Lehman Vet's Warning: The Market is Ignoring The Biggest Red Flags Since 2007
Summary
Market Outlook: The S&P 500 is at an all-time high due to a drop in producer prices, but there is a significant divergence with the bond market, indicating potential underlying risks.
Inflation Concerns: Despite recent data, inflation trends suggest ongoing challenges, with companies absorbing tariff costs and the bottom 60% of US consumers facing financial strain.
Systemic Risks: Larry McDonald highlights that systemic risk indicators have increased, with concerns about subprime lending, student loans, and the impact of AI on middle-class jobs.
Investment Strategies: McDonald advises focusing on hard assets like gold, uranium, and copper, while being cautious with high-beta stocks and considering the risks of passive investing.
AI and Energy Infrastructure: The growth of AI is constrained by outdated energy infrastructure, necessitating significant investment in natural gas and energy infrastructure to support data centers.
Global Market Dynamics: Emerging markets, particularly China, are outperforming US markets, with AI investments driving significant growth, contrasting with the US market's AI bubble concerns.
Commodity Insights: The copper market is poised for growth due to global infrastructure needs, while the gold-to-silver ratio suggests potential shifts in commodity investments.
Financial Sector Warning: Monitoring the financials versus the S&P 500 is crucial, as contagion from subprime lenders could signal broader economic issues.
Transcript
[Music] Welcome back. I'm Jeremy Saffron. The S&P 500 is trading at a new all-time high and the catalyst is in this morning's surprising drop in producer prices which the market is taking as a definite allclear signal from the Federal Reserve. According to latest data from the CME Fed Watch tool, traders are now pricing in a 90% probability of a rate cut next week with the odds of a deeper 50 basis point cut rising. Now, this optimism, however, is unfolding alongside a historic route in the bond market. The damage in what are supposed to be safe assets is so profound that even a blue chip Apple bond from 2021 now trades at just 54 cents on the dollar, according to our next guest. Now, when we last spoke to him in May, he advised viewers to raise cash and prepare for this very divergence. Today, he argues the market's consensus view is deeply flawed. Larry McDonald, of course, founder of the Bear Traps Report, a great report that I subscribe to, and a veteran of the Layman Brothers Crash, joins us now. Good to see you, Larry. Jeremy, thanks very much. And our book, How to Listen When Markets Speak, Top 10 on Amazon. Thank you. Top 10. I like it. I like it. Okay. Okay. Well, this is this is actually a good kind of segue for us because in that book, and I I have seen it. I mean, let's talk about today. Wall Street's taken this soft PPI print as a a definite sign that inflation is almost defeated here. I mean, your work argues that there is a profound misreading of the data. What specifically do you believe the consensus is missing here? Well, if you if you really look inside PPI, we were really hot last month, uh, two standard deviations more than normal. And, um, you know, the Trump team now is running the show at the BLS. So we don't want to say anything that thing there but but uh you know it's it's kind of like okay really really bad month last month uh much better month this month but over over the last four or five months and especially if you look at core CPI where you look at ISM prices paid Philadelphia Fed prices paid Richmond Fed prices paid it's very clear that the trend on inflation is bouncing and it's going to create a problem for the Fed and the White House. Yeah. I mean on that data too, I mean on inflation, the report shows companies are absorbing tariff costs, not really passing them on to the public, which is surprising. I mean, they're taking a hit on their own profits instead. And and I guess my question is, doesn't the lack of pricing power tell you the American consumer is simply too weak to handle higher prices and that the story is about a slowdown, not stagflation? You know, Jeremy, uh, the b the bottom 60% of US consumers are absolutely getting hammered. I was at in Washington last week. I was at Treasury. There's real concern. The bottom 60% of consumers are being hit over the head with inflation and higher rates. It's a big concern at US Treasury. But now the middle class and upper middle class have a violent storm coming at them in the form of artificial intelligence. Job destruction there. So we've got the bottom 60% in a lot of pain and there's so many companies that show this. Just look at Sally May today. Look at you upstart subprime lenders. But the middle class really has that artificial intelligence enemy coming at them at about 150 mph. Yeah. Yeah. Yeah, it's an interesting one. I I saw a meme over the weekend, Larry, and it was talking about how people that are applying for jobs are using AI to essentially apply for their job, but then the HR manager is just using AI to go through those. So, I mean, where is the consumer here? Well, that's what we're seeing today. So, uh let's break some news. So, we have our 21 Leman systemic risk indicators that we created in 2010. Remember, we wrote the New York Times bestseller about the fall of Lehman. It's a global bestseller. It was one of the top 20 books all time according to the CFA Institute. And I'm here to tell you that our 21 layment systemic indicators just went from Defcon 3 2 to Defcon 3 today. Okay, you got to go back into that. Give get into this 21. Talk a little bit about the data and and why you're nervous. Well, it really comes down to, you know, we run a Bloomberg chat with hedge funds, mutual funds, and pension funds around the world. So, we're listening to that valuable buyside conversation. And what people are talking about, people that were extremely bullish 6 months ago on the consumer, we're talking not like not perma bulls or perma bears, just veteran investors that were pounding the table bullish on the consumer have have turned very bearish. First of all, that's more the most important. But Sally May and Na'vi uh companies that face student loans have been really massively underperforming the financials at a rate of change that's accelerating and with lower lows. If you think about it, Linda McMahon uh in the White House, that team, you know, they're trying to really bring back the student loan payments, right? So, we had years of forbearance. So, we've gone from a very progressive administration, the Biden team. Think about this, very progressive to a more fiscally conservative/conservative team in in the Trump team. And what they're doing is they're forcing a lot of um a lot of people that had those student loans, let's just say you were making that $400 a month payment and you got a 2-year reprieve. Now they're turning that back on. And that's flowing into all kinds of subprime lending, especially today in what we call buy now, pay later names, UPS, upstart. So we're seeing a contagion across in subprime lending that's spreading. Interesting. Okay. So would that be I mean you you literally wrote the book Larry on on you know the layman collapse and you're you're known for your 21 symmetric wrist indicators here. I mean if those indicators are starting to flash red today just as they did before 2008. What is the single most dangerous parallel that you see between the markets today and the eve of that great financial crisis? Is it what you just hit these student loans? Is it more? Well, it's is it the mark to to myth? Yeah. Yeah. Yeah. Well, well, that's everyone knows about this like what we call the the the mark to mark to market, mark to model, mark to myth, and that's in in in private credit. So, private credit has been kind of uh festering there. There really a lot of sophisticated investors that are dumping exposure to private credit and handing that off to retail adviserss. We did a a private uh dinner a few weeks ago in San Francisco with the most, you know, really the highest netw worth clients and and financial adviserss and portfolio managers and the the the large financial adviserss are literally telling