Jay Hatfield, InfraCap: Preferreds, MLPs & Small-Cap Setup H2 2026

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Transcript

Cold Open And Bold Claims

SPEAKER_00 0:07

You don't cut much zone.

SPEAKER_01 0:08

Nobody's lining up to give you like kudos, so you might as well be like Trump. You just like claim you get you should get the Nobel Peace Prize.

Going Live From Maine

SPEAKER_00 0:19

Hey folks, we're live. We just do some pantry real quick. Uh doing a new platform. Uh hopefully this goes off well. Looks like pretty solid from what I can see on X here. Uh so this will be uh uh another Lee Lai Live episode. As you can tell, folks, this is not a virtual background for me. I am uh live in Maine in a cabin. I was on CBC World two days ago, and I joked that I'm here just in case the reverse carry trade takes place from Japan. I'm hiding out uh so I can be somewhat off the bridge, even though we're still streaming here. Uh if any of you are uh watching this on LinkedIn on X, I'm gonna look for your comments and posts. Um feel free to uh engage. Um I can bring up and ask questions while I uh we are doing a webinar, Jay and I, at 2 Eastern. Uh you'll see that through some pin posts and uh collateral I'm putting out to promote it. Talk about preferreds. Preferred, I think I'm actually in a kind of an interesting sweet spot here. Uh but that webcam is coming up at two. So whether you're an advisor or an individual, I think it's worth attending. Uh, check out that registration link. And uh this conversation is gonna be, as always, an edited podcast on only free platforms. Uh, thankfully, now I've got uh another AI agent that's gonna edit this almost instantaneously and put it out pretty quickly. Um, I I got literally four hours of sleep last night, Jay. I was up until 3 a.m. I got up at 7:15. Uh so I'm gonna do my best to be a solid host, but thankfully people aren't here for me ever. We're here for you. So, with that said, my name is Michael Guy. I'm the publisher of the Lee Lag Apport, founder of Lee Lag Media, and yes, apparently I'm gonna be cutting some wood uh here in Maine. Uh joining me is Mr. Jay Hatfield. So uh we were talking about what we should talk about to start with, and he said we should start with oil.

Oil Drops As Supply Returns

SPEAKER_00 1:52

Uh let's talk about oil. What's going on with oil?

SPEAKER_01 1:55

Well, we had the view since the war started, that after the war, and we had the view also that the string would reopen. We weren't certain how it would reopen by force, and apparently, uh, article in the Wall Street Journal confirmed that they did have a plan to open it by force, thwarted by the Saudis or by negotiation, which is how it ended up. So we were correct, it took longer than we had expected, but I don't think anybody could predict things like the Saudis banning you know our use of their of their facilities. So uh we it did reopen as we'd expected. That's why we stuck with our 8,000 target with the contingency to move to nine on the SP. But the the core of our view that oil would drop below 70 after the war reopened, or after the street reopened and the war ended, is that OPEC would go to maximum production. They normally hold back on production about 29 million barrels. They all need the money. Trump administration wants them to pump. The Iranians now can sell their oil freely, and that's what you're seeing unfold. We have a 60 target on oil. It's at 68 right now. I think the most commentators on television are, in our not humble opinion, horrible. And they were mostly, I think 80% at least, saying fire for longer. I'm not certain of this. I suspect that's because they were hoping that would happen, because it would be good politically for Democrats and bad for Trump, which is probably 80% of the of the country, at least the elites in the country, want that to happen. But I'm not certain. Maybe they're just super bad oil analysts. But um, you do see that a lot is just biased research. We are extreme moderates, so we don't do that. Um, but you're gonna see that oil, it's already flowing through straight. The Iranians are moving a ton of oil, still good flow through the southern part, which is controlled by the Americans. And so you're seeing this daily collapse in oil. Retail gasoline prices are lagging because the spreads are really high. So we're forecasting CPI is negative, slightly at negative 0.2 this month, but also negative the next month. We haven't quantified that because we don't know exactly what's gonna happen. You know, the month's not over, obviously. But all tailwinds from inflation, plus you're gonna get gradual roll down in shelter. Maybe Warsha's committee's task force will finally reform that horrible calculation. Um, Wars softened up the 2% target to kind of two and a half, two to two and a half. So we're actually think we're gonna have three rate cuts over the next year, not about one increase. It's come off from us ridiculous two increases, but one increase price in the market. And I would use my guide to or your guide to cuts the 10-year. So 10-year right now is around 440. We and I would subtract 100 base points off that. That's 340. And so that implies one cut because we're about 360 on the um on the Fed funds. So um look at the 10 year, it's more efficient market than Fed Fund futures. I have no idea who trades, we trade Fed Fund futures, but we're long them. So not a very good market for predicting what the Fed's gonna do. It's about as good as the dot lots. But the 10-year always trailed the increase in Fed funds and now still is. So 100 over Fed funds is where terminal Fed funds where the 10-year trades. So we think we'll get one rate cut at least, but more likely three over the next 12 months. And that's gonna support our 9,000 target because you need low rates to have a 23 multiple. And journalists who are not the very good forecasters, they're almost as bad as a lot of the people they interview. Have kind of made fun of my our 9,000 target. But I think what's really gonna happen is after we have the normal summer power rally, we'll be pretty close or exceed almost all of Wall Street's targets, which are bunched around here to 8,000. And I'd also last point I'd make is if you just take 23 times, 27 earnings, you you would have started out at 8,000, you would have gone to 9,000, like we have. But if you marked it to market, which

