Larry McDonald: Fed Rate Cuts & Financial Repression Will Fuel Stagflation & Hard Asset Bull Market
Summary
Market Outlook: The podcast discusses the potential for stagflation as the Federal Reserve considers rate cuts amidst rising inflation, with historical comparisons to the 1970s inflation waves.
Investment Strategy: Larry McDonald emphasizes a shift towards hard assets and commodities, suggesting a portfolio balance of 35% stocks, 35% bonds, and 30% commodities to hedge against inflation.
Gold and Hard Assets: The conversation highlights the surge in gold prices, currently over $3,600, and the strategic importance of investing in gold miners and other hard assets as inflation hedges.
Energy Sector Insights: The discussion covers opportunities in natural gas and oil sectors, with a focus on companies like Range Resources and Energy Transfer for their strong free cash flow and dividends.
Global Bond Market: The podcast addresses the challenges in the global bond market, noting the losses in long-duration bonds and the shift of capital towards hard assets.
Economic Risks: Concerns are raised about the sustainability of AI-driven growth and the potential for a market correction due to overvaluation in tech stocks like Nvidia.
Geopolitical Factors: The impact of geopolitical events, such as potential regime changes and global conflicts, on commodity prices and inflation is discussed.
Policy Implications: The conversation suggests that US policy may focus on weakening the dollar and refinancing debt, with implications for inflation and interest rates.
Transcript
Hi everyone, this is Jason Brack with Wall Street from Main Street. Welcome back for another Wall Street for Main Street podcast interview. Today's special guest is a returning guest. We're recording this interview on Monday, September 8th, 2025. The dollar gold price is over $3,600. It's been on fire the last like uh five or 6 months. Uh there was a correction. A lot of people were predicting that the dollar gold price would go back down to maybe $2,500. Instead, it's gone the opposite direction from what it seems. the yields on the 10-year uh the yields on all the Treasury bonds are down recently on the market starting to price in uh rate cuts. Today's special guest is a returning guest. He put out a book last year called How to Listen When Markets Speak. He's also the founder of the Bear Traps Report, which is one of the best paid newsletters on Wall Street. He has a lot of paying customers and he used to work at Layman Brothers. He actually ran their most profitable division before Layman Brothers collapsed and he wrote a bestselling book on that. Larry McDonald of the Bear Traps Report. Thank you for joining me again. Uh, thanks Jason. Appreciate it. Button. >> So, Larry, uh, I saw your interview uh, earlier today on uh, Fox Business with Charles Payne and you were hinting at like financial repression. I want to get your thoughts though on the Fed's rationale for the rate cuts because they've been holding off for so long. Uh, President Trump is calling drone pal too late. Do you think that the uh, jobs reports, the bad numbers on the jobs reports, is that the rationale the Fed needed or do you think there's really another reason behind why the Fed would start to cut rates now? Well, there's clearly something going on in terms of I mean ISM prices paid, Philly Fed prices paid, uh Richmond Fed prices paid, core CPI, um super core CPI, all the inflation readings are going the other way. And uh gas prices are up nationally uh quite a bit uh the last 10 days. uh oils down, but it's actually bounced off way off the April and May lows. So, essentially the Fed is cutting rates into an inflation that's, you know, really bouncing. And we we've never seen anything like this since the uh '8s really. And so the the probability that they're um you know cutting into kind of a stagflationary environment, in other words, they're worried that the economy is slowing down because if the economy slows down that $1.2 trillion of interest costs, um if you go into a really big slowdown, then your tax receipts relative to your interest costs, uh that ratio shrinks. So right now the tax receipts relative to interest costs are like 22%. Which is if you look around the developed world like the major G10 G20 countries. We're like 3 to four to five times you know more t uh that those tax receipts relative to interest costs that ratio is is crazy high near 25%. And no AAA or no no investment grade, you know, no like high investment grade country has that situation. But the good news is the United States has a has a has a, you know, a resilient economy. But you know the worry is is that they're they're really cutting rates into a sag inflationary slowdown and where they haven't really killed inflation and that's causing this massive historic migration of capital into hard assets which we talk about in our book how to listen how to listen when markets speak. Now, normally, Larry, if there was a economic slowdown, a recession, we're seeing this with artificial intelligence causing a lot of job losses, uh, stagflation, these types of problems, there would be a lot of professional investors, institutional investors, or hedge fund managers that would go into longer duration US treasuries. Is this one of those types of scenarios you mentioned stagflation where we're not going to see a lot of professional managed money go into longduration US treasuries? >> Well, one problem is, uh, globally, you know, yields are up a lot. So in recent weeks, we've had the UK bond yields breaking out. We've had the French bond yields breaking out. Uh ve J champion bond yields breaking out. So when the global bond yields are breaking out, it typically that a lot of times will drag US yields up. Uh the good news is for for bond yields is that in the last week or so that 30 years gone from close to 5% down to 4.7ish. So bonds are rallying which is weird because when the Fed cut rates last time around uh they cut 100 basis points when they started the kicking off the easing cycle within the last you know year and a half they when they cut rates the long end sold off uh in other words bonds were lower in price yields were up and it's uh I find it hard to believe that bonds are going to rally all that much with if you get that weaker dollar that really brings inflation back very fast because commodity prices really boom, you know, can potentially boom with that weaker dollar, right? So, your weaker dollar reacelerates inflation that really hasn't been killed. Like, if you think of like inflation, it's like a fire that you put some water on over and over again, but it's still simmering and then that flame can just kind of reinvigorate and uh re re uh ignite. And then that's that's what a weak dollar will do. A weak dollar because you're easing policy from the central bank that can very easily bring back in inflation pretty fast. >> And during the 1970s stackflation had to points inflation came in waves. So what Arthur Burns before Paul Vulkar came in he was raising rates. He wasn't raising rates fast enough and he thought he attained inflation and inflation started to come back. So it came in waves multiple waves in the 1970s stagflation. >> Right? And that's very important. And what I one of the lines in our book is inflation it gets under the seat cushions it gets under the carpets right you can't once inflation gets up near that 6 7 8% um it's very difficult to kill it without at least 6 7 8% unemployment historically that's the only thing that's killed that kind of inflation so inflation's here to stay plus don't forget this whole reshoring agenda from the Trump administration bringing jobs back home. They mean well, but it it's very very inflationary, right? And then wars, you know, the Ukraine war, uh that's not the Trump team's fault, but that when you think of the rebuild of the Ukraine, think of the rebuild of Gaza, think of the, you know, all the copper and all the commodities you're going to take. Uh and then you think of the US power grid that's 50 years old, 30 years old in other places that that really needs to be reconstructed. So wars are inflationary. Uh reshoring jobs is is inflationary and u really kind of rebuilding the power infrastructure of of the United States to support artificial intelligence. That can be inflationary as well. And to add your points, it also looks like President Trump is moving the naval fleet into the Caribbean into Venezuela. Now, I'm not in favor of regime change with their foreign policy because the US government has has blundered that what in Iraq and Afghanistan wasted trillions of dollars. But unfortunately, Larry, it looks like there is potentially going to be a regime change in Venezuela. It looks like they're they're talking about going in after the narot terrorists and potential regime change. Well, that would be interesting because if if I mean over time that's going to lower oil prices because you're going to bring in if you bring in a market friendly government, market friendly new government there, that would uh potentially bring back Exxon, Chevron, US technology that could eventually bring a a lot of oil out of that part of the world, but that'll take a while. >> Yeah. And it's not going to be done efficiently, too, as we've seen with Iraq and Afghanistan. I mean like uh they were what the oil companies in the US. What Exxon and Chevron were supposed to get access to the oil fields in Iraq and that didn't happen, >> right? Yeah. Exactly. I mean there's so many narratives when it comes to wars and conflicts that that never that never really materialize. You remember when when we uh when when you the Ukraine was invaded by Russia, it was supposed to be really bullish for a lot of agricultural commodities, phosphates. Um it was supposed to be really bullish for u you know platinum and palladium all these all these commodities that are controlled in that part of the world. And we actually ended up in a real nasty bare market for platinum, palladium and phosphates as uh Russia, you know, used the the commodities to fund the war. So yes, so you have to be very careful with war narratives. Often times the war the war narratives reverse around the uh you know around the start of the war. >> Now you were just in Washington DC meeting with the US Treasury. Would you say is it fair to say that President Trump and Scottent the Treasury Secretary that they want a weaker dollar that they want bond yields down substantially so they can refinance all that debt that you're talking about that's coming due? And you've been posting charts on this what 8 trillion$9 trillion worth of debt has to be refinanced in the in the near future. Would you say that some of their main goals are they want a weaker dollar and then they want to refinance that debt? >> Yes. And it's about half the debt is coming to in the next three years. And so that's yeah 15-ish trillion. And you know it's a dangerous thing because if if they ease policy they can borrow money on the front end and that's like one year treasury, six month treasuries. So if they cut rates then they can borrow money on the front end and supposedly stable coins can support that as well. uh there's this legislation in Washington that really created a potential gamecher there, but it's very it's very dangerous