us at the table that the branch managers and management of this brokerage firms across America are like kind of like force feeding these guys uh private credit. It's a very bad sign because whenever you see very sophisticated investors dumping exposure to retail investors, that's something that makes you know kind of uh the back hair on the back of your neck rise up quite a bit. Yeah. Yeah. And I mean back in May, I mean we talked about this. You warned us of a credit cycle turn coming. I mean today auto loan delinquencies are at an all-time high. You flagged that Mark to myth accounting and private credit the thing that you're just talking about. I mean has the default cycle you forecasted officially begun? Yes, it's begun. But we went through this in 200. You know, remember New Century Financial. Yeah. Filed bankruptcy in the spring of 2007 and it was the largest subprime lender in the United States. And the market went up, you know, the next 6 months. So that's what we've been going through. Like we we're going through that now. We've had subprime issues for for months now. And the market's grinding up. The market doesn't pay attention to it right away. But that's why at the end of the day, what the Fed is trying to do is they're trying to massage interest rates below the rate of inflation because of because of the problems. They're really worried about they want to get rates down, right? So, they want to massage interest rates down as fast as they can because they're very concerned about the consumer. But the bullish thing for us and that's why we've been long gold miners, we've been long uranium names, been long hard assets. It's all it's all in our book, How to Listen Market Speak. those hard asset that hard asset portfolio construction in a in this kind of world of potentially stagflation slowing growth and sustained inflation. That's where that hard asset portfolio dramatically dramatically outperforms US equities and the S&P 500. Yeah, I mean it's been interesting talking about it and seeing these divergence. I mean gold, silver prices right now, you're watching them carefully. We need to get into the miners and where you're investing in this market. I mean, all cash still. Have you just been deploying it? Well, we put, you know, in our trade alerts that are real time at the bear traps report, we did um almost 20 trade alerts in April and May on the on the buy side. So, we were buying a lot of the what we love is the NUKZ names. So, look at the NUKZ portfolio in its artificial int artificial intelligence infrastructure. So all the energy companies that go into artificial intelligence, those names are very high beta. So we have a we have we had a lot of exposure. We had a lot of exposure to chemico, a lot of exposure to the uranium names, a lot of exposure to Vistra and all of those names are in the NUKZ ETF. We've taken that down dramatically because we don't want to be long high beta when we think there's something coming. Just like we saw in April, there was a violent move down in the high beta names which move more than the market, right? All that means is high beta names move more than the market when the market goes down. We want to take those names down now, raise cash, and be there for the next puke. Yeah. Interesting. I got to ask you, I mean, you know, we I was watching that last tape, too, and you called for the 10-year yield to hit the five and a/4% by year end. It's now about four. You also saw the S&P pulling back to about 4200. It's now breaking these records. I mean, something happened over the last four months that dramatically kind of, you know, changed the forecast here. How are you coming back into the market? Is this is the AI side? Well, remember the global yields, so global duration, what we call, you know, bond yields have been ripping higher in the UK, France, uh, Japan. So, global yields are definitely ripping higher. And remember, if you're long duration, all that means is longerterm bonds, you're losing money since 2022. And that's a big driver into hard assets. the copper names, the uranium names, the gold, silver names. So when people are losing money in long-term bonds for longer and longer and longer periods of time, we're going on three, four years now. That money moves from what we call financial assets, which are bonds and and growth stocks, and it moves toward hard assets. That's what's happening. Yeah. Interesting. I I want to get to your most contrarian call. I mean, the potential 50% crash in Nvidia. I have to mention the news from Oracle. You and I talked about it before coming on on air which just posted an eyepopping forecast and even analysts are surprised. I mean it surged to over 40%. How does Oracle's blockbuster report factor into your thesis about the broader AI trade is is a bubble. Well, it's more about the in infrastructure and energy, right? And um all the tentacles that are going to be required to put this together. Um they're just not there yet. The power grid in the United States is 50 years old, in some spots, 30 years old in others. U there's not enough pipelines on the natural gas space. Uh there's not enough investment in in energy infrastructure to really prevent bottlenecks. So in other words, even though if Oracles had a great day, today it's up 30%. You can still fit four oracles inside Nvidia. Yeah, think about that. Four oracles. Nvidia's 4 trillion or Oracle is a little bit less than a trillion. So the natural gas space we're most bullish on now, the FCG ETF, if you look at the FCG ETF, the top three companies are only worth about 250 $260 billion, right? So the the only way that Nvidia reaches its growth potential is if the natural gas equities are up 500%. That's my view. In other words, you need energy infrastructure to support these data centers. And all Nvidia's growth is based off of data center construction and implementation, right? So the moment there's any kind of energy bottlenecks, which you can clear, just look at the price of electricity. It's literally going up vertically across the United States. That's a huge, by the way, by the way, that's a big problem for for politically for Nvidia and for a lot of AI companies. So we're going to see a massive explosion in the valuations of energy infrastructure companies. We love interero equity AR and we love range resources uh which we can get into if you like. Interesting. Okay. So that's natural gas side. I mean are you looking is it just picks and shovel plays now? Are you still looking at the broader like you know we're thinking uranium this nuclear play SMRs that we've been seeing the news? Well, uh energy transfer for example, just to just say on on let's like go from natural gas to communic um to uh the plumbing. Um energy transfer ET equity uh is down quite a bit in recent months. You're going to need massive plumbing build to support u artificial intelligence. Now, we've been recommending in our bear trap support SMR equity new scale in those small modular reactors for over a year now. We've been in this and we've been in the uranium trade since 2020. Um, so we're we've been in there with Camo in trade alerts out to our clients. But I want to tell you the SMR nuclear path to save AI is like 2 years away, right? So, if you just look at if you just look at the math behind new scale and you look at you can see the the mag seven companies are panicking. They're eating each other alive right now. They're investing in in um in the new scales of the world, the wolves of the world. These are the types of companies that are going to provide energy infrastructure. But it's going to take one at least 24 to 36 months to get that to market. In the meantime, the energy bottlenecks are going to disrupt uh the AI companies. Yeah, makes sense. Okay. So, that play natural gas in in the short term. I mean, how should an investor play this beyond that? I mean, are you suggesting that the real trade is to be short the AI hype via, you know, Nvidia while simultaneously being long the AI plumbing like you said, you know, uranium, copper mines, things like that? Well, that's what we're seeing very sophisticated investors do. But, you know, that's not a trade for retail. Um, there's a lot of ways to short Nvidia. A lot of people would say