even bought their fertilizer yet. It's a lot worse for places like India, right? At the beginning of the war, you saw LPG shortages for cooking oil. And now you're seeing shortages for fertilizer. And so when it comes to, to answer your question, I am not that bullish on M&A, but what I am bullish on in the credit markets and capital markets, a lot of these energy companies are going to refinance their debt because of higher expected future EBITDA growth. So if these companies are able to lock in their hedges and earn more over the next two years, they will be able to lower their LTVs and improve their leverage-free cash flows by refinancing their debt at lower interest rates. and using some of their excess free cash flow to pay down debt. I actually view that from a special situations perspective. I view buying energy bonds, energy debt of mid-cap companies as being a great risk reward because they will be able to generate higher cash flows to pay down debt and refi debt. But I'm not as bullish on M&A in energy. I am bullish on M&A. I was very bullish on M&A at the start of the year before interest rates started to go up. But even then, I do think that the back half of this year could be very good for M&A unless the war extends further than I think it will. What is the timeline that you're expecting for the war? That's a great question. None of us have a crystal ball, but I view this as being another taco trade. And what that means is that because we have midterm elections in November, and it's very likely that the Republicans lose the House, and there is a small probability they lose the Senate, it means that President Trump will do whatever he can as we get closer to the midterm elections to at least declare victory on the war, whether we win the war or not. Whether we essentially spend, we've spent $55 billion on the war. If we, you know, if we spend $100 billion. Sorry, what does win look like to you? So win is just a statement, okay? I actually don't think we can win the war at this point because the peace treaty itself, if you look at the 10 points being discussed, it looks like we've already acquiesced to some sort of a toll. And the fact that there is going to be a toll that is being charged in one of the most important straits, you know, where several thousand, you know, VLCCs and container ships travel every year, right? If you just use the math of roughly 2 million per ship, okay, now that is a gross estimation because it assumes that every ship is a large VLCC and they can afford to pay a dollar a barrel per vessel. But in that scenario, Iran could earn $50 billion a year. I think the number will likely be closer to $30 billion because they will allow their allies discounts and not all ships are that large. But that would effectively increase Iran's profit because you remember that the revenue they earn from oil, you need to deduct all the costs. It would effectively double the country's profit from oil. And that would be a loss because they could take all that money, in my opinion, and not only use it to rebuild infrastructure, but use it to build their military. right if 650 000 soldiers 95 million uh population and they would they would be able to rebuild their navy rebuild their air force with that money so it's very uh unfortunate that we're at this point in time where i don't know how we would call it a victory i think that any peace deal we have now would be worse okay than the deal we had under the obama administration now to play both sides I do think that there was nuclear enrichment, right? You only need 3% to 5% enrichment for nuclear power. And there was obviously nuclear enrichment going on. And I thought that our bombings last year took care of it, but apparently that wasn't true. One of the problems in this administration is that you never know what the truth is And I think that lack of transparency and the arrogance coming from the Venezuela how easy it was for us to overthrow Venezuela, resulted in overconfidence going into this conflict. And I frankly think that nobody will win this conflict. I think Iran has lost because they've lost their navy, they've lost their air force, they've lost critical leaders. I also think the US has lost because we've spent think about what's happening right now we have 75 billion that is being requested for drones we have a 1.5 trillion dollar defense program what does the rest of the world pay for defense david 1.16 yeah 1.16 trillion so we will pay more than the entire world combined with our new budget. And where's that money going to come from? It's going to come from borrowing, because we make less than $5 trillion a year from our tax revenue. And we're going to be spending over $7 trillion with this new budget. There's no way we're going to be able to cut Medicare and Social Security and education, everything the president wants to cut on the other side. Now, there will be a lot of opportunities. I'm happy to talk on the next call. I have a list of over 20 drone companies, anyone from AVAV to Red Cat to smaller cap companies that will benefit in the drone space. But that's a topic for another call. But I do think that no one will win the Iran war. I think it's a loss for humanity. The death tolls of U.S. soldiers, the death tolls of innocents, the innocents dying in Lebanon, which I have no idea why they're even involved. involved uh it doesn't look like hezbollah has been in many of the cities that have been bombed um you know there are these triple tap murders of doctors um literally doctors uh that are getting you know bombed and i frankly don't understand why both sides insist at one point you know in Dubai, Iran was sending a drone or a missile every nine minutes, right? The UAE was running, the UAE is actually requesting a bailout. The Middle East was supposed to be spending over $2 trillion to support the US economy across Saudi Arabia, across Bahrain, Qatar, UAE. And what is happening right now is the UAE is asking for the Fed to provide