Sell, hedge, rotate: Victor Dergunov's strategy for a market correction

0:09Welcome back to Investing Experts, the financial prophet himself, Victor Dergunov. Always a pleasure to talk to you. Thanks for joining us again. The pleasure is all mine. Thank you, Raina. I'm glad to be on your podcast and very much looking forward to our conversation as always. Likewise, as always. So let's start us off. It's the end of March, 2026. Another unprecedented, let's say for lack of a better term right now, year. A lot to note about the market, be it in energy or tech or out of tech or the broad market or gold or not in gold. How, for those of you who have missed Victor's previous appearances, there are a slew to catch up on your investing strategy, but to share with investors today, how would you express how you're looking at and thinking about and analyzing the markets?

1:05So last time we spoke, I believe it was around late last year and already going into January, I was becoming more cautious. I actually wrote an article about this today. I don't think it's it's been published yet, but it probably should come out soon. That even back in January, I was, I was becoming a lot more cautious on especially the riskier sides of the, of the stock market. So I began basically taking profits, I actually put out an article with a five step plan, where it was outlined that that number one, you know, reduce risk. So I took a lot of a lot of my riskier equity positions and basically just decreased a lot of them.

1:54I sold a lot of them for good profit that I've had over the last few years. Number two was to raise cash. So I actually went from using some margin to about, I believe, 20 % cash at one point earlier this year. I put some of that cash back to work recently and into the badly beaten down gold miners and some other sectors that that I find more attractive now like oil. Number three was rotation. So basically, I rotated a lot out of the riskier assets, you know, tech, high alpha stocks, and got into more defensive sectors, and especially, I would say gold. And gold very recently, actually, I started getting back into it because I typically have a large gold position because it works very well in a diversified portfolio.

2:56So that's done really well before it crashed, basically. But my point being is that I sold a lot of my gold and silver positions on the way up and around the peak. And I just recently started reentering them after the significant declines, after like the 40 to 50 % declines that many of the stocks have had in the sector. So I'm feeling a little bit more comfortable kind of putting my money in that segment, especially with the increased uncertainty and the Iran situation. So that's got that, you know, basically has markets on edge. And I was on edge already even before that. And it's very interesting because one of my favorite analysts, and I don't really listen to a lot of people on Wall Street, and one of the only guys that whose opinion I really listen to is actually Tom Lee.

3:58And I remember Tom Lee was talking about But also, it was, I believe, on a podcast, it was either late last year or early this year. And he was saying how we were going to go through this period, you know, in this year, probably due to a policy shock that would feel like a bear market. And I was a little bit surprised to hear him say that because he's typically a very bullish analyst. But I was actually feeling very similarly at the time. So it really hit home what I was hearing from Tom Lee then. So it even reinforced my thinking that we were going to have this correction, this pullback ahead.

4:40So I started preparing it for it pretty early, I would say about two months ago. And again, it was with the five-step plan. And the final two steps being hedging. You know, we increased our hedges with whether it's covered calls or the cash secured put strategy or just some callers. And then also, number five, I, you know, and that's more aggressive hedging and basically shorting some sectors and some even sector specific ETFs like going long SQQQ or something like that to not just to hedge, but to also make money when the market is going lower as it is now in a downtrend. If you would care to expand, expound on your reasons behind gold, we had George Noble on last week talking about how he's a fan of gold and especially gold miners.

5:39How are you looking at that space? Who do you like more than others and why is that? I would say same for energy. Okay, so the gold space, it's always been an interesting space for me, especially, I would say, about over the last one or two years, I started accumulating more and more gold because I realized that there was a very high probability that gold would go substantially higher. I've had, you know, various articles saying that gold would go to 5000. Even, even very recently, about five or six months ago, we had stocks like Hekla Mining trading at four or five dollars. We had stocks like Newmont Mining trading at like$40 or something like that.

6:24We had really, really low, just remarkably low valuation and price action in some of these extremely high quality gold and silver stocks that were likely to increase their profits considerably as the underlying assets increased in value, gold and silver primarily. rally. So I was very much prepared for this for this gold and silver rally. And I decreased I naturally decreased a lot of my positions as you know, as things were becoming parabolic in the market, up to where I actually sold all of my gold and silver positions aside from just my physical gold and part of my physical silver position, I was actually able to unload part of my physical silver position right around the top for about$114.50 I actually sold it at.