you never short uh a stock like Nvidia. All I have to say is one of the one of the big themes in our book, Jeremy, is the dark side of passive investing. And I'll tell you this, I've been in the business since the 80s. Jack Bogle is rolling over in his grave. The S&P 500 should never ever, for the love of God, have two companies that are 16% of the S&P 500. That is a disgrace to passive investing investing. It's a disgrace to indexing. Nobody cares. The the 30-year average of the top two companies in the S&P 500 has averaged around 7 to 8%. Now, we've got 16% 15 16% of the top is inside the top two companies in the S&P 500. That's Nvidia and Microsoft. So, the everyone's 401k has been hijacked by artificial intelligence. Everyone's dramatically exposed to two companies that are trading at almost, you know, 30 times sales for Nvidia, 30 time sales and 13 time sales for Microsoft. That is literally three standard deviations above the 30-year norm. It's it's bogus and it will go down is one of the greatest mistakes in the history of passive investing. Yeah, let's stay on the passive aggressing uh kind of thesis there for a second because your report called the S&P inclusion process obviously a slime show, right? Where trillions of dollars are in index funds are forced to buy shares at these highs and then forced to sell them at the lows as you saw with Lululemon for instance is what you was in your report. I mean, for the tens of millions of people who have been told for years to just buy the S&P 500 ETF, what's the systemic risk that they are unknowingly taking on by participating in this what you're calling distorted market, right? You know, one of the things that blew me away is I was watching Tucker Carlson. I think he had the Wolf of Wall Street on there, right? So, the Wolf of Wall Street, a man with probably the worst reputation in the last 30 years on Wall Street for hurting investors. He's found religion in indexing. He's going all in recommending in indexes, S&P 500, NASDAQ. This is what's happening with indexing is so many people are involved. Once you go from say active, think of active versus passive. And this get comes from probably one of our most sophisticated institutional clients, veteran investor. every 1% that passive takes from market share away from active as we go from 51% 52% to 59% passive versus active every 1% destroys the index because what happens is there's no public floats for sale for sale people gain the S&P like you said in uh since Lululemon came into the S&P it's down 60%. And what happens is the the gamers, they know that they know the companies that are going to come into the S&P. They frontr run them. They buy them and then the index trackers are forced to buy these stocks. And so over time, the S&P 500 is being destroyed by the gaming. It's all because of the market share of passive versus active. Yeah. Yeah. And those elos too. Uh okay. when we I just want to go back to this AI boom just for a quick second and then we got to talk about this M&A I mean our interviews always go so fast Larry but you know while you might see this potential bust in the US it seems like this American policy has ignited an AI boom in China I mean the hang tech's up about 67% and the only reason I ask I mean there's all this talk about tariffs these different chips between China America I mean is the AI theme truly breaking or is it simply bifurcating into two competing global ecosystems Well, we've already had a we had a scare in February February around Deep Seek, right? So, nobody really knows because things are moving so fast, but we had a period with the Deep Seek where people felt that okay, China's AI investments are going to really steal market share globally and a lot of artificial stocks in the United States from February to April were down like 40, 50, 60% in some cases. Now Baba, so Baba's been in our high conviction portfolio for three years. We had a capitulation buy. We were really literally full position. We're lightening that now. But Baba is destroying Apple. If you look at Baba, it's destroying Apple over the last one year, two year, three year, almost four years now. So artificial intelligence with companies like Alibaba and the K web is destroying the S&P, the F FXI. So emerging market equities in China are destroying absolutely destroying the S&P 500 this year and over the last two years. Yeah. Any any worry on that China trade? I mean, you know, right now it looks like the numbers they're putting out seems deflationary as well. Well, we've had deflationary worries in China for a long time. Um, but the government knows this and they're really trying um to put forth, you know, stimulus again. We we've heard this for two, three years. We've heard and we we've seen the China bond yields for the last two years making new lows. Not they're up off the lows now. But u yeah so the deflation stuff out of China's been out there out there out there but we still have massive inflationary forces uh in the west. Yeah. I got to ask you I mean we'll switch over to the miners. Let's talk about copper first. In in back in May you told us that the copper gold ratio is the key signal and that when it gets near 90 investors got to own silver is what you said. I mean, your latest report shows that that ratio has been in that territory while also highlighting this massive divergence with Chinese copper miners on fire while American miners are kind of lagging here. I mean, for our viewers, is this ratio telling them now is the time to sell gold and to rotate into silver and industrial metals? And given that divergence, what's the right way to play this trade? Yes. Uh so first the gold silver ratio in a real bull market should be down in the 50s or 60s historically that's what happens in and what happens in the beginning of a commodity bull market everyone hides out hides out in the mother ship and that's gold and that's where the first capital goes in but as the as the as the commodity market uh matures the bull market as it matures people start move to tertiary plays and that's what's been happening so they added this week, Jeremy, they added Heeka mining to the S&P 5 600 small cap index. In one day, hecka, which is a silver miner, was up 14, 15, 16%. This shows you that the there's a metamorphosis going on in the market. The market is, if you just look at the copper miners, they're destroying the cues this year. They're destroying the NASDAQ. Um platinum and platium destroying the NASDAQ this year. um you just we've never seen a period where um say say gold stocks are destroying Apple. We haven't seen something like this since the n since the 80s and so something very big is going on the markets pricing in real sustained inflation and higher bond yields globally. You know let's make it actionable right I mean the big news in the mining space obviously is this Anglo-American tech resource merger. You've been long tech since 2020 and your note says that you're now selling everything on this news. I mean, for our viewers, what does this move teach them about how to trade a hard asset cycle? Well, copper, we love copper. We're just diversifying into copper. We we love the COPX. Um, we're long first quantum. We're long we're long obviously Freeport McMaran. The the thing with copper globally is Panama, for example, has a mine that is one of the most productive mines on the planet Earth. It's copper is close to the surface of the earth. First quantum owns this mine and in recent years it was shut down. You can get copper from this mine into the Atlantic or Atlantic Atlantic or Pacific Ocean in literally 5 or 10 minutes. That once once you get it out of the ground and and so so what's happening is they're shutting down these mines globally for political reasons. Same thing in Chile, same thing in Peru. And so Panama, Chile, and Peru are only are say no, they're not only, but they're up to 45% of global copper production. At the same time, we need an entire rebuild of the US power grid to support artificial intelligence. So that's a lot of copper. We've got robotics, 2 million robots, 2 million robots will take two years of global copy copper production. And people like Elon Musk are saying we need a two we need 100 million to 200 million robots. So