Buy Real Assets Like Real Estate, Gold, Uranium, Oil | Larry McDonald and Jimmy Connor
Summary
Hard Assets Rotation: The guest argues capital is shifting from financial assets into hard assets due to massive fiscal/monetary expansion and global policy excess.
Precious Metals: Bullish on gold and silver with central-bank demand and financial repression as drivers; suggests a staged buy strategy using GLD levels and highlights silver’s relative value.
Energy Equities: Strong pitch for natural gas and coal stocks, citing AI-driven power needs and high free-cash-flow yields; highlights AR and RRC as beneficiaries and expects these to outperform tech.
Oil Equities: Despite efforts to keep crude prices low, oil stocks remain cheap with structural supply limits; potential rotation from mega-cap tech into Energy supports OIH-type names longer term.
Copper Allocation: Advocates rotating a slice of gold gains into copper (e.g., COPX) given extreme gold/copper and gold/oil ratios, signaling early innings of a broader commodity bull.
AI Arms Race Risks: Notes vendor-financing dynamics and aggressive depreciation in semis and hyperscalers with potential blowoff risk; cites NVDA and META as central to the debate.
Credit Stress: Warns of a developing private credit and subprime-like cycle impacting software lenders and BDCs, alongside regional bank stress and consumer finance weakness.
Liquidity, Dollar, Leverage: Tightening liquidity and a likely weak-dollar trend favor commodities; elevated leverage via products like TQQQ and new high-beta ETFs raises blowoff and reversal risk.
Transcript
[music] Larry, thank you very much for joining us today. I recently read a copy of your book, How to Listen When Markets Speak. Very much enjoyed it. And I'm curious, how long did it take to write this book? Well, uh, it took, we started in 2021, uh, Jim, and what happened was is that the publisher wanted to make a big change. Uh, the end of the book had kind of fiction looking forward and the publisher and my agent had this idea and they basically demanded that we and it was a great idea, demanded that the second half of the book is about portfolio construction in the new era, the new regime. And that was a very good change uh to the book. So in the end we started in you know 2021 finished and got it published in print in the first quarter of 2023 and it's been in the top you know top five or 10 on Amazon all year. I'm blessed. I'm very grateful to everyone and I as a former Leman trader Jim I tell my wife once a month if we sell a million books we'll break even on our Lehman stock right because our first book it's published in 12 languages is a New York Times bestseller about the Lehman crisis and this is kind of a continuation uh with the second book. Well, you and your team do a great job marketing it and I have to say uh I think the decision that your publisher made on um just developing a framework in the back half of the book was a brilliant idea because it's really it's almost like it's precient with what's happening now and and I want to start by saying the overarching message of the book is that there's seismic shifts are underway in the global financial markets and in the coming year capital will flow from financial assets or paper assets like equities and bonds into hard assets like gold, silver and other commodities. And I I want to start right here by asking you what is happening within the economy and within the global economy that is causing this seismic shift. Well, the fiscal and monetary response to Lehman Brothers and that great financial crisis in those four years after was about $4 trillion. uh the fiscal and monetary response to COVID, the regional bank crisis of 2023 and the spending into the election was about 16 trillion in four years. So 4 trillion in four years after the great financial crisis and 16 trillion after the latest crisis. So people are starting to do the math like okay if it was four trillion uh in 2008 16 trillion in 2020 to 24 what are we going to be are we at that dimension for the next crisis and that is that just is too much money printing and everyone knows the irresponsibility in Washington is just you know off the charts but we also have irresponsibility in in Paris and in Tokyo. In other words, you've got and in London, you've got governments around the world that are just all have dirty, dirty shirts and they're just massive, massive irresponsible spending. And so that's pushing money toward hard assets. So I understand what you're saying about all this money that was printed. It's just blowing up the value of assets everywhere. And it's like the NASDAQ and the S&P are making new highs every other day. And it's like it's never going to stop. And even when you see a pullback like we saw in early April with liberation day and just recently the president came out and said he was going to slap a 100% tariff on China and we had a nice pull back there but boom within you know one or two days the market's right back making all-time highs. What's going to be the catalyst to create this sell off or this this beginning of a transfer of capital going from growth stocks into value stocks? Well, Jim, we have something going on. Um, liquidity is starting to recede. So, if you look at repo, the repo market or short-term financing, that's tightening up. Um, the Fed funds rate effective Fed funds rate traded through the upper bound twice twice in the last month. That's a good that's a problematic that's a leading indicator for in the for liquidity. And then if you look at tertiary assets like say Salana versus Bitcoin or some of the what we call the the garbage coins versus Bitcoin, they're dramatically underperforming. And so when that happens is a lot it's a basically liquidity is starting to tighten. And that's because if you look under the surface in private credit there's a massive crisis coming our way. umricolor and and what we call first brands were met large defaults in the loan space and they're not systemic yet but we've had two big frauds in in private credit and then last week we had two more big frauds in commercial real estate in Western Alliance Bank and Zion Bank and so that kind of you know those four frauds in a very short period of time a lot of our clients think and a lot of our institutional clients think that there's a lot more pain to come. And then if you look at buy now pay later names like a firm or Upstart, um if you look at auto loan companies, uh if you look at any company that faces the bottom 60% of consumers, we have a really uh big kind of subprime crisis coming at us. And those uh examples that you just provided, it kind of reminds me of 2007 when um there was a couple of small funds within Beer Sterns that went I believe they went bankrupt or they ended up shutting down. Nobody ever heard of these things and they were very small but yet it was the beginning of what was to come. So do you think this is what might be happening? >> Right. In other words, the truth bleeds out one drop at a time. One of the things I talk about in our first book, New Century was the biggest subprime lender in the United States, they went bankrupt in the first quarter of 2007. And if you look it up, we were at full employment, Jim. Full employment. In other words, people thought there couldn't be a subprime crisis because everyone was working. And what happened was they had lent money to the point where if you could fog a mirror, you can get a loan. And that was on the what we call the consumer side. Today it's much more on the corporate side where the fraud in in what we call and first brands was so horrific. You know, people were like taking automobiles and and shopping them around and borrowing money multiple times against the automobile. And what happened was because we're in such a crazy bull market, there's a line in our book, How to Listen to a Market Speak. There's a line in the book and it basically states that when you don't allow the business cycle to function over longer and longer and longer periods of time, you're creating really you were putting Bernie Maidoffs on street corners around the United States. And so when we when we had this long bull market and very aggressive lending where if you're in private credit, you know, the money's coming in, right? It's coming in because you're in a great bull market. There's lots of liquidity in bull market. The money's coming in. They had to put the money to work. And Jim, it's so sickening. If you look at what they missed in these two companies, this makes me think, and I and I'm I'm talking to my my best institutional clients, there's probably there could be 10, 20, 30 more of these because nobody that was lending the money is actually doing the homework. I mean, the the Financial Times figured this out, right? And no, no, no, no, no insult to journalists, but the Financial Times did a better job of figuring these two frauds out than CLLO asset managers. Can you know why? Cuz they were had the gun to the head. They had to put money to work in private credit. It's a big scam. The bottom line is the business cycle offers creative destruction. It outs the bad guys, right? And when you don't have a business cycle and you prevent it from functioning, uh there's just pervasive bad actors that grow and grow and grow and grow. And something else I want to ask you about is um AI. Okay. And one of the concepts that's really driving this market higher is this neverending spending associated with AI, data centers, GPUs. Nvidia has committed to investing over $100 billion dollars in Open AI and in return openi can buy GPUs from Nvidia and Nvidia has also entered into similar deals with coreweave and ARM holdings applied digital and many other companies and this kind of reminds me very much of the early 2000s when we saw this with vendor financing was the big term or the term that was used. Nortell, Lucent Cisco, they were doing the same sort of thing. They were selling equipment to all these companies like Global Crossing, WorldCom, and 360 Networks, none of which exist, by the way. But do you think there's there's uh similarities with what's going on with AI and and what we saw back in the early 2000s? >> No question. Um, you know, that circular vendor financing and that's what bull markets do. Once again, bull markets and capitalism when they get really strong, everyone is so vested in the higher outcome that they will do anything to keep it going. And then if you look at the testosterone, this is a real testosterone arms race in Silicon Valley. This is like the Manhattan Project, you know, Dr. Oppenheimer, they are all trying to outspend each other. And you've got companies like Meta or or or Microsoft that were really really capital cash cows for the last decade. Cash cows. They were very profitable. Now the accounting that they're using around uh what we call you know keeping that depreciation and playing