7:19So I got an excellent price on part of my physical silver position. And the funny thing is, is that I was trying to then sell more silver after the market crashed and then came back a little bit. And all the dealers were just running for me. They were like, no, we are not buying any physical silver. they were so scared um so yeah i couldn't sell anymore and that's okay i'm fine um but um some of the companies that i'm looking at now are first of all barrick um barrick uh mining because it's it's become so so cheap it has like a four something dividend so it's it's an incredibly solid company it's i believe it's the second most significant gold miner globally so i really like barrack a lot newmont is a decent play um being the biggest gold miner globally the best um managed gold miner i like is anglo eagle um mines which is a tick ticker am it's a canadian uh company but it's excellent i think it's the the best managed gold company so on a big on a bigger pullback i would increase some of those shares and also um kinrose gold i bought recently, which is another very solid company.

8:35I believe it's international. It's not American, but it's a very good gold company with bright prospects ahead, I believe. And in the silver space, I continue to like Pan American Silver and Heckler Mining as my primary place. And if we use an ETF, it's SLVP I like, GDX and GDXJ also. You also mentioned the energy sector. And these are these kind of... I was going to say, if I can just interrupt for a second, like before you, before you got to energy, which I appreciate you getting to, what would you say, because there's so many detractors, especially with, you know, the sell-off recently in gold and what's happening and energy and, but also people's belief that the gold bullishness that we have seen in the past year to two years to a few years is not something that's sustainable long-term or not something that's even worth getting into.

9:28What would you say is the most compelling, bearish note to gold and the miners? And how would you counter it? Or would you say there's anything even that compelling for you? Yeah. Well, it's not as compelling as it was, of course, when gold was at like$1 ,500 or$1 ,800, right? So obviously, it being at over$4 ,000 is not as compelling as it was back then, price-wise. However, I do believe that gold does have more upside potential. So really what's weighing on the gold market, aside from the parabolic move that we had, that we need to have some sort of period of consolidation, pullback, maybe further correction phase.

10:13But I don't think that the bull market is over because there are fundamental elements that should support higher gold prices long term. Now, the thing that's really impacting gold prices the most right now, it's that the Fed interest rate cut probabilities have essentially disappeared for 2026. So, for instance, about two months ago, right, there was roughly, I believe, an 80 % probability that we would see at least 125 basis point rate cut by September of this year, right? About an 80 % probability. Now, if you look at the rate cut probabilities, there is a 0 % chance that we will see a rate cut by September.

11:03But instead, there's about a 20 % probability that we could see a rate cut. So we've seen basically the rate interest rate, I'm sorry, that we will see a rate hike. There's now about a 20 % probability. So the market has basically flipped from expecting rate cuts to potentially seeing rate hikes. Now, this is what really weighs on gold and silver the most because this essentially is telling us that the Fed will be pulling liquidity out of the market instead of injecting liquidity into the market with lower interest rates and quantitative easing. So the way, basically, this is how the chain goes.

11:51Okay. So we have the war, right? It kind of came out of, you know, maybe nowhere, I guess. The war is causing oil prices to increase. Oil prices are causing inflation to rise and inflation expectations to increase. Inflation expectations increasing are causing the Fed or at least the market to project that the Federal Reserve will no longer be looking to cut interest rates this year. Instead, it may look to hike. OK, and that is a big problem for risk assets. That's why we're seeing, you know, downside in major market averages now, in my view. I mean, there are other reasons why, but that's the primary reason.

12:44And also that weighs on gold and silver prices the most, in my view, is that temporary, in my view, flip in the interest rate trajectory. First of all, lower interest rates, they basically create more demand for gold because people don't really want to invest in bonds, especially if inflation could be rising. They don't want to be getting a really low yield with bonds. So gold becomes that alternative asset class that should experience more demand. Then, of course, there is the increasing of the money supply. When the Fed cuts interest rates and especially when the Fed does quantitative easing, it's essentially just creating money out of nothing.

13:35That's all the Federal Reserve is doing. I don't want it to sound like a conspiracy theory, but in reality, it is a very sophisticated Ponzi scheme, basically, the way that the Federal Reserve system works relative to the Treasury Department. So, I mean, the Fed just, you know, punches numbers on the keyboard, creates, let's say,$2 trillion, then takes that$2 trillion and buys bonds from the Treasury, which artificially then causes interest rates to go down. OK, that's that's basically what would happen if the Fed went out and bought 30 year treasuries. We would have much lower mortgage rates in America.