robotics is a huge copper uh bullcase there. Same thing with artificial intelligence. And above all, think of the Ukraine rebuild. Think of the LA rebuild. Think of the Gaza rebuild. Wars are very inflationary. The the sky is the limit for copper. copper names. I predict in the next 5 years, uh, some of the copper names are going to be up there in the top 10 or 15% of the S&P 500. You got to give me a couple of those names. I mean, I I I'm curious. I mean, because your report, your own report shows, you know, long gold is now the most created crowd for for for trade for fund managers, right? I mean, are you trimming some of those miners as a kind of tactical move against a popular trade? Is any long-term thesis changed? Yes, today we issued a trade alert. So, we went from um we were 3/3 on GDX in November, high conviction. We went down to 2/3 of maybe a month ago and now we're down to 1/3. Um we're buying some of the cold names, which we can get into the coal names. That's a big big artificial intelligence play there. They're beaten up. We love we love trades like coal and natural gas. when what I call the hot money flush comes in. All that means is with coal, you had a big move up into the Trump election because everybody perceives that Trump's going to be great for his big beautiful coal. And there's a number of reasons that that came about to kind of reverse that uh which which we can get into. But at the end of the day, the coal names like core natural resources, CNR, we love CNR down here. Um well off the highs, more than I think around 50% off the highs. great keep free cash flow yield. The coal names been beaten up because a lot of that hot money that came in in the fourth quarter has been flushed out, puked out into a great value down here. And it's the same thing from the natural gas names. There was supposed to be an incredibly hot summer in the Northeast. Jeremy, they were talking about record temperatures. I was in Boston and New York maybe three weeks ago. It was cool. I was wearing we were wearing jackets on the cape at night. the the northeast did not use as much um air conditioning. Demand was way down. It was a cool summer that crushed natural gas. That's an opportunity for um Antaro Resources, AR equity and range resources, RRC companies trading at 10 to 10 to 15% free cash flow yields and they're buying back stock at the fastest pace in the history of the companies. So you're buying that dip. I mean the cold play it's interesting because when you look at cold names you know coal names and you look at the natural gas names it goes back to your your thesis about it's going to take a while for these uranium you know these SMRs it's we got about two years of profits to make before those picks and shovels on this trade and I guess the profit could be made on the coal and natural gas people like that those companies yes um we've seen this uh at least three times now on the front cover two three years ago of of the Economist magazine was the death of coal Right. And these coal stocks were in flames. It was supposed to be the Green New Deal. And uh they actually shut down the the KOL ETF. That's how bad it got. And then from that point forward uh because of global energy demand globally, um the the coal names exploded higher. Remember, there's a billion people in India. Mhm. That don't have air conditioning. And we've taken 5 million jobs. We've exported them around the world. We've created a whole new really hundreds and hundreds and hundreds of millions of people of new carbon consumers. If you're if you're a young person in India, you're using 10 times more um electricity than your great great-grandparents. You're getting that moped. You're you're you're using oil, you're using gas, you're using electricity. Are you looking at a lot of emerging market plays right now? uh thinking that there's some big opportunity watching this this new economic data coming out of China waiting for that India for instance you know what's happening with bricks you looking towards those places well India right now is is dramat I mean literally what they were telling us Wall Street a year and a half two years ago was sell China and buy India and India's been almost flat on the year and China stocks are up 30%. So whenever you see for the love of God a consensus on Wall Street, run. Don't walk the other way. Right. So right now, I mean just just literally run as fast as you can. But but this this whole I mean this was the most consensus trade 18 months to two to two years ago. Sell China by India. And since then, China's destroyed India. Like I said, Baba is destroying Apple. Absolutely destroying. So I I think in in em um India is a lot cheaper than China now. That's maybe you want to sell some of your your China exposure and buy and buy some India. Interesting. Okay. I got to ask you about Bitcoin. I mean back in May you called it too volatile for real wealth since then. Your own reports note that it's shown size of maturing in recent selloffs. I'm just curious, you know, have what's changed here? Have the institutional ETFs kind of changed your view on its role in a portfolio? Well, there's no question that the broadening out of Bitcoin is healthy for less draw downs. My only point with Bitcoin is I don't like the pumpers. I don't like an asset class that has strippers all over the internet promoting it. I mean, for the I mean, for the love, I mean, come on. We got to get serious here. No asset class should need strippers promoting it on literally every street corner, every website. It doesn't make any sense. It tells you there's a lot of bad apples in the trade, right? a lot of pro promoters and pumpers, they need a greater fool. Um, one thing we watch is the gold to Bitcoin ratio. And when that gets up in that, you know, the high to mid30s, you want to sell Bitcoin and buy gold, right? Um, and when it gets down in the 10 to say low 20s, you want to sell some gold and buy some Bitcoin. Yeah, Bitcoin's going to be around for a long time. I just don't like the pumpers and the strippers promoting an asset class. Yeah, makes sense. And let's let's let's end on your bold call uh from the last interview too. I mean you you said that a hard asset company like Bareric Gold could potentially be in the top 10 of the S&P 500 by 2032. Uh what has to happen in the world over the next decade for this to become a reality? Well, it's already happening with long duration every minute, every hour, every week, every month that long-term bonds are dramatically underperforming. And that's since 2022. like you said, there's an Apple bond uh that was issued at a par which is 100 that's now trading in the you know mid to high 50s. So long duration that's the first thing. The second thing you need is um a situation like that's developing in Washington where for political reasons political reasons the Fed is being forced to kind of get aggressive cutting interest rates when they haven't killed inflation. If you look at core CPI, core PPI, we're literally bouncing off of the 2010 to 2019 highs. We we're nowhere near killing inflation. And so in that world of slower growth and sustained inflation, that gets you a a literally a multi- trillion dollar rotation out of financial assets, which are just paper certificates, stock certificates, and bonds, out of financial assets into hard asset companies. Yeah, crucial discussion, Larry. Great. Leave our audience with a final thought here. I mean, for the investor trying to find a signal in this noise that we deal with every day. I mean, it's a loud one out there. What is the the single most important chart or data point that they should watch for the rest of the year? I think overall it's the financials versus the S&P if there's contagion from subprime. So it's today it's clear there's a lot of subprime stocks that are starting to blow up. But the XLF is literally near the highs. Croup made a new 52- week high yesterday. So we if we see a contagion from kind of this tertiary financials which are those third tier financials those subprime lenders if we see that contagion move upscale to the large cap financials then you know you know we have a real problem not just with the economy but with the subprime contagion that's moving up town. Yeah. Yeah. Watch those lenders. We'll keep an eye on it here. Larry McDonald of the Bear Traps report. Great report uh out this week by the way. I went through it this morning. just great. So I recommend the audience to go and subscribe. Thanks for your time as always, Larry. Appreciate it. Thanks, Jeremy. Appreciate it. Appreciate it. Thanks so much. All right, the critical question for every investor now is which reality are you positioned for? Let us know in the comments. Are you raising cash? Are you riding this rally? Don't forget to like the video, subscribe to our channel so you don't miss a market moving interview for all of us here at Kitco News. I'm Jeremy Saffron. We'll see you next time. [Music] Heat. Heat. [Music]