the game like you're supposed to depreciate assets that if an asset has a very short depreciation cycle you're supposed to you're supposed to account for that. But they're basically playing this game of extending depreciation and it's and it's going to blow up probably in the next 6 months because a lot of the institutional investors that we talked to that were extremely bullish Meta like I'm talking like guys that were really long Meta and long Microsoft are turning more bearish. But there's another dark side to this around around private credit. So look at Blue Owl, right? Blue Owl is a big tech lender into software and if you look at Adobe down 50% that's a software company in the public space CRM is down 34 30 almost 40%. So the public equities Jim right the public equities in software are down 50 to 35%. the big ones. Now, what is what do you think is happening to private credit loans? Right. Because artificial intelligence is coming after software and software is very vulnerable to all this capex that you're talking about. What what we what we see is there could be like a hundred hundred billion to $120 billion of bad loans in the software space because remember a lot of these are triple C quality really junk of the junk that in private credit. So, Blue Owl lends money to software and tech companies. And if you look at Blue Owl equity, if you look at some of these private credit equities like um these what we call the BDC's, the Blackstone BXSL, the Blackstone uh BDC or the Blue Aisle BDC, these BDCs in a bull market, in a bull market, Jim, they're down like 30 40%. And so that once again that's back to the whole credit crisis that's happening under the surface because at the end of the day all this technology spending in capex for artificial intelligence is going to put a lot of software companies out of business and there's hundred there's over hundred billion dollars of loans to software companies. >> That's not that's a company I'm not that familiar with. So I'm going to have to do some reading on it. But Paul Tudor Jones recently said that the ingredients are in place for a massive rally before a blowoff top. And he said the time we're living through right now, it's very much like October of n 1999. You and I both lived through that cycle. I want to get your thoughts on that. And I should remind you from October of 1999 until the NASDAQ peaked in March of 2000, it I ripped another 45 or 50%. So, if that were to happen now, like the market still has a long way to go, but what are your thoughts on that statement? >> Well, the one thing is um the NASDAQ 100 is $28 trillion, right? And um so it takes a lot more money to move the market now. Uh you need a lot more liquidity. Back then you could the the the tech stocks, you know, there just wasn't anywhere near this this kind of capital in in stocks. And so like if if you look at household ownership of equities um relative to cash, we're at record record levels. So, I'm not saying we're going to crash tomorrow and you know, nobody can predict a top. But if you look at the transports, if you look at buy now pay later names, if you look at auto finance companies, um if you look at like I said the BDC's, there's a lot of this like really look at student loans, look at Sally May down 24 25%. There's something going on in the student loan space and that's what's happening with liquidity. So you want to measure liquidity and if liquidity is receding which it clearly is um that creates like a big headwind for the market and um so all I know is like the riskreward of being long um is very poor. And so, you know, Charlie Munger, when I sat down with Charlie, I sat down with Charlie in our book, How to List with Market Speak, and I was in Omaha and he said, "Larry, testosterone is your greatest enemy in investing as a young man." And this is Charlie Mer, Warren Buffett's right-hand man, one of the best investors of all time. And I love that line. Testosterone is your greatest enemy enemy as a young man. And I don't mean to be sexist. I'm just telling that's what he said. And so in other words, you know, people want to chase. People see stocks on CNBC. There's another line in our book um around JP Morgan in 1907. He said, "There's nothing in this world which will so violently distort a man's judgment more than the sight of his neighbor getting rich." Yes, I know that feeling. Well, so I'm glad you brought this up about JP Morgan and what he said back in 1907. And we're witnessing right now like the this whole level of speculation that we're seeing right now. I don't think we've ever seen anything like this before. Like it's far greater than anything we saw in the 1990s. I spoke to an ETF manager just recently and he said there was one week in just one week alone in this month there was 250 funds that filed with the SEC for five times leverage >> right okay so ETS with five times leverage one of which I believe was the GDX and so and then there's many other things like I had a conversation recently too on uh with a Bitcoin guy and he was telling me about these perpetual futures I've never even heard of these things before, but these perpetual futures can offer upwards of 50 times or 100 times leverage. And and once again, like this level of speculation that's going on now is just I don't think we've ever seen anything like it, >> right? And and that's why Charlie Mer when I talked with him in Omaha, he said, "Lar, the big big money is all in the waiting. It's all in the waiting." Right? So, you know, at the end of the day, if the riskreward is poor, the smart money will sit in the boat. That's why Buffett's sitting on his largest cash position ever. But you get back to your point around leverage. The TQQQ, uh, which is a levered NASDAQ 100 ETF, a year ago today, it had $15 billion. Uh, now today we're near 32 billion. So, it's doubled its assets under management. And for a long time, assets under management went practically nowhere. So you've got like you went from it went from say 5 million to 15 over a long period of time and then 15 to over 30 in a short period of time. And so yeah, so when you see the tourist, the speculators coming in in that kind of manner, sure the market might go up another 10%, maybe even another 20%. But those types of moves are not uh typically those types of moves are blowoff tops where you know you get a big move up and then a big move down and and so you just want to be listen to Charlie Munger. It's all in the waiting and you know raise cash and be there for when the opportunities really come. >> Yes. And you're right. We never know what the catalyst is but it's going to come and sometimes it's just physics, right? Like you throw something up in the air and at some point it just has to come down. But if you compare what we're seeing right now to the early 2000s when the market, the NASDAQ and the S&P topped out in March of 2000, in the ensuing two years, the NASDAQ lost 78% of its value. Do do you see the same sort of thing happening this time? >> Yes. I mean I completely agree with your lucent global crossing analogy, Sun Microsystems, that whole ecosystem of Cabal of Cisco. They were just it's it's a lot similar. Um we were fortunate I started ConvertBond.com in the '9s. We sold it to Morgan Stanley in October of 99. It's the best trade I've ever made. October of 99, we sold ConvertBond.com to Morgan Stanley and and you know, four or five months later, we got nothing for it, right? Uh so, so I see I lived through that period. I I see the same accounting. Here's another thing. I was in Puerto Rico uh this past week and I sat down with Harry Marcopoulos who outed Bernie Maid off and you know he makes the point you remember uh in the early 2000s we had all these frauds Tao Adelfia Enron Sunbeam with you know Shady Al Dunlap and that's the it's the same thing like everyone's focused on the tech crash but it's the accounting ing uh that goes on during that period where a lot of bad actors if you looked from say 1999 to say 2003 there were there were probably 15 20 Tao there were 15 20 companies remember Jack Grubman the whole jacket caught up in this and it was an analyst that ended up getting in big trouble with the SEC they were all in on this game and the accounting was so bad and that's that's what u that's what Harry is saying and this is the guy that outed um you know outed outed Bernie Maid off and he says like he's we're at the stage now where there's so much fraud and there's so much bad accounting it's all going to you know explode to the surface the way it did between 2000 and 2003. It's not just about tech. It's about really really horrible financial accounting and really aggressive accounting around around profits where the companies are just nowhere near as profitable as it looks. And so when he was talking about the uh risk associated with tech stocks, is he talking about the self-deing that's going on or these maybe they're not related party transactions, but you know uh Nvidia giving a hundred billion dollars to Open AI so they can buy their products. It's basically just like a circular Ponzi scheme. >> Well, you know, in our Bloomberg chat, so we host all these different institutional investors in more than 20 countries. And what I have is I have what I call a cage match. You ever seen the cage matches where I put, you know, a bull and a bear in a room, whether it be a WhatsApp or a phone call or a conversation like this, and Jim, they fight to the death. And it's wonderful because I learned so much and it's just an intellectual fight. And what I've noticed over the last month, there's a number of people that were really bullish on the Mag 7, bullish on the semiconductors for a lot of momentum reasons, but because of this accounting and because of these gains with depreciation, and remember I was in Puerto Rico last week at the ideas lunch and the ideas dinner and I'm hearing from like really sophisticated accounting people that the games that are going on around this depreciation because it's a testosterone fighting match. everyone has to compete with the they have to push the envelope because the next guy is spending so much money. So the accounting is getting worse and worse. And so this depreciation game around, you know, around the chips. Um I think I think companies like Meta are massively uh exaggerating their earnings because they're not really doing the proper accounting with depreciation. And you know, this is something I don't want to make an accus accusation against the company, but I'm just telling you what people are telling me. like very sophisticated accounting people are telling me that there's a lot of companies not just Meta that are using because they have to they're in that arms race they're just really pushing that envelope to a very dangerous spot. So the growth stocks are at risk okay of getting hit and coming off significantly. So one of the themes