for a you know large superpower to to to finance themselves on the front end of the yield curve. Janet Yellen was guilty of this in the previous administration and right now the Trump team's guilty of it as well. We haven't turned out the debt and it's a real big gamble. That's why they really need uh they need they need they need some type of a slowdown would actually help because that would help you get lower long-term rates. If if we don't get a slowdown and they just cut rates and the dollar weakens and then inflation comes back then the yield curve will dramatically steepen and all that means is twoyear yields will go down, one year yields will go down and longer term yields will go back up again. So it's very dangerous for a developed market. I mean a large borrower to to finance all your borrowing on on the front end of the yield curve and not term it out. >> And in the past what you had bigname investors like Warren Buffett in uh this type of economic scenario if there was less inflation they would have went in and bought what longer duration treasuries as like a guaranteed yield and they would have worried about a recession fears. they would have went and bought the longer duration treasuries. But I would argue that the demand is not really there for the longer duration treasuries. And then the other part of the equation on the supply demand imbalance I would say for the US Treasury market is that the uh larger central banks, so the nonG7 central banks, they do not appear to be large net buyers of treasuries, they appear to be just dollar cost averaging gold tonnage each month for the last what three years since the Russia sanctions. >> Yes. And they have a lot more bonds to sell. So the US has a tre much more comp uh competitors on the long end that are selling bonds. So the French the French yields are higher. The UK UK is in a a worse situation. The UK has you know growth slowing less than 1% but their inflation is double their target really. So they're the the rest of the world the good news for the United States is the rest of the world's in a in a even worse fiscal uh and monetary position. >> Yeah, I agree. I I heard an interview with Kyle Bass in the last like 6 weeks or so and he was talking about the money supply growth in the US. I think the money supply growth in the US it's up about 50% I think he said in three years but then he pointed out that in other countries it was up even more. The money supply growth in other countries is up even more than in the US. So the average person I don't think understands that yes like there's there stagflation if you're a small business owner here in the United States you're getting killed with the tariffs or or higher input costs but it's even worse in a lot of other countries like you said >> right and and this is the point of our book how to listen when markets speak everyone is essentially has the 2010 to 2020 playbook a lot of people were are long bonds or long growth stocks and there's not a lot of ownership of commodities and hard assets But once you move in, once you move into that sustained inflation regime with higher global bond yields, then that creates an entire new portfolio construction mentality. You need to own more commodities, need to own hard assets, companies. You need to own companies that will protect you from inflation. And if you look at say gold miners versus Nvidia, gold miners are crushing Nvidia. Uh copper miners are crushing the the the QQQs this year. Uh so we're seeing some unusual things. Look at Heckla Mining today. HL it was added to the S&P 600 small cap index. So what you're seeing is and it was up 14%. Hecka mining HL equity and and it's it's what's what's fascinating is nobody owns these stocks. there's such a small float and so that when they tried to put Heckla into the S&P 600 small cap uh the the the fact that it was going into the index is so many shares to sales to buy relative to the to supply the stock was up 14%. You know, so this is it reminds me these are the types of things you saw in the 80s during that stagflationary regime. >> And the gold miners have a unique sweet spot. Silver miners too right now because the energy prices I don't see at least for for the next couple quarters the threat of a huge energy price spike. So unless metals prices crash, you have a sweet spot of free cash flow. And I think out of any of the industries in the S&P 500, I think the gold miners have the most free cash flow growth out of any of the industries. So, it's a real sweet spot for the gold miners right now, >> right? And um it's been in our in our model portfolio at the bear trap support. We were getting a lot of hate mail a year ago because we were what we did was we took down our gold exposure and we added to silver. We added to gold miners. In other words, what happens in a bull market in commodities and metals is the mothership gold typically leads and that happened 2020 21 22 gold was the big winner uh 23 24 but then something shifted within the last 12 months. So we were long ages. We've been long uh we belong Barrack Numont and we're also long the GDX and the GDXJ in our model portfolio. And you know that was pretty painful. But now we've seen this big move in the in recent uh weeks recent in the last month and a half where you could see the tourists are getting off the bus. Jason, you you've seen the tourists, right? the heavy set guy with the Hawaiian shirt and the camera, right? All the tourists, a lot of hot money, what we call the tourists are getting off the bus and they're coming in and they're buying companies that own assets in the ground because that's going to protect you from high interest rates and inflation. >> Well, hopefully, and we saw this in past cycles, the gold miners do not do dumb acquisitions because I think what bare gold wasted billions of dollars. They wrote it off. There was a a bunch of I think they were going buying copper mines at the top in 2011 and 12. They wrote off billions of dollars. The entire gold mining industry, Larry. I think by what 2016 or 17 it had written off around 70 billion, some some insane number. So hopefully they're a little bit smarter now with the mergers and acquisitions. >> Well, you know, that's ex Jason, that's a brilliant point because that's what creates new bull markets is like like you said that that 2011 to 15 uh bare market. Well, the bare market really was climaxed in 2015 16 for gold miners. And what happens is all the CFOs that made those horrible decisions got shot and fired. Same thing in the in the natural gas space. A lot of CFOs that didn't use capital discipline. They were undisiplined. They made bad acquisitions. and all of those bad decisions. What happens is the new CFOs that come in and take over these companies are much more capital disciplined uh people because they've seen the pain and coming out of that pain is what creates this new bull market where the companies have reduced debt, the cash flow is is growing and the balance sheets are stronger than ever. That's the case right now with the gold miners >> and that's actually how I found your work too in uranium six or seven years ago before the pandemic. You were talking about a bottom in the uranium price uranium miners. You were a little early on that we obviously didn't see artificial intelligence and the data centers coming until the last couple years. That's just kind of the cherry on top. But now that looks like we're in a long-term bull market as well as we see all these tech companies whether it's Meta, Amazon, Google, all these large Microsoft, all these large tech companies are just scrambling to invest in next generation nuclear power or secure deals with some of these utility companies to expand an existing nuclear power plant. >> Yes. and and passive investing is really I think once you get above 55 56 59% market share passive versus active and that's index funds it the passive investing becomes very very evil because if you think of Microsoft right if you think of Nvidia and Microsoft they're 15% of the S&P Jack Bogle the founder of you know the S&P 500 indexing would be rolling over in his grave right now. The the top two holdings of the S&P the last like 30 years have averaged around six maybe 7 to 8%. In other words, the top two holdings top two stocks should never be more than 8% of the S&P. The the S&P is is is an abomination if the top two stocks are 15 16% of the index. There's no diversification there. And so everyone's 401k, we talk about this in the book, is exposed to artificial intelligence, concentrated trades, all this capex. These guys are junkies in the valley. It's like a really a testosterone eating contest. Everyone's trying to outspend the next guy, but there's no energy infrastructure to support the growth estimates. So this is going to be one of the this is going to be a colossal failure of common sense 2.0. It's not going to be as bad as the Lehman Brothers, but you're talk we're going to have a real crash in the next year, year and a half that comes out of this artificial intelligence. The there's just not enough return on capital to fulfill the growth estimates. In other words, these companies are investing trillions of dollars. Companies that used to be cash cows, Jason, cash cows that produce cash, that were buying back stock that were had the cash on the balance sheet. Now they're capital intensive. They're grossly spending money like drunken sailors and they're all trying to compete with the the next guy and there's no energy infrastructure to support these lofty uh assumptions. >> Yeah, to add your points there, I think the capital expenditure budget for like the MAG 7 was around $300 billion for this year for 2025 cuz a lot of these big tech companies, they were projecting between like 65 billion and like 80 85 billion a year to be spent on artificial intelligence, software, data centers, all these things. But they have not in um properly secured what all the natural gas pipelines, the power stations around there. So uh I I more bullish I think longer term on building out the infrastructure like you said for what natural gas and uranium and nuclear power. I think those are probably smarter investments for this trend long term than picking out which artificial intelligence software is going to be the winner. >> Right. And so what we've done Jason in our model portfolio, we're reducing our exposure to the gold miners here because we've had a nice run. So we've cut it down with and we were double exposed. So we were long barrack and pneumont but also long the GDX which owns barrack and pneumont. So we were overexposed. Uh today we we uh actually sold our heckla position for the first time. We exited Heckla HL equity for the first time. Uh we've been in the stock since 2020, but we're long the SIL and the SAJ, but we're taking down exposure to gold and silver miners and we're adding to exposure in the natural gas space, natural gas pipelines, the SCG, uh Antar Resources, AR equity, incredible story there. And also range resources, RRC. >> It uh in terms of contrarian for value investing for the commodities, I agree. I think oil and natural gas are really really out of favor of the valuation. So I'm looking at like which companies are doing acquisitions. The larger and mediumsiz oil companies are the ones they're cutting the fat right now. They're reducing drilling costs. They're um you know if there's uh a merger and acquisition that just took place with Kico Phillips. They're cutting staff. This is what happens in a bare market. You trim the waste. You go and buy assets for cheap and then when the cycle turns those are the companies that start to rally. You've called this before in uranium. We've seen this now in gold stocks. They have to go through the bare market first. They have to trim the waist first. And then when the uh the rally does occur, that's when as an investor after a couple years, that's when you start to make big gains, >> right? So, so look at Range Resources. Now, it's a speculative stock. It's not a large cap. It's 8 billion equity market cap, 8 billion, right? But, you know, we think they're going to do a billion dollars of free cash flow next year, right? So, what's that like a 12 to 15% free cash flow yield? So your free cash flow is a billion. Your $8 billion equity market cap and think of the IBIDA. So they're IBIDA. We think they're going to do two billion of IBIDA next year. So they're trading at four times IBIDA. They're buying back stock, right? They're aggressively buying back stock. So you know, the company is in there the last 2 three years aggressively buying back the stock. And they've reduced debt. Um their debt was 3 billion in 2021. 