PodcastDavid Lin ReportAdrian Day

1987 Black Monday Repeat: How Close Are We? | Adrian Day

Adrian Day sees further Fed tightening as the most likely outcome this year, while warning that rate increases could strain households and raise government refinancing costs. The discussion weighs present-day risks against the 1987 crash, including Treasury yields, AI-related borrowing, oil supply concerns, and stress in credit-sensitive sectors. Day views gold’s recent resilience alongside the effects of real rates, geopolitical shocks, and potential shifts in Treasury issuance.

Interest RatesGoldMarket VolatilityGovernment DebtEnergy MarketsGeopolitical Risk

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Key Takeaways

Adrian Day says higher short-term rates first hit households through credit-card debt, already in the 20s, and can strain paycheck-to-paycheck borrowers; he also identifies variable-rate private credit and commercial real estate as credit-sensitive areas already under stress. He does not expect one quarter-point hike alone to break the stock market or commercial real estate, but says successive increases could push more people into financial trouble and limit the Fed’s room to tighten.

Adrian Day says the federal government issues almost $4 trillion a year and that refinancing 10-year bonds issued at below 2% a decade ago means paying roughly twice as much interest now, even without a larger deficit or further Fed action. He says long Treasury yields could face additional upward pressure if issuance rises while buyers decline, and argues rates are not yet high enough to draw a major shift from stocks into long-term bonds; he would want more than 5.5% for a 30-year loan to the U.S. government.

Adrian Day argues that a BLS methodology change lowered reported CPI compared with the former methodology, and that gold’s rate sensitivity depends on real rather than nominal rates alone. He says positive real rates hurt gold, so further yield increases without a meaningful rise in CPI could weigh on the metal, while acknowledging his view that CPI understates inflation.

ECONOMY

Fed Tightening — Adrian Day says another quarter-point Fed rate hike is the most likely outcome this year, but he does not expect one increase alone to break the stock market or commercial real estate. The prior quarter-point hike mainly raised credit-card rates, already in the 20s. Further increases could push more people into financial trouble and limit the Fed’s room to tighten.

“and I don't know if you want to get that in into that now…”—

Household Strain — Adrian Day says the lower 50% of the U.S. population has no positive net worth, and a majority of households could not access $1,000 for an emergency. Higher short-term rates first affect credit-card debt, already in the 20s, putting paycheck-to-paycheck households at greater risk of missing even minimum payments. Losing one earner’s job can also be devastating.

“And then the last group it affects negatively, of course, is let's just say the lower 50% of the US population by income and net worth…”—

Refinancing Costs — Adrian Day says the Fed directly affects the federal funds rate but does not dictate long-term rates. The federal government issues almost $4 trillion a year, and refinancing 10-year bonds issued a decade ago at rates below 2% means paying roughly twice as much interest now. He says financing costs will worsen meaningfully even without a larger deficit or further Fed action.

“But you know that has that affects three three groups negatively…”—

MARKETS

1987 Parallels — Adrian Day says the Dow fell 22% on Black Monday in 1987, before circuit breakers were in place. Current safeguards are in place, but he says some conditions resemble that period. The host identifies higher interest rates, dollar and deficit concerns, and an overvalued AI sector as present-day parallels, calling AI the biggest concentration risk.

“The Dow fell 22% on that day. Now, they didn't have circuit breakers at the time. Now, we do…”—

Credit Exposure — Adrian Day identifies commercial real estate and private credit as sectors that have already experienced stress. Much private credit is variable-rate and therefore affected immediately by rising rates; the degree of exposure depends on the fixed- versus variable-rate mix.

“The second group of course are commercial real estate, private credit, areas where there have already been stresses. We've seen stresses in the sector…”—

AI Borrowing — Adrian Day says private debt issuance for AI infrastructure has contributed to higher Treasury term premiums and yields, and much of the AI buildout debt is off balance sheet. He expects data-center borrowing to decline as skepticism and local opposition grow, which he thinks would reduce competition with Treasuries from AI bonds.

“Let's not forget an awful lot of the AI buildout debt is off balance sheet…”—

FORECASTS

Yield Pressure — Adrian Day says 10-year and longer Treasury yields could face upward pressure if issuance increases while the number of buyers falls. The risk is especially relevant for 20- and 30-year bonds if issuance returns to a more traditional balance, and depends on how much Treasury chooses to issue at the long end.

“I mean as I say the auction went well today but you know if they start increasing the issuance of 10 years remember again most issuance has been in shorter…”—

Rates And Inflation — Adrian Day says that if the Fed seeks to bring CPI down to 2%, raising interest rates is its most significant tool. He argues bond buyers may seek higher yields in anticipation of that tightening; this is his explanation of the outlook, not a certainty that rates will rise.

“Well, if a Fed is going to bring CPI down to 2%. There's very few very few ways they can do it…”—

– Intro.

David Lin and Adrian Day compare current market conditions with Black Monday, noting similarities in rates, deficits, and concentrated AI valuations, but Day says current yields are not yet compelling enough to drive a major shift from stocks into long-term Treasuries.

– Another 1987 Market Crash?

Day considers another quarter-point Fed hike likely and says its effects build incrementally. He cautions that the Fed has limited room to tighten because higher rates progressively stress borrowers and other parts of the economy.

– Fed Rate Hikes and Financial Stress

Day identifies the federal government, commercial real estate and private credit, and lower-income households as especially exposed to higher rates through refinancing costs, variable-rate borrowing, and expensive credit-card debt.

– Who Gets Hurt by Higher Rates?

Day says AI infrastructure borrowing has contributed to higher Treasury yields, but expects that source of competition for capital to ease as skepticism grows and the buildout’s financing needs become clearer.

– AI Debt and Rising Bond Yields

Day says 10-year yields could rise further if Treasury issuance shifts toward longer maturities while demand is insufficient; the outcome depends substantially on the Treasury’s decisions about the amount and duration of its borrowing.

– Could Treasury Yields Hit 6%?

Day argues that inflation remains stubborn and that changes to CPI methodology have lowered reported readings relative to the former approach. He expects bond buyers to anticipate further Fed tightening if inflation stays above the Fed’s target.

– Inflation and Fed Policy

Day says higher real yields make him more cautious about buying gold, though he continues to invest and sees gold’s resilience, including ongoing Chinese purchases, as evidence of underlying demand.

– Why Gold Hasn't Collapsed

Day explains that anticipated conflicts can weigh on gold after an initial run-up as investors seek dollars and liquidity. He cites the Iran conflict, Russia’s invasion of Ukraine, and Turkey’s gold sales as examples.

– Why War Doesn't Help Gold

Day expects gold’s next advance could be supported by an end to the war, lower oil prices, a weaker dollar, and reduced inflation pressure that gives the Fed room to ease; he describes the recent pullback as a mid-cycle correction.

– What Triggers Gold's Next Bull Run?

Day says real rather than nominal rates are key for gold: rates that lag inflation can support it, while positive real yields can weigh on it. He sees current yields above reported CPI as a headwind.

– Gold Mining Stocks and Opportunities

Day selects gold stocks company by company, seeking shares that have fallen more than fundamentals justify, while favoring larger, more conservative miners over small explorers when risk appetite is weaker. He also flags potential year-end tax-loss selling.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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