The Great Rotation Has Started: Mag7 to Hard Assets | Larry McDonald
Summary
Regime Shift: The guest highlights a multiyear rotation from U.S. growth/MAG7 into global value and non-U.S. equities, citing sustained outperformance trends.
Hard Assets: Capital is moving into hard assets amid currency debasement and higher-for-longer rates, with gold, silver, platinum, and copper leading.
Gold & Silver Miners: Bullish long term but tactically extended; expect high beta volatility and prefer buying pullbacks toward key moving averages due to “tourist” hot money.
Natural Gas: Strong bullish view on natural gas equities and infrastructure, driven by surging power demand from data centers and potential multi-bagger upside.
Private Credit Risk: Warns of emerging stress in private credit, especially tied to data center financing, posing risks to banks and financials.
Financials Outlook: Advises avoiding financials given rich book multiples and questionable AI capex returns at major banks.
Inflation Path: Expects higher inflation to normalize around 3-4% amid fiscal stimulus and $1.3T data center capex, limiting scope for further Fed cuts.
Housing & Policy: Notes housing affordability stress and potential Fannie/Freddie support; policy moves and power auctions may pressure mega-cap tech via energy costs.
Transcript
The world is ablaze, yet the markets don't really seem to care. Since my guest has been on last, we've seen rate cuts, geopolitical turmoil, liberation day, tariffs, yet everything seems to be honky dory. If you just look at the markets, uh we have to figure out like what are the markets telling us? Cuz my guest is the author of the book How to Listen When Markets Speak. So, we need to listen. What are the markets telling us? And my guest is Lawrence Macdonald, accomplished author and also uh behind the bear traps report. really looking forward to catching up with him. It's been too long, almost 12 months since we had Larry on the program. Before I switch over to my guest though, hit that like and subscribe button. Helps us out tremendously bringing guests like Larry on, especially if you enjoy this conversation. It helps a lot. And we do want to reach 100,000 subscribers by the end of this quarter and with your support and help, we can do it. So, thanks so much for doing that. Now, Larry, it is great to welcome you back on the program. Still okay to say happy new year and thanks so much for joining us. >> Thanks, Kay. and we uh we hit how to listen market speak. We hit number one last week on Amazon Money and Finance and thanks to people like you. We we really had a great year last year. Thank you. >> Phenomenal. Yeah, I should have pulled it out of my shelf here. It's sitting back behind me as well, your book. So, um no, really appreciate you joining us, Larry. Since it's been 12 months and so much has happened, let's start with a white piece, a blank sheet of paper. Like, where are the markets at? How's the economy doing right now, Larry? Let's start high level. Well, markets um the global sovereign bond markets, Japanese yields, French yields, UK, all of duration is kind of in flames where people are losing money for like remember long-term bonds made money for 20 years and there was trillions of dollars over there and um there was a lot of trust and since 2022 with the global currency debasement, we talk about that in the book how to listen market speak that global currency debasement is what's been driving capital into hard assets but what we haven't seen yet is really money dramatically leaving technology we're starting to see it uh the mag 7 is down about 2% 2 to 3% since October with silver platinum platium uh hard assets even global value by the way global value is outperforming the mag set by 14% since October. That's something that you have not seen in the last really 10 10 to 15 years except for maybe in 2022. So it's a real global regime shift which is massive. We we'll talk about that because I really want to understand like what is driving that and what how are you picking up that momentum shift as well and is momentum picking up of course as well based on what you're saying here. Well, you know, this this uh if you look at the Trump team, they want to they have a populist agenda. Uh Trump really won over labor unions in the United States. He he stole a lot of that market share from the Democrats in 2016 and in 24. So, he's got this populist agenda. He's going after credit card companies. He thinks he's saying defense contractor CEOs are making too much money. And then now he's going after MAG 7 through this what I call a backdoor a backdoor windfall profits tax on the on the MAG 7 that are really about to dramatically alter electricity prices this weekend in our turning point report. We go through the different parts of the United States. Arizona electricity costs are up, you know, 20 25% last couple years. And so if you're a populist like Trump or any kind of populist, you can reach out to voters and say, "Hey, billionaires in Silicon Valley are making money off of your pain, and we're going to tax those billionaires through this power auction." And so that's kind of that that's that's some of the things that are going on that's starting to drive money out of MAG7. >> It's not just driving money out of Mac 7, it's driving money out of the US. If we were to entertain that thought for a second here, um, talking about capital rotation in general, like what what are your thoughts on that topic? >> Well, remember there's no I in team. So behind me, we run a Bloomberg chat with hedge funds, mutual funds, and pension funds in more than 20 countries. We started this in 2010. So when I share ideas, it's from that intelligence gathering behind me. And as I talk about in the book, it's all about finding great mentors around the world and building their trust. And what I found fascinating in the fourth quarter, we do these we do ideas dinners in maybe 10 to 15 cities around the world a year, Zurich, Geneva, London, LA. And we hosted some events in the fourth quarter in Florida. And what I found fascinating was when I see two to three talented chief investment officers that don't know each other that come to our dinners or they're in the chat and they're all saying the same thing about a trend shift. And one of the points that they've made is that global value is outperforming out double the S&P last year like you said global value money moving out of the United States. But in recent months that that outperformance is picking up even more steam. And the point they made to me is that if you look back the last 50 years, when you see a move like this that's that big from growth to global value, US to global value, it's never been a one-year trend. It's always been a five, six, sevenyear trend. When I was on the floor trading floor at Lehman Brothers, our first book, a colossal failure of common sense, the inside story about the collapse of Lehman, that was a New York Times bestseller. And the story in there I tell is I'm on the trading floor at Lehman Brothers in 2003, 2004. I would go around and talk to the very senior managing directors, the the best and the brightest of the firm, and they were all long, all long European equities or global value. Uh the trade was really outside of the United States for many many years. And I think that that's that trend shift is is happening again. >> No, we're absolutely seeing that. You're you're you're absolutely right. But the question is like how quick is momentum a two two to 3% you know drop in the max 7 is is that significant yet to call it a trend change that's sort of maybe the question behind it as well um is is that significant enough to sort of trigger that thought >> well remember um three years ago today early January say early January 2000 uh three years ago today the NASDAQ 100 had about 12 a.5 trillion 12 half trillion and in recent months it's reached 30 33 trillion. So 12.5 trillion to 33 and and it doesn't