3 billion of debt. Now their debt is approaching 1 billion, right? So it's you can just see these are much stronger balance sheets. uh they're taking that free cash flow, buying back equity, and you've got kind of that downside protection of that real capital discipline, but you've got you're potentially with some of these natural gas names, these are potentially 10 baggers in a world of artificial intelligence where you really have to ramp up that uh production to support electricity demand. And I think what the average person doesn't understand because they see all these tech companies spending all this capital, they're just starting to build out these data centers. So like Elon Musk, the XAI, the Colossus data centers in Tennessee. I mean that's 100,000 GPUs that ramped up to 200,000. But the majority of the other big tech companies have just started construction on some of these next generation data centers. So these data centers aren't even built yet. I think there's a lot of of the future there for the infrastructure and the energy plays for uh nuclear power and natural gas. Right. And that's that's the downside for stocks like Nvidia. Nvidia probably drops 50% over the next year and a half, two years because the estimates on data center construction are so rosy and that's why everyone expects Nvidia sales to keep growing but there's not enough local see there's two ways to get out of this problem for energy bottlenecks right you can in the case of u it says SMR so so small modular reactors like new scale you put the the small module modular reactors the SMRs on site but that's going to take a long time at least 2 3 years so we've got this huge expectation of growth in data centers but you don't have enough natural gas and nuclear wind or solar onsite to support that growth but on the and but even worse the US power grid is 50 years old in some places 30 years old in others so if you're going rely on utilities to s to support data centers, then you're going to drive up the cost of electricity for middle class Americans and that's a political nightmare. So either way, stocks like Nvidia probably, you know, go through a substantial crash over the next year and a half, even even potentially the next 6 months. >> Don't get me started on Congress here. Every time it seems like every couple years, Larry, that an infrastructure bill gets passed, but then none of that infrastructure you're talking about actually gets fixed or upgraded or invested. It's been this way. I've lived right outside of Washington DC for 25 years. It's every couple years that an infra infrastructure bill passes and then the money is not spent wisely on the stuff that is needed. >> Oh yeah. And that's another real big inflation driver because the Biden team uh did a lot of spending. You know, we were doing two to three billion dollar trillion dollar deficits. two to3 trillion dollar deficits uh for four years there and so u a lot of that infrastructure chips act and things like that still hasn't gotten into the economy yet that's one of the reasons why the economy has been so resilient but the bottom line is it's all this like uh very very you know that's where we get back to Kyle Bass on the money supply you know this is a lot of spending that's still oozing into the economy when the Fed has been trying to slow down inflation they're up against this fiscal wave, this explosion of fiscal spending. The Fed can't kill uh can't kill inflation with fiscal expans fiscal uh expansion the way we've had it >> and it looks exactly like stackflation cuz we see the jobs report numbers and anecdotally, Larry, I mean like it didn't show up in the jobs reports initially, but for the last like 6 to 12 months, I mean there's a lot of college graduates with really good resumes from elite universities, they're not getting job offers for full-time now. So anecdotally, it looks like artificial intelligence software is going to be a net job destroyer. It's not going to create a lot of jobs, at least in the short term, >> right? And so in two ways, there's there's three potential problems, right? One is the tariff inflation that's probably just starting to appear. So we have an inflation problem and then we have that artificial intelligence um disruption of labor force, but then we also have the artificial intelligence u problem on the bottleneck side in terms of energy. And so there's all kinds of of things that are out there that hey, listen, the market always climbs the wall worry, but there's so much concentration of wealth in those top eight stocks that are so exposed to artificial intelligence and all these growth estimates that that's that's what we get into passive investing once it gets up there near close to 60%. The money just flows in, right? just flows in to the 401ks and the there's no discipline as to what's that's why like the idiocy of like right now why should Nvidia trade at 28 times sales when say Google trades at seven times six times sales uh Apple trades at at maybe eight times sales and Microsoft trades like 13 time sales so you're talking about and don't forget And these companies all over the last 30 years traded Apple used to trade at two times sales, right? Google used to trade at two or three times sales. So Microsoft used to trade at four to you know four to five times sales. So all these these companies are trading at a much higher valuation because of passive investing. And that's it gets back to all the money that's in indexes, your 401k, all that money in indexes. There's no discipline. There's no there's no portfolio manager. the money just goes in no matter how crazy the valuation is on a price to sales basis. >> And Mike Green has talked about this. This is the flaws with the market cap weighted index fund that they're the victims of their own successes because the more people put into their retirement accounts, the more the market cap weighted index funds. It just goes into the same companies like you said and concentrates what into the mag seven at the top. >> Right. And that's that's why I'm really worried that so the boomers right now, the baby boomers are turning 80, the oldest ones. And there's they they control 77 trillion of wealth. That's what we talk about in our book, How to Listen When Markets Speak. So the boomers are getting up there. The oldest boomers are 80. So that means the average boomers are like 72. And uh you know that's that's a lot of uh wealth that's concentrated in a few stocks that's all basically a massive speculative bet on artificial intelligence. It's not a great way to invest. >> And there's also record wealth disparity. What over the last 15 or 20 years it's gotten even worse with the home prices and the uh stock market the S&P 500 with the success of the general stock market indexes. The younger adults a lot of them can't even get approved for a mortgage. So you have just record wealth disparity that I mean even if you have a pretty decent salary you're not getting approval for a mortgage at the higher interest rates >> right and that's why when I was on I was in Washington last week we met with Treasury and you could see the concern the midterms are a year and two months away so it's 14 months from now and home affordability so if that you know a lot of these economists in Washington they have an index and so if you think of 100 uh that's where a home is like perfectly affordable and so the last 20 30 years that index has been around on average around 85 to 90. So homes have been affordable. In other words, u 100 is perfect, but a really affordable is 85 and that's where we've been. Uh but right now we're like up that index is like up 125, 130. So homes are the least affordable ever. Like you said, that's that's creating a lot of wealth disparity for young people. So, I really think the White House has a uh you know this this what can you do about home prices? Home affordability. You got to either lower the price of a home and that would take a recession. So, that's bad. Uh you either can u lower interest rates, right? That's another thing. Uh or you can increase incomes. So, there's three ways to make homes more affordable. Raise the income, lower the home price, or lower the interest rate. And out of those three levers, you know, the easiest, slowest hanging fruit is is trying to get interest rates down. And that's why that's why I think the bond market's smelling this out where they know the White House has to get rates down um in into the midterms to make homes more affordable. >> Well, I would argue a fourth way. I think the problem is state and local. Let's use California with the Palisades fires. I mean, look at Gavin Newsome and all the bureaucrats there. They're making it almost impossible to rebuild all the homes in the Palisades. I mean, in in a my state here in Virginia, Northern Virginia, it's pretty easy to get a home constructed and permitted and built, they can do it in a in a year, maybe year and a half or less. In California, that would take many, many years. The way things are going, they may not might not even rebuild that for many, many years in the Palisades. So, I think it's a supply issue. It's just bureaucracy that's preventing what a a supply of of affordable housing coming online. I don't think it's uh some of the I I think it's more of a state and local issue with the government's there and everyone, you know, has their hand out. They want um you know permitting issues, environmental impact studies and and or bribes, >> right? Right. Yeah. That's Yeah. Regulation and and tax credits versus tax policy. You need a whole bunch of adjustments right there as well. >> Well, yeah. I I would I would blame this the state and local level unfortunately here. Northern Virginia. Virginia here is way better at getting approval and constructing a house like tearing down an old house and building a new house versus California. California is a disaster. Yeah. Yeah. >> So, so as we wrap up here, Larry, do do you