14:27So that dynamic of creating, you know, increasing the money supply is what actually drives gold prices higher. Before we get to energy, before you get to energy, if you got the nomination over Warsh, what would you say? What would you want to do? How would you want the Fed to act? So that's a great question. And to be honest with you, it's a bit of a tough, tough job to be in right now because the Fed is really caught in a bit of a, you know, between a rock and a hard place in the sense that, you know, the labor market is weakening, but we are seeing higher inflation. However, I would look through that inflation as being transitory.

15:15And I know the Fed is now scared and afraid to use that word because they kept using it back in after the coronavirus. They kept saying that, you know, inflation was transitory. They use it a million times and we found out that it wasn't. But this time I really do. This is not the coronavirus. The, you know, a temporary oil shock is transitory. A temporary increase in tariffs, it is temporary. It is transitory. So it's not this prolonged type of inflation. It is a temporary uptick in inflation. That's how I would look at it more. So I would actually be more for easier monetary policy. And first of all, I would focus the most on the mortgage market because we just had really negative data where the sellers outnumbered the buyers by like a record amount.

16:16So that's a big issue. Now, if I were the Fed chair, I would focus more on improving the housing market, improving the labor market, and making sure that our economy was doing well. So, you know, if we have to go through a transitory phase of slightly higher inflation, whether it be 3 % or 3.5%, I don't think that that's as bad as, you know, having a collapse in the housing market, potentially, or, you know, possibly facing a recession from, you know, a worsening labor market and decreased consumer spending, or, you know, just having rates too high on credit. cards and mortgages and having a potential slowdown or recession from that.

17:10So I would certainly be focusing more on that side of the equation, rather to the transitory inflation part. So I would certainly be a lot more dovish. And I believe that the Fed will be that's that's the thing that I think the market is mispricing here. It's, you know, it's like when the pendulum swings too far in one direction, right now, because of all the panic and the, you know, temporary, threat of higher oil prices, I think that way too much emphasis is being placed on the long-term negative possible ramifications of the conflict rather than discussing the positive impacts which should occur intermediate and longer term.

17:54So energy, what are your thoughts? What names do you like? Why? What are your thoughts on the price of oil. Yeah. So energy is very interesting. And I've actually been paying attention to energy for a while now. And it goes back to a big part of my investment philosophy is where I look for

18:15sectors that have been underperforming for some time, that have been overlooked by the market, that are irrationally cheap. And that's where energy has been for a while. Basically, we were looking at price earnings ratios of like seven or eight and in high quality companies like Devon Energy, Apache Corp and and and many, many others we were looking at at basically rock bottom multiples. And many of these stocks have rocked from like, I think Apache's up from like 14 or 15 dollars when it bottomed in April to about like 45 dollars or something like that now. and many other stocks in that oil segment, oil and gas segment, have done really, really well.

19:01So that's been a sector that I've been focusing on. I've been talking about it a lot in my investment group. I've had really good profits in my portfolios with these stocks, of course. and I've also been focusing not only on the you know not only on the oil majors and the I like the independent producers but also I've been focusing a lot on the oil services segment which is you know like ETF OIH and it has it has companies like Schlumberger, Halliburton, Baker Hughes, these are some of my favorite companies to own here. And that's because they're going to have a lot of business ahead. When it's time to rebuild the Middle East, there's no one better than these top, you know, high quality companies, especially Slumberjay and Halliburton in my view.

19:58So I think that those two and Baker Hughes, those three should benefit a lot going forward and not just them, some of the smaller players should do well too. So I've been very keen on these companies. And I own these stocks as well as the XLE ETF, which is basically Exxon and Chevron and other majors. And then I own some independent companies like Devon. And also I like Schlumberger and OAH ETF, like I said. Schlumberger was another stock that George Noble was talking about if you're going to own anything in energy, own that one. Yeah, I think it's the best. And that's because they're positioning themselves as a technological leader in the space, even like they're rebranding themselves as like an AI company.

