Biggest. Bubble. In. Capital. Market. History | Mike Taylor 1-on-1 With Keith McCullough
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Outspoken hedge fund manager Mike Taylor joined forces with Hedgeye CEO Keith McCullough for a new Real Conversation this week. No punches were pulled between these two market veterans during their deep-dive discussion filled with actionable investing ideas and insight.
Buckle up.
"We are crapping all over the market for a very good reason. This is the worst set-up I’ve ever seen coming into stocks. I said it in November coming into 2022 and I’ve said it all year... There's so much money to be made." -Mike Taylor
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McCulla and Taylor argue that a synchronized global 'quad four' recession driven by overextended credit, energy constraints, demographic collapse (especially China), and unsustainable government spending creates the worst market setup in history, requiring tactical short positions offset by selective long hedges in treasuries and healthcare assets.
- Global synchronized quad four conditions (growth, inflation, profits all declining) mirror 1999-2000 but with broader credit and demographic deterioration
- Five-year CDS spreads (especially Italian) are the lead indicator of daily market moves and signal credit system fragmentation across asset classes
- Quantitative tightening at $90B/month combined with jobless claims still declining creates a lag phase where the Fed cannot pivot without collapsing tax receipts and forcing higher Treasury yields
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Vast majority of home loans in the UK are 3-to-5 year balloon/ARM loans requiring refinancing of approximately 18% of the floating-rate housing market annually for the next three years, with refi rates now two to three times higher than rates from 2017, creating an acute refinancing crisis.
“the vast majority of home loans in the UK are uh 3 to 5year bubble loans or balloon loans, if you will. And so they have to refy their housing market at about 18% every year. Meaning they have to refy 18% of the float every year for the next three years. And just my back of the envelope calculation is that the refi rates in uh the UK are two to three times the previous rates uh for most of these people that financed in 17.”
China has engaged in decade-long malinvestment in industry and housing, with housing serving as the primary capex vehicle for long-duration builds, and is now experiencing a housing market unwind where developers have depleted working capital, cannot fund properties already pre-sold by consumers, and consumers no longer want delivery—mirroring the 2007-2009 US mortgage crisis but in reverse (buyers prepay for unbuilt assets).
“you have had a massive multi-deade long malinvestment in order to keep their wheels moving along the line of uh not only industry but housing and predominantly housing has been the vehicle capex long duration builds [clears throat] and it is in the process right now it is blowing up blowing up to the degree where this is exactly what happened in the US in 070809 is where they stop paying their mortgages and said fine take the property or in the case of China they're paying mortgages for properties that they may or may not ever receive in in China they buy all these properties upfront before they're even built and so you get the financing you're paying the mortgage and uh essentially every single builder in China has worked away or stolen all of their working capital so that they don't have the funding to build a property that people already bought”
Markets operate differently now (in 2022) than they did historically; this requires traders to constantly update their mental models and stay uncomfortable with change—markets move faster than nature and the macro environment shifts rapidly.
“everything you think and believe will change in time and it'll change again and again and it's a moving target. It's never the same. And that's part of what I love about it is that it always surprises me and humbles me and it forces me to have an open mind all the time.”
Extreme low rates and quantitative easing for over a decade have resulted in cumulative credit buildup everywhere that is now in the process of blowing up, with margins compressing because green movement underinvestment in materials and energy has left demand inelastic while supply remains constrained, making a collapse in energy or energy demand highly unlikely and making cost increases extremely probable.
“we've had extreme low rates with the help of quantitative easing uh for a decade, more than a decade, and we've had a cumulative build of uh credit everywhere. And a lot of it is in the process of blowing up. And it it's blowing up in the regard a classic regard margins. uh because of the green movement, we've had a very long over decade long underinvestment in materials and energy, but the demand has remained uh inelastic. And so it's it gets pretty classical where you have supply not meeting demand.”
Americans have difficulty understanding command economies because all command economies were essentially fringe until China, and the US allowed China to build currency value by exporting labor to the US and Europe, creating a house of cards that is now failing.
“Americans have great difficulty in understanding a uh command economy because we just first of all all command economies were essentially fringe economies until China happened and we essentially allowed them to uh put wealth in their currency uh or value in their currency by having them export their labor uh largely to us and Europe and and so that they've had value built in their currency and with that they built a gigantic house of cards and that house of cards is now in the process of failing.”
The yield curve inversion level now matches the deepest inversion of the late 1990s/early 2000s period, which preceded one of the worst bear markets in modern history (dot-com crash).
“and it's also the last time the yield curve was this inverted.”