you touch on in your book is that there's going to be this massive flow into real assets like gold like silver platinum copper etc. And gold is having its best year since the 1970s. It was up 25% last year. It's up over 50% this year. Many of the gold equities finally came alive in the second half of the year. Pneumont barrack at Nico are all up over 100% which is good to see. And my only concern though about this whole gold trade is that Jamie Diamond, who doesn't have the best record when it comes to calling markets, but he recently said that in today's market environment, gold could easily go to 5,000 or $10,000. And he went on to say that one of the few times in his life, gold is a semi-rational investment. And uh like I said, he doesn't have the best track record when it comes to making calls. But what are your thoughts on gold? And even though we've seen some weakness here in the last few days, are you still bullish on it? >> Yes. I mean, we're bullish, but but the percentage of gold above the 200 day moving average, the percentage of gold above the short-term short-term moving averages are very very extended. So, what happens is at the beginning stages of a of a new bull market there, by the way, there's no retail buy in on gold stocks or gold yet. um se silver too if you look back to the to the 80s and early 90s I mean gold and silver were three 3% of what we call household wealth assets uh and now you know you're below 1% for to a large degree and so especially for more for silver than gold like the gold silver ratio is you know trading around right now 80 it should be probably in the 60s so I'm much more favorable to silver than gold the one thing gold has for it is it's you 20 plus24 trillion dollar pool of wealth that central banks that have been hit over the head with sanctions and the last 20 years by Republicans and Democrats and then when you saw the the the the tariff I'm sorry the war in the Ukraine with that confiscation of Russian capital from the central bank. So the United States has been there's a line line in our book around the hubris hubris in Washington around aggressive use of the sanction that's forcing all these central banks to be more aggressive and then they look at the deficits and that's a double whammy. So they have the they have the hubris in Washington around sanctions and confiscation of capital and then at the same time they're looking at unsustainable deficits in Washington. So that's forcing them to own more gold. I would just say the sexiest trade on the board that is really unloved right now coming to the new year, I mean coming I guess fourth quarter, we're coming to the new year in maybe 3 months is is the natural gas equities, the FCG ETF or AR equity range resources RRC. Um, these stocks, these stocks are trading with 12 to 14% free cash flow yields. And as we talk about in the book, natural gas is the only way, Jim, to the green meadow. Eventually, we're going to be there with solar and wind and all that, but it's really carbon neutral. 2050 is really carbon neutral 2100. And now AI and artificial intelligence has placed a whole new higher bar on this. And so you can buy and another fascinating thing about Antaro endrange resources, they're generating so much free cash flow, right? The most free cash flow that they probably have in a decade. That's why that free cash flow yield is so high. They're buying back stock, Jim, like at record paces. And so there's there's the company underneath the surface buying back stock because they know artificial intelligence needs more power. Coal natural gas equities and Nvidia right now at 4.6 trillion. I think the natural gas equities and the coal names are going to destroy Nvidia the next 24 to 36 months. Absolutely destroy in terms of performance. I have to be honest, the uh coal stocks, that's another sector I do not look at. So, I'm going to have to check it out. Now, you mentioned you had a conversation with Charlie Munger and uh I got to tell you, he's got some of the best quotes and or he had some of the best quotes, but one of his quotes that I always remember um of course him and Warren were against gold as an investment, but he said, "Even if you make money trading gold, you're still an idiot." And I was cur I'm curious if you ever brought up gold with Charlie Munger. >> Um I didn't uh you know gold was out of favor then. Um but cuz we had that peak in 2011 and I think we sat down in like 201 you know 121 13 but I didn't talk with him about gold but you know he just hated the leave in management team because it was a almost almost an $800 billion bankruptcy and he wanted me he wanted to know some of the insights because I was I was I was an insider in Lehman Brothers. He wanted to know what really happened uh at that big bank that blew up. So Jamie Diamond has a very aggressive target price for uh gold 5,000 to 10,000. But do you have one? >> Yeah, I think you know 40 42 to 4,400 in the next year and a half year is uh very very likely. Let's say even a year. Um I just think that once again um here here's the bottom line. When you go, that's what I was trying to say earlier. When you go into a new, look at Camo or uranium in say 2020. You go into a new bull market and you've got a sector that's been unloved for a long time. Think of oil in 2020 as well. You come out and you get this big move in the mothership. So oil move first in 2020 and then it moves into the to the equities and then it moves towards silver. But the point is, you get this big first move where the tourists come in. Jim, just picture the heavy set guy with the Hawaiian shirt and the camera. You know, you got a lot of tourists that are coming in because households don't own gold. U the GDX, the GDX is actually had outflows in many parts of this year. So, people don't own gold stocks and the percentage of gold stocks is a percentage of the S&P 500's market capitalization is still a joke. So, it's like two things are happening at the same time. You got a a big bunch of tourists that just came in that are creating these extended extended levels. But then when you look at the historical references of gold as a percentage of the S&P 500 or gold stocks or just gold itself in terms of household wealth, those things are still still telling you that you got a long you're basically in the first, second, maybe third inning. And I'm glad you brought that up because I was going to ask you uh what would you say to people if they if they have not invested in gold yet and they feel like they've missed it and they think that it's gone too far too fast. What I would do is I take a a one quarter position and typically in a new bull market look at the 50-day moving average. And so what I've seen over the year, this is a great technical. When you go into a new bull market, you want to buy the 50-day moving average on the GLD. You can talk to your financial advisor. Come to us. We're at the bear trap support. You know, you can come to info at the bear trap support. We can help you with that. But yeah, that new bull market, that 50-day moving average is the buy. So if you buy a quarter position now, uh you buy another quarter position near the 50-day, you get down to the 100 day moving average, you buy another quarter position. So then your average cost is in a very good shape. The other thing is the the tertiary metals are a lot uh smaller like I said silver and platinum and platium u the total value of all the platinum and platium in the world is only you know maybe four 400 I'm 400 billion right so platinum and palladium are 400 billion uh bitcoin is around two trillion and gold's up there 24 24 trillion so there's just not a lot of money in some of the tertiary plays and that's that's another another good way to diversify. >> So, you're suggesting if we get any pull back in gold, silver, platinum, it's only a buying opportunity. >> Yeah. Right here, we're still early innings. Uh the Fed's still printing Trump. Remember what what's happening is the biggest thing that's happening is financial repression. So, interest on the debt's like a trillion dollars. The Trump teams knows that. Maybe more than a trillion. So, they're trying to like push down interest rates. They're forcing the banks. Jim, we have an incredible chart we put out this morning. So, even though the central bank balance sheets come down in terms of ownership of bonds, the banks have gone up through the SLR, through regulation, they're forcing the banks to own more treasuries. And when they're massaging interest rates below the rate of inflation, that's what we call financial repression. And that's what's a big driver historically of money into hard assets. The other side of it is that the economy slows down like in the 80s or like in in a period of say 2008 to 2010 and all of a sudden your tax revenues come down. Think of your tax revenues right now I think 4.5 trillion bucks. If your tax pre revenues come down to say 3.7 trillion and your spending still way up there, then you know that's another that'll really get the dollar weaker and then you're off to the races with hard assets. So, and let's look at it. We haven't even broadened out. The first stage of a commodity bull market is typically oil. I'm sorry, that's the last stage. Typically gold, gold miners, platinum, palladium, all strong. Um, copper names are strong. The gold copper ratio here is another important thing. The gold copper ratio, Jim, is still below COVID level. So, in other words, you want to be buying, you want to be taking down your gold exposure to buy copper right now. But then the next stage of it is the coal, you know, the agriculture names, uh, natural gas and oil. That's should be like so that's the progression. And so we we're not even at the stage where the where the agricultural side is really even performing. So you know that we're only in the second or third inning of a large commodity bull market. So we can't have a discussion on gold without talking about the US dollar. And one of the chapters in your book is called the decline of the US dollar. Thus far year to date it's down 10% measured against the DXY index. Where do you see the dollar going ultimately? Well, in the near term, it's been very oversold. So, we're bouncing. Um, but I think that this this subprime slashprivate credit crisis um that's developing, you saw in recent weeks, some of these regional banks were down, we're talking like 25 30% in a short period of time. Some of the regional banks, I mean, that's like, so that tells you there's there's some big losses there. And then we talked about the BDCS, the business development companies that that Blackstone portfolio um BX uh SL and so they're they're down 20 30%. So if if if the economy slows down, which I think probably will over the next year, uh that's where you get a much weaker dollar uh and the Fed will have to cut more uh rates to kind of keep the economy uh