Navigating an Evolving Market with Larry McDonald

Eric Chemi 0:00
Hi Larry McDonald, founder of the bear traps report. Thanks so much for joining me here today. And I know we’re starting late because you had a client call just now you just got off that client call. What What are you talking about with the clients? What exactly when you get off the phone to talk to me? What is that conversation? Like? What are they worried about? Are they nervous about hey, you know, we’re starting to collapse a little bit at the beginning of the year is gonna look like two years ago, where the high was Jan, why don’t we we never came back to that the rest of the year? Or is it? You know, dry powder to get back into the markets? is a sector a single name? What are you jumping off of right now?

Lawrence McDonald 0:38
Well, we have an interesting platform, because you know, I believe in democratizing information. And behind me, we have a Bloomberg chat with about 650 institutional investors in like 2023 countries. I think the chat there online. Yeah. Yeah. So it’s, it’s like a live conversation where we imagine 650 people in a theater where 20 to 30 people a week or a day, get up and have a conversation in front of that 600 to 650 people. So most people in the chat, just observe the conversation. But during the day, as you kind of just pointed out, like, we’re taking a big rotation back into value. So that’s one of the conversation points like the outperformance of, say, Berkshire versus Microsoft or Apple is, like one or two standard deviations greater than we’ve seen in the last year, or at least at least you gotta go back to 2022. To find that. So there’s clearly and there’s a lot of money flowing into coal names, uranium names are hard assets this year versus financial assets. The financial answer is that a brilliant fourth quarter, so it’s your growth, you know, your your mag seven, but what’s happened is each time you get up near 20 trillion in the NASDAQ 100. It’s a real problem spot. And right now you’re seeing a pretty incredible flow out of financial assets. So out of the mag seven out of big caps, back into hard assets and companies that, that that actually own assets that can protect you from inflation.

Eric Chemi 2:19
I keep hearing about hard assets, I keep hearing about uranium, I never heard about your when he may have as much as in the last couple of months. Is this something that’s that’s real? Or is this just like a YouTube niche, you know, weird niche world about uranium and hard assets? Or is this actually like institutions now getting real serious about these investments? Well,

Lawrence McDonald 2:38
I mean, a year ago, it was a fringe group. But now. So what’s what’s happened? So one of the points in my book is it’s coming out this quarter, it’s called when markets speak. And the foundational point is, we’ve taken 5 million jobs out of the United States the last 20 years. And we’ve moved them into other parts of the world, we’ve shot gun, these shops like to Bangladesh and to Indonesia to, obviously in the in China. And so we’ve created a tremendous amount of wealth, globally, in what we’re doing is we’re creating all these new carbon consumers, because if you’re in India or Indonesia right now, and you work in an ATT, call, Senator, whatever you make, they’re probably 10 times to 100 times more than your great grandparents or your great, great grandparents. And so what does that person want to do? They want to own a moped. They want electricity. Right now, there’s 1 billion people in India that don’t have air conditioning. And there’s over 150 million people that don’t have any, any electricity at all. And so as you raise the standard of living in the developing world, you’re creating an explosion of new carbon consumers. And so we have a billion people more on the planet today, 1 billion than we had in 2014. So 1 billion more people

Eric Chemi 4:03
with just like population growth or new carbon users. No, that’s that’s just population growth.

Lawrence McDonald 4:09
So billion more people in 10 years. Yeah, 1 billion in 10 years, from 2014. To now. But the investments in say, energy infrastructure and uranium exploration in oil and gas, in coal in these investments are down oil and gas, we’re down about two to $3 trillion in terms of if you took where we were in 2014. And you extrapolated it forward to today, we have about a $3 trillion hole in it. So I think it’s very, almost certain that in the next two to three years, we’re going to have a massive energy crisis because we want to create this green transition. We don’t have enough copper, right? We want all these new electric vehicles, but we don’t have enough uranium to power the nuclear power plants. You know, we want to You know, we want we want a better lifestyle, but in emerging markets, oil and gas, and coal are the cheapest commodities and those developing parts of the world and won’t be able to afford solar and some of the new technologies. So this, like, we’re gonna move to carbon neutral 20. But it’s not going to be 2050 It’s gonna be more like 2100. In other words, you know, far, far out into the future, and you’re gonna need to fill that carbon hole. That’s,