Governments will respond to input-cost inflation (energy, food, materials) by giving voters more money (stimulus), exacerbating the problem but providing temporary political cover—this is a recurring pattern in inflationary crises.
“one of the problems that I anticipate that's going to occur, uh, and it happens almost every time when you have real, um, input problems and inflationary problems is that the governments will make more money because that's what the voters want. If things cost too much, you simply give them more money, even though that exacerbates the problem.”
Italian five-year CDS spreads represent the epicenter of the European crisis and should be monitored on a live tick basis as the primary indicator of financial stress contagion risk; investors must view markets on a multifactor, multi-direction basis rather than a single-market lens.
“if you understand that the number one factor to watch on a live on a live tick is that fiveyear CDS and you think it's just USA, you're not looking at it the right way. You got to look at it cubed. You got to look at on [22:26] a multifactor, multi-direction basis.”
The Fed's actual goal with QT is not to correct excess credit but to engineer lower interest rates in a 'global fashion' so the Treasury can refinance at sustainable levels; the Fed is trying to maintain debt sustainability, not pursue conventional monetary policy goals.
“They're aware of [43:45] the excesses out there. Uh that's not what they're actually trading on to try to correct it. They're actually trying to get interest rates down in a global fashion so that they can float the Treasury. That's really the goal.”
Unlike Japan, the US cannot print unlimited money to finance its deficit because too much US debt is owned by foreign entities; if the US prints and allows inflation to run, international buyers will sell, forcing higher yields and a debt spiral.
“unlike Japan we can't turn on the printing press because too much of our debt is owned overseas. Mhm. Everyone will sell it if we if we turned around and did that and let inflation go willy-nilly like Japan just has.”
All four quarters of 2022 have been quad four (growth, inflation, profits all declining simultaneously) for the USA, the first time since 1999-2000 (the growth bubble), which required a multi-year period of slow growth to reset comps, signaling prolonged downturn ahead.
“that's the first time that the USA has had four straight quad fours, Mike, since the coming out of the 1999 2000 bubble, growth bubble, because you need a big bubble of comps to to stay slow for longer.”
Quantitative tightening is a 'gigantic sucking sound'—a relentless seller that removes 90 billion dollars of assets from the Fed's balance sheet monthly regardless of market price; the Fed plans to do this for 3 years, though it likely cannot sustain that duration, requiring rates to decline through economic destruction.
“So QT as I like to say is the gigantic sucking sound and it is a seller that walks into the market who is relentless and doesn't care what the price is. And [43:13] that's exactly what quantitative tightening is. As 90 billion dollars of items mature or don't mature on their balance sheet, they are going to be exiting $90 billion of stuff off of their balance sheet every month. And the white paper that's out there says they plan on doing it for 3 years. Now, I don't think they're going to do it for three years, but up until, I don't know, the middle of this summer, the public thought that pretty much it wasn't going to happen at all.”
Retail investors who traded meme stocks and crypto are now at zero, and many hedge funds are massively underwater; there are few experienced traders who know how to trade bear market bounces, and most hedge fund managers only know how to make money on the long side.
“An ungodly amount of weak hands at the hedge funds and retail. It's both. They're actually look this like the same thing by the way right now. No offense. It is. It is. There's and and I've had to modify the way that I trade uh and be a little bit more nimble about it because I've been the mindset for this year is I don't care what they do. Everything's going lower, a lot lower.”
China's ongoing city shutdowns are not primarily about COVID control (China has had a massive COVID problem from the start and it is inconceivable they are still shutting down), but rather are an attempt to curb inflation by restricting economic activity, allowing the Communist Party to blame Americans for supply issues while concealing domestic inflation failures.
“China's had a massive COVID problem right from the start. Yeah. And it is inconceivable that it is now that they're shutting down cities and so forth in order to curb the spread of CO. That is very unlikely what they're actually doing. What they're actually doing is trying to curb inflation because they can blame CO on the Americans. They can't blame inflation on anyone but themselves.”
Five-year Treasury yields and 10-year Treasury yields are now at the best buying levels in years because they represent the only remaining safe asset class given that stocks are overvalued, bonds are crashing globally, leverage loans are deteriorating, and junk credit is broken.
“My entire view on treasuries and and I'm bullish on the 10-year understanding that the chart sucks and on and on and on and on and on. Uh but when you [56:16] were given the menu of what you can buy or must buy, you can't own Japan. You won't own Europe. You can't own Japan or uh China rather. Uh you can't own the short end. You can't own leverage loans. You can't own junk. So what's left? The 10-year. That's it. the long end of the US Treasury curve. That's the only thing that's viable.”
The Fed did not create the crypto bubble directly through policy but through enabling the credit expansion and leverage that funded it; QE created the conditions and QT will reverse them.