afloat. And then that that feeds on that dollar weakness. So yeah, the dollar, you know, you get a counter trend rally here, but you're in a bare market. And so the dollar peak was that November 2022, and that was when the Fed was aggressively hiking. Now we're in a situation where they they're not going to be able to hike for a while because the economy is weakening, the labor market's weakening, and so that gets you lower, what we call lower highs in the dollar for the next, you know, year and a half, two years. And that's another bullish component of hard assets. I got to ask you about oil now. You mentioned you're very bullish on on that gas and and coal, but oil has been under pressure. And something else I saw in your book, you you bring up a story uh with the former Treasury Secretary James Baker, and during the conversation you had with him, I guess it was back in the 80s, but he said that controlling the price of oil in the 1980s was paramount to controlling inflation. And here we have oil now, West Texas below $60 a barrel. And I want to get your thoughts on this. Do you think this is a sign that the US is just pumping out as much oil as they can and maybe they're also working in conjunction with OPEC to keep the price of oil down or is this an indication that the global economy is slowing down? Well, very similar to to the point we make in the book. Uh the US was in a cold war with Russia and yeah, Baker's point, and I thank you for bringing that up. It's it's a great scene in the book where they were trying to put pressure on Russia um in the cold war. We were coming out of this nuclear arms race where the United States and Russia were spending spending a lot of money on nuclear [clears throat] weapons and we would essentially they figured out if they pushed down the price of oil they could out they basically could outflank the Russians and um it's similar to today. Trump needs oil down and he needs cooperation from France and and the Europeans because they're they've been buying so much natural gas from Russia. So, we've put up $300 billion toward a war and they put up far less. But to make it worse, they're buying a lot of natural gas than they're buying oil. So, our allies are supporting Russia. So, Trump wants to put pressure on the allies to stop buying natural gas and stop buying oil. And then he wants to drive down. The Saudis are helping him. There's no question. Trump's been over there in the last 6 months. He and MBS are really good friends. uh you know the prince in the kingdom of uh Saudi Arabia. So yeah, so it's very similar to the 80s when they want to push down the price of oil, put financial pressure on Russia. That financial pressure will force the end of the war. They want to keep oil as low as possible through the midterms, which is November of next year. But everyone thinks of like the price of oil, okay, that's true, but the stocks are very, very cheap and the shale regions are being depleted. the depletion levels there are just really amazing. So in other words, the ability of the US to pump more oil at the same speed is declining and um uh it's going to take a while to get you know oil really picked up in say places like Venezuela oil production and so yeah the oil equities as a percentage of the S&P 500 still like 2 3%. as a percentage of the S&P technologies is up near 50%. And so remember there's 28 trillion Jim in the NASDAQ 100. 28 trillion in the NASDAQ 100. That's up from 12 trillion at the end of 2001 into 2022. Uh well yeah the end. Yeah. So so up basically up 12 trillion from the recent low and there's only two to three two to three trillion in the oil names. So what happens is as money comes out of tech stocks um it has to go somewhere and that'll support the valuations. That's why Buffett is selling his Apple and buying accidental petroleum. It's one of the best investors of all time and this David Einhorn same thing. David Einhorn has been really adding into the Weatherfords of the world you know the I love the Weatherfords or the the slumberes or the OIH which is the oil service names. And so that's where the money is going to be made because the stocks are trading at such cheap valuation and nobody owns them. So with regard to oil, um so it's let's just say it's at 60 bucks a barrel. Gas is also cheap just because of where oil is. But I'm really surprised at inflation and how resilient inflation is because so maybe you know the price of oil is keeping inflation down but it's still relatively high, right? they can't get it down to 2%. This is another theme you touch on in your book. We're we're going to have persist persistent inflation and we're seeing that now, especially with food inflation. I used to drop 500 bucks at Costco or Walmart. Now I'm dropping a,000 bucks. But where do you see inflation going in the coming years? Well, it's it's the like there's a scene in our book where I'm in Brazil. I sat down with Andreas Stefz, which is he's probably the the Warren Buffett, the the young Warren Buffett type investor. He's the CEO of BTG Pactual. And he said, Larry, because you Americans don't know what, this is like 2021. This is how smart this guy. He's like, Larry, you don't know what you Americans are coming into. Once you let the inflation genie out of the bottle, it gets under the seat cushions. it gets under the carpets and it's very difficult without 8 n% employ unemployment to kill it. You can take it down but you can't kill it and it keeps coming back every time there's just look how much spending there is in Washington right um Elon Musk essentially left the White House in protest because u his his team wasn't allowed to really snuff out spending the way he wanted to. And so if you look at the deficit spending e even especially even in Republicans or Democrats, it's just it's just nowhere near the levels you need to kill inflation. And then you think about reshoring, you know, bringing all these jobs back to the United States. We've taken 5 million jobs out of the US. We've shotgun them around the world. We've decimated the rust belt. This is a scene in my book where, you know, fathers are walking home. They're going to the library in the rust belt. they're pretending they're working because they they they just they you or they're driving an Uber Eats car and they used to work at a factory and so they're just really um the life expectancy in the rust belt is declining at the fastest pace in maybe 50 years and that's well after COVID and that's because of opioids that's because of depression around those 5 million jobs that have been taken out of the US manufacturing sector and pushed around the world. Now, Republicans and Democrats in the last decade, both Bush and Obama said those jobs are not coming back. Right? That was the both the sales pitch. Now Biden and Trump in the last two years are trying to reshore jobs back. Totally different mindset. And whether it be with Intel, with chips, and if you if you're doing that, you're going to really create a foundation for a higher level of inflation. And so that's why the old regime of that 1 2% inflation is gone. Your new inflation regime is that 2 1/2 2 and 3/4 to 4%. Which really to this the point of the book forces a whole new portfolio construction. Another theme you touch on in your book is we're going to see an increase in global conflict. And we've certainly seen that in the Middle East. And I want to get your views now on what's happening closer to home here in North America or South America. Uh the US has uh what's the word? Eradicated a number of these vessels coming from Venezuela toward the US apparently or allegedly because they're carrying drugs. But do you think the US would ever um invade Venezuela or try to somehow implement a regime change? >> Well, you know, China has the Belt and Road initiative that's been very aggressive and it's more about financing projects. It's not military so much, but it's been very aggressive and throughout the world. And the last, you know, four or five years, the the White House and Republicans, you know, what Democrats have been pretty kind of laidback. And if you think of the Monroe Doctrine and uh the what they want to do is really protect this hemisphere. I was in Puerto Rico last week, ideas dinner with clients, and when you talk to people on the ground in Puerto Rico, Jim, it's jaw-dropping. Uh the military buildup in Puerto Rico is uh probably triple what it's been in recent years, whether it be surveillance drones or surveillance planes or ships. And everybody is really protecting themselves really for not protecting but really getting into this whole new regime for a new war. Um, so I think, yeah, I think they will invade and I think they will, um, you know, invade. They they probably go into Colombia and potentially, um, uh, Venezuela as well. It's like it's like an aggressive move and and Puerto Rico is going to be the buildout. >> So, you just touched on uh how important it is to take a for investors to take a look at their uh, investment portfolio. And maybe as we wrap up, you can just summarize for investors what they should do as we see this change going from financial assets into hard assets. Well, it's really in the early innings where it's gone from, you know, gold the gold, silver, uh, copper, like the COPX, which is your copper ETF is three up three times more than NASDAQ this year. Think about that. Like, so you won't see that if you more than once or twice in the last like 20 years. Probably just once or maybe maybe in 2022. So you've got the that's first stage move but the next stage is is the natural gas the coal the eggs and that's the broadening out of the trade. So what and just look at the go like I said the most important thing to remember is the gold copper ratio is at the extreme like category 5 capitulation levels. You want to be getting out of gold and buying some copper here. The gold oil ratio is at COVID levels, Jim. COVID and think how cheap oil was in 2020 in April. That's where we are now. Think about that. Oil was almost zero, but gold is that extreme relative to oil. It's really at record levels. So, you want to be taking down your gold exposure and buying. I'm not tell you to keep, you know, say you have like whatever it is a million bucks in gold or 500,000 in gold or 10,000 in gold. Take 5% of it, 10% of your gold position and buy some copper and buy some oil, oil, oil equities, oil itself. That will get you, I think, a much better return than just owning gold here. >> Well, that was a great discussion, Larry. I want to thank you very much for spending time with us today. I very much enjoyed your book and I would encourage our viewers to check it out because it does lay out a a very simplified framework for how to prepare for what's to come. You also have a newsletter and you did mention it during our discussion, but maybe you can just tell us if we want to learn more about your newsletter, where can we go? Well, it's really a I I hate to No, I just don't call it a newsletter because it's really um intelligence gathering from institutional investors and democratizing information. So what we want to do is we have so many institutional investors in more than 20 countries and we're talking to like the real professionals and we're taking some of the best ideas from those veteran investors and sharing them with uh with retail and financial advisors dentists doctors and so really democratizing that that information. So it's info@thebearetrapsupport.com or you can reach us on Twitter is at convertbond. >> Larry once again great discussion. Thank you >> Jim. Thanks for taking the time my friend