take much capital. Um just look at the gold miners for example. So we were we were very long as you know the gold miners the last couple years was painful had a great year last year but the all the gold miners in the world were only worth a year ago or so $270 billion. right now they're up near getting close to 800 billion. So, so the gold miners glo gold and silver miners globally um it didn't take much capital just a little bit of capital came into a very small pond and it's that's the same thing with say natural gas equities or global value there's just not very much capital there's more money in Nvidia and Microsoft than there is pretty much in all international equities combined I mean it's like like like the whole world like it's just there's too much money in in concentrated risk spots and that money is now diversifying out globally. So just it it doesn't have to be my point is it doesn't have to be a huge you know multi-t trillion dollar uh migration if just one or if just $1 trillion leaves a crowded pool these other pools are so tiny that you can get 100% moves in certain certain equities. I think that it's it was that context that we were missing or that I was missing to that point like 2.3 two to 3% doesn't sound like that much but if you take it from trillions that's billions that are being moved right so and that it is a massive move so and it has shown up the question though and we let's stay on the gold miners let's stay on gold and silver here for a second um but where where has that money come from now let's take it the let's ask it the other way around has it come from tech or is there other are there other factors at play. Maybe it was just so massively undervalued that it wasn't just tech, but maybe other money that came into it as well. >> Well, what we call the DCF model in the book, there's a ch there's a chapter in the book where we talk about the DCF model, discounted cash flows. And the reason why that's important is that when you're in a long-term disinflationary like disinflation regime where rates are heading lower, inflation's heading lower year after year after year for 10, 15 years, then you're a lot of money moves into software companies, it moves into growth stocks, it moves what we call long duration type equities. Uh but when you go into a period of extended inflation, inflation's been extended now even though it's come down still crazy since 2022 on an aggregate basis and bond yields are much more much higher globally. And that means the bond prices are down, yields are up and so the money really has come uh out of long duration equities like software for example and has come out of bonds. And that means that the reason why value tends to outperform in these kind of elevated inflation interest rate regimes is that is all part of that discounted cash flow model where companies that own assets in the ground, companies that own assets in general uh are going to really do much better historically. That's what's happened. They've done much better in that higher interest rate geopolitical multipolar world that we had from say 1968 to 1980. That's kind of the message of our book is that that's what creates that migration of capital is that is people using that DCF model and say geez I don't want to be long long duration equities. Just think about software. If you have a billion dollars of cash flow over 10 years and there's certain deflation, that cash flow is actually worth more. But if you have a cash flow over 10 years of a billion dollars and then there's higher interest rates and higher inflation, that that capital that that those cash flows over 10 years are worth less. And that's what drives capital into global value and in into hard assets. >> Well, that that move has been long overdue in the gold space because it has been neglected for over a decade. Right. The question is how much gas is left in the tank now, Larry, after that massive runup here that you've just mentioned as well last year. Um some of the indices like GDX, GDXJ up 180% or 280% over two years. Um how much is left and what do your valuations model tell you right now? Well, this the amazing thing is because gold's moved up so much, you know, some people Adrien Day, we sit down with Adrien Day in our book, one of the probably the most most famous gold connoisseurs, gold mining uh company uh connoisseurs in the world. And I was just talking to him last week. He's in our Bloomberg chat. He's very helpful. And he's like, you could argue the gold miners are cheaper today because gold's up so much and silver's up so much. Um, another thing that we're seeing is companies and countries or people like Elon Musk or Samsung, companies that need silver on the solar side or on the EV side, uh, they're now going contracting directly with mining companies. And so, we're in a bull market in gold mining and silver mining. But you got to be careful because the extension is just parabolic. So, you're way above the 100 day moving average. way above the 50-day. In a new bull market, you want to try to buy that 50day moving average by that 100 day. We're not there. We're still very extended. So, what we've done in our trade alerts, we've taken down gold and silver uh dramatically, and we've kind of added to a broadening out uh thesis. In other words, natural gas equities, coal. Uh we've really kind of reallocated some of our gold and silver uh portfolio into a more broad commodity basket. >> What kind of gold price assumptions did you make when you when you do those models? Do you use spot when it comes to that? >> Um well in terms of in terms of um analyzing the Yeah, exactly. analyzing the so what Adrian Day will do and what we did in the book and he'll look at okay the value of the companies the the what we call the enterprise value the cash flow and looking at like that that spot price and if it stays there for 12 months you know what's the cash flow look like over the next 12 months out of these gold mining companies and yeah it's it's pretty spectacular growth in in cash flow >> yeah the reason I'm asking like the the the analysts of the main street or the house street bay street banks here are just uh just increasing their long-term uh gold price forecasts as well um as as we speak here. Last week, Raymond James went to 3,300 from 2,900 and one of the other banks I forgot went to 3,600, I believe. So, they're just upping their price models um long term, which that's why I'm asking like cuz I'm trying to figure out how much gas is left in this tank here cuz price multiples and Pavs um are are coming down if you adjust for gold for higher gold prices or even calculate that spot. And to to Adrian's point, if you use spot in all those models, I think gold the gold miners are still they're cheap, right? So, um, that's why I'm it's like I'm asking like why are you feeling the need to >> remember they're they're very they're cheap, but the amount of tourists that have come in are just don't get me wrong, gold miners are cheap and they're on their own, but when you have like a very large number of new tourists that get off the bus, you know, picture of the heavy set guy with the camera and the Hawaiian shirt, you know, this is not the these are not sticky investors. They're they're hot money. They they they chased they were chasing semiconductors, whatever it is. They were chasing biotech. Now they're so when the tourists get off the bus, you got to be careful because that gold and silver miners are extreme high beta. They move twice as much as the market. And so you could easily get a 30% move down in the gold miners like that, you know, and that's where you want to that's when you want to think about, you know, building a position. >> Okay. No, fair fair enough. The easy money has been made. it was easier to make 100% returns 12 months ago. That that uh I fully agree with. Right. So now it's a stock picking pickers market and you got to be really choosy uh as well. Um I want