“the Fed doesn't take will not take any responsibility in [38:32] create in creating any of the credit bubbles, equity market bubbles, uh meme stock bubbles, spa bubbles, you know, but but didn't QE have something to do with that and and QT is the opposite.”
The Federal Reserve's one real job is to finance the Treasury and ensure the government can borrow at an appropriate rate (around 2%); therefore, the Fed has very little choice but to crash the economy until yields drop to a level where the government can fund itself sustainably.
“the central bank has very little choice but to tank the economy until there is a spot on the yield curve where the government can fund itself. Yep. You've said this point. If if you take a step back and you look at the components of GDP, well, we're growing. Well, what does growth mean? Well, I'll tell your viewers what growth means. what it really means when you peel away the onion and you say what are the components of growth for the past decade our government has been wildly overspending and creating all of the growth in our GDP so if we have 3% growth in GDP 5% of it is the government overspending by 5% uh it's actually a lot more than that but let's just say by 5% and if they walked in and had a balanced budget at any one day we would be in a minimum negative -2% year-on on year.”
The cascading problem the Fed fears but doesn't discuss publicly is that if tax receipts drop (from recession) while spending remains high, the government must borrow more money; higher borrowing requires higher Treasury yields to attract international buyers, creating a 'doom loop' of escalating borrowing costs.
“the cascading problem is that the Fed is very worried about and while they're trying to walk this fine line and not tanking the economy too bad is the tax receipts. If they come into a situation where tax receipts are down, uh, too bad, uh, they are going to have they're going to have to borrow more money to keep the spending large ass afloat. And borrowing more money for the US means we have to find international buyers who want to buy more and more and more. They're going to demand a higher price. And that's sort of the doom loop that they are very, very worried about. These are the things that they actually worry about that they do not talk about on television.”
Japan's central bank doesn't care that 50% of Japanese citizens are on fixed income and are being crushed by currency debasement (yen-adjusted import prices up 30%); the only objective is keeping the bubble alive, and the Fed operates under the same philosophy despite publicly claiming to care.
“I mean, this is incredible what the Japanese what they are doing to their public. I mean, every sing just yen adjusted import prices for everything just on the currency alone are up 30%. I mean, this is incredible for an for a entire society where half of them are on a fixed income. I mean, this is truly torture for these people. And what is the central bank? They don't care. They don't They do not care. It doesn't matter. The only thing that matters is to keep the bubble alive. That's it. And they don't care if the the senior citizens are eating dog food don't care.”
Macro tourists and meme-stock commentators create a 'bubble in noise' that has grown massively; while McCulla doesn't dismiss it, he notes that many macro commentators have never run money and lack practical trading experience.
“There's a bubble in noise, right? There's a bubble. I talked about it this morning on the macro show. A guy won a Nobel Prize for it. It's obviously all out there, but I don't think he could have imagined the the noise and meme stocks and macro views, macro tourism, I call it.”
China's zero-import-growth figure for August (0% monthly import growth) is an alarmingly negative signal for global quad four setup because it indicates synchronized global demand collapse, not just US or local European weakness.
“one of the worst numbers we've seen, and we're going to see a lot of zeros in global macro data, like 0% growth or negative growth. Uh, 0% import growth for the month of August out of China. That that was okay. I mean, that's that's um a somewhat true number relative to the other numbers they make up, but that is such an alarmingly negative number when you think about like a global quad four setup”
The current bubble is the biggest bubble in capital market history, not just in stocks but across all capital markets including crypto, which has reached over three trillion in market cap with no commissions required to trade, eclipsing the dot-com bubble.
“I've called the biggest bubble in capital market history. And again, it's not stocks, just stocks. You can't just talk about stocks. You got to talk about all of capital markets, which includes crypto.”
Fed pivots (rate cuts or easing) are not buy signals; in 2008, the Fed pivoted with 'bazooka' tools via Bernanke and Paulson, yet stocks still crashed; in 2001, Greenspan pivoted and stocks crashed; therefore, pivot ≠ recovery.
“when the Fed pivoted in at on this day you could pick this day in 2008 was that a buy signal no I mean the Fed had well well past pivoted and had been Like forget Poopy Poopy and the Pal Pants or the Crackman [45:49] that you just called him. Uh you had you had Bernani and Pollson with the bazooka and that still didn't work. Sucked in Buffett in October of08.”
Long-duration Treasury bonds are more likely to be entering a bull market bottom than the NASDAQ or crypto; there is minimal discussion in mainstream media about this despite it being a higher-probability outcome.