Buy Real Assets Like Real Estate, Gold, Uranium, Oil | Larry McDonald and Jimmy Connor
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[music] Larry, thank you very much for joining us today. I recently read a copy of your book, How to Listen When Markets Speak. Very much enjoyed it. And I'm curious, how long did it take to write this book? Well, uh, it took, we started in 2021, uh, Jim, and what happened was is that the publisher wanted to make a big change. Uh, the end of the book had kind of fiction looking forward and the publisher and my agent had this idea and they basically demanded that we and it was a great idea, demanded that the second half of the book is about portfolio construction in the new era, the new regime. And that was a very good change uh to the book. So in the end we started in you know 2021 finished and got it published in print in the first quarter of 2023 and it's been in the top you know top five or 10 on Amazon all year. I'm blessed. I'm very grateful to everyone and I as a former Leman trader Jim I tell my wife once a month if we sell a million books we'll break even on our Lehman stock right because our first book it's published in 12 languages is a New York Times bestseller about the Lehman crisis and this is kind of a continuation uh with the second book. Well, you and your team do a great job marketing it and I have to say uh I think the decision that your publisher made on um just developing a framework in the back half of the book was a brilliant idea because it's really it's almost like it's precient with what's happening now and and I want to start by saying the overarching message of the book is that there's seismic shifts are underway in the global financial markets and in the coming year capital will flow from financial assets or paper assets like equities and bonds into hard assets like gold, silver and other commodities. And I I want to start right here by asking you what is happening within the economy and within the global economy that is causing this seismic shift. Well, the fiscal and monetary response to Lehman Brothers and that great financial crisis in those four years after was about $4 trillion. uh the fiscal and monetary response to COVID, the regional bank crisis of 2023 and the spending into the election was about 16 trillion in four years. So 4 trillion in four years after the great financial crisis and 16 trillion after the latest crisis. So people are starting to do the math like okay if it was four trillion uh in 2008 16 trillion in 2020 to 24 what are we going to be are we at that dimension for the next crisis and that is that just is too much money printing and everyone knows the irresponsibility in Washington is just you know off the charts but we also have irresponsibility in in Paris and in Tokyo. In other words, you've got and in London, you've got governments around the world that are just all have dirty, dirty shirts and they're just massive, massive irresponsible spending. And so that's pushing money toward hard assets. So I understand what you're saying about all this money that was printed. It's just blowing up the value of assets everywhere. And it's like the NASDAQ and the S&P are making new highs every other day. And it's like it's never going to stop. And even when you see a pullback like we saw in early April with liberation day and just recently the president came out and said he was going to slap a 100% tariff on China and we had a nice pull back there but boom within you know one or two days the market's right back making all-time highs. What's going to be the catalyst to create this sell off or this this beginning of a transfer of capital going from growth stocks into value stocks? Well, Jim, we have something going on. Um, liquidity is starting to recede. So, if you look at repo, the repo market or short-term financing, that's tightening up. Um, the Fed funds rate effective Fed funds rate traded through the upper bound twice twice in the last month. That's a good that's a problematic that's a leading indicator for in the for liquidity. And then if you look at tertiary assets like say Salana versus Bitcoin or some of the what we call the the garbage coins versus Bitcoin, they're dramatically underperforming. And so when that happens is a lot it's a basically liquidity is starting to tighten. And that's because if you look under the surface in private credit there's a massive crisis coming our way. umricolor and and what we call first brands were met large defaults in the loan space and they're not systemic yet but we've had two big frauds in in private credit and then last week we had two more big frauds in commercial real estate in Western Alliance Bank and Zion Bank and so that kind of you know those four frauds in a very short period of time a lot of our clients think and a lot of our institutional clients think that there's a lot more pain to come. And then if you look at buy now pay later names like a firm or Upstart, um if you look at auto loan companies, uh if you look at any company that faces the bottom 60% of consumers, we have a really uh big kind of subprime crisis coming at us. And those uh examples that you just provided, it kind of reminds me of 2007 when um there was a couple of small funds within Beer Sterns that went I believe they went bankrupt or they ended up shutting down. Nobody ever heard of these things and they were very small but yet it was the beginning of what was to come. So do you think this is what might be happening? >> Right. In other words, the truth bleeds out one drop at a time. One of the things I talk about in our first book, New Century was the biggest subprime lender in the United States, they went bankrupt in the first quarter of 2007. And if you look it up, we were at full employment, Jim. Full employment. In other words, people thought there couldn't be a subprime crisis because everyone was working. And what happened was they had lent money to the point where if you could fog a mirror, you can get a loan. And that was on the what we call the consumer side. Today it's much more on the corporate side where the fraud in in what we call and first brands was so horrific. You know, people were like taking automobiles and and shopping them around and borrowing money multiple times against the automobile. And what happened was because we're in such a crazy bull market, there's a line in our book, How to Listen to a Market Speak. There's a line in the book and it basically states that when you don't allow the business cycle to function over longer and longer and longer periods of time, you're creating really you were putting Bernie Maidoffs on street corners around the United States. And so when we when we had this long bull market and very aggressive lending where if you're in private credit, you know, the money's coming in, right? It's coming in because you're in a great bull market. There's lots of liquidity in bull market. The money's coming in. They had to put the money to work. And Jim, it's so sickening. If you look at what they missed in these two companies, this makes me think, and I and I'm I'm talking to my my best institutional clients, there's probably there could be 10, 20, 30 more of these because nobody that was lending the money is actually doing the homework. I mean, the the Financial Times figured this out, right? And no, no, no, no, no insult to journalists, but the Financial Times did a better job of figuring these two frauds out than CLLO asset managers. Can you know why? Cuz they were had the gun to the head. They had to put money to work in private credit. It's a big scam. The bottom line is the business cycle offers creative destruction. It outs the bad guys, right? And when you don't have a business cycle and you prevent it from functioning, uh there's just pervasive bad actors that grow and grow and grow and grow. And something else I want to ask you about is um AI. Okay. And one of the concepts that's really driving this market higher is this neverending spending associated with AI, data centers, GPUs. Nvidia has committed to investing over $100 billion dollars in Open AI and in return openi can buy GPUs from Nvidia and Nvidia has also entered into similar deals with coreweave and ARM holdings applied digital and many other companies and this kind of reminds me very much of the early 2000s when we saw this with vendor financing was the big term or the term that was used. Nortell, Lucent Cisco, they were doing the same sort of thing. They were selling equipment to all these companies like Global Crossing, WorldCom, and 360 Networks, none of which exist, by the way. But do you think there's there's uh similarities with what's going on with AI and and what we saw back in the early 2000s? >> No question. Um, you know, that circular vendor financing and that's what bull markets do. Once again, bull markets and capitalism when they get really strong, everyone is so vested in the higher outcome that they will do anything to keep it going. And then if you look at the testosterone, this is a real testosterone arms race in Silicon Valley. This is like the Manhattan Project, you know, Dr. Oppenheimer, they are all trying to outspend each other. And you've got companies like Meta or or or Microsoft that were really really capital cash cows for the last decade. Cash cows. They were very profitable. Now the accounting that they're using around uh what we call you know keeping that depreciation and playing the game like you're supposed to depreciate assets that if an asset has a very short depreciation cycle you're supposed to you're supposed to account for that. But they're basically playing this game of extending depreciation and it's and it's going to blow up probably in the next 6 months because a lot of the institutional investors that we talked to that were extremely bullish Meta like I'm talking like guys that were really long Meta and long Microsoft are turning more bearish. But there's another dark side to this around around private credit. So look at Blue Owl, right? Blue Owl is a big tech lender into software and if you look at Adobe down 50% that's a software company in the public space CRM is down 34 30 