think then are is it is DC going to allow an official recession? Are they going to allow deflation or are they going to start pulling the levers in for more policies for weaker dollar and and other types of things in your opinion? >> Well, the easiest way out for them is try to inflate your way out um by easing and creating, you know, kind of a growth. try to grow your way out of uh you know through through easing and uh you know creating you know you grow your way out of this debt hole. So a $37 trillion debt hole uh the only way out of that is default or suppress interest rates below the rate of inflation. That's it. There's 37 trillion. There's no way out. And so you either default like Argentina or you try to, you know, ease policy, weaken the dollar and pay the debt back with cheaper dollars. And but in that kind of world, that's where you want to be in that, you know, what we talk about in our book, how to listen to market speak, is the old portfolio is 6040 risk parry, 60% stock, 40% bonds. You know the point we make in the book is you really want to have that 35 3530 portfolio stocks bonds commodities 35% stocks 35% bonds and 30% commodities that's going to protect you in that kind of stagflationary world >> and the comment statue points are the comments from like non G7 central banks and the brick central bankers I mean they sound like they've been reading Austrian school economics that basically like oh we have enough treasuries oh we need to hedge with gold oh we need to hedge with hard assets so uh The central bankers are even acting like what you just said there that they said, "Oh, we have enough treasuries. We need to hedge with more hard assets or gold." >> Right. And that's where you get back to the word from our first book about Lehman Brothers. One of the most deadly words in all of finance is is the h word hubris. And hubris is Leman management was really, you know, that kind of arrogance, that foolish arrogance of hubris. And I think you know in Washington we've seen a lot of that both Democrats and Republicans. Um you know they've really have been played hard ball on sanctions to a lot of our trading partners and a lot of our global um potential bond buyers. Sanctions weapons been used aggressively and you know they really had a cockiness around the dollar like they thought you know the dollar is supposedly the only game in town. But when you use that sanction weapon over and over and over again over like 15 years, it's like a bully club over the head of all the emerging market many emerging market countries or when you use it aggressively against Russia with oh by the way they meant well here they're using it aggressively against Russia because of the you know crimes of the Ukraine war. But what does that do? Well, if you're India or if you're any other emerging market country and you see the United States confiscating wealth, uh you're going to think twice about buying treasury. So the bottom line is that hubris in Washington has created less global bond buyers and that's going to put even more pressure on the Fed to buy our bonds. >> Exactly. That I think that's the main macro theme. last three years postRRussia sanctions. It's basically like Yuseimity Sam from Looney Tunes where he accidentally shoots himself in the foot because uh they'd go on TV like you said the uh people whatever administration or Congress and say, "Oh, we're going to get Russia. We're going to increase sanctions." It's backfired spectacularly to the point where a lot of the nonG7 central bankers and the BRICS countries have just said if they're going to confiscate a freeze what 300 billion and the interest payments of Russian assets, if we piss off DC, they're going to try the same stuff with us with these sanctions or confiscating our assets, we're going to start hedging with gold. And you could see that in what the dollar cost averaging of the gold tonnage uh postRRussia sanctions in 2022. >> Yes. and gold, Bitcoin, platinum and palladium. The entire market cap of all the platinum and palladium is only $300 billion, right? It's a fraction of Bitcoin, right? And so that's why precious metals or what we call platinum group metals have such a a valuable part of of your portfolio construction because there's just not a lot of platinum, there's not a lot of platium, there's not a lot of silver out there. they were in a silver deficit of production wise. >> So, true or false? As we wrap things up here, do you think it's an eventuality, a question of when and not if we get to 4,000 or 5,000 gold? Because it seems that the policy, whether it's Trump or Democrat in the White House, whoever controls Congress, they don't really seem to want to cut spending. Just for Trump to pass the tax cuts, he had to do a bunch of trades. The budget deficit still growing. Doesn't seem like there's actually any real spending cuts, even though um you know, small business owners may have gotten some t some tax cuts. So, do you think then that it's an eventuality that we're going to see weaker dollar, higher gold prices? >> Yes. But, you know, in our book, what we talked about is, you know, gold was a little bit less than 2,000 when we wrote the book and we were saying, "Okay, we're going to go to 3,000." And so, now here we are at 3600. 4,000's just, you know, a chip shot away, especially after a long consolidation period. I looked at it this morning, Jason, do you know that we essentially stayed at the same price for almost four years? In other words, gold um was was gold from 2020 to 2024 was essentially in that in the range where we couldn't really take out the high. Now that we've taken out the high after that long period of consolidation, that's where it's it's you can really accelerate once because nobody owns gold at a loss right now. There's not one person in the world today that's sitting on a loss on gold, you know, and so uh that that's what gives you that extra kind of firepower to the upside. >> I actually made an economic cartoon about that with Chhat GPT. I don't know if you saw it. I put it on X. It's like the dam has broke. It really feels over the last couple months like the dam all the cracks that were in the dam is finally broken and that I think we're going to it's a question of when we see gold at 4,000 or maybe even 5,000 over the next couple years. Well, Goldman says if if just 1% of global bond buyers, so think of like everyone that owns longduration long-term 30-year UK bonds, and think of everyone that owns longduration French bonds, and think of everyone that owns longduration Japan bonds. Those pe those investors have lost money every year since 2022. So it's it's like over a trillion dollars of of of bonds that are d in the whole losing money for not just one year, not just two years, but three years. And this is remember bonds for like 20 years made money almost every year as interest rates kept going down and down and down and down and lower and lower and lower. People don't understand what's happening. PE literally thousands and thousands of high- netw worth investors have are sitting in long duration global sovereign bonds and they're losing money. Look at Apple. Apple issued a bond in 20121ish. It was a $2 billion bond $2.55% coupon due in this issued by Apple Jason. Okay. a $2 billion bond issue issued at par or 100 and it's a 2.55% coupon due in that bond just traded in the last month down at 54 cents on the dollar. That's the power of what happens with interest rates go up, bond prices go down, and bonds that were issued in 2020,22 by governments around the world or by Apple, whatever you want to say, you if you it's if it's a French bond and you had a 1 or 2% coupon or if it's a Japanese bond, it's a 1 or 2% coupon. Those bonds are sitting around on someone's balance sheet at 60 cents, 55 cents on the dollar. I mean, that's a tremendous amount of losses. And so what happens is as those losses pile up over years over net 3 years now since 2022 more that drives more and more and more and more capital into hard assets. >> Yeah, I agree. It looks like the government bonds whether it's the US or Japan, Europe, a lot of other countries, they look like the most radioactive asset class right now. I I know there's a lot of hedge fun managers are starting to look at this as what a a dead cap bounce or some type of like a short squeeze rally trade. I I wouldn't want to pick up 20 or 30% there. I wouldn't want it. I would go look at oil and natural gas companies. I mean, there's a lot of other contrarian value investments in other industries I'd rather make than government bonds right now. >> Right. Yeah. And you got great dividends in some of these oil and gas pipelines that are going to be needed to move the gas around. You're going to need new pipelines, new infrastructure to move the oil and gas around to support those data centers. And the dividends are remarkable. So I mean absolutely beautiful dividend streams. Look at energy transfer ET ET equity. We put it in our model portfolio back in 202021. Uh beautiful dividend and and growth over the last several years because remember these are just like toll takers. You know you everybody's taken their car through a toll taker, right? And and on on a kind of a a highway that takes that toll. Same thing with with oil and gas pipelines. >> Well, and there's some growth there, too, as long as they build out the um pipelines, the oil or natural gas pipelines from like the Peran Basin or another natural gas basin to look for a natural gas export facility or day center. So, I think there's some growth there, too. >> Yeah, energy transfer right now, just pull it up. Uh energy transfer. So, picture this in your mind. The stock has gone from Okay, stock is go. Wow, it's this is actually actually looks like a great buy down here. But the stock in 2021 was $6 and it traded recently at 20 bucks, but now it's like 17. So it's gone from $6 to say 17 now, right? And your dividend is um 7.7%. So, it's gone from $6 to $17 energy transfer ET equity and it's paid this juicy beautiful dividend the whole way. Um, and it's gone from $6 to $17 and it still pays 7.7%. That is a very attractive investment relative to bonds because remember a bond is issued at 100 or thousand whatever whatever you want to call the face and it matures at 100, right? So, and it pays that coupon along the way. Energy transfer, you put you buy it at six, it's gone to 17 and it paid you uh a very healthy 10% dividend the whole way. Now, the dividend's down to about 7%. 7.7. Well, also, Larry, uh the oil and natural gas company isn't trying to inflate away the debt or lie about the money supply or do debt monetization or yield curve control or their central bank isn't refusing a uh real full uh independent audit to lie about like the debt monetization or or other things like that. So, the oil natural gas company is going to uh have to run a cleaner ship more efficiently than than a government will with the money supply. >> Right. Right. Well, I I got to get going because the family it's getting late here, but u I really appreciate you uh for reaching out and we'll do it again soon. >> Yeah, this was a great conversation. I want to thank you so much and and when you're down here in Northern Virginia DCI, give me a holler and we can have lunch or dinner or something. >> Okay. Thank you, Jason.