Lehman Vet's Warning: The Market is Ignoring The Biggest Red Flags Since 2007
Summary
Transcript
[Music] Welcome back. I'm Jeremy Saffron. The S&P 500 is trading at a new all-time high and the catalyst is in this morning's surprising drop in producer prices which the market is taking as a definite allclear signal from the Federal Reserve. According to latest data from the CME Fed Watch tool, traders are now pricing in a 90% probability of a rate cut next week with the odds of a deeper 50 basis point cut rising. Now, this optimism, however, is unfolding alongside a historic route in the bond market. The damage in what are supposed to be safe assets is so profound that even a blue chip Apple bond from 2021 now trades at just 54 cents on the dollar, according to our next guest. Now, when we last spoke to him in May, he advised viewers to raise cash and prepare for this very divergence. Today, he argues the market's consensus view is deeply flawed. Larry McDonald, of course, founder of the Bear Traps Report, a great report that I subscribe to, and a veteran of the Layman Brothers Crash, joins us now. Good to see you, Larry. Jeremy, thanks very much. And our book, How to Listen When Markets Speak, Top 10 on Amazon. Thank you. Top 10. I like it. I like it. Okay. Okay. Well, this is this is actually a good kind of segue for us because in that book, and I I have seen it. I mean, let's talk about today. Wall Street's taken this soft PPI print as a a definite sign that inflation is almost defeated here. I mean, your work argues that there is a profound misreading of the data. What specifically do you believe the consensus is missing here? Well, if you if you really look inside PPI, we were really hot last month, uh, two standard deviations more than normal. And, um, you know, the Trump team now is running the show at the BLS. So we don't want to say anything that thing there but but uh you know it's it's kind of like okay really really bad month last month uh much better month this month but over over the last four or five months and especially if you look at core CPI where you look at ISM prices paid Philadelphia Fed prices paid Richmond Fed prices paid it's very clear that the trend on inflation is bouncing and it's going to create a problem for the Fed and the White House. Yeah. I mean on that data too, I mean on inflation, the report shows companies are absorbing tariff costs, not really passing them on to the public, which is surprising. I mean, they're taking a hit on their own profits instead. And and I guess my question is, doesn't the lack of pricing power tell you the American consumer is simply too weak to handle higher prices and that the story is about a slowdown, not stagflation? You know, Jeremy, uh, the b the bottom 60% of US consumers are absolutely getting hammered. I was at in Washington last week. I was at Treasury. There's real concern. The bottom 60% of consumers are being hit over the head with inflation and higher rates. It's a big concern at US Treasury. But now the middle class and upper middle class have a violent storm coming at them in the form of artificial intelligence. Job destruction there. So we've got the bottom 60% in a lot of pain and there's so many companies that show this. Just look at Sally May today. Look at you upstart subprime lenders. But the middle class really has that artificial intelligence enemy coming at them at about 150 mph. Yeah. Yeah. Yeah, it's an interesting one. I I saw a meme over the weekend, Larry, and it was talking about how people that are applying for jobs are using AI to essentially apply for their job, but then the HR manager is just using AI to go through those. So, I mean, where is the consumer here? Well, that's what we're seeing today. So, uh let's break some news. So, we have our 21 Leman systemic risk indicators that we created in 2010. Remember, we wrote the New York Times bestseller about the fall of Lehman. It's a global bestseller. It was one of the top 20 books all time according to the CFA Institute. And I'm here to tell you that our 21 layment systemic indicators just went from Defcon 3 2 to Defcon 3 today. Okay, you got to go back into that. Give get into this 21. Talk a little bit about the data and and why you're nervous. Well, it really comes down to, you know, we run a Bloomberg chat with hedge funds, mutual funds, and pension funds around the world. So, we're listening to that valuable buyside conversation. And what people are talking about, people that were extremely bullish 6 months ago on the consumer, we're talking not like not perma bulls or perma bears, just veteran investors that were pounding the table bullish on the consumer have have turned very bearish. First of all, that's more the most important. But Sally May and Na'vi uh companies that face student loans have been really massively underperforming the financials at a rate of change that's accelerating and with lower lows. If you think about it, Linda McMahon uh in the White House, that team, you know, they're trying to really bring back the student loan payments, right? So, we had years of forbearance. So, we've gone from a very progressive administration, the Biden team. Think about this, very progressive to a more fiscally conservative/conservative team in in the Trump team. And what they're doing is they're forcing a lot of um a lot of people that had those student loans, let's just say you were making that $400 a month payment and you got a 2-year reprieve. Now they're turning that back on. And that's flowing into all kinds of subprime lending, especially today in what we call buy now, pay later names, UPS, upstart. So we're seeing a contagion across in subprime lending that's spreading. Interesting. Okay. So would that be I mean you you literally wrote the book Larry on on you know the layman collapse and you're you're known for your 21 symmetric wrist indicators here. I mean if those indicators are starting to flash red today just as they did before 2008. What is the single most dangerous parallel that you see between the markets today and the eve of that great financial crisis? Is it what you just hit these student loans? Is it more? Well, it's is it the mark to to myth? Yeah. Yeah. Yeah. Well, well, that's everyone knows about this like what we call the the the mark to mark to market, mark to model, mark to myth, and that's in in in private credit. So, private credit has been kind of uh festering there. There really a lot of sophisticated investors that are dumping exposure to private credit and handing that off to retail adviserss. We did a a private uh dinner a few weeks ago in San Francisco with the most, you know, really the highest netw worth clients and and financial adviserss and portfolio managers and the the the large financial adviserss are literally telling us at the table that the branch managers and management of this brokerage firms across America are like kind of like force feeding these guys uh private credit. It's a very bad sign because whenever you see very sophisticated investors dumping exposure to retail investors, that's something that makes you know kind of uh the back hair on the back of your neck rise up quite a bit. Yeah. Yeah. And I mean back in May, I mean we talked about this. You warned us of a credit cycle turn coming. I mean today auto loan delinquencies are at an all-time high. You flagged that Mark to myth accounting and private credit the thing that you're just talking about. I mean has the default cycle you forecasted officially begun? Yes, it's