almost 40%. So the public equities Jim right the public equities in software are down 50 to 35%. the big ones. Now, what is what do you think is happening to private credit loans? Right. Because artificial intelligence is coming after software and software is very vulnerable to all this capex that you're talking about. What what we what we see is there could be like a hundred hundred billion to $120 billion of bad loans in the software space because remember a lot of these are triple C quality really junk of the junk that in private credit. So, Blue Owl lends money to software and tech companies. And if you look at Blue Owl equity, if you look at some of these private credit equities like um these what we call the BDC's, the Blackstone BXSL, the Blackstone uh BDC or the Blue Aisle BDC, these BDCs in a bull market, in a bull market, Jim, they're down like 30 40%. And so that once again that's back to the whole credit crisis that's happening under the surface because at the end of the day all this technology spending in capex for artificial intelligence is going to put a lot of software companies out of business and there's hundred there's over hundred billion dollars of loans to software companies. >> That's not that's a company I'm not that familiar with. So I'm going to have to do some reading on it. But Paul Tudor Jones recently said that the ingredients are in place for a massive rally before a blowoff top. And he said the time we're living through right now, it's very much like October of n 1999. You and I both lived through that cycle. I want to get your thoughts on that. And I should remind you from October of 1999 until the NASDAQ peaked in March of 2000, it I ripped another 45 or 50%. So, if that were to happen now, like the market still has a long way to go, but what are your thoughts on that statement? >> Well, the one thing is um the NASDAQ 100 is $28 trillion, right? And um so it takes a lot more money to move the market now. Uh you need a lot more liquidity. Back then you could the the the tech stocks, you know, there just wasn't anywhere near this this kind of capital in in stocks. And so like if if you look at household ownership of equities um relative to cash, we're at record record levels. So, I'm not saying we're going to crash tomorrow and you know, nobody can predict a top. But if you look at the transports, if you look at buy now pay later names, if you look at auto finance companies, um if you look at like I said the BDC's, there's a lot of this like really look at student loans, look at Sally May down 24 25%. There's something going on in the student loan space and that's what's happening with liquidity. So you want to measure liquidity and if liquidity is receding which it clearly is um that creates like a big headwind for the market and um so all I know is like the riskreward of being long um is very poor. And so, you know, Charlie Munger, when I sat down with Charlie, I sat down with Charlie in our book, How to List with Market Speak, and I was in Omaha and he said, "Larry, testosterone is your greatest enemy in investing as a young man." And this is Charlie Mer, Warren Buffett's right-hand man, one of the best investors of all time. And I love that line. Testosterone is your greatest enemy enemy as a young man. And I don't mean to be sexist. I'm just telling that's what he said. And so in other words, you know, people want to chase. People see stocks on CNBC. There's another line in our book um around JP Morgan in 1907. He said, "There's nothing in this world which will so violently distort a man's judgment more than the sight of his neighbor getting rich." Yes, I know that feeling. Well, so I'm glad you brought this up about JP Morgan and what he said back in 1907. And we're witnessing right now like the this whole level of speculation that we're seeing right now. I don't think we've ever seen anything like this before. Like it's far greater than anything we saw in the 1990s. I spoke to an ETF manager just recently and he said there was one week in just one week alone in this month there was 250 funds that filed with the SEC for five times leverage >> right okay so ETS with five times leverage one of which I believe was the GDX and so and then there's many other things like I had a conversation recently too on uh with a Bitcoin guy and he was telling me about these perpetual futures I've never even heard of these things before, but these perpetual futures can offer upwards of 50 times or 100 times leverage. And and once again, like this level of speculation that's going on now is just I don't think we've ever seen anything like it, >> right? And and that's why Charlie Mer when I talked with him in Omaha, he said, "Lar, the big big money is all in the waiting. It's all in the waiting." Right? So, you know, at the end of the day, if the riskreward is poor, the smart money will sit in the boat. That's why Buffett's sitting on his largest cash position ever. But you get back to your point around leverage. The TQQQ, uh, which is a levered NASDAQ 100 ETF, a year ago today, it had $15 billion. Uh, now today we're near 32 billion. So, it's doubled its assets under management. And for a long time, assets under management went practically nowhere. So you've got like you went from it went from say 5 million to 15 over a long period of time and then 15 to over 30 in a short period of time. And so yeah, so when you see the tourist, the speculators coming in in that kind of manner, sure the market might go up another 10%, maybe even another 20%. But those types of moves are not uh typically those types of moves are blowoff tops where you know you get a big move up and then a big move down and and so you just want to be listen to Charlie Munger. It's all in the waiting and you know raise cash and be there for when the opportunities really come. >> Yes. And you're right. We never know what the catalyst is but it's going to come and sometimes it's just physics, right? Like you throw something up in the air and at some point it just has to come down. But if you compare what we're seeing right now to the early 2000s when the market, the NASDAQ and the S&P topped out in March of 2000, in the ensuing two years, the NASDAQ lost 78% of its value. Do do you see the same sort of thing happening this time? >> Yes. I mean I completely agree with your lucent global crossing analogy, Sun Microsystems, that whole ecosystem of Cabal of Cisco. They were just it's it's a lot similar. Um we were fortunate I started ConvertBond.com in the '9s. We sold it to Morgan Stanley in October of 99. It's the best trade I've ever made. October of 99, we sold ConvertBond.com to Morgan Stanley and and you know, four or five months later, we got nothing for it, right? Uh so, so I see I lived through that period. I I see the same accounting. Here's another thing. I was in Puerto Rico uh this past week and I sat down with Harry Marcopoulos who outed Bernie Maid off and you know he makes the point you remember uh in the early 2000s we had all these frauds Tao Adelfia Enron Sunbeam with you know Shady Al Dunlap and that's the it's the same thing like everyone's focused on the tech crash but it's the accounting ing uh that goes on during that period where a lot of bad actors if you looked from say 1999 to say 2003 there were there were probably 15 20 Tao there were 15 20 companies remember Jack Grubman the whole jacket caught up in this and it was an analyst that ended up getting in big trouble with the SEC they were all in on this game and the accounting was so bad and that's that's what u that's what Harry is saying and this is the guy that outed um you know outed outed Bernie Maid off and he says like he's we're at the stage now where there's so much fraud and there's so much bad accounting it's all going to you know explode to the surface the way it did between 2000 and 2003. It's not just about tech. It's about really really horrible financial accounting and really aggressive accounting around around profits where the companies are just nowhere near as profitable as it looks. And so when he was talking about the uh risk associated with tech stocks, is he talking about the self-deing that's going on or these maybe they're not related party transactions, but you know uh Nvidia giving a hundred billion dollars to Open AI so they can buy their products. It's basically just like a circular Ponzi scheme. >> Well, you know, in our Bloomberg chat, so we host all these different institutional investors in more than 20 countries. And what I have is I have what I call a cage match. You ever seen the cage matches where I put, you know, a bull and a bear in a room, whether it be a WhatsApp or a phone call or a conversation like this, and Jim, they fight to the death. And it's wonderful because I learned so much and it's just an intellectual fight. And what I've noticed over the last month, there's a number of people that were really bullish on the Mag 7, bullish on the semiconductors for a lot of momentum reasons, but because of this accounting and because of these gains with depreciation, and remember I was in Puerto Rico last week at the ideas lunch and the ideas dinner and I'm hearing from like really sophisticated accounting people that the games that are going on around this depreciation because it's a testosterone fighting match. everyone has to compete with the they have to push the envelope because the next guy is spending so much money. So the accounting is getting worse and worse. And so this depreciation game around, you know, around the chips. Um I think I think companies like Meta are massively uh exaggerating their earnings because they're not really doing the proper accounting with depreciation. And you know, this is something I don't want to make an accus accusation against the company, but I'm just telling you what people are telling me. like very sophisticated accounting people are telling me that there's a lot of companies not just Meta that are using because they have to they're in that arms race they're just really pushing that envelope to a very dangerous spot. So the growth stocks are at risk okay of getting hit and coming off significantly. So one of the themes you touch on in your book is that there's going to be this massive flow into real assets like gold like silver platinum copper etc. And gold is having its best year since the 1970s. It was up 25% last year. It's up over 50% this year. Many of the gold equities finally came alive in the second half of the year. Pneumont barrack at Nico are all up over 100% which is good to see. And my only concern though about this whole gold trade is that Jamie Diamond, who doesn't have the best record when it comes to calling markets, but he recently said that in today's market environment, gold could easily go to 5,000 or $10,000. And he went on to say that one of the few times in his life, gold is a semi-rational investment. And uh like