I want to zoom out again like maybe maybe to one of the first points you've mentioned. I think it's really important to talk about it is the Japanese credit market and what we're seeing there as well. You you touched on it in the beginning. Um we're seeing a fundamental change there as well. I've been mentioning it in other interviews. the the yen carry trade seems to be unwinding. I'm not sure if it's dead yet. I'm curious to ask you now. Uh is the yen carry trade dead? And should we be paying closer attention to it than we are right now perhaps? >> Well, we had a big unwind in the summer of 2024. And that was one of the craziest periods uh for the VIX in August in a long time because August is typically a low ball month. and the VIX went crazy and the yen yen carry trade kind of blew up and you know when we really pressed our best clients so some of our clients are really strong in this area nobody could really quantify how like what percentage of the car trade is unwounded and then and then since then it's calmed down but now yields are back up again and I think there's definitely some risk there to global yields because for the last say two two to three decades, Japanese government bonds were like kind of the planet earth's bond anchor. Uh it's a major bond market in the world and you had very very low yields in this disinflation regime. Now those bond yields are normalizing higher and that's in some ways that's bringing us up yields up with it. The other thing that that nobody's talking about, but we see a credit crisis kind of starting in what what's called the private credit space. And think about private credit globally close to $2 trillion in private credit, two trillion. But 300 billion of that was promised to investors was quarterly liquidity. and a lot of financial advisors around the country and around the world were promised this quarterly liquidity to get them into the boat. And this to me and and this is what I'm getting from a number of institutional clients. Once again, when three people that don't know each other are kind of saying the same thing to us that are really talented credit people, this kind of gets the back of my, you know, the hair in the back of my neck moving up. And yeah, it's very clear the triricolor first brands thing and now uh coreweave and the data center financing. Uh if you if you don't get these data centers up and running, there's a lot of debt that's tied to them that's either in the high yield market or the private credit market that could really blow up and hurt the banks. So that this is something that we're seeing we're seeing people get out of the financials. JP Morgan's trading at 2.6 times book, right? screaming sell. Think of think of Goldman Sachs in 2007 at the top of the market. It was trading at 2.1 times book. This week it traded last week it traded at 2.3 times book. So get out of the financials. There's there's a big credit problem coming here. >> No, it's it's interesting like um I had a guest on. I forgot the name who who mentioned it on the program cuz he he said buy banks because AI is going to make them so much more efficient and margins are going to explode. Counter thesis. What are your thoughts on the topic? >> Hold on a sec. That thesis literally this this is the key to investing, right? That thesis is 24 months old, right? So when you jump on a a a thesis or you need to know like how long it's been out there festering. I mean, we started hearing that 2000 spring spring summer 2024, right? And now we're coming in the spring summer 2026. Yeah, that's true. Now, if you look at the JP Morgan conference call, if you look at Mike Mail, he was pressing Jamie Diamond, same thing on the Bank of America about this capex and the return on invested capital. And guess what? There were some crickets. There was actually a confrontation between Mike Mayo and Jamie. Uh cuz Mike's like, "Hey, where's the beef? You've invested all this money for the last almost three years now, billions of dollars. Where's the return?" So be very careful when you have and you want to press your guests on this. When a guest gets gets out there and touts a 24 month stale narrative, you know, that's long in the tooth for sure. >> No, absolutely. I'm not sure if it's just because the market isn't mature enough yet and we haven't really seen it trickle down or not not trickle down but just really being incorporated for lack of a better term here and whether it just takes longer to see that >> well in the end it's mystery me it's mystery me like it there's no question AI is going to make banks more profitable the question is over what period of time right and and the speed bumps along the road and you know then then there's the testosterone right the testosterone. They're all like trying to outspend each other. Jaime's spending a billionaire. Oh, I got to spend. Then the guys in the Valley, Zuckerberg going up against Larry Ellison. It's the it's it's, you know, it's it's almost like the uh the battle for the nuclear weapon, right? And the Dr. Oppenheimer, that insane mad moment where everyone's just trying to outspend and outdo the other guy. And oh at the oh by the way at the end of the day that's now look at look at Oracle stock look at meta stock look at Microsoft those stocks are acting really really ugly and I think it's because of that overinvesting testosterone you know over overdose >> no abs absolutely and you you touched on it private credit and the commercial real estate market as well I want to dive a little deeper there um we're getting stealth QE they don't call it QE I'm not sure what else to call it quite honestly non QE BQE and maybe $200 billion in mortgage back security purchases as well on top of it. Um, how fickle is is the mortgage in the housing market right now? Um, is that the maybe the what do you call it? The iceberg that sinks the Titanic. Trump, the team Trump uh I was in the White House a month ago. Uh, they're very nervous about the housing market in terms of affordability into the midterms. Uh, affordability. Uh there's a reason why the University of Michigan University of Michigan consumer confidence is below September 2008 levels. It's well below COVID. Consumers are stressed out. Their expenses have gone up 30% since 2022. Um it it takes like $140,000 a year of income to afford a home today. And so yeah, there's all of this agenda heading into the midterms. the homebuilders are actually bouncing quite a bit because this has been this narrative has been out there several months where the White House is going to do something with Fanny and Freddy. Uh there's an extra $200 billion in inside of Fanny and Freddy under the cap to uh to to get that money and try to make, you know, to try to help on the financing side, but that's just going to that's not going to bring down home prices, right? That's going to bring in more buyers, which that's helps makes makes it more affordable from a financing perspective. But yeah, this is a big big uh problem and uh especially an election year. >> Oh, absolutely. Because it all comes down to liquidity as well and like what is what is available to the market. Now we've seen the Fed cut fund fed funds rate but mortgage rates haven't really come down as well and um the point with liquidity is that you you touched on a credit card a cap on credit card interest um is also a two-edged sword. Uh because one one side says, "Yay, cheaper refinancing and my credit card bill is getting lower." Uh the other side is like, and that's more where the camp I'm at is, well, are the banks really going to issue any more credit cards if uh they don't get the returns they want because the risk is going higher? So, I'm curious, what camp are you in, Larry? You know, I look at the Fed funds rate in 2007 um was even higher than it is now, right? It's like four and a half, 5%. And credit card rates were on average and I went through Grock and I looked at this. I loo went through a bunch of