CPI Tailwinds And Rate Cuts

SPEAKER_01 7:10

we're not doing yet, you go to 9,200. So another way to say it is we're no our stretch multiple 23 is down to about 22 and a half, simply because 27 earnings are rising. So this is not a market you want to be out of. And it's really all kind of tracks back to the oil story and the opening of the street.

SPEAKER_00 7:34

Everyone's always uh focused on interest rate cuts or hikes. Um, but what about the balance sheet? It seems to me that Warsh, you know, if he's gonna do anything, probably would focus more on the QT side.

SPEAKER_01 7:47

That is the most misunderstood issue on the planet. I think there's maybe five people that understand it. So even Mirin doesn't seem to understand it. The balance sheet is not independent of Fed funds. For Fed funds to drop, the Fed has to increase the balance sheet. The reason the balance sheet is much higher than it was during the great financial crisis is that they now, the Fed now pays interest on reserves. So they used to be, and this is one of those statistics you have to really emphasize the number of zeros. In the banking system, there used to be eight billion dollars of reserves. This is pre-financial crisis, and so it was at the absolute minimum. That was the required reserves to have the balance sheets that banks did. And now we're at over three trillion. So I don't know exactly, I can't do that multiple in my head exactly what that is, but it sounds like a thousand times. Well, I guess six hundred times. But that's why the balance sheet's big. You know, this is valued to be a CPA, it's not complicated. Go look at the anybody who's thinks they're investors should go look at the Fed's balance sheet. H.4.1 Fed, you can get it on Bloomberg if you have Bloomberg. But assets have fecal liabilities. So if you have a huge amount of liabilities because all these banks are putting in reserves, then unless you're an idiot, you have assets, so you can earn on the difference between the two. So shrinking the balance sheet without eliminating or reducing interest on Fed funds, deposits at the Fed, in other words, is not going to happen. It's just not possible. Unless you want to raise rates a lot, which obviously Warsh does not want to do. And by the way, the data does not support that. Because the idiots who put out those dot plots, and they are maybe not idiots, they're incompetent, incompetent and use horrible, horrible forecasting models. Those that's not happening. That's ridiculous. It's not happening. We're not having any rate increases because oil's down. The only reason inflation was higher is oil's up. Two leading indicators of inflation are oil and the money supply. So the Fed is not tightening. Uh, there's no balance sheet impact. Simply, they're tight because Fed funds are too high by 75 base points to maybe 1%. And so ignore everything you hear, including from former Fed governors, definitely from Judy Shelton, who's like a gold bug nut. Most people have no idea what's going on. I've studied it for 47 years since I was an undergrad at UC Davis, um, studying under a monetary economist. So the only people probably understand it are the people who manage the repo at the New York Fed. That's a non-consensus call for

Why Fed Funds Follows Balance Sheet

SPEAKER_01 10:50

sure. In fact, no non-consensus, almost no one understands what I just said.

SPEAKER_00 10:55

Uh like I always say on X, if you understand this, that's always the pail line. Um, but but okay, so so I'm with you on that. And by the way, I will say that I think the the message of commodities would suggest that you're probably right about recuts. It's not just oil, like gold, silver, a lot of things that we're gonna do. Right.

SPEAKER_01 11:10

Yeah, that was that's to be, I was just texting the client, and we do love talking to our clients, that I was actually surprised that gold was lagging so much. I think it kind of got smashed in. That's a technical financial term, smashed in with all the other commodities like oil, but it should do well when the dollar is weak and rates are coming down, which are a little bit, should do well. It's doing well today, but it kind of had this hiccup. I think you know, lithium, a whole bunch of other commodities were doing badly. So um, but it should do better if if the dollar's weak. And if we have three rate cuts, the dollar should be weak. But anyway, a little bit of an anomalous post-war it should have done better than it did. Now it's doing okay today, at least.