liquidity, effectively provide them a bailout because of how weak their economy is right now i mean dubai property prices are down 35 as we speak you can't you can't even sell a property if you wanted to in that market it's not liquid sounds like a buy to me it sounds like a buy to me as well i mean you can get i was actually looking into a golden visa you can go to dubai you can spend about 400 000 and buy an apartment and it will grant you, I believe, a five to 10 year visa. So you can stay there and work, which is actually a great deal. So I personally think, and it's not investment advice, that I think Dubai is a great deal right now. But if you're over leveraged and you're in real estate, you're probably not happy. And it will cost hundreds of billions of dollars to repair. In fact, in Qatar, which is one of the biggest sources of LNG in the world, It will take three to five years to rebuild those facilities, which will be indirectly positive for U.S. exporters. But in the near term, there's simply not enough capacity to offset all of the LNG that's been offline. And that could result in a big, in the summer and winter, when air conditioning demand increases. Fortunately, there's not a lot of air conditioning in Europe. You know, the UK has very little air conditioning in its residential properties. but by the winter it could be a very big crisis where fuel and energy prices for heating and electricity could go up very dramatically and that is not being priced in right now into the market so you asked me what my base case is my base case is that there will be some sort of a piece within the next two months which will allow us in the second half of the year to have some increase in M&A, especially after Warsh gets in. And he does interest rates probably by the fourth quarter. I think people will be more bulled up about M&A. But in the near term, I think GDP estimates will be halved. You saw the 4Q GDP estimates, well under 1%, right? Coming at close to half a percent, whereas the Trump administration has said they expected 4% GDP growth, right? Where are all the manufacturing jobs, GDP has been bolstered by AI spend. And AI spend does not create as many jobs as other sectors, right? Like health, retail, manufacturing, industrial, you know, AI spend, it's just spending on GPUs and equipment that we get from overseas and, you know, temporary need for electricians and construction workers, but you can run a 10,000 foot AI data center with 20 employees, right? So it's not going to be this big job creator. And after the initial jump in GDP, what you really need is to see the ROI on the AI spend, and you need productivity growth to go up. And we have to see that actually play out. Because right now, okay, we are seeing some layoffs. but you aren't seeing that parabolic increase in productivity you need for gdp to grow at five percent right and if our deficit is seven percent a year we're growing our debt by you know by two to three trillion a year we need gdp to grow above five percent you know through productivity you know like besant says to off that you know the pace of our debt growth so we are going to be at 40 trillion you know 40 trillion balance sheet by the end of the year we're going to be we were making fun of greece back during the pigs crises because they're 120 percent dead to gdp we're already above that you know 10 uh 13 years later in the united states and it's going to be going up we're going to be a 50 trillion of debt by the time trump leaves office and you know it's both democrats and republicans does that does that mean your short government bonds by the way on the debt issue no i think they're going to manipulate the curve I think that my humble opinion is that they are going to issue more bills and they're going to effectively, just like Janet Yellen did, they're going to issue more short-term bills and they're going to issue less at the long end of the curve. And then they're going to increase the bank's ability by lowering capital requirements, which is what Besson wants to do. The biggest part of treasuries is going to be American institutions and American investors. So banks are going to effectively buy the incremental supply in treasuries. And while the rest of the world, right, Europe, Japan will likely keep their treasury holdings flat because they just don't have the ability to continue to grow their U.S. reserves and have a stable currency. um so it is going to be and what happens when banks buy more and more treasuries they crowds out other lending so what will happen is the shadow lending market which is a 70 trillion market right private credit etc will have to grow but that there lies the rub i will how will private credit and how will the shadow banking market grow with all of the risks that they're facing right to crowd out uh to offset the crowding out of banks now the other side of things war says he won he wants to shrink the feds balance sheet that will not happen in the anytime soon he is just saying that as an excuse to show that he is hawkish on one side and is able to cut interest rates on the other side i believe it is just him trying to look like he is responsible okay in reality i think we are entering a period that will require the biggest money printing in the history of human existence i think global debt to gdp is going to go well above 120 for developed nations and the world okay we are not we're relatively in a peace time right and u.s deficit spending was seven percent before this war even started okay we it's it was never at above seven percent outside of a pandemic or a war we are entering a period of time where we are going to see five to seven percent deficits in perpetuity okay and that is going to result in the fed increasing its balance sheet whether warsh likes it or not because banks will take you know maybe a trillion a year but they will not be able to absorb all that demand um so you asked would i short the long end of the curve and i would say it depends on