“it's much more likely that treasuries on the long end of the curve like treasury bonds are about to go into their bull market bottom and go to the b bull market than the NASDAQ or crypto I mean but there's not a lot of discussion about that”
Fed Chair Powell is a 'crack fixer' and 'diaper changer' trying to clean up the government's mess (overspending); politicians will continue abusing the situation until it breaks, at which point a new monetary regime will emerge (its form currently unknown).
“Think of it like this. Powell is the maintenance guy. Okay? He's the maintenance guy with the tool belt and he's working at Hoover Dam. And the government just keeps pouring more and more and more water into the reservoir and the dam's cracking. And they're like, 'Hey Pie, will you get down there and fix that crack?' And that's what he's doing. He's walking around. He's a crack fixer. That's what [laughter] he's doing.”
Meaningful off-menu events (crises) are expected to occur within the next 8 months to a year across multiple regions including Europe, China, and El Salvador, driven by cascading pressures from food, energy, materials costs and capital availability—a more severe and synchronized version of 2008, which was primarily a US problem.
“So there's usually when these things happen, things offmen events happen and that's kind of what I'm looking for in Europe and in China and many other places, El Salvador, so many countries. I expect meaningful off-men events to happen in the next eight months to a year and maybe sooner between food, energy, materials, uh the cost of capital. I mean, all of these things are happening all at the same time in a global fashion.”
Europe is engaged in a meaningful war with Russia; Putin's strategy is either exit in a coffin (Option A) or strangle Europe so it fractures (Option B), and he is gunning for Option B; there will be no peace deal and the probability of major escalation by winter is extremely high.
“Putin's Putin's game is uh A I exit in a pine box. B I strangle Europe so bad that it begins to fracture. And so he is gunning on B. There's no peace deal. There's none. It's not going to happen. And in the my view, the probability of at the end of winter or during the winter that we see a major escalation uh in defending Europe and so forth is extremely high.”
European leaders, aged 60-75, all remember Neville Chamberlain's failed appeasement of Hitler, making them unlikely to negotiate with Putin; conversely, escalation offers political cover for leaders facing an energy crisis and failing economy—a convenient rally-around-the-flag narrative.
“all of the leaders of Europe are between 60 and 75 years old. So they all remember Neville Chamberlain and the story of how World War II transpired. And so the probability of them wanting to negotiate with uh with Putin is unlikely. Uh number two, there's the war machine. and the war machine would love to get paid by an escalation. And then lastly is the voters. If the politicians are willing to cave and and basically give Putin what he wants, which might be a whole lot, um they're probably going to lose their seat in office. But if they escalate uh and create a big distra distraction because they're going to have a miserable economy, an energy crisis and I mean really miserable economy uh war and and an escalation is a really nice political out uh to rally around the leaders.”
The mainstream media narrative that the Ukraine war will end soon is false; credible military and geopolitical experts assess it will persist for years, and combined with Europe's energy crisis, the region faces an extended period of economic deterioration.
“if there's one thing that's wrong in terms of mainstream media and what they say, what is it about this war in Europe, he's like, oh, that it's going to end soon. You know, so you know, this is, you know, you can have a long-term tale on if you guys can show quad four globally on slide 20 like Europe, we have it currently, you know, four quad fours in a row”
Coinbase doesn't make money on its core business (it loses money), the SEC has determined that 80% of the coins it trades are unregistered securities and shouldn't be traded on the platform, Citadel is entering the crypto spot trading market to compress Coinbase's spreads (which have been Coinbase's main profit driver), and thus Coinbase faces a dual squeeze: declining coin base (fewer assets to trade) and collapsing margins.
“Coinbase doesn't make any money on they lose money on their core business. And the SEC has come out and said Coinbase shouldn't be trading 80% of the crap that they're trading because it's unregistered securities. Like, is that going to come down and actually have a role in this company? Absolutely. In addition, citadels coming into their trading market, which is going to destroy the spreads, and that's been what's kept them up to begin with. So, you have diminishing uh uh revenue line just based on the number of coins that they're going to be involved in, and then crashing margins for a company that doesn't make any money anyway, ever.”
If Putin dies, the successor is likely worse; former US Military War College dean Colonel McCoslin warned that Putin's death would escalate rather than resolve the conflict because his potential successors are more aggressive.
“Colonel McCoslin, who's one of the guys that we have in DC, who would know more about this than I, obviously the former dean of the um US Military War College, [28:40] he he said I said, 'Okay, look, what happens if Putin dies?' Because I was worried back then, uh Mike, about like getting squeezed because I'm like, 'Okay, I'm short all this stuff. It's April, May, June, whatever.' Uh that could that could really, you know, be a lot of pain for me. And uh he said, 'Oh, no, no, no. that would be worse. If if Putin dies, you know who his the other guys are? You know, they're worse.'”
