In this eye-opening interview, Larry McDonald predicts a surge in inflation and energy prices, driven by global fiscal policies, geopolitical risks, and rising energy demand from AI-driven technology. The best-selling author and Founder of The Bear Traps Report explains why traditional investment strategies won’t work in this new economic landscape, which is transitioning from the 2010-2020 market environment to one more like 1968-1981, with sustained inflation and commodity booms. Larry also unpacks why focusing on hard assets like oil, uranium, and precious metals is crucial for protecting your wealth in this new economic and market paradigm.
Stay tuned for Brett Rentmeester, founder of our RIA Partner, WindRock Wealth Management, as he shares his take and analysis on Larry’s insights at the end of the interview.
Investment Concerns? Get a free portfolio review with Wealthion’s endorsed financial advisors at https://bit.ly/4dXBokC
Larry McDonald 0:00
We’ve got this massive fiscal overdose. You’ve got a huge fiscal and monetary stimulus coming from China. We’ve got tensions in the Middle East with oil prices. The probability of a really sharp bounce in in inflation, I think, is almost certain. The fiscal and monetary response to COVID plus the banking crisis of 2023 has been over $16 trillion if the Fed stays higher for longer to try to kill inflation, interest costs are 1.1 trillion a year up from 250 billion. Let me tell you something. The probability of Israel hitting Iran’s oil facilities, I think, is 100%
James Connor 0:44
Hi and welcome to wealthion. I’m James Connor. One of the things we try to do here at wealthion is educate you on the financial markets, and if you are seeking additional help with regard to the markets and your financial future, check out wealthion.com/free. Wealthion will put you in touch with a bet it financial advisor to examine your options. Once again, That’s wealthion.com/free now on to the show. Larry, thank you very much for joining us today. Harvard. Things in Panama.
Larry McDonald 1:17
Good, good. I’ve been on the road. Just got back from Geneva Zurich and in New York City. So it’s been quite a, quite a road trip.
James Connor 1:28
Now, you are from New York, but you’ve been in Panama for many years. Why did you make the move to Panama? Well, my wife and
Larry McDonald 1:34
I, we were in New York 15 years with the kids we have right now, we have a nine year old and a 10 year old, and we came down for COVID, you know, trying to went to the beach. It was a nice place. And then, you know, over time, I noticed more and more my friends were leaving the city and going to Puerto Rico, Austin, Texas, Florida. I say, you know, we have some family down here. Why not? Why not? You know, give Panama try.
James Connor 1:58
And how is the tax situation better than New York Yeah, it’s
Larry McDonald 2:01
quite it’s quite amazing. It’s, you get a foreign earned income deduction, your cost of living, you know, two nannies in New York City is about 120,000 in Panama, you can have a staff of five or six for 50, 50,000 ish. So it’s, it’s a totally different tax climate, and also just overall, you know, cost of living, climate. So it’s, it’s not, it’s not quite as as tax efficient as Puerto Rico, but it’s up there. I’m
James Connor 2:32
going to have to check it out sometime. So Larry, for those who might not be familiar with you and with your background, maybe you can provide us with a little bit of history. Well,
Larry McDonald 2:40
I’m a New York Times best selling author. I’m really proud of that. The first book was a colossal failure of common sense about the Lehman crash, and it’s been called one of the top selling business books in the world. We’ve sold close to a million copies in 12 published in 12 different languages, and it is a CFA Institute, top 20 book all time. I was a trader at Lehman Brothers, and that book was about, you know, kind of the greatest financial crisis in the history of of the world. The next book connects that generation to now. The the Lehman crisis was above about a $4 trillion fiscal and monetary response. So the Lehman crisis, the crash, the financial crisis, was about a $4 trillion fiscal and monetary response. I made an appearance in the movie called Inside Job, which won the Academy Award, and it was a great movie to be part of. But one of the things we make the point today, relative to that period is the fiscal and monetary response to COVID, plus the banking crisis of 2023 has been over $16 trillion and so we’re really looking at a whole new regime change for in what we call portfolio construction fascinating.
James Connor 3:57
And so you’ve been on the road marketing your new book. How do you listen when markets speak? And you’ve been all through North America, all through Europe, and I’m curious, what sort of feedback are you getting when you speak to individual investors? What are they most concerned about? Well, we’re
Larry McDonald 4:14
really fortunate, because the thesis of the book comes down to the questions I get the most here. It’s like, okay, are we really in this multi polar world? And that’s, that’s one of the main core thesis tracks of the book. So think about from 1968 to 81 it was a multi polar world, more global tensions and different, totally different portfolio construction, the power of labor. Labor unions were more sustainable, more powerful. So, you know, a lot more sustainable inflation forces coming out of the Vietnam War. You had a lot of fiscal spending from the Great Society with Johnson. It’s so the similarities, the questions that I get, the similarities between, say, 1968 to 81 to now are just off the charts. And, you know, unfortunately, portfolio construction today is really looking backwards at like, if you look at the average portfolio in America today, the families all, everybody’s 401, K is really designed for 2010 to 2020 portfolio in the point that we make in the book is you really need to start thinking about a 1968 to 81 portfolio.