Eric Chemi 5:30
that’s a huge difference, right? Because if it’s 2100, you will be on a lot alive for that, right? 2050 Okay, maybe we see it. But what is so mean for when you’re talking to, to clients, and they’re thinking about investment? Because that’s so far into the future, right? That? What are they supposed to do it that, right? Like, if we go back 30 or 50 or 100 years ago, investments that that you thought made sense back then about where we’re going to be in the year 2024? Like, none of that stuff ends up predicting, right? You know, so you can be betting on things from so long, and you’re either way too early, or you’re way too wrong. What are they supposed to do with that? Right? When we’re talking about 2015 2100? Is that just so far into the future that you’re just winging it, you’re guessing? How do they invest off of that? How do they invest? I got to beat a benchmark in 2024. And I gotta beat it now. Right? You know, nobody can nobody cares about decades from now. At least.

Lawrence McDonald 6:26
That’s a great, that’s a great pushback, and I commend you for it. And I’d say lead. Okay, let’s talk about 2024. And

Eric Chemi 6:33
they’re not pushing back on you and pushing back on like, how do the investors deal with that, right, like you because you’re right, this is all going to happen. These trends are happening. But but we can easily be wrong by a decade. And all of a sudden, the extrapolation effect means you could be totally wrong today trying to get that investment, right? Well,

Lawrence McDonald 6:50
what we’ve seen is the price of uranium is up by almost 100% Over the last year. And but the uranium equities are dramatically underperforming. And so relative to the commodity, so what happens with it with a new emerging trend, a lot of times people move into the commodity, first, the safe, convinced, viewed more safe than, say, exploration companies. And so that’s where the kind of the new money will move into. But we think over the next year, there’s because of the cheapness of the uranium producers, the uranium infrastructure to support all these nuclear power plants. We know for a fact that the amount of nuclear power plants in China in Europe, that whole replacement cycle is exploding. So that’s right here right now. But the infrastructure to actually produce the uranium needed to supply all these plants is desperately need support. So that’s one area and then for 2024, in particular, you know, we’ve been lectured at a great length, right that Putin tried to rig the 2016 election, right? And let’s just let’s just say we believe that let’s say we believe Putin tried to read it was buying hundreds of 1000s.

Eric Chemi 8:08
That Are you saying it more like this is just nonsense that’s out there? Well,

Lawrence McDonald 8:13
I think that he definitely has, he definitely has a vested interest in one side. But, you know, I don’t think he’s the reason why Trump won the election. But but but let’s just say that we think he is vested in in, say, a Trump win. What do you think he’s going to do with the Strategic Petroleum Reserve that has been drained by hundreds of millions of barrels over the last year, year and a half, we are at a very dangerous level. We think that this year tooten is going to take down production. And especially if there’s peace in the Ukraine, at some point or some type of day, Talat, or some type of resolution, he won’t have to sales as much oil. So therefore he can, he can take a lot of oil off the market, and really juice prices to try to influence the election. You know, that’s one thing. So so there’s a lot of these trades for 24. We’re looking at, okay, what it what’s likely to happen in an election year, normally, the White House would have Republicans or Democrats would have a huge strategic petroleum reserve. Now we’re down a lot. And so these are the types of things these are the types of traits we’re looking at for 2024. Whereas, okay, you could have a surprise, you know, geopolitical, surprise and energy, which we’re already seeing a lot of stress in the Middle East, right, seeing the Red Sea. And so that type of trade for this year, I think, more geopolitically driven or more multipolar world. Have you ever thought about the between a multipolar world and a unipolar world?

Eric Chemi 9:46
Have I thought about it? Yeah. You had thought about it? Right? Because what we’re seeing that happen right now, right, we’re seeing these different factions, that China, Iran, Russia, Venezuela, Cuba, whatever of her faction right? That’s a faction and then there’s this US Western Europe faction and, and maybe there’s another one floating around out there that I’m not paying attention to. Right. But obviously we know there’s at least two.