20:45It's pretty interesting, but they're actually putting a lot of money into R &D and they're developing an AI system that should give them an edge against their competitors. So yeah, I certainly agree with your prior guess. And anything else to add about the energy sector at large or the oil price? yeah i mean it's just it's just it's it's a very fluid situation and and there's a lot of uncertainty here so i mean it this could go several ways um they could try to take uh karg island that's um you know that's kind of like the the noise of the moment here and if that occurs i mean that's of course that's going to require some sort of boots on the ground and then that introduces a lot of uncertainty to the market because we don't know um you know could some of our troops be potentially hurt.

21:35You know, of course, there's a lot of backup in the region, but still, there's still many uncertain factors when you're dealing with ground forces on the ground. So I'm a little bit cautious of this scenario, which could, of course, occur if they don't come to some sort of concrete agreement within the next several days. I've seen a lot of hardware, a lot of Marines moving out there. So it does look like that the administration is preparing for some sort of land, you know, I don't want to call it an invasion, but maybe an encroachment on partial Iranian territory like Karg Island would actually make a lot of strategical sense.

22:22And from there, we could potentially then control the Strait of Hormuz, which would be an extremely net positive intermediate and long term. And that could actually then knock oil prices down a lot once that occurs. And I believe that that's probably the base case scenario that, you know, since several weeks from now, the situation is going to probably look much different. And I certainly think that the control of the, you know, of the straight will ultimately be controlled by, you know, by a competent U.S. president. Now, if you were president, no, just kidding. I would do some things. I would certainly do some things.

23:13Outside the purview of this humble podcast. Next time, next time. But I bet we could get together, Victor, and get some ideas going. Speaking of which, did you see, I just was listening to Wall Street Lunch today, and Kim was talking about the President's Council on Science and Technology. Any thoughts about where technology's at? I know you were one of the first people I heard talking so bullishly about Palantir years ago. Anything to say about the tech space these days? Yeah, I missed that presentation, unfortunately. But yeah, we got into Palantir at an ideal moment. I believe I made it the most significant portfolio holding when the stock was around$6 or$7.

24:02And I kept pounding the table on it, writing articles saying, oh, this is the company that's going to dominate. It's a monopoly. I mean, it was an obvious monopoly. so um yeah we made a lot of money on palantir we wrote it all the way up to about 150 and then i said well now it looks kind of um just too too expensive uh for for me and then i actually went ahead and i shorted the stock at 207 right before it reported earnings just because i realized that no matter how um how good earnings were going to be the stock would probably um decline from a 600 billion valuation when, you know, it was supposed to report about, I think, six billion dollars in sales the following year.

24:44So, yeah, the valuation aspect just got completely out of hand in Palantir. Now, the way I'm looking at tech here is that, of course, we're not in such a lucrative period as we were back in, in late 2022 and early 2023, you know, because back then we were getting into a lot of Nvidia stock, Meta, you know, Google, you name it, AI, it was, it was, it was, it was in the portfolio Palantir, of course. But here, we're going through a bit of an AI scare as well in this in this sort of, you know, correction process, because it's just that stage of the cycle where, you know, we're getting the circular financing concerns, we're getting some, you know, some back walk from, from, from Nvidia, first, we're going to invest 100 billion dollars in open AI now it's 30 billion, you know, and that puts into into question, like, How is OpenAI going to pay for their, I think it's something like$1.4 trillion in obligations over the next, I don't know, five or so years?

26:00How are they going to pay for all these when they're not actually being funded as much as they would like? Although there are probably certain channels that they could tap to raise a lot of debt. And they're going to IPO most likely within the next year, maybe sooner. So I am still bullish on a lot of tech. And I think we're getting opportunities here. But we certainly have to be more selective now. And I think we need to be a little bit more patient in this drawdown period because some of the tech charts have become more negative, like even if looking at something like NVIDIA, basically even, you know, like the broader tech market is below its 200 day moving average now.

26:48So we have to remember that in the near term, the technicals and the sentiment, they're going to trump the fundamentals. Even though we're very confident that AMD is going to do extremely well in the future and its stock could go to$400 or$500 within the next one or two years potentially, right? And like a base to a bullish case scenario. But we can't forget that the near term also matters to a lot of people. And this kind of uncertain atmosphere that we're in right because of the war, because of what the Fed could do, what the Fed may not do, there's a lot of uncertainty there. This sort of period could last a bit longer, meaning that we could have a continued drawdown.