US GDP 'growth' is entirely artifactual—government overspending creates all growth; remove the deficit spending and GDP would be negative 2% minimum year-on-year, meaning the US economy is in recession absent fiscal stimulus.
“for the past decade our government has been wildly overspending and creating all of the growth in our GDP so if we have 3% growth in GDP 5% of it is the government overspending by 5% uh it's actually a lot more than that but let's just say by 5% and if they walked in and had a balanced budget at any one day we would be in a minimum negative -2% year-on on year. Uh not even it would be worse than that, but let's say at least 2% negative GDP growth situation.”
Michael Saylor has stepped down as CEO of Microstrategy (MSTR) and Bitcoin will trade far below $10,000 when the current crisis concludes; Saylor's departure signals the end of his narrative about Bitcoin as treasury asset, and MSTR is essentially finished as an investment.
“I think Bitcoin is going to be way below $10,000 when this is all said and done. And and we're MSTR is finished. And all the all the makings of this are happening now. the CEO who is the voice of this has stepped down.”
Recent momentum in housing market flipping has reversed sharply; essentially all spec builders who flipped homes over the past year are underwater due to rising construction costs, property value decline, and financing costs of 20% annually on hard-money loans; forced sales will occur in spring 2024 as holding costs become unbearable.
“essentially every single builder who did flipping and speck homes uh over the past year is underwater badly on everything they did between the cogs that is in it, the property that was overvalued and all of it was because of modern monetary theory.”
Medtech has underperformed pharma by 40% in gross performance this year due to hospital staffing shortages post-COVID and rising input costs that medtech companies (which have fixed hospital contracts) could not pass through, but these comps are now behind us and medtech will significantly outperform pharma for the rest of the year into next year.
“medtech has underperformed pharma by about 40% spread this year. Meaning uh medtech has underperformed pharma by about 40% in in gross. And that is a number that is just absolutely astonishing and there's some reasons for it. Uh because of co uh the hospitals got gutted and the workers have left and just can't couldn't stand it anymore and so they had a staffing problem. At the same time, all the med tech companies had an increase in cost to all their hips and knees and things like that. And it was a cost that they couldn't pass on to the hospitals. All these prices are fixed. They don't have pricing power. But all of those comps now are behind us.”
Many people blew up in the SPAC bubble not because they were wrong fundamentally but because they don't know how to risk-manage money or hold positions through downturns; if they had stayed with their positions, PCT would have recovered to bullish trade and trend, proving that long-term investing and position conviction matter.
“people that blew up in the spa bubble, one, they don't know how to risk manage money. Two, all they look is for stock picks from Mly Tool or wherever. They just don't know what they're doing. But the stock went down with a bunch of spacts and now it's actually gone back to bullish trade and trend which I did not know because I haven't looked at it in a while um after all that happened. So now what I mean it's it just looks better and you stayed with it because you're an investor in the company. You're going to go see it again.”
Every single market crash is born out of current behavior new to that specific cycle; the 2008 crash had different causal factors than the coming crash, making historical analogy misleading if focused on surface similarities rather than underlying behavioral mechanisms.
“every single market crash is born out of the current behavior that is new to this cycle. You know, there's a rhythm and rhyme obviously to Quad 4. Growth and inflation and corporate profits slowing into a recession at the same time. That's what Quad 4 is. Um but there's absolutely no similarity between 2008 and the crash that Mike Taylor and I are talking about.”
Five-year investment-grade CDS is the lead indicator for day-to-day trading and market direction; when CDS spreads go down, equities go up, and when CDS spreads go up, equities go down—this has been the most reliable signal for almost the entire year.
“Just you know we got it out now. It is fiveyear investment grade CDS. Oo is the lead indicator for almost every single day of trading. If CDS go down, market will go up. CDS go up, market will go down. And that has what it's been playing that for almost the entire year. And that is lead indicator.”
Recent market rally showed dichotomous movements where high-yield and IG CDS sold off but leverage loans did not participate, indicating correlations that should be tight are breaking down—a warning sign of fragmentation in credit markets.
“you have these like incredible dichomous movements that should be correlated, but they're not, right? And in addition, I have been called Well, I've been called many things, but I've been called on the phone [laughter] a lot as of late in the past three weeks by the debt guys, and they're saying, 'What the hell is going on with stocks?' Globally, bonds are selling off, and stocks are not down remotely as much as they should be.”
Persistent retail dip buying is keeping equities elevated despite bonds selling off, but retail dip-buying power is weakening as their ammunition gets used up, and this ammunition will fully exhaust when jobless claims turn decisively upward.