Lawrence McDonald 10:13
Exactly. So you think about the previous decade, right? So everybody’s portfolio watching us right now. The entire nation of America, everybody’s 401k has been hijacked in the last decades portfolio

Eric Chemi 10:27
would have been hijacked. What would have been 401 K’s have been hijacked? Well,

Lawrence McDonald 10:31
we know that we know that 45% of the s&p is in technology. And out of that Microsoft and Apple alone are close to 14% of the s&p about 13 and a half percent. Do you

Eric Chemi 10:48
mean, the weightings moved? I thought you were gonna say they were hijacked by these other countries in a multipolar world. That’s what I know. They still

Lawrence McDonald 10:56
there just hijacked Microsoft 7% of the s&p in the entire energy sector is 4%. It’s

Eric Chemi 11:04
true. We have more Microsoft and all energy in the s&p, I have no idea

Lawrence McDonald 11:09
more almost double. So Microsoft is Microsoft is 7%, just under seven in the entire energy sector is the all the oil and gas companies combined and thrown uranium in it’s like 4% of the US. So the what I mean, by hijack is that everybody’s been addicted to this passive investing for because the s&p has outperformed, it’s getting more and more and more and more and more crowded into fewer and fewer, fewer names. And this is a tremendous amount of wealth in America is tied up and fewer days. And so we’re gonna we’re gonna see this year and next year, a trend of massive migration out of these crowded trades, because this entire trade Eric is set up for the previous decade where we had disinflation, right. We had a uni Poland where we had less global conflicts, we have labor labor unions that were powerless. And now we have labor unions have far more power. And so the probability of a sustained inflation world where we don’t go back to one, two, it’s become stays into that 234. And we’re global conflicts that’s going to create right now there’s $20 trillion, Eric in the NASDAQ 120 trillion, you know, it’s five or six years ago, that number was even a year ago is 12 trillion, right after nine, right after, say, COVID, it was down to seven, seven and a half 8 trillion. So we have a tremendous amount of wealth that’s in fewer and fewer stocks. And that money is going to migrate out of that concentration into all different types of

Eric Chemi 12:51
assets. Where does it go? You think it goes into other stocks? Does it go? Like out of that NASDAQ 100 All together as opposed to let’s say the s&p case? Okay, maybe comes out of Microsoft, but then does it just stay within the s&p 500? Because you’re putting it into energy, right? So maybe that seven four ratio starts to equalize. But if you own the index, you still have it or you think it just coming out of the index all together? And is it going into stocks if it’s out of the index? Or is it going into these things that hard assets things that are not not part of the stock market at all? Well, let’s

Lawrence McDonald 13:20
think about last time when we were in a real multipolar elevated inflation world global conflicts, say 1980 50% of the s&p five zero was in industrials play 49%. So if you look at the composition in the s&p, who is 49%, industrials, metals, mining in oil and gas. And so right now, we know oil and gas is down at four. We know materials is like three and a half called that’s seven and we know the industrials may be another. So we’re basically right now that those groups that were 49% of the s&p the last time we were in a multipolar world with more sustained inflation and power of labor and things like that. We were 49% for those groups, those groups in there, we’re not going back to 49. But we’re probably going back to 3032. So that means that energy is a percentage to the s&p composition is gonna go say four to maybe eight or nine metals in mining, uranium, coal, they’re gonna go from say three 4% of the s&p to eight and industrials, global value stocks, they’re going to be a much bigger part of the equation as well. That’s where the money is gonna go. And also the money is gonna go to emerging markets.

Eric Chemi 14:42
So are you how are you invested in the United States? Here we are beginning of January are you shorting the s&p Are you underweighting in NASDAQ? Are you buying emerging markets? If you had to say to somebody, here’s your one year portfolio just to get you to December 31? What’s the structure for For your your typical, you know, let’s call it your 401k. Investor. Right? How do you do well this year?