SPEAKER_00 11:56

Yeah, I mean, look at fairness. I mean I I argued that coming coming off of the 2023 level, gold was almost a beneficiary of scared capital because treasuries were not the sponge like it used to be. And then at some point, gold became a momentum trade, not a not a fear trade. No doubt about that.

SPEAKER_01 12:10

It kind of became the near Bitcoin and got a little bit over ahead of itself. Yeah, good end of itself, and then the war occurred, and then the opposite of what was happening. So the dollar got strong, rates are rising, that's terrible for gold. So that all made sense. But then after the war ended, it kind of just hiccuped and sort of kept going down. Maybe because you look at it, most this is another reason why these people who are calling for higher oil for longer, like even if we didn't do any numbers, and we always rely on the numbers, but you know, we AMCA is our MLP fund, had that for 12 years. We do global supply and demand. I co-founded an energy company. If you ever trade oil, you know, like momentum is the biggest factor. And if you so if you think the straight reopens and oil goes higher or stays the same, that's ridiculous. Once the downward momentum starts, it's going lower. So all commodities trade with momentum. So unless you break the downward momentum, it's not gonna rally. So I think maybe that's what was going on with gold too. People just all the CTAs, all the you know, commodity futures trading were just like, oh, it's in a downtrend. Let's keep trading it in a downtrend until it you know materially pops. That might be the answer too. Very hard to determine. I get called by gold, you know, journalists who have to write about gold, and I'm always like, you know, God bless you, I don't know exactly why gold's done waste anything.

SPEAKER_00 14:14

So energy went from, you know, like first to worst, right? I think from a or almost worse on from a sector performance perspective perspective. Yeah. Uh assuming that oil keeps on doing what's doing. Um, I mean, does it stay that way? I mean, and and where are the opportunities on the energy stock side?

SPEAKER_01 14:29

You know, um, we were kind of pressured, I won't mention the network to give um energy picks.

Gold And Commodities Trade Momentum

SPEAKER_01 14:37

And I was kind of like, okay, I'll give you energy picks, but I wouldn't be in energy. Um, but if you're gonna do be in energy, like a lot of our clients, like AMCA has done spectacularly well this year. And I just said, well, those companies are cheap, they have great yields, and they've been hated for many years. So yeah, they'll come off a little when the war ends and energy declines, but they'll be pretty stable and they're they have low betas, so they're continuing to be kind of like fixed income. So I wouldn't do any energy unless you're getting um a big yield. You can do the majors and right-covered calls because it's not going to infinity. You know, refining, as I I think I briefly mentioned, is in this secular bull market because the a lot of capacity has been destroyed in Russia, some in the Middle East. So you could be in refiners, they have pretty good dividends. But I think there's better. Uh we recommended financials like three years, three weeks ago, not years, three weeks ago, and years, I guess we recommended Goldman Sachs three years ago. But those have been working. So I'd rather be in other sectors. But you know, for people who own either individual MLPs or like AMCA, hold it, but don't hold it because you were trying to beat the SP. Hold it because you're trying to beat bonds or your CDs or uh and you want to hedge, like because energy goes up when tech's down. Sometimes it does nothing when tech's up. So it's just a good 0.5 beta bond-like alternative.

SPEAKER_00 16:24

So um I was saying before we went live, congrats on the launch of QVolk, which is getting some really good traction and attention, your newest ETF. Uh, I feel like we should touch on that uh because it's definitely a unique spin on where a lot of people want uh exposure.

SPEAKER_01 16:40

Well, you know, it's always great to launch new ETFs because you learn remedial things that you should have known before. But it seems like so we coined this term dogs of the DAC. So dogs of the NASDAQ. Because I think almost no one, even though it's the easiest information in the world to determine, realizes there's like 30 to 40 companies in the Nasdaq 100 that are not that are either we way overvalued like Tesla or just stocks that you don't want in your NASDAQ fund. So we excluded Walmart.