“next next uh where they're complaining about the uh the movement here is um the new money that has come in from retail. And I think that's what they're underestimating is the persistent dip buying. Now observe this though. The dip buying is getting weaker and weaker and weaker as their ammo gets all used up. And I think that that is where the disconnect between bonds and stocks are. And it will run out. And where it really runs out is when the jobless claims start to go soft because we are going to have quantitative tightening ongoing at 90 billion a month.”
Medtech is trading at 2-3x earnings versus pharma, has easy comps (the worst comparisons are behind), and is positioned to beat expectations for an entire group over the next year—a rare setup that Taylor says he finds 5-7 times per decade.
“companies are literally trading at two and three times their earnings. Yeah. So uh they're generating going to generate a whole bunch of um of cash. Uh so how I'm set up uh I'm long uh medtec. I'm I'm long pink. Uh I'm size and um and I should be heck I run it [laughter] and well but you should also be uh slide um eight guys you should be healthcare is a quad four net long so it is a place where even if you didn't do healthcare it just turns out that he's one of the best at it uh that you would have healthcare on the board as a sector style utilities is our favorite but uh obviously there are plenty of healthcare stocks that are signaling bullish trade and trend despite the bare market well I'd draw your attention to probably the biggest spread that I've ever seen in my career in healthcare. In fact, it is the biggest spread I've ever seen in my career in such a macro sense.”
Apple sells products in Europe and is about to sell an $800 watch; entering a recession with Europeans facing energy crisis and reduced purchasing power makes Apple's European exposure a significant headwind to valuations.
“Remember Apple sells products in Europe. I just you should write that down. [laughter] Okay. Oh, great. They're going to sell they're going to sell Europeans in dollars an $800 watch now so they can go climb the Himalayas. It's really a good idea going into a recession.”
Credit Suisse's CDS has deteriorated relative to 2008 levels, indicating that Wall Street's leverage and vulnerability now exceed the pre-crisis baseline—a signal that systemic risk is embedded in the financial system itself.
“Look at look at Credit Swiss's CDS relative to 08. So, it's not like Wall Street doesn't have any uh doesn't have any issues this time. We just said that it's bigger than that.”
Pure Cycle Technologies (PCT) is Taylor's largest long position; the company is completing execution on its first plastics recycling plant in Georgia, closing $750M in project financing this week or next, and will produce recycled polypropylene with margins 3-4x higher than virgin plastic makers while serving food packaging and medical markets with inelastic demand and pricing power.
“Pure Cycle is absolutely killing it on execution. Uh they finishing up their first plant uh to recycle. Uh really don't think of this as a plastics recycling company that makes polyropylene. Think of it as a plastics manufacturing company, but it's a manufacturing company with inelastic demand, uh a monopoly and pricing power. And when they start producing uh this it'll be the end of this year, they're probably going to have margins that are minimum 3 to 4x the pla the other plastics makers that actually manufacture it from oil. So uh to this it should be this week or next week, but it's in days where they're going to finish their project financing for about $750 million.”
PCT is a market cap of $1.6B with potential to reach $40B+ based on comps trading at higher multiples once the first plant is operational, and marginal investor pool will consist of vanilla index investors who will have to buy when PCT enters Russell 2000 benchmark; float is thin (only 15 major shareholders), setting up for explosive move.
“And there is no float. I mean, I know personally probably 70% of the shareholders that are there because there's literally 15 people that own the stock in in its totality. So, it is very thin and it's just set up for a meaningful move. And my sort of like what's your price target, Mike Taylor? I think this is going to go from 1.6 billion market cap to 40 billion. And it might be more than that because Europe is just so profitable.”
The best way to approach a risky trade is to stress test it on paper, identifying all possible loss scenarios, and then only deploying capital if you can articulate no plausible path to total loss.
“And that's how this troglodite is always taught. Got my club in hand and I'm just saying how do I lose money? How do I lose [1:00:28] money? And that is what I'm always asking myself all the time because if I don't ask myself, I will lose money and and when I find these situations where I'm like, I'm not sure how I lose money, then I get really big.”
The primary risk to bearish positioning is not being fundamentally wrong on quad four, but rather being wrong on short-term flow issues and hedge fund dynamics—specifically, weak-handed hedge funds and retail investors covering shorts in panicked rallies driven by short-covering rather than fundamental recovery.
“I don't think that there's any fundamental debate about global quad four. I really don't, you know, when people say, 'Well, where you can be wrong.' I don't think I don't think that the risk is being wrong there. In fact, I always say that the risk of being wrong fundamentally is that we're not bearish enough. Um, where you can be wrong is, you know, in the short term is with these flow issues that are squarely in the hedge fund business.”