Lawrence McDonald 15:05
Okay, yeah, so if it’s 401 K investor, it’s keep it simple. Right now you want to, you know, raise some cash overall because the markets gone up quite a bit the last three months, you want to have a greater competition in industrials materials so the X me, which is your materials, your mining, the XL E, the O H, these are oil and gas companies and or sorry, or oil and gas ETS. And then the Dow Jones Industrial Average is the D that it gets the T dia. So, those are ETFs that own industrials, metals and mining oil and gas, which like I said were 49% of the s&p in 1980. And now they’re close to 13% of the s&p. They they probably double that those, those three sectors probably go from 13 to say 26% of the s&p over the next 234 years.

Eric Chemi 16:00
What are you staying the hell away from that? Is it all this tech stuff? Magnificent Seven, all those goodies? Yeah, we’re,

Lawrence McDonald 16:06
you know, we we’ve been we’ve been bearish on the Magnificent Seven. In Listen, we were wrong last year. We’re very right the year before the stocks are unchanged. Let me tell you that Amazon is unchanged for 3040 months. Tesla’s unchanged for 36 months gone. Nowhere

Eric Chemi 16:23
go nowhere. It’s going to ever give it a lot of people a lot of heart attacks in its process of going down.

Lawrence McDonald 16:29
You know, they go down 50% like Jackie Gleason used to say the only problem with losing 50% is needed 100% To get it back. Right. So what happens is a young by 50, the media under reports that because so for a lot of different reasons, I don’t want to kick people, they’re down, and then they go up by 80%. And everyone’s like, Oh, my God check is it’s really just washing around. It’s right now the NASDAQ 100. The NASDAQ composite is unchanged for more than two NASDAQ have been unchanged for more than two years. Right. And so there already is this transition going on? It’s just, it’s just been slowed down by AI. But for sure,

Eric Chemi 17:06
well, you know, the name of your company, the bear traps report, do you know what do you get from that feedback? Why do people think okay, is this guy always a bear then? Or Is he is he because the bear in a trap is dead? Right? So are you? Are you a bull trying to kill the bear? Are you the bear trying to avoid the trap? Like what’s what’s your general perspective on who you are and how you came up with the name,

Lawrence McDonald 17:28
our book. So I was a trader at Lehman Brothers. And we produced a book called The colossal failure of common sense. And it became a New York Times bestseller. It was basically printed in 12 different languages. And so we did a lot of speeches around the world. And we quickly realized, you know, we have a really wonderful group of people that we’re meeting. So we want to create a product. And, you know, the bear traps import, the name itself is just talks about, okay. You want to be careful of bear trap number one. But we also want to think about the direction of the market capitulation. Like in the old days, the right now there’s, there’s a lot of technical analysts on Twitter, right. And so there’s a lot of people doing the same thing. They’re selling on stop losses. And they’re, they’re, they’re getting flushed out of stocks, like like, say, tech in 2000, say a year ago right now are Tesla, Apple, in video, these stocks were all in flames. And everybody was kind of getting flushed out of it. It’s kind of like a bear trap. And so we want to buy capitulation moments. And we want to be there for the term, we want to catch that next five year cycle. We don’t want to catch a falling knife. But we want to add into capitulation selling and then be there for the turn. And which is the five year new bull market. That’s the objective of the bear traps report.

Eric Chemi 18:57
And how do you feel like you you’ve accomplished that objective over the last few years? Do you feel like you’re What are you doing differently? Right? Because there’s so many people that we talked to you know them, I know them, they’re always around? What is it that you’re looking at, that’s different data points, approaches, you know, strategies and methodologies, when you get a client that signs up when they say, and these are institutional clients, I’m not telling people that are watching right now you gotta you gotta go buy Larry’s product, right, if you want to do that great, but I’ve done with those institutional clients. They’re bombarded with data out there. What is it that they appreciate about you? That’s what I’m trying to get into. So if someone’s watching this, what is it about Larry’s approach that is unique and stands out from the rest of the marketplace? Well,