different reports. Credit card rates on average nationally were four to five maybe even 6% lower. So what these guys have done at Capital One and all these guys very sneaky every year they just kept and remember I'm a I'm a free market capitalist, right? I don't like controls. I don't like government intervention. But there's a point where uh capitalism gets a little out of hand and they've been kind of raking the little guy under the coals. And this bottom line is we're paying the the Mr. Mrs. Joe lunch bill are already getting hit over the head with the inflation bucket for the last 3 years, 30% higher prices and credit card rates are 500 basis points 5% higher than they were in 2007. So with a lower Fed funds rate. So you something's something's got to give here. I mean, I think Trump's trying to threaten once again. He's he's going down these populous angles, right? He's going after the credit card companies. He's going after Mag 7 uh on this on this energy auction thing. Um but remember remember something important about when you when you try to stimulate into the midterms, then you know the Fed's cutting rates. The Atlanta Fed GDP is at 5.1%. Atlanta Fed 5.1%. And we're cutting rates and like you said, the Fed balance sheet is expanding now. It's a Fed balance sheet. It's growing. So, we're actually doing QE with and and cutting rates with with 5% Atlanta Fed GDP and a and a fiscal deficit close to 1.9 trillion, which is almost 6% in GDP. This to me, the story of the year is a big inflation bounce uh probably later in the year. the Trump Trump team's not going to be happy with that into the midterms. >> Elaborate on that. How will that sort of manifest? Like how are we going to see it? When we say inflation, are we talking 2 3%? Are we talking 8 9% hyperinflation even? I'm curious what your thoughts are there. >> Well, the good news is there's a lot of deflationary forces in the world coming out of China, coming out of AI. So, I I I don't see the hyperinflation, but we've come down a lot. Like, the year-over-year CPI numbers are going to be harder and harder and harder to beat. And and then when you have this much fiscal, you got a $1.3 trillion capital expenditures coming into data centers, then you have a fiscal deficit of 1.8 8 trillion 1.9. Uh, and then you have a lot of Trump gamesmanship coming in through stimulus into the midterms to try to support, you know, housing and and tax on tips and all these things. Yeah. So, do we get a bounce back to four and a, you know, 4% inflation, four to five? Yeah. Not back to eight or nine. No. uh reversing that like what the what should the Fed do then maybe or what do you expect the Fed to do maybe by the end of the year? Keep in mind we're getting a new Fed share here in May as well. Um do you think they'll change course then? Like are they going to hike rates in Octo September October again? Well, JP Morgan had like like over the last six months, JP Morgan had a lot of cuts for 2026 and 27 and now they've actually gone taken the cuts out and put in hikes. So, it's interesting when you start to see one bank start to go the other way. That's going to really get you listen to that, right? That's different. And um you know, Rick Reer, Hasset, Walsh, they're all going to be Trump Fed chairs. Um, Trump still has to control the rest of the Fed. The Fed's going to be probably be very very divided, but I I just don't see how the Fed can cut that much more with, like I said, 1.3 trillion of fiscal spending, you know, that 1.34 trillion of of data center spending and all the other it just uh inflation is at the end of the day is normalizing. In the last 20 years, inflation was like 1 2%. The new norm is 34. And that means that investors watching us right now need a whole new portfolio construction. Before we get to that, because that was going to be my last question. What should investors do going now or through 2026? I I just want to come back because the your last point that you just made on inflation and Fed cutting rates was something we've said all along like why cut into this environment and they've cut three times into this environment using employment as the scapegoat here. Is that the real reason? Should we be worried about employment or is that just fake news here? The labor market is soft um but it's not soft enough to justify all these cuts. No way. And I think at the end of the day, they're admitting that, and this is the point we make in the book, how to listen when markets speak. When you have a $ 38 trillion debt hole, the only way out of that is massaging interest rates below the rate of inflation. And that's how you monetize the debt. But they won't come out and say that because that will send everyone to a massive panic, right? They still have to pretend that they're defending that 2% target. But if you read carefully between the lines of all the different Feds speak and all the different public uh statements, it's very clear they're much more at the Fed and Washington, they're really starting to embrace this 3% inflation instead of 2%. >> Uh they would never say that publicly though that they've switched targets, right? So um Larry, we've covered a lot of ground in this conversation. We a lot of asset classes, a lot of like market moves here as well. Um, and you touched on it already, like what should investors now do with their portfolios in 2026? And again, this is not financial advice. Everybody's situation is different, so keep that in mind. But, uh, if if you had $100,000 to invest, how would you split that up? >> Well, once again, uh, we're at the early stages of this global value. So, uh, the EWU type portfolios, CVAL, uh, portfolios that are in global value equities are going to probably outperform the S&P. We're in the first year of that outperformance. Probably going to go three, four, five years. natural gas equities are going to really really I think I think you could have two three four baggers in some of these natural gas equities with the amount of power crisis that's coming to us from the data centers and natural gas and different part natural gas transportation through companies like energy transfer uh the FCG ETF coal natural gas those are this is a broadening out of the commodity they trade and then there's the agricultural side. So you want to start looking at phosphates but the first move was the mothership gold platinum and platium and silver have taken forth copper the COPX is up 110% year-over-year. It was featured in our book by the way we had a whole chapter on copper and the COPX up 110% this year. So we're looking for a broadening out of that commodity trade in 2026. >> Fantastic. Awesome Larry. really appreciate your insights. Uh really really helpful. Um thanks so much for coming on. It's been too long since we've had you on. So can't wait to do this again. Maybe not in 12 months time. We'll have to do this again sooner. Really looking forward to that. And uh in the meantime, where can our audience find more of your work? >> Well, on Twitter, thank you. Thank you, Kai. We're convertbond. If someone wants a copy of our latest trade alerts, it's info with the bear trapsupport.com for the for the for our new customers. Uh yeah, join us there and uh we'll we'll talk to you next year. >> Yeah. Oh no, no, no, no. That'd be 2027. We'll have to get you back sooner. So, Larry, tremendous tremendously appreciate your time. Thanks so much for coming on. And everybody else, thanks so much for tuning in. Hope you found this conversation insightful here with Lawrence McDonald. If you haven't done so, hit that like and subscribe button and go check out his books. I've got one or both actually sitting here on my on my uh shelf behind me as well. Go go go ahead and do that. Let us know how we can improve this channel as well. We read all the comments, so put that down below. Much appreciate the support and thanks so much for tuning in. Stay healthy, stay wealthy, and uh take care out there.