Jobless claims must rise significantly (50-75-100 basis points) before the Fed will consider pivoting; until then, the Fed will stay on course with quantitative tightening regardless of market pain.
“Anybody who starts with some valuation answer to that question, please go back to watching CNBC. I mean really I mean honestly you can do that when jobless claims uh basically start lifting by 50 75 100 pips at that point the Fed may feel a pivot they're going to pivot and uh taper down quantitative but regardless”
Yesterday's bounce (first rally in 7-8 days) was led by Goldman Sachs' most-shorted basket (worst 12-month losers), with Apple up ~10 basis points after unveiling product everyone already knows about, indicating low-quality rally driven by hedge fund short covering panic rather than fundamental recovery.
“yesterday's bounce, first day in seven or eight or whatever it was for the NASDAQ was very obviously led by Goldman's most short basket, the worst 12-month loser basket. You're a loser basket, whatever basket, you know, led the rally. Apple was up 10 basis points this morning after, you know, unveiling what everybody is already going to know.”
Jobless claims have not risen as expected and have recently turned over and started declining, likely because crypto traders (who lost money) are returning to work and taking second jobs, creating a temporary disconnect between equity weakness and labor market signals.
“what is different is that we don't have jobless claims up, okay, like we probably normally would at this point. In fact, jobless claims just turned over and started going down. And that's probably because of the crypto bros coming back to work. That's what I really think it is. All these guys have to get a second job because apparently trading as a second job isn't a good trade.”
If CPI comes in light next week, the 10-year Treasury will 'rip' because there is a 'bolus of money' waiting to buy Treasuries once confirmation of declining inflation is received; if CPI is hot, everything collapses and his short book becomes extremely profitable, making his Treasury hedge unnecessary.
“If CPI comes in uh light, right, uh the 10-year is going [57:21] to rip y in my view because now it's an all clear because I think that there is a bolus of money waiting out there to buy the 10-year.”
The most common question from viewers is 'What are the tickers for CDS?' which is emblematic of how many people are trading assets without understanding basic market structure—they don't know how to look up even the most basic indicators.
“this question like quite literally says and it's the upvoted number one voted question by a lot. What are the tickers for looking up CDS and it's like uh it's okay. It's it's okay. It's okay. It's you you got to start somewhere. It's 100% okay.”
VIX low-end range has moved from 22 to 24, and the bottom-end of the VIX range climbing is a bearish signal for short-biased traders because it means the high-end of the range will expand explosively once selling begins.
“You know where the you know where the low end of the range on the VIX just went?' He's like, 'Where 22 something?' I'm like, 'No, it's actually closer to 24.' Now, that 24 like if you know if you're short like Mike Taylor short equities, you want you want that VIX low end of the range to keep climbing because the top end of the range is going to go through the roof.”
Taylor has a large list of companies going to zero, including Fubo, Roku, Peloton, Bed Bath & Beyond, Beyond Meat, DNR (plastics recycling), Coinbase, and MSTR (Microstrategy), and these are not just personal opinions but reflect structural business failures in a high-rate, QT environment.
“I just shorted one. It's Fubo. Uh we think that's going to zero. Yeah, Fubo goes to zero. Roku maybe. I'm just thinking things in that in that realm. Uh Pelaton very likely goes to zero. Bed Bath and Beyond absolutely goes to zero. Beyond Meat goes to zero. Uh a little uh plastics recycling company called DNR uh ex very likely goes to zero. Uh oh, wait. I could just turn around. Look at my list here. [laughter] Date with Dr. Zero.”
Bed Bath & Beyond's blowup in early September 2022 sparked the sell-off in risk assets; Taylor predicted this on Twitter and was correct, demonstrating that meme stocks and retail panic can be used as leading indicators of broader market turns.
“there was a few weeks ago when the market just topped uh and uh I I tweeted and I said uh Bed Bath and Beyond uh blowing up uh which it did will be the spark that ignites this sell-off and and it did. Whether I'm right or not, that's what happened. And it uh it blew up and everything sold off.”
This is the worst market setup McCulla has ever seen coming into stocks, a position he announced in November 2021 and maintained throughout 2022, and he is currently up triple digits on the year primarily from short positions.
“this is the worst setup I have ever seen coming into stocks. And I said it in November coming into 2022 and I've said it all year. And let's just say that I'm up triple digits on the year. That'll work.”
Taylor is currently running 60% net short (meaning $100M long, $160M short) and expects to remain net short through the downturn, with his longs concentrated in energy (options) as a hedge against a China growth pivot, and in healthcare and medtech where he sees structural opportunities.