it's a multi-variant equation if the if the economy slows down then i don't think these bond vigilantes are going to make a lot of money shorting the back end of the curve because nominal growth will be lower. A lot of the increase in yields was due to term premium. And very little of it was actually due to inflation expectations. Now, inflation expectations have risen, but I don't see that in tips, right? If that were really the case, you would see a big move in tips, which you are not seeing. So I'm worried about bond yields and inflation expectations, but because growth expectations have come down so much, it is effectively offset. You know, it's offset my expectation of yields going up due to, you know, high nominal growth, high inflation and, you know, ballooning deficits. So one is offset the other. And I think that this administration is highly attuned to interest rates. Every time the tenure goes above four and a half percent. Trump says something that, you know, is a meal or a meal here regarding interest rates or Besson says something that is a meal here about interest rates. So I think that they're on top of it. I'm not worried about runaway rates. I'm more worried about growth coming down dramatically. And this energy shock is much worse for emerging markets than it is for the US. So I'm worried about emerging market contagion. I'm worried about Turkey sold like 50 billion worth of gold. They've sold like 15% of their gold reserves because they're trying to support the lira. Vietnam is already at a three-day work week. India has historically had lpg shortages you look all over southeast asia you look at australia where they had 500 petrol stations fully run out of patrol you look at europe where 12 000 flights have been canceled u.s is relatively insulated even though the u.s imports about 5 million barrels a day of fuel from from canada etc um which is another funny thing because apparently you know i thought we didn't need canada for anything but u.s is more insulated from this than the rest of the world which is why you know we are less sensitive um and more um i would say we've been more patient about a peace treaty but if you look at the people who are going to suffer more the most from the iran war it's going to be southeast asia and so in some parts of europe do you think parts of the world including southeast asia like you mentioned will legitimately just run out of oil like philip the philippines for example declared a state of national emergency a couple weeks ago I think that if this lasts another two months, there will be shortages all over the world because, you know, the reserves that we have. Japan, for example, is using its reserves to support Australia, right, as an ally. So the reserves that the US, Japan are essentially using to put a temporary cap on oil prices, it's only a short-term band-aid, right? And so at some point, Japan will go insular and say, hey, we can't keep supporting Australia, right? We import the majority of our oil from the Middle East. We need to focus on ourselves. And at that point, you'll have panic, right? Because you'll have places like the Philippines, Indonesia, Vietnam, New Zealand, Australia, running out of fuel. And it's not just gasoline. It's diesel. Right? Diesel. We are talking about fertilizer. Fertilizer and diesel are both heavy contributors to food prices. So if you see diesel prices fall dramatically, I'm sorry, if you see diesel prices rise dramatically. Okay. I was just listening to an interview of a Midwestern farmer and he was saying that his average tractor costs him an extra $800 a day in diesel. Now, when you add the fertilizer costs, imagine these guys have such low margins as it is. You have multi-year high farmer suicide, right? You have farms being repossessed by banks and you have further and further consolidation in the sector. In fact, things got so bad, you remember last month that Trump actually asked Caterpillar and John Deere to create a new tractor because these farmers have so much debt. Okay, when it comes to buying these tractors on loans, you know, they have so much debt when they're buying these new machines that burdens their free cash flows with interest that, you know, Trump was trying to do something to help them. But my question is, we're doing all these things today. We're asking defense companies to cut their prices. We're asking heavy machinery companies to cut their prices. We're asking pharma companies to cut their prices. Isn't that price control? Isn't that socialism? So I just feel like everything that was promised by this, you know, by the administration is now completely disorganized. And what we have is a mix of socialism, warmongering, and I would say the misclassification of a war. What started as a military exercise is now tens of thousands of Americans being sent to the Middle East. It's almost like we didn't learn from the 1.2 million people who died in Iraq, Afghanistan, and the 60,000 US soldiers who died during that war. And the $3 trillion that was spent during that war, which in today's dollars would be about $6 trillion. Now, imagine if this were to last another two months, we would have spent $200 billion. we would have needed to increase our budget and replace all our, our all of our artillery Imagine all the Tomahawk missiles that we gave to Ukraine and we and we spent on this war We are running low on armaments in the US And for every missile it requires three to five kilograms of rare earths. And guess where all those rare earths come from? From China. And at the same time, we're boarding Chinese VLCCs taking oil from Iran. Whereas Iran is one of the biggest, China's biggest sources of fuel. And we're going to go and negotiate with Xi to finalize the tariff that we put on them from last April, which, by the way, was already overruled by the Supreme Court. So this is just one of the biggest cluster f***s. Excuse my French. We can bleep that out, right? It's been one of the biggest clusters that