begun. But we went through this in 200. You know, remember New Century Financial. Yeah. Filed bankruptcy in the spring of 2007 and it was the largest subprime lender in the United States. And the market went up, you know, the next 6 months. So that's what we've been going through. Like we we're going through that now. We've had subprime issues for for months now. And the market's grinding up. The market doesn't pay attention to it right away. But that's why at the end of the day, what the Fed is trying to do is they're trying to massage interest rates below the rate of inflation because of because of the problems. They're really worried about they want to get rates down, right? So, they want to massage interest rates down as fast as they can because they're very concerned about the consumer. But the bullish thing for us and that's why we've been long gold miners, we've been long uranium names, been long hard assets. It's all it's all in our book, How to Listen Market Speak. those hard asset that hard asset portfolio construction in a in this kind of world of potentially stagflation slowing growth and sustained inflation. That's where that hard asset portfolio dramatically dramatically outperforms US equities and the S&P 500. Yeah, I mean it's been interesting talking about it and seeing these divergence. I mean gold, silver prices right now, you're watching them carefully. We need to get into the miners and where you're investing in this market. I mean, all cash still. Have you just been deploying it? Well, we put, you know, in our trade alerts that are real time at the bear traps report, we did um almost 20 trade alerts in April and May on the on the buy side. So, we were buying a lot of the what we love is the NUKZ names. So, look at the NUKZ portfolio in its artificial int artificial intelligence infrastructure. So all the energy companies that go into artificial intelligence, those names are very high beta. So we have a we have we had a lot of exposure. We had a lot of exposure to chemico, a lot of exposure to the uranium names, a lot of exposure to Vistra and all of those names are in the NUKZ ETF. We've taken that down dramatically because we don't want to be long high beta when we think there's something coming. Just like we saw in April, there was a violent move down in the high beta names which move more than the market, right? All that means is high beta names move more than the market when the market goes down. We want to take those names down now, raise cash, and be there for the next puke. Yeah. Interesting. I got to ask you, I mean, you know, we I was watching that last tape, too, and you called for the 10-year yield to hit the five and a/4% by year end. It's now about four. You also saw the S&P pulling back to about 4200. It's now breaking these records. I mean, something happened over the last four months that dramatically kind of, you know, changed the forecast here. How are you coming back into the market? Is this is the AI side? Well, remember the global yields, so global duration, what we call, you know, bond yields have been ripping higher in the UK, France, uh, Japan. So, global yields are definitely ripping higher. And remember, if you're long duration, all that means is longerterm bonds, you're losing money since 2022. And that's a big driver into hard assets. the copper names, the uranium names, the gold, silver names. So when people are losing money in long-term bonds for longer and longer and longer periods of time, we're going on three, four years now. That money moves from what we call financial assets, which are bonds and and growth stocks, and it moves toward hard assets. That's what's happening. Yeah. Interesting. I I want to get to your most contrarian call. I mean, the potential 50% crash in Nvidia. I have to mention the news from Oracle. You and I talked about it before coming on on air which just posted an eyepopping forecast and even analysts are surprised. I mean it surged to over 40%. How does Oracle's blockbuster report factor into your thesis about the broader AI trade is is a bubble. Well, it's more about the in infrastructure and energy, right? And um all the tentacles that are going to be required to put this together. Um they're just not there yet. The power grid in the United States is 50 years old, in some spots, 30 years old in others. U there's not enough pipelines on the natural gas space. Uh there's not enough investment in in energy infrastructure to really prevent bottlenecks. So in other words, even though if Oracles had a great day, today it's up 30%. You can still fit four oracles inside Nvidia. Yeah, think about that. Four oracles. Nvidia's 4 trillion or Oracle is a little bit less than a trillion. So the natural gas space we're most bullish on now, the FCG ETF, if you look at the FCG ETF, the top three companies are only worth about 250 $260 billion, right? So the the only way that Nvidia reaches its growth potential is if the natural gas equities are up 500%. That's my view. In other words, you need energy infrastructure to support these data centers. And all Nvidia's growth is based off of data center construction and implementation, right? So the moment there's any kind of energy bottlenecks, which you can clear, just look at the price of electricity. It's literally going up vertically across the United States. That's a huge, by the way, by the way, that's a big problem for for politically for Nvidia and for a lot of AI companies. So we're going to see a massive explosion in the valuations of energy infrastructure companies. We love interero equity AR and we love range resources uh which we can get into if you like. Interesting. Okay. So that's natural gas side. I mean are you looking is it just picks and shovel plays now? Are you still looking at the broader like you know we're thinking uranium this nuclear play SMRs that we've been seeing the news? Well, uh energy transfer for example, just to just say on on let's like go from natural gas to communic um to uh the plumbing. Um energy transfer ET equity uh is down quite a bit in recent months. You're going to need massive plumbing build to support u artificial intelligence. Now, we've been recommending in our bear trap support SMR equity new scale in those small modular reactors for over a year now. We've been in this and we've been in the uranium trade since 2020. Um, so we're we've been in there with Camo in trade alerts out to our clients. But I want to tell you the SMR nuclear path to save AI is like 2 years away, right? So, if you just look at if you just look at the math behind new scale and you look at you can see the the mag seven companies are panicking. They're eating each other alive right now. They're investing in in um in the new scales of the world, the wolves of the world. These are the types of companies that are going to provide energy infrastructure. But it's going to take one at least 24 to 36 months to get that to market. In the meantime, the energy bottlenecks are going to disrupt uh the AI companies. Yeah, makes sense. Okay. So, that play natural gas in in the short term. I mean, how should an investor play this beyond that? I mean, are you suggesting that the real trade is to be short the AI hype via, you know, Nvidia while simultaneously being long the AI plumbing like you said, you know, uranium, copper mines, things like that? Well, that's what we're seeing very sophisticated investors do. But, you know, that's not a trade for retail. Um, there's a lot of ways to short Nvidia. A lot of people would say you never short uh a stock like Nvidia. All I have to say is one of the one of the big themes in our book, Jeremy, is the dark side of passive investing. And I'll tell you this, I've been in the business since the 80s. Jack Bogle is rolling over in his grave. The S&P 500 should never ever, for the love of God, have two companies that are 16% of the S&P 500. That is a disgrace to passive investing investing. It's a disgrace to indexing. Nobody cares. The the 30-year average of the top two companies in the S&P 500 has averaged around 7 to 8%. Now, we've got 16% 15 16% of the top is inside the top two companies in the S&P 500. That's Nvidia and Microsoft. So, the everyone's 401k has been hijacked by artificial intelligence. Everyone's