I said, he doesn't have the best track record when it comes to making calls. But what are your thoughts on gold? And even though we've seen some weakness here in the last few days, are you still bullish on it? >> Yes. I mean, we're bullish, but but the percentage of gold above the 200 day moving average, the percentage of gold above the short-term short-term moving averages are very very extended. So, what happens is at the beginning stages of a of a new bull market there, by the way, there's no retail buy in on gold stocks or gold yet. um se silver too if you look back to the to the 80s and early 90s I mean gold and silver were three 3% of what we call household wealth assets uh and now you know you're below 1% for to a large degree and so especially for more for silver than gold like the gold silver ratio is you know trading around right now 80 it should be probably in the 60s so I'm much more favorable to silver than gold the one thing gold has for it is it's you 20 plus24 trillion dollar pool of wealth that central banks that have been hit over the head with sanctions and the last 20 years by Republicans and Democrats and then when you saw the the the the tariff I'm sorry the war in the Ukraine with that confiscation of Russian capital from the central bank. So the United States has been there's a line line in our book around the hubris hubris in Washington around aggressive use of the sanction that's forcing all these central banks to be more aggressive and then they look at the deficits and that's a double whammy. So they have the they have the hubris in Washington around sanctions and confiscation of capital and then at the same time they're looking at unsustainable deficits in Washington. So that's forcing them to own more gold. I would just say the sexiest trade on the board that is really unloved right now coming to the new year, I mean coming I guess fourth quarter, we're coming to the new year in maybe 3 months is is the natural gas equities, the FCG ETF or AR equity range resources RRC. Um, these stocks, these stocks are trading with 12 to 14% free cash flow yields. And as we talk about in the book, natural gas is the only way, Jim, to the green meadow. Eventually, we're going to be there with solar and wind and all that, but it's really carbon neutral. 2050 is really carbon neutral 2100. And now AI and artificial intelligence has placed a whole new higher bar on this. And so you can buy and another fascinating thing about Antaro endrange resources, they're generating so much free cash flow, right? The most free cash flow that they probably have in a decade. That's why that free cash flow yield is so high. They're buying back stock, Jim, like at record paces. And so there's there's the company underneath the surface buying back stock because they know artificial intelligence needs more power. Coal natural gas equities and Nvidia right now at 4.6 trillion. I think the natural gas equities and the coal names are going to destroy Nvidia the next 24 to 36 months. Absolutely destroy in terms of performance. I have to be honest, the uh coal stocks, that's another sector I do not look at. So, I'm going to have to check it out. Now, you mentioned you had a conversation with Charlie Munger and uh I got to tell you, he's got some of the best quotes and or he had some of the best quotes, but one of his quotes that I always remember um of course him and Warren were against gold as an investment, but he said, "Even if you make money trading gold, you're still an idiot." And I was cur I'm curious if you ever brought up gold with Charlie Munger. >> Um I didn't uh you know gold was out of favor then. Um but cuz we had that peak in 2011 and I think we sat down in like 201 you know 121 13 but I didn't talk with him about gold but you know he just hated the leave in management team because it was a almost almost an $800 billion bankruptcy and he wanted me he wanted to know some of the insights because I was I was I was an insider in Lehman Brothers. He wanted to know what really happened uh at that big bank that blew up. So Jamie Diamond has a very aggressive target price for uh gold 5,000 to 10,000. But do you have one? >> Yeah, I think you know 40 42 to 4,400 in the next year and a half year is uh very very likely. Let's say even a year. Um I just think that once again um here here's the bottom line. When you go, that's what I was trying to say earlier. When you go into a new, look at Camo or uranium in say 2020. You go into a new bull market and you've got a sector that's been unloved for a long time. Think of oil in 2020 as well. You come out and you get this big move in the mothership. So oil move first in 2020 and then it moves into the to the equities and then it moves towards silver. But the point is, you get this big first move where the tourists come in. Jim, just picture the heavy set guy with the Hawaiian shirt and the camera. You know, you got a lot of tourists that are coming in because households don't own gold. U the GDX, the GDX is actually had outflows in many parts of this year. So, people don't own gold stocks and the percentage of gold stocks is a percentage of the S&P 500's market capitalization is still a joke. So, it's like two things are happening at the same time. You got a a big bunch of tourists that just came in that are creating these extended extended levels. But then when you look at the historical references of gold as a percentage of the S&P 500 or gold stocks or just gold itself in terms of household wealth, those things are still still telling you that you got a long you're basically in the first, second, maybe third inning. And I'm glad you brought that up because I was going to ask you uh what would you say to people if they if they have not invested in gold yet and they feel like they've missed it and they think that it's gone too far too fast. What I would do is I take a a one quarter position and typically in a new bull market look at the 50-day moving average. And so what I've seen over the year, this is a great technical. When you go into a new bull market, you want to buy the 50-day moving average on the GLD. You can talk to your financial advisor. Come to us. We're at the bear trap support. You know, you can come to info at the bear trap support. We can help you with that. But yeah, that new bull market, that 50-day moving average is the buy. So if you buy a quarter position now, uh you buy another quarter position near the 50-day, you get down to the 100 day moving average, you buy another quarter position. So then your average cost is in a very good shape. The other thing is the the tertiary metals are a lot uh smaller like I said silver and platinum and platium u the total value of all the platinum and platium in the world is only you know maybe four 400 I'm 400 billion right so platinum and palladium are 400 billion uh bitcoin is around two trillion and gold's up there 24 24 trillion so there's just not a lot of money in some of the tertiary plays and that's that's another another good way to diversify. >> So, you're suggesting if we get any pull back in gold, silver, platinum, it's only a buying opportunity. >> Yeah. Right here, we're still early innings. Uh the Fed's still printing Trump. Remember what what's happening is the biggest thing that's happening is financial repression. So, interest on the debt's like a trillion dollars. The Trump teams knows that. Maybe more than a trillion. So, they're trying to like push down interest rates. They're forcing the banks. Jim, we have an incredible chart we put out this morning. So, even though the central bank balance sheets come down in terms of ownership of bonds, the banks have gone up through the SLR, through regulation, they're forcing the banks to own more treasuries. And when they're massaging interest rates below the rate of inflation, that's what we call financial repression. And that's what's a big driver historically of money into hard assets. The other side of it is that the economy slows down like in the 80s or like in in a period of say 2008 to 2010 and all of a sudden your tax revenues come down. Think of your tax revenues right now I think 4.5 trillion bucks. If your tax pre revenues come down to say 3.7 trillion and your spending still way up there, then you know that's another that'll really get the dollar weaker and then you're off to the races with hard assets. So, and let's look at it. We haven't even broadened out. The first stage of a commodity bull market is typically oil. I'm sorry, that's the last stage. Typically gold, gold miners, platinum, palladium, all strong. Um, copper names are strong. The gold copper ratio here is another important thing. The gold copper ratio, Jim, is still below COVID level. So, in other words, you want to be buying, you want to be taking down your gold exposure to buy copper right now. But then the next stage of it is the coal, you know, the agriculture names, uh, natural gas and oil. That's should be like so that's the progression. And so we we're not even at the stage where the where the agricultural side is really even performing. So you know that we're only in the second or third inning of a large commodity bull market. So we can't have a discussion on gold without talking about the US dollar. And one of the chapters in your book is called the decline of the US dollar. Thus far year to date it's down 10% measured against the DXY index. Where do you see the dollar going ultimately? Well, in the near term, it's been very oversold. So, we're bouncing. Um, but I think that this this subprime slashprivate credit crisis um that's developing, you saw in recent weeks, some of these regional banks were down, we're talking like 25 30% in a short period of time. Some of the regional banks, I mean, that's like, so that tells you there's there's some big losses there. And then we talked about the BDCS, the business development companies that that Blackstone portfolio um BX uh SL and so they're they're down 20 30%. So if if if the economy slows down, which I think probably will over the next year, uh that's where you get a much weaker dollar uh and the Fed will have to cut more uh rates to kind of keep the economy uh afloat. And then that that feeds on that dollar weakness. So yeah, the dollar, you know, you get a counter trend rally here, but you're in a bare market. And so the dollar peak was that November 2022, and that was when the Fed was aggressively hiking. Now we're in a situation where they they're not going to be able to hike for a while because the economy is weakening, the labor market's weakening, and so that gets you lower, what we call lower highs in the dollar for the next, you know, year and a half, two years. And that's another bullish component of hard assets. I got to ask you about oil now. You mentioned you're very bullish on on that gas and and coal, but oil has been under pressure. And something else I saw in