27:40We could have a more significant correction. So far, we've had about, I think, an 8 % correction in the S &P 500 and about exactly a 10 % correction in the NASDAQ or in the NASDAQ 100. So I think that these could potentially go a little bit deeper, again, if things escalate more on, you know, like we have some sort of ground incursion. If maybe there's not an agreement within the next several days, I believe that the market could view this as a negative near term signal. And again, technically and sentiment wise, we're not in the best place right now, which again, it tells us that we just need to be a little bit more patient.

28:30The buying opportunities will come to us and, you know, we should we should see a very solid buying opportunity, most likely in the near term that could then turn into a very lucrative intermediate and longer term, you know, opportunity. as we advance. What else would you say about the names that you're shorting? I'm actually not shorting anything at the moment because there's so much uncertainty in the market. But some of the names that I have shorted recently, again, Palantir, it wasn't that recent. But Palantir 207 was like a short for me. And I went right ahead and shorted right before earnings too, which probably a lot of people wouldn't do but I just realized that no matter how good earnings were going to be the stock was going to go down it was going to be a sell the news event in my mind it was like at least an 80 % probability of that so that's why I did I did that trade I shorted zscaler right around the highs at like 330 I shorted a lot of the a lot of the silver stocks right at their peak and gold stocks as well.

29:43Heckla mining around 30, above 30, I was shorting. First Majestic above 30, I was shorting. And then we actually had a really nice second opportunity with First Majestic to short that on a second move higher, the stock had this really irrational move. So I went ahead and shorted that. Okla was one of my most successful shorts, actually. I caught that one right at the peak, right at around$190. So that was probably one of the best shorts, you know, over the last few months. Because it went from like$190 down to$100 very, very quickly. And then when it jumped back to like$150, it basically formed a second shoulder, you know, in a negative head and shoulders pattern.

30:35So I went ahead and shorted it again. and now it's at like 55 bucks. Of course, I didn't hold my short this long. It's typically more of a shorter term sort of just strategy I implement to capitalize on the downside in the market. It's not something that I do continuously like right now. There's just too much uncertainty where things can go up or down on a single tweet like we saw the other day. You know, the market was down. It looked like it was heading lower. Then one truth social post later, and the market was 4 % higher within minutes. So that's the kind of world that we live in. So you have to be very careful, Shorty.

31:24Yeah, I think that's good advice. Wise counsel. Victor, what else would you add to this conversation? What else do you feel like is noteworthy, newsworthy of value for investors to be keeping in mind these days? I think, again, in the near term, the situation here, there's a lot of uncertainty. So you want to be, you know, you want to have some cash, you want to be well diversified, you want to have, you know, that that sort of dry powder to implement when the market does finally reach reach a low point. because to be perfectly honest with you, I don't think that we're there yet. I think that we may be close.

32:10Maybe, you know, I don't want to put up like percentage terms on there, but we maybe were 75 or 80 % of the way there, but still with this level of uncertainty and the technical image, again, we're seeing like all the three analyses sort of aligning here. You know, the technical image isn't isn't great right now the sentiment it's really bad but it's not it's it's not as low as it can go um and fundamentally there's a lot a lot of uncertainty and there there are i would say probably more negative near-term fundamental catalysts than there are potential positive ones Okay. And once we have a convergence of these three analyses, the path of least resistance remains lower until we really see maybe some sort of a washout process, possibly something similar to what we saw in maybe August of 2024.

33:13for some sort of a bit more of a significant pullback because I believe that the market still has a lot of things to kind of digest here. Just because we talked about it last episode, as we wind down this conversation and reminding listeners that you run the Financial Profit and Investing Group on Seeking Alpha, have run it for many, many years to great acclaim and success. Two of the names that you were talking about last episode back in November was AMD and Tesla, were AMD and Tesla. What would you, anything to update listeners with there? Yeah. So these are still two of my core positions. I still have significant positions in both companies.

34:03I've recently hedged part of my, a significant part of my Tesla position. So I don't get a bigger drawdown on that if this correction process continues. What does that mean exactly, hedging in this case? How are you hedging exactly? So I'm basically hedging Tesla via covered call options. I sold covered call options with, I believe it's the 15th of May expiry. with a$420 strike price. And I sold those a while back. So I got really nice premiums for them. I think something like 20 or actually even more. I think I got like a$25 premium for them or possibly even higher. But the thing is, is that these options are now a lot cheaper.