Lawrence McDonald 19:36
you know, take take uranium, for example, or oil and gas. Whenever you have a sector that’s in a bear market, like oil and gas, we’re in a bear market 2016 2020 The same thing with uranium. You want to buy into capitulation selling in measure capitulation, like mathematically measure, is this a category one storm? Is this a cat? category three, or is it a category five. So we looked for, like we mathematically and scientifically measure capitulation, we look for that seller exhaustion, we buy into sell offs, we will slice in the portfolio through the capitulation process, and then hold a position for the long run. So what we’re trying to do is nobody can pick the bottom. But what we do know is that certain sell offs are mathematically unsustainable. And sometimes we do get caught in these big bear traps. But our goal is to not get caught. And to actually accumulate, say oil and gas are rearranging, if you buy into those sectors like a 2020 through 2021, oil and gas had these incredible capitulation sell offs, these these rallies these counter trend rallies, and then retest and retest. And then you need to form a real base that reals proof of seller exhaustion. So you can identify the term mathematically because you know, that everybody has been carted out and there’s nobody left to sell. That’s what we try to do.

Eric Chemi 21:04
We have fancy equations, when you say mathematically, what are you looking at for, for knowing, okay, everyone’s been carted out the sellers are exhausted, what’s what’s in that definition? Or what’s, you know, what’s an example of input you’re looking at,

Lawrence McDonald 21:17
say, take the Excel ETF, or the URL nm, which is the accidentally say, oil and gas, or the you are an MC uranium, or you take a chemical CCJ? You know, how many shares are outstanding, right. And you know, that if you’re in a bear market, and you’re making new lows, that the audience that’s in those stocks, owns them at a much higher price. And so if you measure the breadth of the selling, the acceleration of the selling the speed of the selling, and you can look at, okay, what’s the distance below the lower Bollinger band, or you’re buying the stock so that’s so the RSI, which is relative strength on a weekly and a daily, our lower Bollinger band kind of is on Bloomberg, it detects how oversold the sector is. So if you look at these factors, and you calculate how much selling took place, in a short period of time, relative to the shares outstanding, and you can see a new owner basis forming at say $20. versus say two years ago, it was at $30, or 40, you can mathematically calculate, okay? The selling is almost over, you don’t know for a fact, because that’s why that’s why you have these counter trend rallies that sometimes fail. But over time, you can calculate a pretty good educated guess as to, you know, how much selling has been done? And is this a category three, category four Category Five capitulation? So right now, let me give an example. So we had a Category Five capitulation to energy, and uranium, say 2020 and 21. The two the two things that I’m seeing now looking forward and said look back is a the cannabis space has had a Category Five, absolute wash out last year. And now you have the White House making some very aggressive moves with Department of Justice, that could make some of these companies a lot more profitable. Same thing with China. Pay web, for example, you’ve got a lot of evidence of real celery Sasha, because the war in the Ukraine with Russia, people are afraid now to own any kind of stock that is associated with Russia or China in I had dinner a couple weeks ago with a portfolio manager that runs a very famous fund that owns Chinese equities. And he’s like Larry, you know, two, three years ago, we were in Europe, and we had standing room only for breakfast, standing room only for lunch. And now I just got back from a trip and we had four people at lunch and seven people at dinner. Yeah, there’s all kinds of evidence of seller exhaustion in those two spots. And and that’s what our model is pointing to for 2024 is opportunities in those spots.

Eric Chemi 24:07
What have you been surprised about this first week of the year? You know, I’m looking at you know, in s&p, that’s kind of 4700 range, but those first couple days, right back right back from vacation. Let me get out a little bit, right, we saw bond yields, go from five to you know, threes in a matter of months, right. At the same time, that equities had that huge rally on the macro side. And then, you know, these last couple of days are starting to pick back up towards 4.0. So do people have this weird thing about I come back to work on January 2, and I just start unwinding stuff or I start getting nervous about hitting my benchmarks? What is it about that first week of the year? Right like last week, we were going to talk last week and you know, you’re you’re not at home, there’s a power outage, right? Like you’re not in your normal work mode. No one’s in their normal work mode. Now you get back to January, people are back to work. They’re focused. Kids are back in school, right? They’re less distracted. Is there something specially weird about this first week? Are you surprised by some of the moves? And? And again, I know this question is too long, but like walk us through the mentality of that first week behavior, right? The calls, you’re having the conversations, the group chat you’re having right? Like, what is it about this first week in general? And what have you noticed specifically this year about behavior this first week? Well, we