dramatically exposed to two companies that are trading at almost, you know, 30 times sales for Nvidia, 30 time sales and 13 time sales for Microsoft. That is literally three standard deviations above the 30-year norm. It's it's bogus and it will go down is one of the greatest mistakes in the history of passive investing. Yeah, let's stay on the passive aggressing uh kind of thesis there for a second because your report called the S&P inclusion process obviously a slime show, right? Where trillions of dollars are in index funds are forced to buy shares at these highs and then forced to sell them at the lows as you saw with Lululemon for instance is what you was in your report. I mean, for the tens of millions of people who have been told for years to just buy the S&P 500 ETF, what's the systemic risk that they are unknowingly taking on by participating in this what you're calling distorted market, right? You know, one of the things that blew me away is I was watching Tucker Carlson. I think he had the Wolf of Wall Street on there, right? So, the Wolf of Wall Street, a man with probably the worst reputation in the last 30 years on Wall Street for hurting investors. He's found religion in indexing. He's going all in recommending in indexes, S&P 500, NASDAQ. This is what's happening with indexing is so many people are involved. Once you go from say active, think of active versus passive. And this get comes from probably one of our most sophisticated institutional clients, veteran investor. every 1% that passive takes from market share away from active as we go from 51% 52% to 59% passive versus active every 1% destroys the index because what happens is there's no public floats for sale for sale people gain the S&P like you said in uh since Lululemon came into the S&P it's down 60%. And what happens is the the gamers, they know that they know the companies that are going to come into the S&P. They frontr run them. They buy them and then the index trackers are forced to buy these stocks. And so over time, the S&P 500 is being destroyed by the gaming. It's all because of the market share of passive versus active. Yeah. Yeah. And those elos too. Uh okay. when we I just want to go back to this AI boom just for a quick second and then we got to talk about this M&A I mean our interviews always go so fast Larry but you know while you might see this potential bust in the US it seems like this American policy has ignited an AI boom in China I mean the hang tech's up about 67% and the only reason I ask I mean there's all this talk about tariffs these different chips between China America I mean is the AI theme truly breaking or is it simply bifurcating into two competing global ecosystems Well, we've already had a we had a scare in February February around Deep Seek, right? So, nobody really knows because things are moving so fast, but we had a period with the Deep Seek where people felt that okay, China's AI investments are going to really steal market share globally and a lot of artificial stocks in the United States from February to April were down like 40, 50, 60% in some cases. Now Baba, so Baba's been in our high conviction portfolio for three years. We had a capitulation buy. We were really literally full position. We're lightening that now. But Baba is destroying Apple. If you look at Baba, it's destroying Apple over the last one year, two year, three year, almost four years now. So artificial intelligence with companies like Alibaba and the K web is destroying the S&P, the F FXI. So emerging market equities in China are destroying absolutely destroying the S&P 500 this year and over the last two years. Yeah. Any any worry on that China trade? I mean, you know, right now it looks like the numbers they're putting out seems deflationary as well. Well, we've had deflationary worries in China for a long time. Um, but the government knows this and they're really trying um to put forth, you know, stimulus again. We we've heard this for two, three years. We've heard and we we've seen the China bond yields for the last two years making new lows. Not they're up off the lows now. But u yeah so the deflation stuff out of China's been out there out there out there but we still have massive inflationary forces uh in the west. Yeah. I got to ask you I mean we'll switch over to the miners. Let's talk about copper first. In in back in May you told us that the copper gold ratio is the key signal and that when it gets near 90 investors got to own silver is what you said. I mean, your latest report shows that that ratio has been in that territory while also highlighting this massive divergence with Chinese copper miners on fire while American miners are kind of lagging here. I mean, for our viewers, is this ratio telling them now is the time to sell gold and to rotate into silver and industrial metals? And given that divergence, what's the right way to play this trade? Yes. Uh so first the gold silver ratio in a real bull market should be down in the 50s or 60s historically that's what happens in and what happens in the beginning of a commodity bull market everyone hides out hides out in the mother ship and that's gold and that's where the first capital goes in but as the as the as the commodity market uh matures the bull market as it matures people start move to tertiary plays and that's what's been happening so they added this week, Jeremy, they added Heeka mining to the S&P 5 600 small cap index. In one day, hecka, which is a silver miner, was up 14, 15, 16%. This shows you that the there's a metamorphosis going on in the market. The market is, if you just look at the copper miners, they're destroying the cues this year. They're destroying the NASDAQ. Um platinum and platium destroying the NASDAQ this year. um you just we've never seen a period where um say say gold stocks are destroying Apple. We haven't seen something like this since the n since the 80s and so something very big is going on the markets pricing in real sustained inflation and higher bond yields globally. You know let's make it actionable right I mean the big news in the mining space obviously is this Anglo-American tech resource merger. You've been long tech since 2020 and your note says that you're now selling everything on this news. I mean, for our viewers, what does this move teach them about how to trade a hard asset cycle? Well, copper, we love copper. We're just diversifying into copper. We we love the COPX. Um, we're long first quantum. We're long we're long obviously Freeport McMaran. The the thing with copper globally is Panama, for example, has a mine that is one of the most productive mines on the planet Earth. It's copper is close to the surface of the earth. First quantum owns this mine and in recent years it was shut down. You can get copper from this mine into the Atlantic or Atlantic Atlantic or Pacific Ocean in literally 5 or 10 minutes. That once once you get it out of the ground and and so so what's happening is they're shutting down these mines globally for political reasons. Same thing in Chile, same thing in Peru. And so Panama, Chile, and Peru are only are say no, they're not only, but they're up to 45% of global copper production. At the same time, we need an entire rebuild of the US power grid to support artificial intelligence. So that's a lot of copper. We've got robotics, 2 million robots, 2 million robots will take two years of global copy copper production. And people like Elon Musk are saying we need a two we need 100 million to 200 million robots. So robotics is a huge copper uh bullcase there. Same thing with artificial intelligence. And above all, think of the Ukraine rebuild. Think of the LA rebuild. Think of the Gaza rebuild. Wars are very inflationary. The the sky is the limit for copper. copper names. I predict in the next 5 years, uh, some of the copper names are going to be up there in the top 10 or 15% of the S&P 500. You got to give me a couple of those names. I mean, I I I'm curious. I mean, because your report, your own report shows, you know, long gold is now the most created crowd for for for trade for fund managers, right? I mean, are you trimming some of those miners as a kind of tactical move against a popular trade? Is any long-term thesis changed? Yes, today