The Great Rotation Has Started: Mag7 to Hard Assets | Larry McDonald
Summary
Transcript
The world is ablaze, yet the markets don't really seem to care. Since my guest has been on last, we've seen rate cuts, geopolitical turmoil, liberation day, tariffs, yet everything seems to be honky dory. If you just look at the markets, uh we have to figure out like what are the markets telling us? Cuz my guest is the author of the book How to Listen When Markets Speak. So, we need to listen. What are the markets telling us? And my guest is Lawrence Macdonald, accomplished author and also uh behind the bear traps report. really looking forward to catching up with him. It's been too long, almost 12 months since we had Larry on the program. Before I switch over to my guest though, hit that like and subscribe button. Helps us out tremendously bringing guests like Larry on, especially if you enjoy this conversation. It helps a lot. And we do want to reach 100,000 subscribers by the end of this quarter and with your support and help, we can do it. So, thanks so much for doing that. Now, Larry, it is great to welcome you back on the program. Still okay to say happy new year and thanks so much for joining us. >> Thanks, Kay. and we uh we hit how to listen market speak. We hit number one last week on Amazon Money and Finance and thanks to people like you. We we really had a great year last year. Thank you. >> Phenomenal. Yeah, I should have pulled it out of my shelf here. It's sitting back behind me as well, your book. So, um no, really appreciate you joining us, Larry. Since it's been 12 months and so much has happened, let's start with a white piece, a blank sheet of paper. Like, where are the markets at? How's the economy doing right now, Larry? Let's start high level. Well, markets um the global sovereign bond markets, Japanese yields, French yields, UK, all of duration is kind of in flames where people are losing money for like remember long-term bonds made money for 20 years and there was trillions of dollars over there and um there was a lot of trust and since 2022 with the global currency debasement, we talk about that in the book how to listen market speak that global currency debasement is what's been driving capital into hard assets but what we haven't seen yet is really money dramatically leaving technology we're starting to see it uh the mag 7 is down about 2% 2 to 3% since October with silver platinum platium uh hard assets even global value by the way global value is outperforming the mag set by 14% since October. That's something that you have not seen in the last really 10 10 to 15 years except for maybe in 2022. So it's a real global regime shift which is massive. We we'll talk about that because I really want to understand like what is driving that and what how are you picking up that momentum shift as well and is momentum picking up of course as well based on what you're saying here. Well, you know, this this uh if you look at the Trump team, they want to they have a populist agenda. Uh Trump really won over labor unions in the United States. He he stole a lot of that market share from the Democrats in 2016 and in 24. So, he's got this populist agenda. He's going after credit card companies. He thinks he's saying defense contractor CEOs are making too much money. And then now he's going after MAG 7 through this what I call a backdoor a backdoor windfall profits tax on the on the MAG 7 that are really about to dramatically alter electricity prices this weekend in our turning point report. We go through the different parts of the United States. Arizona electricity costs are up, you know, 20 25% last couple years. And so if you're a populist like Trump or any kind of populist, you can reach out to voters and say, "Hey, billionaires in Silicon Valley are making money off of your pain, and we're going to tax those billionaires through this power auction." And so that's kind of that that's that's some of the things that are going on that's starting to drive money out of MAG7. >> It's not just driving money out of Mac 7, it's driving money out of the US. If we were to entertain that thought for a second here, um, talking about capital rotation in general, like what what are your thoughts on that topic? >> Well, remember there's no I in team. So behind me, we run a Bloomberg chat with hedge funds, mutual funds, and pension funds in more than 20 countries. We started this in 2010. So when I share ideas, it's from that intelligence gathering behind me. And as I talk about in the book, it's all about finding great mentors around the world and building their trust. And what I found fascinating in the fourth quarter, we do these we do ideas dinners in maybe 10 to 15 cities around the world a year, Zurich, Geneva, London, LA. And we hosted some events in the fourth quarter in Florida. And what I found fascinating was when I see two to three talented chief investment officers that don't know each other that come to our dinners or they're in the chat and they're all saying the same thing about a trend shift. And one of the points that they've made is that global value is outperforming out double the S&P last year like you said global value money moving out of the United States. But in recent months that that outperformance is picking up even more steam. And the point they made to me is that if you look back the last 50 years, when you see a move like this that's that big from growth to global value, US to global value, it's never been a one-year trend. It's always been a five, six, sevenyear trend. When I was on the floor trading floor at Lehman Brothers, our first book, a colossal failure of common sense, the inside story about the collapse of Lehman, that was a New York Times bestseller. And the story in there I tell is I'm on the trading floor at Lehman Brothers in 2003, 2004. I would go around and talk to the very senior managing directors, the the best and the brightest of the firm, and they were all long, all long European equities or global value. Uh the trade was really outside of the United States for many many years. And I think that that's that trend shift is is happening again. >> No, we're absolutely seeing that. You're you're you're absolutely right. But the question is like how quick is momentum a two two to 3% you know drop in the max 7 is is that significant yet to call it a trend change that's sort of maybe the question behind it as well um is is that significant enough to sort of trigger that thought >> well remember um three years ago today early January say early January 2000 uh three years ago today the NASDAQ 100 had about 12 a.5 trillion 12 half trillion and in recent months it's reached 30 33 trillion. So 12.5 trillion to 33 and and it doesn't take much capital. Um just look at the gold miners for example. So we were we were very long as you know the gold miners the last couple years was painful had a great year last year but the all the gold miners in the world were only worth a year ago or so $270 billion. right now they're up near getting close to 800 billion. So, so the gold miners glo gold and silver miners globally um it didn't take much capital just a little bit of capital came into a very small pond and it's that's the same thing with say natural gas equities or global value there's just not very much capital there's more money in Nvidia and Microsoft than there is pretty much in all international equities combined I mean it's like like like the whole world like it's just there's too much money in in concentrated risk spots and that money is now diversifying out globally. So just it it doesn't have to be my point is it doesn't have to be a