Larry McDonald: Fed Rate Cuts & Financial Repression Will Fuel Stagflation & Hard Asset Bull Market
Summary
Transcript
Hi everyone, this is Jason Brack with Wall Street from Main Street. Welcome back for another Wall Street for Main Street podcast interview. Today's special guest is a returning guest. We're recording this interview on Monday, September 8th, 2025. The dollar gold price is over $3,600. It's been on fire the last like uh five or 6 months. Uh there was a correction. A lot of people were predicting that the dollar gold price would go back down to maybe $2,500. Instead, it's gone the opposite direction from what it seems. the yields on the 10-year uh the yields on all the Treasury bonds are down recently on the market starting to price in uh rate cuts. Today's special guest is a returning guest. He put out a book last year called How to Listen When Markets Speak. He's also the founder of the Bear Traps Report, which is one of the best paid newsletters on Wall Street. He has a lot of paying customers and he used to work at Layman Brothers. He actually ran their most profitable division before Layman Brothers collapsed and he wrote a bestselling book on that. Larry McDonald of the Bear Traps Report. Thank you for joining me again. Uh, thanks Jason. Appreciate it. Button. >> So, Larry, uh, I saw your interview uh, earlier today on uh, Fox Business with Charles Payne and you were hinting at like financial repression. I want to get your thoughts though on the Fed's rationale for the rate cuts because they've been holding off for so long. Uh, President Trump is calling drone pal too late. Do you think that the uh, jobs reports, the bad numbers on the jobs reports, is that the rationale the Fed needed or do you think there's really another reason behind why the Fed would start to cut rates now? Well, there's clearly something going on in terms of I mean ISM prices paid, Philly Fed prices paid, uh Richmond Fed prices paid, core CPI, um super core CPI, all the inflation readings are going the other way. And uh gas prices are up nationally uh quite a bit uh the last 10 days. uh oils down, but it's actually bounced off way off the April and May lows. So, essentially the Fed is cutting rates into an inflation that's, you know, really bouncing. And we we've never seen anything like this since the uh '8s really. And so the the probability that they're um you know cutting into kind of a stagflationary environment, in other words, they're worried that the economy is slowing down because if the economy slows down that $1.2 trillion of interest costs, um if you go into a really big slowdown, then your tax receipts relative to your interest costs, uh that ratio shrinks. So right now the tax receipts relative to interest costs are like 22%. Which is if you look around the developed world like the major G10 G20 countries. We're like 3 to four to five times you know more t uh that those tax receipts relative to interest costs that ratio is is crazy high near 25%. And no AAA or no no investment grade, you know, no like high investment grade country has that situation. But the good news is the United States has a has a has a, you know, a resilient economy. But you know the worry is is that they're they're really cutting rates into a sag inflationary slowdown and where they haven't really killed inflation and that's causing this massive historic migration of capital into hard assets which we talk about in our book how to listen how to listen when markets speak. Now, normally, Larry, if there was a economic slowdown, a recession, we're seeing this with artificial intelligence causing a lot of job losses, uh, stagflation, these types of problems, there would be a lot of professional investors, institutional investors, or hedge fund managers that would go into longer duration US treasuries. Is this one of those types of scenarios you mentioned stagflation where we're not going to see a lot of professional managed money go into longduration US treasuries? >> Well, one problem is, uh, globally, you know, yields are up a lot. So in recent weeks, we've had the UK bond yields breaking out. We've had the French bond yields breaking out. Uh ve J champion bond yields breaking out. So when the global bond yields are breaking out, it typically that a lot of times will drag US yields up. Uh the good news is for for bond yields is that in the last week or so that 30 years gone from close to 5% down to 4.7ish. So bonds are rallying which is weird because when the Fed cut rates last time around uh they cut 100 basis points when they started the kicking off the easing cycle within the last you know year and a half they when they cut rates the long end sold off uh in other words bonds were lower in price yields were up and it's uh I find it hard to believe that bonds are going to rally all that much with if you get that weaker dollar that really brings inflation back very fast because commodity prices really boom, you know, can potentially boom with that weaker dollar, right? So, your weaker dollar reacelerates inflation that really hasn't been killed. Like, if you think of like inflation, it's like a fire that you put some water on over and over again, but it's still simmering and then that flame can just kind of reinvigorate and uh re re uh ignite. And then that's that's what a weak dollar will do. A weak dollar because you're easing policy from the central bank that can very easily bring back in inflation pretty fast. >> And during the 1970s stackflation had to points inflation came in waves. So what Arthur Burns before Paul Vulkar came in he was raising rates. He wasn't raising rates fast enough and he thought he attained inflation and inflation started to come back. So it came in waves multiple waves in the 1970s stagflation. >> Right? And that's very important. And what I one of the lines in our book is inflation it gets under the seat cushions it gets under the carpets right you can't once inflation gets up near that 6 7 8% um it's very difficult to kill it without at least 6 7 8% unemployment historically that's the only thing that's killed that kind of inflation so inflation's here to stay plus don't forget this whole reshoring agenda from the Trump administration bringing jobs back home. They mean well, but it it's very very inflationary, right? And then wars, you know, the Ukraine war, uh that's not the Trump team's fault, but that when you think of the rebuild of the Ukraine, think of the rebuild of Gaza, think of the, you know, all the copper and all the commodities you're going to take. Uh and then you think of the US power grid that's 50 years old, 30 years old in other places that that really needs to be reconstructed. So wars are inflationary. Uh reshoring jobs is is inflationary and u really kind of rebuilding the power infrastructure of of the United States to support artificial intelligence. That can be inflationary as well. And to add your points, it also looks like President Trump is moving the naval fleet into the Caribbean into Venezuela. Now, I'm not in favor of regime change with their foreign policy because the US government has has blundered that what in Iraq and Afghanistan wasted trillions of dollars. But unfortunately, Larry, it looks like there is potentially going to be a regime change in Venezuela. It looks like they're they're talking about going in after the narot terrorists and potential regime change. Well, that would be interesting because if if I mean over time that's going to lower oil prices because you're going to bring in if you bring in a market friendly government, market friendly new government there, that would uh potentially bring back Exxon, Chevron, US technology that could eventually bring a a lot of oil out of that part of the world, but that'll take a while. >> Yeah. And it's not going to be done efficiently, too, as we've seen with Iraq and Afghanistan. I mean like uh they were what the oil companies in the US. What Exxon and Chevron were supposed to get access to the oil fields in Iraq and that didn't happen, >> right? Yeah. Exactly. I mean there's so many narratives when it comes to wars and conflicts that that never that never really materialize. You remember when when we uh when when you the Ukraine was invaded by Russia, it was supposed to be really bullish for a lot of agricultural commodities, phosphates. Um it was supposed to be really bullish for u you know platinum and palladium all these all these commodities that are controlled in that part of the world. And we actually ended up in a real nasty bare market for platinum, palladium and phosphates as uh Russia, you know, used the the commodities to fund the war. So yes, so you have to be very careful with war narratives. Often times the war the war narratives reverse around the uh you know around the start of the war. >> Now you were just in Washington DC meeting with the US Treasury. Would you say is it fair to say that President Trump and Scottent the Treasury Secretary that they want a weaker dollar that they want bond yields down substantially so they can refinance all that debt that you're talking about that's coming due? And you've been posting charts on this what 8 trillion$9 trillion worth of debt has to be refinanced in the in the near future. Would you say that some of their main goals are they want a weaker dollar and then they want to refinance that debt? >> Yes. And it's about half the debt is coming to in the next three years. And so that's yeah 15-ish trillion. And you know it's a dangerous thing because if if they ease policy they can borrow money on the front end and that's like one year treasury, six month treasuries. So if they cut rates then they can borrow money on the front end and supposedly stable coins can support that as well. uh there's this legislation in Washington that really created a potential gamecher there, but it's very it's very dangerous for a you know large superpower to to to finance themselves on the front end of the yield curve. Janet Yellen was guilty of this in the previous administration and right now the Trump team's guilty of it as well. We haven't turned out the debt and it's a real big gamble. That's why they really need uh they need they need they need some type of a slowdown would actually help because that would help you get lower long-term rates. If if we don't get a slowdown and they just cut rates and the dollar weakens and then inflation comes back then the yield curve will dramatically steepen and all that means is twoyear yields will go down, one year yields will go down and longer term yields will go back up again. So it's very dangerous for a developed market. I mean a large borrower to to finance all your borrowing on on the front end of the yield curve and not term it out. >> And in the past what you had bigname investors like Warren Buffett in uh this type of economic scenario if there was less inflation they would have went in and bought what longer duration treasuries as like a guaranteed