your book, you you bring up a story uh with the former Treasury Secretary James Baker, and during the conversation you had with him, I guess it was back in the 80s, but he said that controlling the price of oil in the 1980s was paramount to controlling inflation. And here we have oil now, West Texas below $60 a barrel. And I want to get your thoughts on this. Do you think this is a sign that the US is just pumping out as much oil as they can and maybe they're also working in conjunction with OPEC to keep the price of oil down or is this an indication that the global economy is slowing down? Well, very similar to to the point we make in the book. Uh the US was in a cold war with Russia and yeah, Baker's point, and I thank you for bringing that up. It's it's a great scene in the book where they were trying to put pressure on Russia um in the cold war. We were coming out of this nuclear arms race where the United States and Russia were spending spending a lot of money on nuclear [clears throat] weapons and we would essentially they figured out if they pushed down the price of oil they could out they basically could outflank the Russians and um it's similar to today. Trump needs oil down and he needs cooperation from France and and the Europeans because they're they've been buying so much natural gas from Russia. So, we've put up $300 billion toward a war and they put up far less. But to make it worse, they're buying a lot of natural gas than they're buying oil. So, our allies are supporting Russia. So, Trump wants to put pressure on the allies to stop buying natural gas and stop buying oil. And then he wants to drive down. The Saudis are helping him. There's no question. Trump's been over there in the last 6 months. He and MBS are really good friends. uh you know the prince in the kingdom of uh Saudi Arabia. So yeah, so it's very similar to the 80s when they want to push down the price of oil, put financial pressure on Russia. That financial pressure will force the end of the war. They want to keep oil as low as possible through the midterms, which is November of next year. But everyone thinks of like the price of oil, okay, that's true, but the stocks are very, very cheap and the shale regions are being depleted. the depletion levels there are just really amazing. So in other words, the ability of the US to pump more oil at the same speed is declining and um uh it's going to take a while to get you know oil really picked up in say places like Venezuela oil production and so yeah the oil equities as a percentage of the S&P 500 still like 2 3%. as a percentage of the S&P technologies is up near 50%. And so remember there's 28 trillion Jim in the NASDAQ 100. 28 trillion in the NASDAQ 100. That's up from 12 trillion at the end of 2001 into 2022. Uh well yeah the end. Yeah. So so up basically up 12 trillion from the recent low and there's only two to three two to three trillion in the oil names. So what happens is as money comes out of tech stocks um it has to go somewhere and that'll support the valuations. That's why Buffett is selling his Apple and buying accidental petroleum. It's one of the best investors of all time and this David Einhorn same thing. David Einhorn has been really adding into the Weatherfords of the world you know the I love the Weatherfords or the the slumberes or the OIH which is the oil service names. And so that's where the money is going to be made because the stocks are trading at such cheap valuation and nobody owns them. So with regard to oil, um so it's let's just say it's at 60 bucks a barrel. Gas is also cheap just because of where oil is. But I'm really surprised at inflation and how resilient inflation is because so maybe you know the price of oil is keeping inflation down but it's still relatively high, right? they can't get it down to 2%. This is another theme you touch on in your book. We're we're going to have persist persistent inflation and we're seeing that now, especially with food inflation. I used to drop 500 bucks at Costco or Walmart. Now I'm dropping a,000 bucks. But where do you see inflation going in the coming years? Well, it's it's the like there's a scene in our book where I'm in Brazil. I sat down with Andreas Stefz, which is he's probably the the Warren Buffett, the the young Warren Buffett type investor. He's the CEO of BTG Pactual. And he said, Larry, because you Americans don't know what, this is like 2021. This is how smart this guy. He's like, Larry, you don't know what you Americans are coming into. Once you let the inflation genie out of the bottle, it gets under the seat cushions. it gets under the carpets and it's very difficult without 8 n% employ unemployment to kill it. You can take it down but you can't kill it and it keeps coming back every time there's just look how much spending there is in Washington right um Elon Musk essentially left the White House in protest because u his his team wasn't allowed to really snuff out spending the way he wanted to. And so if you look at the deficit spending e even especially even in Republicans or Democrats, it's just it's just nowhere near the levels you need to kill inflation. And then you think about reshoring, you know, bringing all these jobs back to the United States. We've taken 5 million jobs out of the US. We've shotgun them around the world. We've decimated the rust belt. This is a scene in my book where, you know, fathers are walking home. They're going to the library in the rust belt. they're pretending they're working because they they they just they you or they're driving an Uber Eats car and they used to work at a factory and so they're just really um the life expectancy in the rust belt is declining at the fastest pace in maybe 50 years and that's well after COVID and that's because of opioids that's because of depression around those 5 million jobs that have been taken out of the US manufacturing sector and pushed around the world. Now, Republicans and Democrats in the last decade, both Bush and Obama said those jobs are not coming back. Right? That was the both the sales pitch. Now Biden and Trump in the last two years are trying to reshore jobs back. Totally different mindset. And whether it be with Intel, with chips, and if you if you're doing that, you're going to really create a foundation for a higher level of inflation. And so that's why the old regime of that 1 2% inflation is gone. Your new inflation regime is that 2 1/2 2 and 3/4 to 4%. Which really to this the point of the book forces a whole new portfolio construction. Another theme you touch on in your book is we're going to see an increase in global conflict. And we've certainly seen that in the Middle East. And I want to get your views now on what's happening closer to home here in North America or South America. Uh the US has uh what's the word? Eradicated a number of these vessels coming from Venezuela toward the US apparently or allegedly because they're carrying drugs. But do you think the US would ever um invade Venezuela or try to somehow implement a regime change? >> Well, you know, China has the Belt and Road initiative that's been very aggressive and it's more about financing projects. It's not military so much, but it's been very aggressive and throughout the world. And the last, you know, four or five years, the the White House and Republicans, you know, what Democrats have been pretty kind of laidback. And if you think of the Monroe Doctrine and uh the what they want to do is really protect this hemisphere. I was in Puerto Rico last week, ideas dinner with clients, and when you talk to people on the ground in Puerto Rico, Jim, it's jaw-dropping. Uh the military buildup in Puerto Rico is uh probably triple what it's been in recent years, whether it be surveillance drones or surveillance planes or ships. And everybody is really protecting themselves really for not protecting but really getting into this whole new regime for a new war. Um, so I think, yeah, I think they will invade and I think they will, um, you know, invade. They they probably go into Colombia and potentially, um, uh, Venezuela as well. It's like it's like an aggressive move and and Puerto Rico is going to be the buildout. >> So, you just touched on uh how important it is to take a for investors to take a look at their uh, investment portfolio. And maybe as we wrap up, you can just summarize for investors what they should do as we see this change going from financial assets into hard assets. Well, it's really in the early innings where it's gone from, you know, gold the gold, silver, uh, copper, like the COPX, which is your copper ETF is three up three times more than NASDAQ this year. Think about that. Like, so you won't see that if you more than once or twice in the last like 20 years. Probably just once or maybe maybe in 2022. So you've got the that's first stage move but the next stage is is the natural gas the coal the eggs and that's the broadening out of the trade. So what and just look at the go like I said the most important thing to remember is the gold copper ratio is at the extreme like category 5 capitulation levels. You want to be getting out of gold and buying some copper here. The gold oil ratio is at COVID levels, Jim. COVID and think how cheap oil was in 2020 in April. That's where we are now. Think about that. Oil was almost zero, but gold is that extreme relative to oil. It's really at record levels. So, you want to be taking down your gold exposure and buying. I'm not tell you to keep, you know, say you have like whatever it is a million bucks in gold or 500,000 in gold or 10,000 in gold. Take 5% of it, 10% of your gold position and buy some copper and buy some oil, oil, oil equities, oil itself. That will get you, I think, a much better return than just owning gold here. >> Well, that was a great discussion, Larry. I want to thank you very much for spending time with us today. I very much enjoyed your book and I would encourage our viewers to check it out because it does lay out a a very simplified framework for how to prepare for what's to come. You also have a newsletter and you did mention it during our discussion, but maybe you can just tell us if we want to learn more about your newsletter, where can we go? Well, it's really a I I hate to No, I just don't call it a newsletter because it's really um intelligence gathering from institutional investors and democratizing information. So what we want to do is we have so many institutional investors in more than 20 countries and we're talking to like the real professionals and we're taking some of the best ideas from those veteran investors and sharing them with uh with retail and financial advisors dentists doctors and so really democratizing that that information. So it's info@thebearetrapsupport.com or you can reach us on Twitter is at convertbond. >> Larry once again great discussion. Thank you >> Jim. Thanks for taking the time my friend