we issued a trade alert. So, we went from um we were 3/3 on GDX in November, high conviction. We went down to 2/3 of maybe a month ago and now we're down to 1/3. Um we're buying some of the cold names, which we can get into the coal names. That's a big big artificial intelligence play there. They're beaten up. We love we love trades like coal and natural gas. when what I call the hot money flush comes in. All that means is with coal, you had a big move up into the Trump election because everybody perceives that Trump's going to be great for his big beautiful coal. And there's a number of reasons that that came about to kind of reverse that uh which which we can get into. But at the end of the day, the coal names like core natural resources, CNR, we love CNR down here. Um well off the highs, more than I think around 50% off the highs. great keep free cash flow yield. The coal names been beaten up because a lot of that hot money that came in in the fourth quarter has been flushed out, puked out into a great value down here. And it's the same thing from the natural gas names. There was supposed to be an incredibly hot summer in the Northeast. Jeremy, they were talking about record temperatures. I was in Boston and New York maybe three weeks ago. It was cool. I was wearing we were wearing jackets on the cape at night. the the northeast did not use as much um air conditioning. Demand was way down. It was a cool summer that crushed natural gas. That's an opportunity for um Antaro Resources, AR equity and range resources, RRC companies trading at 10 to 10 to 15% free cash flow yields and they're buying back stock at the fastest pace in the history of the companies. So you're buying that dip. I mean the cold play it's interesting because when you look at cold names you know coal names and you look at the natural gas names it goes back to your your thesis about it's going to take a while for these uranium you know these SMRs it's we got about two years of profits to make before those picks and shovels on this trade and I guess the profit could be made on the coal and natural gas people like that those companies yes um we've seen this uh at least three times now on the front cover two three years ago of of the Economist magazine was the death of coal Right. And these coal stocks were in flames. It was supposed to be the Green New Deal. And uh they actually shut down the the KOL ETF. That's how bad it got. And then from that point forward uh because of global energy demand globally, um the the coal names exploded higher. Remember, there's a billion people in India. Mhm. That don't have air conditioning. And we've taken 5 million jobs. We've exported them around the world. We've created a whole new really hundreds and hundreds and hundreds of millions of people of new carbon consumers. If you're if you're a young person in India, you're using 10 times more um electricity than your great great-grandparents. You're getting that moped. You're you're you're using oil, you're using gas, you're using electricity. Are you looking at a lot of emerging market plays right now? uh thinking that there's some big opportunity watching this this new economic data coming out of China waiting for that India for instance you know what's happening with bricks you looking towards those places well India right now is is dramat I mean literally what they were telling us Wall Street a year and a half two years ago was sell China and buy India and India's been almost flat on the year and China stocks are up 30%. So whenever you see for the love of God a consensus on Wall Street, run. Don't walk the other way. Right. So right now, I mean just just literally run as fast as you can. But but this this whole I mean this was the most consensus trade 18 months to two to two years ago. Sell China by India. And since then, China's destroyed India. Like I said, Baba is destroying Apple. Absolutely destroying. So I I think in in em um India is a lot cheaper than China now. That's maybe you want to sell some of your your China exposure and buy and buy some India. Interesting. Okay. I got to ask you about Bitcoin. I mean back in May you called it too volatile for real wealth since then. Your own reports note that it's shown size of maturing in recent selloffs. I'm just curious, you know, have what's changed here? Have the institutional ETFs kind of changed your view on its role in a portfolio? Well, there's no question that the broadening out of Bitcoin is healthy for less draw downs. My only point with Bitcoin is I don't like the pumpers. I don't like an asset class that has strippers all over the internet promoting it. I mean, for the I mean, for the love, I mean, come on. We got to get serious here. No asset class should need strippers promoting it on literally every street corner, every website. It doesn't make any sense. It tells you there's a lot of bad apples in the trade, right? a lot of pro promoters and pumpers, they need a greater fool. Um, one thing we watch is the gold to Bitcoin ratio. And when that gets up in that, you know, the high to mid30s, you want to sell Bitcoin and buy gold, right? Um, and when it gets down in the 10 to say low 20s, you want to sell some gold and buy some Bitcoin. Yeah, Bitcoin's going to be around for a long time. I just don't like the pumpers and the strippers promoting an asset class. Yeah, makes sense. And let's let's let's end on your bold call uh from the last interview too. I mean you you said that a hard asset company like Bareric Gold could potentially be in the top 10 of the S&P 500 by 2032. Uh what has to happen in the world over the next decade for this to become a reality? Well, it's already happening with long duration every minute, every hour, every week, every month that long-term bonds are dramatically underperforming. And that's since 2022. like you said, there's an Apple bond uh that was issued at a par which is 100 that's now trading in the you know mid to high 50s. So long duration that's the first thing. The second thing you need is um a situation like that's developing in Washington where for political reasons political reasons the Fed is being forced to kind of get aggressive cutting interest rates when they haven't killed inflation. If you look at core CPI, core PPI, we're literally bouncing off of the 2010 to 2019 highs. We we're nowhere near killing inflation. And so in that world of slower growth and sustained inflation, that gets you a a literally a multi- trillion dollar rotation out of financial assets, which are just paper certificates, stock certificates, and bonds, out of financial assets into hard asset companies. Yeah, crucial discussion, Larry. Great. Leave our audience with a final thought here. I mean, for the investor trying to find a signal in this noise that we deal with every day. I mean, it's a loud one out there. What is the the single most important chart or data point that they should watch for the rest of the year? I think overall it's the financials versus the S&P if there's contagion from subprime. So it's today it's clear there's a lot of subprime stocks that are starting to blow up. But the XLF is literally near the highs. Croup made a new 52- week high yesterday. So we if we see a contagion from kind of this tertiary financials which are those third tier financials those subprime lenders if we see that contagion move upscale to the large cap financials then you know you know we have a real problem not just with the economy but with the subprime contagion that's moving up town. Yeah. Yeah. Watch those lenders. We'll keep an eye on it here. Larry McDonald of the Bear Traps report. Great report uh out this week by the way. I went through it this morning. just great. So I recommend the audience to go and subscribe. Thanks for your time as always, Larry. Appreciate it. Thanks, Jeremy. Appreciate it. Appreciate it. Thanks so much. All right, the critical question for every investor now is which reality are you positioned for? Let us know in the comments. Are you raising cash? Are you riding this rally? Don't forget to like the video, subscribe to our channel so you don't miss a market moving interview for all of us here at Kitco News. I'm Jeremy Saffron. We'll see you next time. [Music] Heat. Heat. [Music]