huge you know multi-t trillion dollar uh migration if just one or if just $1 trillion leaves a crowded pool these other pools are so tiny that you can get 100% moves in certain certain equities. I think that it's it was that context that we were missing or that I was missing to that point like 2.3 two to 3% doesn't sound like that much but if you take it from trillions that's billions that are being moved right so and that it is a massive move so and it has shown up the question though and we let's stay on the gold miners let's stay on gold and silver here for a second um but where where has that money come from now let's take it the let's ask it the other way around has it come from tech or is there other are there other factors at play. Maybe it was just so massively undervalued that it wasn't just tech, but maybe other money that came into it as well. >> Well, what we call the DCF model in the book, there's a ch there's a chapter in the book where we talk about the DCF model, discounted cash flows. And the reason why that's important is that when you're in a long-term disinflationary like disinflation regime where rates are heading lower, inflation's heading lower year after year after year for 10, 15 years, then you're a lot of money moves into software companies, it moves into growth stocks, it moves what we call long duration type equities. Uh but when you go into a period of extended inflation, inflation's been extended now even though it's come down still crazy since 2022 on an aggregate basis and bond yields are much more much higher globally. And that means the bond prices are down, yields are up and so the money really has come uh out of long duration equities like software for example and has come out of bonds. And that means that the reason why value tends to outperform in these kind of elevated inflation interest rate regimes is that is all part of that discounted cash flow model where companies that own assets in the ground, companies that own assets in general uh are going to really do much better historically. That's what's happened. They've done much better in that higher interest rate geopolitical multipolar world that we had from say 1968 to 1980. That's kind of the message of our book is that that's what creates that migration of capital is that is people using that DCF model and say geez I don't want to be long long duration equities. Just think about software. If you have a billion dollars of cash flow over 10 years and there's certain deflation, that cash flow is actually worth more. But if you have a cash flow over 10 years of a billion dollars and then there's higher interest rates and higher inflation, that that capital that that those cash flows over 10 years are worth less. And that's what drives capital into global value and in into hard assets. >> Well, that that move has been long overdue in the gold space because it has been neglected for over a decade. Right. The question is how much gas is left in the tank now, Larry, after that massive runup here that you've just mentioned as well last year. Um some of the indices like GDX, GDXJ up 180% or 280% over two years. Um how much is left and what do your valuations model tell you right now? Well, this the amazing thing is because gold's moved up so much, you know, some people Adrien Day, we sit down with Adrien Day in our book, one of the probably the most most famous gold connoisseurs, gold mining uh company uh connoisseurs in the world. And I was just talking to him last week. He's in our Bloomberg chat. He's very helpful. And he's like, you could argue the gold miners are cheaper today because gold's up so much and silver's up so much. Um, another thing that we're seeing is companies and countries or people like Elon Musk or Samsung, companies that need silver on the solar side or on the EV side, uh, they're now going contracting directly with mining companies. And so, we're in a bull market in gold mining and silver mining. But you got to be careful because the extension is just parabolic. So, you're way above the 100 day moving average. way above the 50-day. In a new bull market, you want to try to buy that 50day moving average by that 100 day. We're not there. We're still very extended. So, what we've done in our trade alerts, we've taken down gold and silver uh dramatically, and we've kind of added to a broadening out uh thesis. In other words, natural gas equities, coal. Uh we've really kind of reallocated some of our gold and silver uh portfolio into a more broad commodity basket. >> What kind of gold price assumptions did you make when you when you do those models? Do you use spot when it comes to that? >> Um well in terms of in terms of um analyzing the Yeah, exactly. analyzing the so what Adrian Day will do and what we did in the book and he'll look at okay the value of the companies the the what we call the enterprise value the cash flow and looking at like that that spot price and if it stays there for 12 months you know what's the cash flow look like over the next 12 months out of these gold mining companies and yeah it's it's pretty spectacular growth in in cash flow >> yeah the reason I'm asking like the the the analysts of the main street or the house street bay street banks here are just uh just increasing their long-term uh gold price forecasts as well um as as we speak here. Last week, Raymond James went to 3,300 from 2,900 and one of the other banks I forgot went to 3,600, I believe. So, they're just upping their price models um long term, which that's why I'm asking like cuz I'm trying to figure out how much gas is left in this tank here cuz price multiples and Pavs um are are coming down if you adjust for gold for higher gold prices or even calculate that spot. And to to Adrian's point, if you use spot in all those models, I think gold the gold miners are still they're cheap, right? So, um, that's why I'm it's like I'm asking like why are you feeling the need to >> remember they're they're very they're cheap, but the amount of tourists that have come in are just don't get me wrong, gold miners are cheap and they're on their own, but when you have like a very large number of new tourists that get off the bus, you know, picture of the heavy set guy with the camera and the Hawaiian shirt, you know, this is not the these are not sticky investors. They're they're hot money. They they they chased they were chasing semiconductors, whatever it is. They were chasing biotech. Now they're so when the tourists get off the bus, you got to be careful because that gold and silver miners are extreme high beta. They move twice as much as the market. And so you could easily get a 30% move down in the gold miners like that, you know, and that's where you want to that's when you want to think about, you know, building a position. >> Okay. No, fair fair enough. The easy money has been made. it was easier to make 100% returns 12 months ago. That that uh I fully agree with. Right. So now it's a stock picking pickers market and you got to be really choosy uh as well. Um I want I want to zoom out again like maybe maybe to one of the first points you've mentioned. I think it's really important to talk about it is the Japanese credit market and what we're seeing there as well. You you touched on it in the beginning. Um we're seeing a fundamental change there as well. I've been mentioning it in other interviews. the the yen carry trade seems to be unwinding. I'm not sure if it's dead yet. I'm curious to ask you now. Uh is the yen carry trade dead? And should we be paying closer attention to it than we are right now perhaps? >> Well, we had a big unwind in the summer of 2024. And that was