PodcastDavid Lin ReportMike McGlone

‘Very Similar To 1987': Here's What Bonds Break Next | Mike McGlone

McGlone sees rising oil supply and elevated energy prices as setting up downside risks for crude, while arguing that a post-inflation deflation trade could follow. He compares the bond-market selloff with 1987 and says yields around 5% could fall sharply if stocks break. He also sees Bitcoin and metals as vulnerable to a stock-market decline, citing their market sensitivity and recent performance.

OilFixed IncomeInterest RatesBitcoinPrecious MetalsMarket Volatility

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Key Takeaways

McGlone points to surging North American oil and liquid-fuel supply—including an approaching 9 million-barrel-per-day surplus—and U.S. production costs around $55 per barrel versus WTI at $93 as reasons crude could face downside; he says a short-term spike remains possible. He also expects diesel to be lower a year after its heating-oil index reached a record 170% 12-month return, and recalls calling for crude to fall from near $120 toward $40.

McGlone argues that a stock-market decline could make a recession almost guaranteed and sees a 10% decline followed by a flat year-end as a possible post-inflation deflation scenario. He also says a 10% S&P 500 drop would almost certainly coincide with a 20% copper decline, while Treasury yields around 5% could fall sharply if stocks start breaking this quarter.

McGlone says the five-year Treasury yield is above 5%, partly because of crude oil, and describes the bond selloff as a leveraged-investor liquidation that is creating an opportunity. He adds that a shift in the party in power would probably benefit bonds if it curbed administration spending, while cautioning that stocks are unusually expensive.

GEO-POLITICS

Hormuz Reports — McGlone says he has seen claims that the U.S. has won the war, alongside reports from some data sources that Strait of Hormuz traffic had returned to pre-war levels. He presents these as circulating claims, not independently confirmed facts.

“I've been seeing all over Twitter that the US has won this war accompanied by an image accompanied by an image that traffic through the street of Hormuz according to…”—

ECONOMY

Stocks And Recession — McGlone argues that a stock-market decline would make a recession almost guaranteed. He says he does not know what would trigger the decline but suggests the midterms could contribute.

“but one key fact makes that happen and that's the stock market going down which means almost guaranteed recession. What's going to make that happen?…”—

MARKETS

Oil And Yields — McGlone says the U.S. five-year Treasury note yield is above 5% and attributes part of that level to crude oil.

“That 5year note yield now in the US is now above 5%…”—

Oil Supply Costs — McGlone puts average U.S. production costs for crude oil and liquid fuels at around $55 a barrel, versus WTI at $93 on the recording date, and says supply is surging. He also argues that fossil-fuel substitution, particularly in China, is accelerating.

“The average cost of production for crude oil, liquid fuels, crude oil in this country is around $55 a barrel. Right now on the screen, WTI is $93…”—

Oil Price Call — McGlone says he called in February for crude oil to fall toward $40 after peaking near $120. He describes that pattern as consistent with crude oil being its own worst enemy.

“So I did make the call back in February that the peak at 120 was the peak potentially and it's going to scale back down to 40…”—

FORECASTS

Fuel Price Outlook — McGlone says U.S. natural gas is still collapsing and diesel has probably peaked, citing forward curves. He notes that the Bloomberg heating-oil total-return index, which he equates with diesel, reached 170% on a 12-month basis at the end of September—the highest in its history since 1987—and expects it to be lower a year later.

“And you're seeing that things like f first, US natural gas is still collapsing. It's a number one measure of heat, electricity, and fertilizer…”—

Crude Downside — McGlone points to an approaching surplus of 9 million barrels per day of crude oil and liquid fuels from the U.S. and Canada, compared with 3 to 4 million barrels per day when crude peaked around $130 in 2022. He says crude would need a worsening war, curtailed demand destruction, and a rising stock market to stay higher a year from now—conditions he considers very unlikely. He argues a 10% stock-market decline would make crude rising virtually impossible, though a short-term spike could still occur.

“So the US harbor futures price the front contract which got to around 526 which is near the peak in 2022 now that's the wholesale price retails are still high…”—

Yields And Stocks — McGlone says Treasury yields around 5% are a key level and could keep rising until stocks break. If the stock market starts breaking this quarter, he predicts yields could fall much faster than they rose and stay down for a long time.

“The all thing that only thing that matters in this 1 to 10 scale the 10 on 1 to 10 scale for the bond market now and even for most…”—

Intro.

McGlone says crude oil’s sharp swings reflect the Iran conflict and election pressure, but sees the episode as a temporary energy shock that could ultimately accelerate demand destruction and substitution.

Oil Prices Surge Again

He argues oil may struggle to remain expensive because high prices encourage conservation and alternatives, while futures curves and North American production point toward lower prices over time.

Can Oil Prices Stay High?

McGlone disputes readings of low inventories as proof of an oil shortage, saying opaque Chinese stockpiles and rising North American supply make the inventory picture bearish for crude.

Oil Inventories and Supply Glut

Comparing the bond selloff with 1987, McGlone says yields above 5% could reverse sharply if equities break, and that stock-market weakness is the key catalyst for bonds.

Bond Market Breaking Point

He expects Bitcoin to fall more sharply than stocks in a downturn, citing its high volatility, weak relative performance, and dependence on rising equity markets.

Bitcoin's Downside Risk

McGlone sees weak market breadth and unusually high cross-asset correlations as warnings that an equity decline could pull down commodities, metals, and Bitcoin while supporting Treasuries.

Stock Market Warning Signs

He says Bitcoin is unlikely to outperform gold because it is more volatile and stock-sensitive, while both assets remain exposed to an equity-market reversal.

Bitcoin vs. Gold

McGlone expects a post-inflation deflation trade if stocks weaken, arguing that elevated energy-driven inflation could fade and expose broader economic and debt vulnerabilities.

Inflation and Recession Risks

He criticizes claims that core inflation remains benign, saying persistently high energy and living costs are hurting consumers and could influence midterm election outcomes.

Energy Prices and Midterm Elections

McGlone links energy prices, voter discontent, and election risk, forecasting that crude could eventually fall toward production costs if a stock decline triggers recession.

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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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