Lawrence McDonald 25:23
did a scientific study meticulous and analysis of this and there’s a blog up on our website, the bear traps report website, if you Google bear traps report, that our website is the most recent blog discusses this in great detail. But in years where the large market cap stocks have outperformed the broader market by a wider percentage, right. So some years you’ll have the very narrow percentage between the winners and losers. But in years, where there’s a very extended spread between the winners and losers, what happens is, when you come to year end, people want the winners on their path number one, so if you’re a pension fund, a mutual fund or whatever, you want to show that you’ve got these great stocks. And the better they did, the more you want to show them in the worst stocks to the more likely you don’t want to have them and it creates more. What it does is it creates greater acceleration of tax loss selling in the fourth quarter, and it creates a whole bunch of people that want to hold on to winners. And then if you sell your winners in the first week of January, you don’t have to pay the tax until April of 2020 16 months later. Yeah, yes. But the problem is if there’s huge gains huge gains in large cap stocks in the fourth quarter, the last someone wants to do is sell those in December, pay the tax right away in April, like so they’re going to do whatever they can. And so the crate, this creates an incredible of an opportunity for tax law. So we put a, we put a trade alert out, we have WhatsApp trade alerts on say the X bi, which is the biotechs. We put that out in November and December, because the biotechs have underperformed the NASDAQ by the greatest percentage ever, in the last 10, at least 10 plus years. And so the capitulation selling you, like if you were a pension to fund a mutual fund, or any kind of fun, you needed to get out of those biotechs in the fourth quarter, and you needed to own mag seven, Magnificent Seven, the large caps. And now since you’re in a new year, all that seller exhaustion is gone away. And you’re in a new year where you know, you’ve got I think a very large percentage of the biotech index is trading at cash value. And you’ve got a very high probability of mergers and acquisitions, because there’s so many cheap candidates.

Eric Chemi 27:57
You’ve won the tax game, it creates a lot of weird distortions, right? It creates behaviors that are out of it. It’s like a game where the rules have these skewed rules to them. So we do things that we wouldn’t otherwise normally do, right? There shouldn’t be any difference between December and January, sorta like November in December, January and February, but we create these tax rules. And as a result, these behaviors come out that maybe if we were looking at this, on a longer term perspective, we wouldn’t make these transactions, right. So it’s, it’s just causing disruptions unnecessarily, in a way, but that’s just the nature of the game.

Lawrence McDonald 28:33
Yeah, that’s the nature of the US tax system and the concentration of wealth. So the baby boomers have about 78 trillion of wealth. The millennials only have like, seven or 8 trillion of wealth. So and Gen X has a decent amount, but the spread between the boomers at 78 trillion, and the oldest boomers now are about 78 years old, too. So it’s a good way to remember it. There’s about 78 trillion of wealth that are in the boomers, it’s about seven or 8 trillion of wealth in the millennials, it’s, you know, the tax thing is huge, because there’s so much wealth in the hands of an aging group. These are veteran investors, they, they want to avoid tax. And so you have this very habitual, crazy behavior you’re in. But I want to point something out the because the boomers are trading, you know, turning like 78. Now rate, the average boomers almost 70. And you’ve got such an attractive yield and bonds. It’s going to create a very difficult environment for the major indices indices over the next year and a half, two years, because right now you can just go to cash and get four or 5%. We’re just three years ago, you got to go to caching get less than one, and so and so that because of the boomers are now when Lehman went down, the oldest Boomer was 6465 when COVID went down the oldest Boomer was, you know, 75, or 76. Now the oldest boomers 7978 years old. And that’s a lot of wealth in a very age group. And it’s creating a lot, a lot of these year end distortion,