James Connor 5:26
And can you elaborate on that? What exactly? Why do you think there’s similarities between 1968 to 81 and now? Well,
Larry McDonald 5:34
the biggest reason is you can see of late government, you know, the government, largess and money printing, the great society where we’re coming out of that incredible period of big over, what we call fiscal overdose in the 60s, with the Vietnam War, wars always bring out Neil Ferguson. I sat down with Neil Ferguson with the book, and he’s probably the most famous financial historian, but he makes the point that, you know, wars are just really typically bring on sustained inflation forces for multiple years. They just don’t go away. Obviously, we had COVID, but now we have, like, labor unions. We have oil prices that are higher because of that multipolar world where tensions in the Middle East right now, the debate is, you know, not when, not if, but when does Israel strike Iranian oil assets or nuclear power assets or nuclear weapon assets? So it’s really a much different world today, and but that, but that, if you think about the portfolio construction, by the time you got it’s a 1980 81 the debt, say, say, the portfolio. So the S p5 100 was essentially 50% yes, the S p5 100 construction was 50% energy, materials and oil and gas, 50% five zero. And when we started to write the book about a year and a half ago. In recent years, we’ve got down to 12% for those groups. Well,
James Connor 7:06
I guess the one thing that comes to my mind is that the 1970s versus now, there’s no comparison. I mean, in the 1970s you didn’t have any of these massive tech companies like Apple, Microsoft, Amazon, you didn’t have AI. There’s so many sectors that didn’t even exist back then, so therefore there wasn’t as many asset classes you can invest in. So of course, there’s going to be more, a much more higher weighting toward energy, right? For sure,
Larry McDonald 7:33
but the but the other aspect in the book that we talk about is this, this whole artificial intelligence, like nobody’s really doing the math on all the data centers and energy consumption in the amount of copper you’re going to need to really build a power grid that’s going to sustain all of these extra I mean, essentially, like, potentially to Germany and a France of extra power consumption into the United States, potentially, in terms of all of these data centers. So we talk about nuclear power in the book. We talk about companies like new scale companies, SMR, small modular reactors, companies like Microsoft and Google, they’re going to need their own power sources. And so the trade over the next 10 years is going to be toward infrastructure that’s going to have to support all this additional energy demand. And we have a power grid in the United States. It’s essentially 50 years old in some spots, and 30 years old in others, that’s nowhere near strong enough or young enough to to really support all of this. What we call is like, a lot of bullsh BS when it comes to artificial intelligence, like nobody’s like, in order to get to where the streets telling us we’re going to go that we just, we just don’t have the energy infrastructure to support
James Connor 8:55
it. So we’ve seen a number of transactions here in the last few weeks where a lot of big tech companies have gotten behind nuclear energy, and I guess the first big one was between Constellation Energy and also Microsoft, and they entered into a 20 year supply agreement. We don’t really know the details behind it, but nonetheless, constellation is going to be supplying energy to Microsoft to run these data centers. And we’ve seen a number of other companies, Oracle, Amazon, all entered into SMR deals. But I think what you’re telling me is you’re very bullish on nuclear energy, and therefore you’re bullish on uranium,
Larry McDonald 9:30
yes, Oh, for sure. I mean, yeah, it’s a high beta sector, which means it moves much more than the market, so you have to be careful. But the entire uranium sector is like $45 billion I mean, it’s, it’s not even a rounding area. Nvidia’s $3.5 trillion that’s through 30 500 billion, whereas the entire uranium sector is 45 billion. So it’s just not it’s a joke, and it’s not just that natural gas. Yeah. I mean, you’ve got natural gas companies that are screening by in a relative value basis relative to technology. So in our bear trap support and in our Discord room. So we, we run a Bloomberg chat behind us with hedge funds, mutual funds and pension funds. And so imagine, imagine, like all the different asset managers in the world, we host a conversation with, you know, high level, intelligent investors on the professional the institutional side, and we recap that for the wealth manager and the family office through the bear trap support. And the one trend that we’ve been seeing over the last like six nine months is toward, you know, it’s not just uranium, but what types of companies within the uranium sector, what types of companies in natural gas that are going to support, what types of companies in in the metals and mining sector that’s going to have to support the build out of the copper and the aluminum that’s that’s where we’re seeing the institutional investors really start to focus on. So
James Connor 11:01
I’m curious now, when you talk to these institutional investors, what are they saying exactly on the price of uranium? Because it’s still down on the year. We’ve seen a bit of a move here in the last couple of weeks, especially in the stocks, but not so much on the uranium price. What sort of feedback are you getting?