you could have ever imagined. If you had asked me 10 years ago, that instead of targeting one or two countries. We put tariffs on the entire world at above 20%, backtracked all the way down to 10. Then in October, raised them back on China at 100% because they refused to sell us rare earths, which we need for every tank, every missile, every guided navigation system for every military piece of equipment that we have. We then invested in US rare earth companies that actually are not producing at any level of scale and companies that were backed by Trump's own family. And now we have tripled our drone budget, you know, more than triple. There's a 300 million budget. It was increased to 25 billion, now it's 75 billion. And Trump's two sons have backed two Florida-based drone companies, right? And we have insider trading, you know, five to 600 million of oil trades and SPY trades every time there's a big announcement. I mean, if you would ask me 10 years ago that this would be the state of our capital markets, that this would be the state of the world where everybody in the world is suffering because we decided to start a war, which is a war that's not approved by Congress, to start a war without a plan, then I would have said that you were absolutely crazy, right? i have two more questions and we'll wrap up so earlier you said we're expecting in your words the biggest money printing in human existence would that equate to also the biggest market rally in human existence if we do print okay and we increase m2 okay i do think that equity valuations will be supported i think that gold and silver will rally i think real assets like real estate valuations, they will be very supportive, they will extend. And I'm talking about five, 10 year outlook. And I also think, right, that cryptocurrencies, you know, Bitcoin, Ethereum, especially if the Clarity Act passes, just because of scarcity, tokenization, lower costs, will also do incredibly well during, you know, in the medium term. Because like I said, despite what war says we simply have to increase the size of of the fed of the fed's balance sheet okay and finally what happened to defense stocks you would think let's take a look at this chart for example this is lucky martin it actually went down 25 24 since the beginning of march i mean you think that this this would go the other way boeing same story didn't go down 23 percent but it's down why why are defense stocks down palantir as well by the way well we had a very big rally into the so we've done several military exercises right we started with venezuela okay and then we tried to take over greenland right and we were anticipating to take over cuba uh shortly after a victory with iran and the strait of vermouths right unfortunately the middle east uh war has not been won and so cuba has been delayed and we've actually allowed russia and china to send fuel and grain uh to cuba and we've been distracted by this so we effectively had four military excursions that were planned by this administration and so you saw from the second half of last year okay that the military industrial complex was already seeing a bid. And you were seeing valuations extend across General Dynamics, across Lockheed Martin, across every large defense company and all the drone players, all the new defense companies. So I think what we saw, just like we saw sell the news in oil, I think what we've seen is sell the news in defense. And it's very funny because Hegsef was actually looking to buy the defense ETF prior to the war. And I don't, you know, I'm not sure if he did. If he didn't, he actually missed a big decline in those things. So, you know, one of the things that I think people have to understand about defense companies is their multiples were very, you know, were very high going into this conflict. And, you know, from what I understand, the current administration is also putting pressure on some of these companies to one, increase production, hire people faster, which is bad for margins. And two, it is trying to, which I think is actually good for the US economy, it is trying to divert more capital into lower cost drones, okay, that are more efficient and require, you know, fewer soldiers and less capital investment, right? So we are effectively trying to copy the Ukrainians and the Iranians who are able to build a drone for $20,000, right? Where we are paying several hundred thousand dollars for a more advanced drone, but a drone that doesn't necessarily need to be that advanced. So long story short, I think that the defense names were a victim of just a salvan use. And I think that capital allocation within these companies is unclear and there may be pressure on margins, right? Because in return for more revenue, for bigger contracts, the administration might say, hey, you have to be more efficient, right? You can't charge $85,000 for an F-35 screw, right? That was a famous speech in Congress, right? you know um you know it could be made up tanium but there's no way that that that that screw should cost 85 000 so um i do think that um i do think that long-term defense companies are probably buys but there is so much to do in the market right now when it comes to special situations when it comes to event-driven opportunities that i am not um i'm not that excited about loading up on defense at the moment. I do have allocations in the best defense aims, but I'm not looking to load the boat right now. Okay, last question. This is social media, the most highly anticipated tech IPOs in 2026. SpaceX, OpenAI, ByDance, Anthropic. Andro is not on this list, but it should be. Which of these excite you, if any? So, like I said, I'm actually invested in SpaceX through SATS, EchoStar. I've been involved since EchoStar was in the 70s. In return for Spectrum, Elon Musk actually gave them a very generous amount of equity. And, you know, it was at a valuation at the time that was a fourth of where the indication of 1.75 trillion is for SpaceX today. And I'm also