yield and they would have worried about a recession fears. they would have went and bought the longer duration treasuries. But I would argue that the demand is not really there for the longer duration treasuries. And then the other part of the equation on the supply demand imbalance I would say for the US Treasury market is that the uh larger central banks, so the nonG7 central banks, they do not appear to be large net buyers of treasuries, they appear to be just dollar cost averaging gold tonnage each month for the last what three years since the Russia sanctions. >> Yes. And they have a lot more bonds to sell. So the US has a tre much more comp uh competitors on the long end that are selling bonds. So the French the French yields are higher. The UK UK is in a a worse situation. The UK has you know growth slowing less than 1% but their inflation is double their target really. So they're the the rest of the world the good news for the United States is the rest of the world's in a in a even worse fiscal uh and monetary position. >> Yeah, I agree. I I heard an interview with Kyle Bass in the last like 6 weeks or so and he was talking about the money supply growth in the US. I think the money supply growth in the US it's up about 50% I think he said in three years but then he pointed out that in other countries it was up even more. The money supply growth in other countries is up even more than in the US. So the average person I don't think understands that yes like there's there stagflation if you're a small business owner here in the United States you're getting killed with the tariffs or or higher input costs but it's even worse in a lot of other countries like you said >> right and and this is the point of our book how to listen when markets speak everyone is essentially has the 2010 to 2020 playbook a lot of people were are long bonds or long growth stocks and there's not a lot of ownership of commodities and hard assets But once you move in, once you move into that sustained inflation regime with higher global bond yields, then that creates an entire new portfolio construction mentality. You need to own more commodities, need to own hard assets, companies. You need to own companies that will protect you from inflation. And if you look at say gold miners versus Nvidia, gold miners are crushing Nvidia. Uh copper miners are crushing the the the QQQs this year. Uh so we're seeing some unusual things. Look at Heckla Mining today. HL it was added to the S&P 600 small cap index. So what you're seeing is and it was up 14%. Hecka mining HL equity and and it's it's what's what's fascinating is nobody owns these stocks. there's such a small float and so that when they tried to put Heckla into the S&P 600 small cap uh the the the fact that it was going into the index is so many shares to sales to buy relative to the to supply the stock was up 14%. You know, so this is it reminds me these are the types of things you saw in the 80s during that stagflationary regime. >> And the gold miners have a unique sweet spot. Silver miners too right now because the energy prices I don't see at least for for the next couple quarters the threat of a huge energy price spike. So unless metals prices crash, you have a sweet spot of free cash flow. And I think out of any of the industries in the S&P 500, I think the gold miners have the most free cash flow growth out of any of the industries. So, it's a real sweet spot for the gold miners right now, >> right? And um it's been in our in our model portfolio at the bear trap support. We were getting a lot of hate mail a year ago because we were what we did was we took down our gold exposure and we added to silver. We added to gold miners. In other words, what happens in a bull market in commodities and metals is the mothership gold typically leads and that happened 2020 21 22 gold was the big winner uh 23 24 but then something shifted within the last 12 months. So we were long ages. We've been long uh we belong Barrack Numont and we're also long the GDX and the GDXJ in our model portfolio. And you know that was pretty painful. But now we've seen this big move in the in recent uh weeks recent in the last month and a half where you could see the tourists are getting off the bus. Jason, you you've seen the tourists, right? the heavy set guy with the Hawaiian shirt and the camera, right? All the tourists, a lot of hot money, what we call the tourists are getting off the bus and they're coming in and they're buying companies that own assets in the ground because that's going to protect you from high interest rates and inflation. >> Well, hopefully, and we saw this in past cycles, the gold miners do not do dumb acquisitions because I think what bare gold wasted billions of dollars. They wrote it off. There was a a bunch of I think they were going buying copper mines at the top in 2011 and 12. They wrote off billions of dollars. The entire gold mining industry, Larry. I think by what 2016 or 17 it had written off around 70 billion, some some insane number. So hopefully they're a little bit smarter now with the mergers and acquisitions. >> Well, you know, that's ex Jason, that's a brilliant point because that's what creates new bull markets is like like you said that that 2011 to 15 uh bare market. Well, the bare market really was climaxed in 2015 16 for gold miners. And what happens is all the CFOs that made those horrible decisions got shot and fired. Same thing in the in the natural gas space. A lot of CFOs that didn't use capital discipline. They were undisiplined. They made bad acquisitions. and all of those bad decisions. What happens is the new CFOs that come in and take over these companies are much more capital disciplined uh people because they've seen the pain and coming out of that pain is what creates this new bull market where the companies have reduced debt, the cash flow is is growing and the balance sheets are stronger than ever. That's the case right now with the gold miners >> and that's actually how I found your work too in uranium six or seven years ago before the pandemic. You were talking about a bottom in the uranium price uranium miners. You were a little early on that we obviously didn't see artificial intelligence and the data centers coming until the last couple years. That's just kind of the cherry on top. But now that looks like we're in a long-term bull market as well as we see all these tech companies whether it's Meta, Amazon, Google, all these large Microsoft, all these large tech companies are just scrambling to invest in next generation nuclear power or secure deals with some of these utility companies to expand an existing nuclear power plant. >> Yes. and and passive investing is really I think once you get above 55 56 59% market share passive versus active and that's index funds it the passive investing becomes very very evil because if you think of Microsoft right if you think of Nvidia and Microsoft they're 15% of the S&P Jack Bogle the founder of you know the S&P 500 indexing would be rolling over in his grave right now. The the top two holdings of the S&P the last like 30 years have averaged around six maybe 7 to 8%. In other words, the top two holdings top two stocks should never be more than 8% of the S&P. The the S&P is is is an abomination if the top two stocks are 15 16% of the index. There's no diversification there. And so everyone's 401k, we talk about this in the book, is exposed to artificial intelligence, concentrated trades, all this capex. These guys are junkies in the valley. It's like a really a testosterone eating contest. Everyone's trying to outspend the next guy, but there's no energy infrastructure to support the growth estimates. So this is going to be one of the this is going to be a colossal failure of common sense 2.0. It's not going to be as bad as the Lehman Brothers, but you're talk we're going to have a real crash in the next year, year and a half that comes out of this artificial intelligence. The there's just not enough return on capital to fulfill the growth estimates. In other words, these companies are investing trillions of dollars. Companies that used to be cash cows, Jason, cash cows that produce cash, that were buying back stock that were had the cash on the balance sheet. Now they're capital intensive. They're grossly spending money like drunken sailors and they're all trying to compete with the the next guy and there's no energy infrastructure to support these lofty uh assumptions. >> Yeah, to add your points there, I think the capital expenditure budget for like the MAG 7 was around $300 billion for this year for 2025 cuz a lot of these big tech companies, they were projecting between like 65 billion and like 80 85 billion a year to be spent on artificial intelligence, software, data centers, all these things. But they have not in um properly secured what all the natural gas pipelines, the power stations around there. So uh I I more bullish I think longer term on building out the infrastructure like you said for what natural gas and uranium and nuclear power. I think those are probably smarter investments for this trend long term than picking out which artificial intelligence software is going to be the winner. >> Right. And so what we've done Jason in our model portfolio, we're reducing our exposure to the gold miners here because we've had a nice run. So we've cut it down with and we were double exposed. So we were long barrack and pneumont but also long the GDX which owns barrack and pneumont. So we were overexposed. Uh today we we uh actually sold our heckla position for the first time. We exited Heckla HL equity for the first time. Uh we've been in the stock since 2020, but we're long the SIL and the SAJ, but we're taking down exposure to gold and silver miners and we're adding to exposure in the natural gas space, natural gas pipelines, the SCG, uh Antar Resources, AR equity, incredible story there. And also range resources, RRC. >> It uh in terms of contrarian for value investing for the commodities, I agree. I think oil and natural gas are really really out of favor of the valuation. So I'm looking at like which companies are doing acquisitions. The larger and mediumsiz oil companies are the ones they're cutting the fat right now. They're reducing drilling costs. They're um you know if there's uh a merger and acquisition that just took place with Kico Phillips. They're cutting staff. This is what happens in a bare market. You trim the waste. You go and buy assets for cheap and then when the cycle turns those are the companies that start to rally. You've called this before in uranium. We've seen this now in gold stocks. They have to go through the bare market first. They have to trim the waist first. And then when the uh the rally does occur, that's when as an investor after a couple years, that's when you start to make big gains, >> right? So, so look at Range Resources. Now, it's a speculative stock. It's not a large cap. It's 8 billion equity market cap, 8 billion, right? But, you know, we think they're going to do a billion dollars of free cash flow next year, right? So, what's that like a 12 to 15% free cash flow yield? So your free cash flow is a billion. Your $8 billion equity market cap and think of the IBIDA. So they're IBIDA. We think they're going to do two billion of IBIDA next year. So they're trading at four times IBIDA. They're buying back stock, right? They're aggressively buying back stock. So you know, the company is in there the last 2 three years aggressively buying back the stock. And they've reduced debt. Um their debt was 3 billion in 2021. 