“I'm about I'm probably about 60% net right now. Short. And when you say net, can you can you explain to people like you're because you delta just you you use a lot of options, too. Can you explain that quickly? [snorts] Uh, yes. Um uh for instance uh 60% net short for me would be I have $100 million in longs on and $160 million in shorts. Good. And so I'd be about net $60 million short versus my equity position. Equity being the long portion of my book $100 million.”
Retail investors have incomplete knowledge of crypto trading (meme stocks, mania, tattoos on arms indicating bubble peaks) and repeatedly participate in bubbles with zero knowledge of fundamentals or valuation, creating predictable patterns.
“the fraud at Celsius, the fraud broadly in crypto, uh the tattoos on the arms, the zero at Luna, you know, this is what happens in bubbles.”
Taylor actively watches and trades meme stocks, frequently on the short side, because they are usually zeros and can be used to understand what the marginal buyer is thinking and where risk is migrating.
“I watch I actually watch the meme stocks a lot and I frequently am involved with them one way or another. Uh usually on the short side uh because they're usually zeros.”
UK energy price caps create an opportunity to operate Bitcoin mining farms in the UK since energy prices are capped and the excess can be profitably consumed, while ordinary citizens face 3x their previous energy bills despite the cap, illustrating government policy failure.
“And so I have a great business proposition for you, Keith. If they're going to cap the energy prices at 2500 pounds a year, can we just start open up Bitcoin farms in the UK because the energy prices are capped? You can burn all you want.”
Fed Chair Powell was wrong on inflation and will be wrong on recession risk; his repeated errors in analysis demonstrate incompetence; investors should not rely on unelected central planners' analysis for macro guidance.
“You know, pal, you got it so wrong on inflation and now you're going to get it so wrong on recession risk. You you it's just like a joke and that we're all clinging to what an unelected central planner has to say about all this when he has no competence, you know, anal analyzing his way out outside of the bathroom door.”
Starting with valuation answers to recession questions is misguided when fundamental deterioration is accelerating; focusing on valuation metrics during a Quad 4 correction is like rearranging deck chairs on the Titanic.
“Anybody who starts with some valuation answer to that question, please go back to watching CNBC.”
Lagging indicators (particularly CPI components) won't flip until October CPI reports released in November, so the signal today (rising yields) matters more than theoretical predictions; Taylor trades what he observes, not what he thinks.
“And I do think that like it's early days. I mean, you just I actually said that I think it'll be a little more hawkish because there are a bunch of lagging indicators that won't flip on CPI till the October reported November and numbers after that. But [58:54] that's just what I'm worried about. Plus, I'm looking at the signal today, which is what makes me move, not my thoughts.”
McCulla sold all his 10-year Treasury positions after a rally because they were trading at the low end of a range; while not a trend reversal, it was a tactical trade profit opportunity.
“here's a question away from that question that is a a specific question that I that I was going to ask you anyway because I actually just today I actually just sold all of my tenure. I [55:13] was long a bunch of 10-year bonds just trading it off the low end of the range like I would but it it's it was a trade. It's definitely not a trend.”
Hedgeye is described by McCulla as the best product available on Wall Street for learning how capital markets work, superior to all other educational resources, and he uses it daily despite not being a paid spokesperson (he pays $5K/year as a client).
“your product is probably the best and I don't I am not a paid representative. I am a paying client to I think I cut a check for you for like 5,000 bucks a year. Okay. Um, and uh, just so that I'm not a paid advertisement here for your product, but this is the best product by a country mile on Wall Street for anybody who wants to learn how the machine works. I think you're giving a first class education every single day.”
Taylor spends weekends racing with his son Max, who has achieved success in racing circuits; this personal engagement reflects his character and priorities beyond trading.
“In the meantime, I'll just be racing every weekend with my son and that's life. [laughter] So, I love that. And congrats soon. All right. Congrats to you and Max. You know, Max is his son, uh who has done a phenomenal job rising up in the ranks on the racing circuits.”
Taylor doesn't sell anything, has made enough money that he can trade whatever he wants for enjoyment, and spends time helping others preserve capital through Twitter Spaces and public commentary; this comes from a place of genuine care, not self-promotion.
“It's an honor to help everyone out. As you know, I don't I don't sell anything. Uh, and uh, I've made enough money where I can do kind of whatever the heck I want and just trade, which I love to do it. And so, I'm just doing what I love to do. I'm helping people through pink. I'm helping cancer through pink. And I'm helping everybody that I can out there because I really enjoy it. I enjoy the process. And, believe it or not, and I enjoy the people and the questions cuz they make me think about things I never thought about.”