along SKM, which is an indirect way to go along Anthropic. As SKM at one point owned about 5% of Anthropic. They're very, very early stage a couple years ago. And there are other ways to play Anthropic as well. You know, Zoom has a stake, obviously Amazon has a stake, but I think that SKM has been the most correlated with Anthropic. So those are two names where I am hoping we have IPOs. I frankly think at the pace of free cash flow growth at Anthropic because of Claude, I frankly think that they could raise above $400 million because they're going to be more profitable than OpenAI. done. And as long as the capital markets remain robust and the growth trajectory remains as it is, and they continue to grow into vertical. So I'm very excited about the IPO backlog. But I also am honest with myself and realize that if the market does sell off, that the IPO market may not be as robust and some of these deals might get delayed, which is and i think everyone realizes that which is why even musk is uh is pushing for spacex ipo sooner before you know the economy turns um and the names that i've shared with you i think um sats is actually quite interesting because you know it has two share classes so you have to be very careful when you're doing your diluted um your math on what the spacex stake is worth but i think that when you include the value of their legacy business and you use a reasonable multiple and you know you include you know 35 billion plus for what spacex could be worth to them i think that you know sats could be worth over 170 dollars a share and it's trading at 120 so there's obviously some timing discount right there's obviously going to be a six-month ipo unlock issue um but i frankly think that if spacex did ipo there'd be so much demand that it frankly could trade well above that 1.75 trillion for a short period of time. And you would be able to exit out of SATS. And frankly, there are other ways to monetize, like selling covered calls, right? To create synthetic dividends. So I do think that those names are interesting. And I know we're probably running late on time. And it's actually my fault for being long-winded. but um you know there are other special situations that i'd love to uh yeah talk about as well well where can we follow where can we follow uh your work and follow your special situations for now before before we have you back on again yeah absolutely so you can follow at specialstatesresearch.com. We have over 3,000 members in our educational discord, everyone from former hedge fund managers with 200 million net worth to your everyday traders, right? College grads that are in our educational discord where we share content freely across 20 sector verticals, and four asset classes, income, merger arbitrage, common stocks, and other event-driven situations, which include spinoffs, split-offs, accelerated buybacks, insider purchases, et cetera, and activism. So we cover... Right now, we're involved in over 30 names that we share our allocation in the discord. We do weekly calls every Sunday around 7pm Eastern two hour calls where we go over geopolitical strategy, our asset allocation and our sector and idiosyncratic special situation picks. And we also have a database of 700 income names, and the $1 trillion baby bond and hybrid preferred market, where you can actually buy, you know, re bonds. Even AT&T has a PREF where you can actually buy PREFs and baby bonds as a retail investor, senior in the capital structure. Many of them are even secured where you can earn anywhere from 7% to 15% yields because they're not institutional bonds. They're retail-oriented bonds. So we have our educational discord. We have our weekly call. We have our weekly email. And then we have intra-day and intra-week emails for some of the higher tier subscribers, especially when market activity is heightened, where we send out alerts about names that we like, names that we dislike. And on the short side, we actually caught the good side of shorting Avis, which was down over 30% yesterday and 50% today. we've been adding shorts in names like Hertz we've been adding shorts in names like Arvano which had their securitization downgraded and will likely because it relies so much on the capital markets will likely suffer as consumer credit scores fade into the back half of the year as now student loan payments have started that's an entire other conversation um we've also added some shorts in the consumer cyclicals uh we've had a negative bent on airlines and cruises uh which we discussed in our call last week along with chemicals and plastics which both have uh oil as a feedstock so you know we've done our best to smooth out volatility in our portfolio as well. So, you know, with our shorts. So overall, I think we've done quite well navigating this year. We haven't been too big in energy, you know, with all the volatility. We haven't been too short. We've added most of our shorts at the end of this bear market rally. uh we covered a lot of our shorts at the end of march and then we've added them again um at the end of last week um everything from index shorts like iwm a rkk uh the q's and then these special these individual names so you know in today's drawdown you know for example our um model portfolio barely moved on the downside at one point the market was down over a percent um and our folio is roughly flat. So you can find us at specialsitsresearch.com Special Sits News. And again, I'm grateful David that you had the time. I apologize for the background noise as I've been traveling to a conference. But hopefully we can dig deeper into some individual names on another call as we spend a lot of time on it. Yeah, let's connect another time. We'll put the links down below. So make sure to follow Jay and Special Situations Research there. Take care for now, Jay. I appreciate your time. Thank you for coming back. Take care. Have a great day. Thanks for watching. Don't forget to like, subscribe, and follow Jay. Links down below.