3 billion of debt. Now their debt is approaching 1 billion, right? So it's you can just see these are much stronger balance sheets. uh they're taking that free cash flow, buying back equity, and you've got kind of that downside protection of that real capital discipline, but you've got you're potentially with some of these natural gas names, these are potentially 10 baggers in a world of artificial intelligence where you really have to ramp up that uh production to support electricity demand. And I think what the average person doesn't understand because they see all these tech companies spending all this capital, they're just starting to build out these data centers. So like Elon Musk, the XAI, the Colossus data centers in Tennessee. I mean that's 100,000 GPUs that ramped up to 200,000. But the majority of the other big tech companies have just started construction on some of these next generation data centers. So these data centers aren't even built yet. I think there's a lot of of the future there for the infrastructure and the energy plays for uh nuclear power and natural gas. Right. And that's that's the downside for stocks like Nvidia. Nvidia probably drops 50% over the next year and a half, two years because the estimates on data center construction are so rosy and that's why everyone expects Nvidia sales to keep growing but there's not enough local see there's two ways to get out of this problem for energy bottlenecks right you can in the case of u it says SMR so so small modular reactors like new scale you put the the small module modular reactors the SMRs on site but that's going to take a long time at least 2 3 years so we've got this huge expectation of growth in data centers but you don't have enough natural gas and nuclear wind or solar onsite to support that growth but on the and but even worse the US power grid is 50 years old in some places 30 years old in others so if you're going rely on utilities to s to support data centers, then you're going to drive up the cost of electricity for middle class Americans and that's a political nightmare. So either way, stocks like Nvidia probably, you know, go through a substantial crash over the next year and a half, even even potentially the next 6 months. >> Don't get me started on Congress here. Every time it seems like every couple years, Larry, that an infrastructure bill gets passed, but then none of that infrastructure you're talking about actually gets fixed or upgraded or invested. It's been this way. I've lived right outside of Washington DC for 25 years. It's every couple years that an infra infrastructure bill passes and then the money is not spent wisely on the stuff that is needed. >> Oh yeah. And that's another real big inflation driver because the Biden team uh did a lot of spending. You know, we were doing two to three billion dollar trillion dollar deficits. two to3 trillion dollar deficits uh for four years there and so u a lot of that infrastructure chips act and things like that still hasn't gotten into the economy yet that's one of the reasons why the economy has been so resilient but the bottom line is it's all this like uh very very you know that's where we get back to Kyle Bass on the money supply you know this is a lot of spending that's still oozing into the economy when the Fed has been trying to slow down inflation they're up against this fiscal wave, this explosion of fiscal spending. The Fed can't kill uh can't kill inflation with fiscal expans fiscal uh expansion the way we've had it >> and it looks exactly like stackflation cuz we see the jobs report numbers and anecdotally, Larry, I mean like it didn't show up in the jobs reports initially, but for the last like 6 to 12 months, I mean there's a lot of college graduates with really good resumes from elite universities, they're not getting job offers for full-time now. So anecdotally, it looks like artificial intelligence software is going to be a net job destroyer. It's not going to create a lot of jobs, at least in the short term, >> right? And so in two ways, there's there's three potential problems, right? One is the tariff inflation that's probably just starting to appear. So we have an inflation problem and then we have that artificial intelligence um disruption of labor force, but then we also have the artificial intelligence u problem on the bottleneck side in terms of energy. And so there's all kinds of of things that are out there that hey, listen, the market always climbs the wall worry, but there's so much concentration of wealth in those top eight stocks that are so exposed to artificial intelligence and all these growth estimates that that's that's what we get into passive investing once it gets up there near close to 60%. The money just flows in, right? just flows in to the 401ks and the there's no discipline as to what's that's why like the idiocy of like right now why should Nvidia trade at 28 times sales when say Google trades at seven times six times sales uh Apple trades at at maybe eight times sales and Microsoft trades like 13 time sales so you're talking about and don't forget And these companies all over the last 30 years traded Apple used to trade at two times sales, right? Google used to trade at two or three times sales. So Microsoft used to trade at four to you know four to five times sales. So all these these companies are trading at a much higher valuation because of passive investing. And that's it gets back to all the money that's in indexes, your 401k, all that money in indexes. There's no discipline. There's no there's no portfolio manager. the money just goes in no matter how crazy the valuation is on a price to sales basis. >> And Mike Green has talked about this. This is the flaws with the market cap weighted index fund that they're the victims of their own successes because the more people put into their retirement accounts, the more the market cap weighted index funds. It just goes into the same companies like you said and concentrates what into the mag seven at the top. >> Right. And that's that's why I'm really worried that so the boomers right now, the baby boomers are turning 80, the oldest ones. And there's they they control 77 trillion of wealth. That's what we talk about in our book, How to Listen When Markets Speak. So the boomers are getting up there. The oldest boomers are 80. So that means the average boomers are like 72. And uh you know that's that's a lot of uh wealth that's concentrated in a few stocks that's all basically a massive speculative bet on artificial intelligence. It's not a great way to invest. >> And there's also record wealth disparity. What over the last 15 or 20 years it's gotten even worse with the home prices and the uh stock market the S&P 500 with the success of the general stock market indexes. The younger adults a lot of them can't even get approved for a mortgage. So you have just record wealth disparity that I mean even if you have a pretty decent salary you're not getting approval for a mortgage at the higher interest rates >> right and that's why when I was on I was in Washington last week we met with Treasury and you could see the concern the midterms are a year and two months away so it's 14 months from now and home affordability so if that you know a lot of these economists in Washington they have an index and so if you think of 100 uh that's where a home is like perfectly affordable and so the last 20 30 years that index has been around on average around 85 to 90. So homes have been affordable. In other words, u 100 is perfect, but a really affordable is 85 and that's where we've been. Uh but right now we're like up that index is like up 125, 130. So homes are the least affordable ever. Like you said, that's that's creating a lot of wealth disparity for young people. So, I really think the White House has a uh you know this this what can you do about home prices? Home affordability. You got to either lower the price of a home and that would take a recession. So, that's bad. Uh you either can u lower interest rates, right? That's another thing. Uh or you can increase incomes. So, there's three ways to make homes more affordable. Raise the income, lower the home price, or lower the interest rate. And out of those three levers, you know, the easiest, slowest hanging fruit is is trying to get interest rates down. And that's why that's why I think the bond market's smelling this out where they know the White House has to get rates down um in into the midterms to make homes more affordable. >> Well, I would argue a fourth way. I think the problem is state and local. Let's use California with the Palisades fires. I mean, look at Gavin Newsome and all the bureaucrats there. They're making it almost impossible to rebuild all the homes in the Palisades. I mean, in in a my state here in Virginia, Northern Virginia, it's pretty easy to get a home constructed and permitted and built, they can do it in a in a year, maybe year and a half or less. In California, that would take many, many years. The way things are going, they may not might not even rebuild that for many, many years in the Palisades. So, I think it's a supply issue. It's just bureaucracy that's preventing what a a supply of of affordable housing coming online. I don't think it's uh some of the I I think it's more of a state and local issue with the government's there and everyone, you know, has their hand out. They want um you know permitting issues, environmental impact studies and and or bribes, >> right? Right. Yeah. That's Yeah. Regulation and and tax credits versus tax policy. You need a whole bunch of adjustments right there as well. >> Well, yeah. I I would I would blame this the state and local level unfortunately here. Northern Virginia. Virginia here is way better at getting approval and constructing a house like tearing down an old house and building a new house versus California. California is a disaster. Yeah. Yeah. >> So, so as we wrap up here, Larry, do do you think then are is it is DC going to allow an official recession? Are they going to allow deflation or are they going to start pulling the levers in for more policies for weaker dollar and and other types of things in your opinion? >> Well, the easiest way out for them is try to inflate your way out um by easing and creating, you know, kind of a growth. try to grow