one of the craziest periods uh for the VIX in August in a long time because August is typically a low ball month. and the VIX went crazy and the yen yen carry trade kind of blew up and you know when we really pressed our best clients so some of our clients are really strong in this area nobody could really quantify how like what percentage of the car trade is unwounded and then and then since then it's calmed down but now yields are back up again and I think there's definitely some risk there to global yields because for the last say two two to three decades, Japanese government bonds were like kind of the planet earth's bond anchor. Uh it's a major bond market in the world and you had very very low yields in this disinflation regime. Now those bond yields are normalizing higher and that's in some ways that's bringing us up yields up with it. The other thing that that nobody's talking about, but we see a credit crisis kind of starting in what what's called the private credit space. And think about private credit globally close to $2 trillion in private credit, two trillion. But 300 billion of that was promised to investors was quarterly liquidity. and a lot of financial advisors around the country and around the world were promised this quarterly liquidity to get them into the boat. And this to me and and this is what I'm getting from a number of institutional clients. Once again, when three people that don't know each other are kind of saying the same thing to us that are really talented credit people, this kind of gets the back of my, you know, the hair in the back of my neck moving up. And yeah, it's very clear the triricolor first brands thing and now uh coreweave and the data center financing. Uh if you if you don't get these data centers up and running, there's a lot of debt that's tied to them that's either in the high yield market or the private credit market that could really blow up and hurt the banks. So that this is something that we're seeing we're seeing people get out of the financials. JP Morgan's trading at 2.6 times book, right? screaming sell. Think of think of Goldman Sachs in 2007 at the top of the market. It was trading at 2.1 times book. This week it traded last week it traded at 2.3 times book. So get out of the financials. There's there's a big credit problem coming here. >> No, it's it's interesting like um I had a guest on. I forgot the name who who mentioned it on the program cuz he he said buy banks because AI is going to make them so much more efficient and margins are going to explode. Counter thesis. What are your thoughts on the topic? >> Hold on a sec. That thesis literally this this is the key to investing, right? That thesis is 24 months old, right? So when you jump on a a a thesis or you need to know like how long it's been out there festering. I mean, we started hearing that 2000 spring spring summer 2024, right? And now we're coming in the spring summer 2026. Yeah, that's true. Now, if you look at the JP Morgan conference call, if you look at Mike Mail, he was pressing Jamie Diamond, same thing on the Bank of America about this capex and the return on invested capital. And guess what? There were some crickets. There was actually a confrontation between Mike Mayo and Jamie. Uh cuz Mike's like, "Hey, where's the beef? You've invested all this money for the last almost three years now, billions of dollars. Where's the return?" So be very careful when you have and you want to press your guests on this. When a guest gets gets out there and touts a 24 month stale narrative, you know, that's long in the tooth for sure. >> No, absolutely. I'm not sure if it's just because the market isn't mature enough yet and we haven't really seen it trickle down or not not trickle down but just really being incorporated for lack of a better term here and whether it just takes longer to see that >> well in the end it's mystery me it's mystery me like it there's no question AI is going to make banks more profitable the question is over what period of time right and and the speed bumps along the road and you know then then there's the testosterone right the testosterone. They're all like trying to outspend each other. Jaime's spending a billionaire. Oh, I got to spend. Then the guys in the Valley, Zuckerberg going up against Larry Ellison. It's the it's it's, you know, it's it's almost like the uh the battle for the nuclear weapon, right? And the Dr. Oppenheimer, that insane mad moment where everyone's just trying to outspend and outdo the other guy. And oh at the oh by the way at the end of the day that's now look at look at Oracle stock look at meta stock look at Microsoft those stocks are acting really really ugly and I think it's because of that overinvesting testosterone you know over overdose >> no abs absolutely and you you touched on it private credit and the commercial real estate market as well I want to dive a little deeper there um we're getting stealth QE they don't call it QE I'm not sure what else to call it quite honestly non QE BQE and maybe $200 billion in mortgage back security purchases as well on top of it. Um, how fickle is is the mortgage in the housing market right now? Um, is that the maybe the what do you call it? The iceberg that sinks the Titanic. Trump, the team Trump uh I was in the White House a month ago. Uh, they're very nervous about the housing market in terms of affordability into the midterms. Uh, affordability. Uh there's a reason why the University of Michigan University of Michigan consumer confidence is below September 2008 levels. It's well below COVID. Consumers are stressed out. Their expenses have gone up 30% since 2022. Um it it takes like $140,000 a year of income to afford a home today. And so yeah, there's all of this agenda heading into the midterms. the homebuilders are actually bouncing quite a bit because this has been this narrative has been out there several months where the White House is going to do something with Fanny and Freddy. Uh there's an extra $200 billion in inside of Fanny and Freddy under the cap to uh to to get that money and try to make, you know, to try to help on the financing side, but that's just going to that's not going to bring down home prices, right? That's going to bring in more buyers, which that's helps makes makes it more affordable from a financing perspective. But yeah, this is a big big uh problem and uh especially an election year. >> Oh, absolutely. Because it all comes down to liquidity as well and like what is what is available to the market. Now we've seen the Fed cut fund fed funds rate but mortgage rates haven't really come down as well and um the point with liquidity is that you you touched on a credit card a cap on credit card interest um is also a two-edged sword. Uh because one one side says, "Yay, cheaper refinancing and my credit card bill is getting lower." Uh the other side is like, and that's more where the camp I'm at is, well, are the banks really going to issue any more credit cards if uh they don't get the returns they want because the risk is going higher? So, I'm curious, what camp are you in, Larry? You know, I look at the Fed funds rate in 2007 um was even higher than it is now, right? It's like four and a half, 5%. And credit card rates were on average and I went through Grock and I looked at this. I loo went through a bunch of different reports. Credit card rates on average nationally were four to five maybe even 6% lower. So what these guys have done at Capital One and all these guys very sneaky every year they just kept and remember I'm a I'm a free market capitalist, right? I don't like controls. I don't like government intervention. But