Energy Stocks Yield Over Hype

SPEAKER_01 17:17

That stock's getting annihilated now, and we've said this publicly on a number of uh channels. Um, that like, why is Walmart traded 45 times earnings and grows at 10? And why does Amazon trade at 20 times earnings and grow at 20%? Well, the answer is because I was just completely stupid. And Walmart's off like 30 bucks from that, but it's in the NASDAQ 100. We don't own it, we don't own Costco, we don't own um you know Kraft Heinz and Mondeleys. You know, it's not that we would never own them, but we don't see they're overvalued and they're not growth stocks, so why do you have them? And that's allowed us to outperform the NASDAQ quite significantly by but do you do your own research about 2%? And I'm talking the Qs, not other call writing funds. And so pretty easy to add value by excluding overvalued companies using PE to growth ratios, so GARP type growth at a reasonable price type um um metrics, and just being in things out of things you don't want to be in. Like Warner Brothers Discovery is actually like a merger arb trade right now in the NASDAQ. Uh so um we added value that way, and then we write individual calls very short-term, which is a phenomenal business. What's horrible business, and even if you don't buy any of these um index funds like QYLD, horrible, horrible strategy. They write at the money index calls. So that's kind of like you know, betting against France to beat Sweden, and then adding that to your stock portfolio. Like the NASDAQ is gonna go higher. So you don't want to write index calls. So what we do is we curate it, we look at companies like we have a little bit of Apple, we're underrated, we bought more when it got collapsed when they raised prices. But we're happy to rate calls on that all day long out four or five weeks up above 300. And like we're happy to sell it at 300. We just bought some at 2270. So that's a great strategy because when it gets called away, you're like, oh good, I took profits, not, you know, I made this separate bet, you know, free and whatever, you know, parlay on the NFL uh game. Like you don't want two separate bets. You want to be able to deliver stock

QVol And Smarter Covered Calls

SPEAKER_01 19:52

into calls. So we I'm we're our objective is to beat the cues, not just beat these terrible index call writing funds, but to beat the cues on a total return basis after our dividends. So far, so good. We haven't been able to do that. But we stacked a deck in our favor, avoid the dogs of the deck, you know, have the right weightings. We were overweight Marbell, we took that off, but we were overweight Marbell for a while, and then write thoughtful calls at places where there's resistance from a technical perspective, where we have a gain, maybe a huge game, and um you know, address it on an ongoing basis so you have exposure to the market. You don't want to run less than market exposure, then as that because you're gonna underperform. So far, so good on CubeWall.

SPEAKER_00 20:42

I mentioned that we're doing a uh CE credit-approved webinar at 2 Eastern in about an hour and a half to talk about preferreds. Uh, maybe let's tease the uh the sexiness of preferreds, why people should actually tune into that webinar. Are preferred sexy? I don't know.

SPEAKER_01 20:56

Well, they're on a risk-adjusted basis. And so, you know, it's the PFFA is like 60% of my IRA, it keeps going down because when you have income and buy our other ETFs, it goes down. We never sell it, but so it has a 0.4 beta. I mentioned AMZA 0.5 cue ball, by the way. It's gonna have a beta well above the markets, like about 1.2, 1.3. Um, so if you care about risk-adjusted returns, so like maybe you're retired, you don't want to worry about, you know, is the market overvalued, is it a bubble? We don't think it is, but don't want to worry about that. One consistent income, then it's spectacular because PFFA is done 80% over eight years, beta is about 0.4, so that implies like a 20% total return. So it can't be spectacular. I'm taking dividends from PFFA and buying Q-Ball because last I checked, my IRA doesn't risk adjust my returns, it just gives it to me on an absolute basis, and I don't have to have the cash. Um, a lot of my the my friends who I help them manage their portfolios, they have enough cash to cover most of their expenses, but then they are in gross stocks and other things like Q-Balls. So you get some income, but you also get great total return. So for people who want stability, things like preferred BNDS is only 0.2 beta, um, great returns being indexed by about 3%, which is like ridiculously good. So a great alternative for more risk-averse investors, but want good long-term returns like eight over the last eight years, pretty spectacular, it's annualized, so it's like 72 or something like that.

Preferreds Pitch And Webinar Signoff

SPEAKER_01 22:47

Because it's been terrible for fixed income over the last eight years, and PFFA is the number one performing fixed income funds, so not just preferred, but high-yield bonds. So for more conservative investors, it's great. If you want to take more risk, key wall, it's great. That's I'm trying to put more risk in my IRA because I have enough income to cover most of my expenses.

SPEAKER_00 23:13

Never in my career have I ever said or equated uh risk adjusted returns to uh sexy. Uh so it's worked for me.

SPEAKER_01 23:21

It's an important distinction. Not everybody cares, and so you don't care by the involved, and if you do, um then PFFA on a risk-adjusted basis is pretty spectacular.

SPEAKER_00 23:35

Pretty pretty spectacular and sexy. So anyway, appreciate everybody that watches this live. Uh again, you'll uh if anyone wants to attend the uh CE Credit approved webinar coming up at 2 Eastern, uh, you'll see that link on my pinned X post shortly. Uh special thanks to Jay Boys, I know he's busy, and we got another uh peer coming up soon. So thank you very much for watching, and we'll see you hopefully on the webinar. Yeah, thank you, Jay. Appreciate it. Thanks, Marco. Cheers, everybody.