your way out of uh you know through through easing and uh you know creating you know you grow your way out of this debt hole. So a $37 trillion debt hole uh the only way out of that is default or suppress interest rates below the rate of inflation. That's it. There's 37 trillion. There's no way out. And so you either default like Argentina or you try to, you know, ease policy, weaken the dollar and pay the debt back with cheaper dollars. And but in that kind of world, that's where you want to be in that, you know, what we talk about in our book, how to listen to market speak, is the old portfolio is 6040 risk parry, 60% stock, 40% bonds. You know the point we make in the book is you really want to have that 35 3530 portfolio stocks bonds commodities 35% stocks 35% bonds and 30% commodities that's going to protect you in that kind of stagflationary world >> and the comment statue points are the comments from like non G7 central banks and the brick central bankers I mean they sound like they've been reading Austrian school economics that basically like oh we have enough treasuries oh we need to hedge with gold oh we need to hedge with hard assets so uh The central bankers are even acting like what you just said there that they said, "Oh, we have enough treasuries. We need to hedge with more hard assets or gold." >> Right. And that's where you get back to the word from our first book about Lehman Brothers. One of the most deadly words in all of finance is is the h word hubris. And hubris is Leman management was really, you know, that kind of arrogance, that foolish arrogance of hubris. And I think you know in Washington we've seen a lot of that both Democrats and Republicans. Um you know they've really have been played hard ball on sanctions to a lot of our trading partners and a lot of our global um potential bond buyers. Sanctions weapons been used aggressively and you know they really had a cockiness around the dollar like they thought you know the dollar is supposedly the only game in town. But when you use that sanction weapon over and over and over again over like 15 years, it's like a bully club over the head of all the emerging market many emerging market countries or when you use it aggressively against Russia with oh by the way they meant well here they're using it aggressively against Russia because of the you know crimes of the Ukraine war. But what does that do? Well, if you're India or if you're any other emerging market country and you see the United States confiscating wealth, uh you're going to think twice about buying treasury. So the bottom line is that hubris in Washington has created less global bond buyers and that's going to put even more pressure on the Fed to buy our bonds. >> Exactly. That I think that's the main macro theme. last three years postRRussia sanctions. It's basically like Yuseimity Sam from Looney Tunes where he accidentally shoots himself in the foot because uh they'd go on TV like you said the uh people whatever administration or Congress and say, "Oh, we're going to get Russia. We're going to increase sanctions." It's backfired spectacularly to the point where a lot of the nonG7 central bankers and the BRICS countries have just said if they're going to confiscate a freeze what 300 billion and the interest payments of Russian assets, if we piss off DC, they're going to try the same stuff with us with these sanctions or confiscating our assets, we're going to start hedging with gold. And you could see that in what the dollar cost averaging of the gold tonnage uh postRRussia sanctions in 2022. >> Yes. and gold, Bitcoin, platinum and palladium. The entire market cap of all the platinum and palladium is only $300 billion, right? It's a fraction of Bitcoin, right? And so that's why precious metals or what we call platinum group metals have such a a valuable part of of your portfolio construction because there's just not a lot of platinum, there's not a lot of platium, there's not a lot of silver out there. they were in a silver deficit of production wise. >> So, true or false? As we wrap things up here, do you think it's an eventuality, a question of when and not if we get to 4,000 or 5,000 gold? Because it seems that the policy, whether it's Trump or Democrat in the White House, whoever controls Congress, they don't really seem to want to cut spending. Just for Trump to pass the tax cuts, he had to do a bunch of trades. The budget deficit still growing. Doesn't seem like there's actually any real spending cuts, even though um you know, small business owners may have gotten some t some tax cuts. So, do you think then that it's an eventuality that we're going to see weaker dollar, higher gold prices? >> Yes. But, you know, in our book, what we talked about is, you know, gold was a little bit less than 2,000 when we wrote the book and we were saying, "Okay, we're going to go to 3,000." And so, now here we are at 3600. 4,000's just, you know, a chip shot away, especially after a long consolidation period. I looked at it this morning, Jason, do you know that we essentially stayed at the same price for almost four years? In other words, gold um was was gold from 2020 to 2024 was essentially in that in the range where we couldn't really take out the high. Now that we've taken out the high after that long period of consolidation, that's where it's it's you can really accelerate once because nobody owns gold at a loss right now. There's not one person in the world today that's sitting on a loss on gold, you know, and so uh that that's what gives you that extra kind of firepower to the upside. >> I actually made an economic cartoon about that with Chhat GPT. I don't know if you saw it. I put it on X. It's like the dam has broke. It really feels over the last couple months like the dam all the cracks that were in the dam is finally broken and that I think we're going to it's a question of when we see gold at 4,000 or maybe even 5,000 over the next couple years. Well, Goldman says if if just 1% of global bond buyers, so think of like everyone that owns longduration long-term 30-year UK bonds, and think of everyone that owns longduration French bonds, and think of everyone that owns longduration Japan bonds. Those pe those investors have lost money every year since 2022. So it's it's like over a trillion dollars of of of bonds that are d in the whole losing money for not just one year, not just two years, but three years. And this is remember bonds for like 20 years made money almost every year as interest rates kept going down and down and down and down and lower and lower and lower. People don't understand what's happening. PE literally thousands and thousands of high- netw worth investors have are sitting in long duration global sovereign bonds and they're losing money. Look at Apple. Apple issued a bond in 20121ish. It was a $2 billion bond $2.55% coupon due in this issued by Apple Jason. Okay. a $2 billion bond issue issued at par or 100 and it's a 2.55% coupon due in that bond just traded in the last month down at 54 cents on the dollar. That's the power of what happens with interest rates go up, bond prices go down, and bonds that were issued in 2020,22 by governments around the world or by Apple, whatever you want to say, you if you it's if it's a French bond and you had a 1 or 2% coupon or if it's a Japanese bond, it's a 1 or 2% coupon. Those bonds are sitting around on someone's balance sheet at 60 cents, 55 cents on the dollar. I mean, that's a tremendous amount of losses. And so what happens is as those losses pile up over years over net 3 years now since 2022 more that drives more and more and more and more capital into hard assets. >> Yeah, I agree. It looks like the government bonds whether it's the US or Japan, Europe, a lot of other countries, they look like the most radioactive asset class right now. I I know there's a lot of hedge fun managers are starting to look at this as what a a dead cap bounce or some type of like a short squeeze rally trade. I I wouldn't want to pick up 20 or 30% there. I wouldn't want it. I would go look at oil and natural gas companies. I mean, there's a lot of other contrarian value investments in other industries I'd rather make than government bonds right now. >> Right. Yeah. And you got great dividends in some of these oil and gas pipelines that are going to be needed to move the gas around. You're going to need new pipelines, new infrastructure to move the oil and gas around to support those data centers. And the dividends are remarkable. So I mean absolutely beautiful dividend streams. Look at energy transfer ET ET equity. We put it in our model portfolio back in 202021. Uh beautiful dividend and and growth over the last several years because remember these are just like toll takers. You know you everybody's taken their car through a toll taker, right? And and on on a kind of a a highway that takes that toll. Same thing with with oil and gas pipelines. >> Well, and there's some growth there, too, as long as they build out the um pipelines, the oil or natural gas pipelines from like the Peran Basin or another natural gas basin to look for a natural gas export facility or day center. So, I think there's some growth there, too. >> Yeah, energy transfer right now, just pull it up. Uh energy transfer. So, picture this in your mind. The stock has gone from Okay, stock is go. Wow, it's this is actually actually looks like a great buy down here. But the stock in 2021 was $6 and it traded recently at 20 bucks, but now it's like 17. So it's gone from $6 to say 17 now, right? And your dividend is um 7.7%. So, it's gone from $6 to $17 energy transfer ET equity and it's paid this juicy beautiful dividend the whole way. Um, and it's gone from $6 to $17 and it still pays 7.7%. That is a very attractive investment relative to bonds because remember a bond is issued at 100 or thousand whatever whatever you want to call the face and it matures at 100, right? So, and it pays that coupon along the way. Energy transfer, you put you buy it at six, it's gone to 17 and it paid you uh a very healthy 10% dividend the whole way. Now, the dividend's down to about 7%. 7.7. Well, also, Larry, uh the oil and natural gas company isn't trying to inflate away the debt or lie about the money supply or do debt monetization or yield curve control or their central bank isn't refusing a uh real full uh independent audit to lie about like the debt monetization or or other things like that. So, the oil natural gas company is going to uh have to run a cleaner ship more efficiently than than a government will with the money supply. >> Right. Right. Well, I I got to get going because the family it's getting late here, but u I really appreciate you uh for reaching out and we'll do it again soon. >> Yeah, this was a great conversation. I want to thank you so much and and when you're down here in Northern Virginia DCI, give me a holler and we can have lunch or dinner or something. >> Okay. Thank you, Jason.