there's a point where uh capitalism gets a little out of hand and they've been kind of raking the little guy under the coals. And this bottom line is we're paying the the Mr. Mrs. Joe lunch bill are already getting hit over the head with the inflation bucket for the last 3 years, 30% higher prices and credit card rates are 500 basis points 5% higher than they were in 2007. So with a lower Fed funds rate. So you something's something's got to give here. I mean, I think Trump's trying to threaten once again. He's he's going down these populous angles, right? He's going after the credit card companies. He's going after Mag 7 uh on this on this energy auction thing. Um but remember remember something important about when you when you try to stimulate into the midterms, then you know the Fed's cutting rates. The Atlanta Fed GDP is at 5.1%. Atlanta Fed 5.1%. And we're cutting rates and like you said, the Fed balance sheet is expanding now. It's a Fed balance sheet. It's growing. So, we're actually doing QE with and and cutting rates with with 5% Atlanta Fed GDP and a and a fiscal deficit close to 1.9 trillion, which is almost 6% in GDP. This to me, the story of the year is a big inflation bounce uh probably later in the year. the Trump Trump team's not going to be happy with that into the midterms. >> Elaborate on that. How will that sort of manifest? Like how are we going to see it? When we say inflation, are we talking 2 3%? Are we talking 8 9% hyperinflation even? I'm curious what your thoughts are there. >> Well, the good news is there's a lot of deflationary forces in the world coming out of China, coming out of AI. So, I I I don't see the hyperinflation, but we've come down a lot. Like, the year-over-year CPI numbers are going to be harder and harder and harder to beat. And and then when you have this much fiscal, you got a $1.3 trillion capital expenditures coming into data centers, then you have a fiscal deficit of 1.8 8 trillion 1.9. Uh, and then you have a lot of Trump gamesmanship coming in through stimulus into the midterms to try to support, you know, housing and and tax on tips and all these things. Yeah. So, do we get a bounce back to four and a, you know, 4% inflation, four to five? Yeah. Not back to eight or nine. No. uh reversing that like what the what should the Fed do then maybe or what do you expect the Fed to do maybe by the end of the year? Keep in mind we're getting a new Fed share here in May as well. Um do you think they'll change course then? Like are they going to hike rates in Octo September October again? Well, JP Morgan had like like over the last six months, JP Morgan had a lot of cuts for 2026 and 27 and now they've actually gone taken the cuts out and put in hikes. So, it's interesting when you start to see one bank start to go the other way. That's going to really get you listen to that, right? That's different. And um you know, Rick Reer, Hasset, Walsh, they're all going to be Trump Fed chairs. Um, Trump still has to control the rest of the Fed. The Fed's going to be probably be very very divided, but I I just don't see how the Fed can cut that much more with, like I said, 1.3 trillion of fiscal spending, you know, that 1.34 trillion of of data center spending and all the other it just uh inflation is at the end of the day is normalizing. In the last 20 years, inflation was like 1 2%. The new norm is 34. And that means that investors watching us right now need a whole new portfolio construction. Before we get to that, because that was going to be my last question. What should investors do going now or through 2026? I I just want to come back because the your last point that you just made on inflation and Fed cutting rates was something we've said all along like why cut into this environment and they've cut three times into this environment using employment as the scapegoat here. Is that the real reason? Should we be worried about employment or is that just fake news here? The labor market is soft um but it's not soft enough to justify all these cuts. No way. And I think at the end of the day, they're admitting that, and this is the point we make in the book, how to listen when markets speak. When you have a $ 38 trillion debt hole, the only way out of that is massaging interest rates below the rate of inflation. And that's how you monetize the debt. But they won't come out and say that because that will send everyone to a massive panic, right? They still have to pretend that they're defending that 2% target. But if you read carefully between the lines of all the different Feds speak and all the different public uh statements, it's very clear they're much more at the Fed and Washington, they're really starting to embrace this 3% inflation instead of 2%. >> Uh they would never say that publicly though that they've switched targets, right? So um Larry, we've covered a lot of ground in this conversation. We a lot of asset classes, a lot of like market moves here as well. Um, and you touched on it already, like what should investors now do with their portfolios in 2026? And again, this is not financial advice. Everybody's situation is different, so keep that in mind. But, uh, if if you had $100,000 to invest, how would you split that up? >> Well, once again, uh, we're at the early stages of this global value. So, uh, the EWU type portfolios, CVAL, uh, portfolios that are in global value equities are going to probably outperform the S&P. We're in the first year of that outperformance. Probably going to go three, four, five years. natural gas equities are going to really really I think I think you could have two three four baggers in some of these natural gas equities with the amount of power crisis that's coming to us from the data centers and natural gas and different part natural gas transportation through companies like energy transfer uh the FCG ETF coal natural gas those are this is a broadening out of the commodity they trade and then there's the agricultural side. So you want to start looking at phosphates but the first move was the mothership gold platinum and platium and silver have taken forth copper the COPX is up 110% year-over-year. It was featured in our book by the way we had a whole chapter on copper and the COPX up 110% this year. So we're looking for a broadening out of that commodity trade in 2026. >> Fantastic. Awesome Larry. really appreciate your insights. Uh really really helpful. Um thanks so much for coming on. It's been too long since we've had you on. So can't wait to do this again. Maybe not in 12 months time. We'll have to do this again sooner. Really looking forward to that. And uh in the meantime, where can our audience find more of your work? >> Well, on Twitter, thank you. Thank you, Kai. We're convertbond. If someone wants a copy of our latest trade alerts, it's info with the bear trapsupport.com for the for the for our new customers. Uh yeah, join us there and uh we'll we'll talk to you next year. >> Yeah. Oh no, no, no, no. That'd be 2027. We'll have to get you back sooner. So, Larry, tremendous tremendously appreciate your time. Thanks so much for coming on. And everybody else, thanks so much for tuning in. Hope you found this conversation insightful here with Lawrence McDonald. If you haven't done so, hit that like and subscribe button and go check out his books. I've got one or both actually sitting here on my on my uh shelf behind me as well. Go go go ahead and do that. Let us know how we can improve this channel as well. We read all the comments, so put that down below. Much appreciate the support and thanks so much for tuning in. Stay healthy, stay wealthy, and uh take care out there.