Eric Chemi 30:14
you hear those numbers, and this is morbid, but like, they’re all going to die, right? And the next 20 to 30 years, these people are mostly going to be dead. Where does that money go? Is that just estate tax to the government and a boom 30 trillion in debt is solved? Because we just took it all from the boomers and they’re dead now? Or is it? You know, they put them in trust to give to their poor millennials who have a 10th of their wealth, or like, Where does this money go, because it’s gonna go somewhere, and it’s not going to be with that they’re going to be in the coffin? Well,

Lawrence McDonald 30:42
there’s the step up in cost basis is, I’m not an estate planner. You know, I really respect that group of people, because they had some tremendous advantage and alpha generating ideas in that group. But from what I understand the step up a cost basis is still there. So if you pass assets to your younger, you know, your your loved ones, your children, so you’re 70 or 80, and you own Microsoft, and you pass the, or you own a house or a million dollar house, $10 million, and you pass that asset along, there’s a step up in cost basis. So the the air doesn’t have to pay the tax on all that the cost basis goes up. But, you know, if Congress goes the wrong way, over the next couple of couple years, that eventually is going to change. And they may there may be much more aggressive tax, you know, losers or tax deficiency, where there’s no step up and balance basis, and therefore the younger generation gets hit with a lot more taxes.

Eric Chemi 31:45
I think about it from the dynamics, like you said, right? The the veteran investors, they play this tax law selling game in December, you know, the gains, you made me sell those in general, there’s a lot of games, the games that they play, but at some point, they’re not going to be as big participants in the system. It’s like their participation will start to decline. Now, does that change the nature of how we we play these, you know, end of December, beginning of January type of trade? Right? If they start removing into treasury, they’ll just take my 5%? I’m not in stocks? Where do you think about that at all? That’s something your clients think about? Or is it just is that too, too murky? too vague to worry about for 2024? Well,

Lawrence McDonald 32:22
that gets back to your original point, like you did that. So that’s a great point. But it’s going to take at least another six or seven, eight years for to really fully play out where the money starts to. There’s no question that millennials are going to inherit 10s and 10s of trillions of dollars, right? There’s no question, the millennials are going to inherit this money, but it’s going to take so much time and, and therefore for right now, we do know that the aging population is going to definitely change market behavior. To some extent, I think of passive investing. So the reason why the s&p is outperformed, is the Fed concentration and fewer fewer names, everybody’s doing the same thing, more and more money, because it’s working more and more and more and more and more money’s gone into passive. And so we’ve had this one way freight train, Josh Brown wrote about this in a blog, like back in 2014, it was called the endless bit. And Josh’s point was that the millennials, but there was so many I’m sorry, the the the aging population, but so much money in passive and the passive money was going to keep coming in. Because they weren’t at retirement that much of retirement age, yet, they weren’t what they weren’t exiting the market. But that whole thing, that whole thesis is starting to reverse. Because when the millennials, when the boomers reached 78 to 70, then more and more of them are going to change that behavior, because you can’t be fully invested in stocks when you’re that age. So Josh browns, endless bid thesis around the flow into passive. I think, in this part of our book, our prediction, the next 10 years, that endless bids going to become the endless offer. And that’s what I mean is more and more of those boomers want out, or they want to go into fixed income, and you’re gonna have kind of a sideways move in the indices.

Eric Chemi 34:21
Yeah. And let’s bid it’ll be the other way. Right? Like Exactly. No bid, and there is no bid. That’ll be a whole other ballgame, too. So where do you what are you looking for for next week? Obviously, there’s some big industry conferences, right CES, JP Morgan healthcare. There’s a lot of companies talking about stuff, you know, big, big announcements, that kind of thing. Either. What are you focused on for next week? What are your clients talking about? Yeah, this says we ended this week and getting into next week, anything, any themes come up,

Lawrence McDonald 34:54
you make a great point. I mean, there’s one thing that you know, because of my first book, Have you make about 10 times more on the speaking tour than you do read through it? So, yeah, it’s amazing. And that’s what I noticed is there’s a tremendous amount of conferences in Florida in January, February. And so you’re gonna get a lot of analysts that a lot of CFOs and CEOs that have been a quiet period here, you’ve got the holidays, and you’re gonna get some color from different sectors, you know, expect companies like Lululemon can be, we’re seeing some clients looking around the consumer side, because there’s an incredible divergence between companies like Lulu and other, you know, Nike and Under Armour. And so we’re seeing some, some people start to short some of these extended consumer plays. That’s one thing. The other thing is, you know, we have a government shutdown risk,

Eric Chemi 35:53
we always have that, that’s like every six to 12 weeks now.

Lawrence McDonald 35:57
Yeah, yeah, well, but it’s really gonna heat up because the border wall thing is so significant, you know, a million a million people come across the border, it’s the Republicans are more motivated than ever. And I think the spending deadline is on the 19th of January, and then it’s again on February 2, and then you have the State of the Union address coming up. So you’re gonna have a real showdown in Washington around spending in a Raza that’s probably going to create some stress. The VIX by itself is just very cheap, relative to the market. I mean, the VIX itself is very, like volatility relative to geopolitical risk, I think is really, really cheap here. Volatility

Eric Chemi 36:38
yet low cheap volatility relative geopolitically? I agree with that, that that makes sense. So we’ll see. We’ll see what happens next week. And then, you know, lastly, Larry, what’s keeping you up at night? Right? Like, what is the what is the one thing maybe nothing’s keeping up. And but what is what’s the one thing that stresses you out the most these days,

Lawrence McDonald 36:54
but just the the probability that Israel makes the move on Iran is very high Iran’s enriching in a large amount of uranium. They’ve been doing it for years they’ve been the White House has been kind of it’s very friendly with Iran now. And it’s, it’s if you’re Israeli, you just got hit with a massive national security event, that the probability that you hit ran and test the White House is resolve is think really high and, and then, at the White House, that the situation in the Ukraine is growing very desperate, because both sides have been shown a lot of progress. Putin has made it a very aggressive move the last two weeks in Kyiv are key. I don’t know how you pronounce him. The old days, we say stay here. But like, I think the geopolitical stuff the next couple of weeks, is really your probability and some, some fireworks is very, very high. And

Eric Chemi 37:54
it makes sense, right, it is a conundrum. Here we are at all time highs, and we got a couple of hotspots with some some very dangerous countries. So you know, that’s something we’re gonna have to sort out here in 2024. And then before we go there, tell us again about the book real fast and everywhere. People can find I know you got a lot of Twitter followers. So like, just just give us a quick summary where everyone can track you down. Well, it’s

Lawrence McDonald 38:14
called when markets speak. And Neil Ferguson did the foreword. David Einhorn is in there, Mark Cuban was very helpful. We had a number of really talented people, David Tepper, Charlie Munger. So it’s a when market speaks out the first quarter. It’s up on Amazon, it’s up in Barnes and Noble to just Google when markets speak. And on Twitter, we’re at convert bond, bear trap support, come in and join us at the beer traps report. Because what we’re really doing is democratizing information. We’re taking this chat, and I’d be happy to happy to include you guys, which I think we do from time to time. But we take the institutional conversation, and we recap that for the family office. The financial advisors are a good we want to give them a lens on a buys on a private by side conversation, and kind of democratize information. That’s what we’re trying to do in 2024.

Eric Chemi 39:08
Beautiful, beautiful, Larry, thank you so much for being my guest today. Larry MacDonald of the bear traps report. Thank you so much for watching wealthy on America. Remember, go to wealthy on.com. If you can’t get this all sorted out yourself. We’ve got some investment advisors that we endorse, you can fill out a short form, have a free conversation if that’s right for you. And, you know, just it’s no commit, right? Just something we provide as a free public service. If you’re hearing what Larry says, I think I need to figure this out. You’re wealthy on.com You can go there. There’s also the the Anthony Scaramucci show, if you’ve got questions, you can go to the website there too. And and check that out. So Larry, thanks again for joining me. I’m Eric Chemi. We’ll see you next time.