Larry McDonald 11:17
Well, what happens is, at the early stages of a commodity bull market, people move into the commodity. And not so much. You know, the the infant, the companies behind, like all the mining companies behind. So you think of like oil and gas in 2020 everybody moved into oil at 2020 21 the first step is oil. Then investors moved into Exxon and Chevron, and then it was marathon, and then it was Devin, and then it was all the smaller cap companies. And so the uranium price is really kind of out, because it’s early stages. People moved in the uranium first, and I think some of that money’s coming out and moving into the next Gens. Obviously, Cameco is a big market cap company that’s still gathering much of the international attention because it’s the largest market cap company in the space. But I think, I think right now, you’re seeing some rotation out of out of uranium and moving into the URL names.
James Connor 12:17
And I’m curious to hear your thoughts on some of these utility names, like consolation energy, for example, it’s up 150% on the year. Why has so much money flown into these utility names? Well,
Larry McDonald 12:30
with utilities, you’ve got, like traditional utilities, and then companies that capitalize on the overflow of demand, and if you think of like the data centers, if they can’t get their own data, their own energy source, they’re going to be coming in and out of inflection points where they’re going to be pulling off a different utilities. And there’s different parts of the day when there’s excess energy versus that. It’s the kind of that that overflow, and companies that can kind of capture that excess energy and then distribute it like the constellations of the world they’re going to really benefit from the artificial intelligence build up from the data centers, whereas a traditional utility that doesn’t provide that extra cushion infrastructure of what you need, that kind of gearing that you’re Going to need, above and beyond what the traditional energy system does, the traditional grid, the traditional power so you have the traditional power of utilities, and then you’ve got this huge mystery meat of artificial intelligence that is going to come in all these different ways. So you’re going to need this buffering system to support the entire energy complex and and that’s what some of these companies are capitalizing on.
James Connor 13:45
So we’ve seen a number of these tech companies enter into nuclear energy. Why don’t they just invest in not gas? It’s so plentiful, it’s cheap to produce.
Larry McDonald 13:55
We think they will. I mean, they the problem in that gas is, you know, getting it from 1.1 place to the other. You need, you know, a utility to burn the gas. So the thing about SMRs is the small modular reactors is that the lifespan to create them is much shorter than to build a nuclear power plant. So you can see why. You know, if you’re, if you’re a Google or Microsoft, and you’re going, you know, you can’t wait for your utility to build a nuclear power plant. So you’re going to probably invest in those SMRs with natural gas. We may see some type of localized system where are you a company that can produce, like a smaller utility complex that can support a data center that’s up there, but that’s still going to be you’re going to be your natural gas sector is going to be a big beneficiary. We’ve had a huge glut of natural gas the last couple of years. Antero is one of our favorite names. AR. Are. It’s got about a 10% free cash flow yield. They bought back 12% 1010, to 12% of the equity, and they’ve cleaned up the balance sheet those types of companies. When, when you’re gonna you’re gonna have all that excess demand for natural gas over the next couple years, coming from Europe, coming from data centers. So your your natural gas price, it’s going to go from 250, to three to maybe 350, to five over the next five years. And that’s going to be the anteros of the world. AR equity are going to be a big beneficiary there.
James Connor 15:31
So you’re bullish on nat gas. What about oil? Well, we
Larry McDonald 15:34
love oil. The seasonal weakness is spectacular, usually in September, October. So you have a lot of seasonality on the weak side. And then you had this situation over the last couple of months where you had the tensions in the Middle East. You had the fears on the US economy over the last year, the fears of China, the leveraging. And so there was this massive amount of pressure on on the oil sector and and now you’re coming into tax law season. And so, well, we have a model that tracks the tax loss intensity typically ends around November, 10 to 15th, where it climaxes. And so you want to be buying the slumber. Jades, mean Trump, the Trump. You know, if Trump is elected, your Schlumberger is your drill baby drill complex, your companies that service oil. You can buy Schlumberger on the around the 200 week, moving average, a 200 week. That’s a really interesting place to get involved. You can buy occidental from below, where Buffett bought his last 80 million shares. So Buffett’s essentially been buying Occidental, but you’re going to have some tax laws selling between, say, you know right now, october 22 to November 15, maybe November 20. This is, to me, every year we build a basket of tax loss candidates. And this year, your Nikes are in there, your Boeings, and a lot of these energy names, because you’re going to have and remember one thing in years where you have big gains in the s, p, the tax loss selling is a lot more intense. So right now, CFAs and accountants are calling up their high net worth individual clients, and they’re saying, find me a tax loss, because you’ve got that big gain on Nvidia, you’ve got that big gain on the s, p, and you need to find a tax loss to offset it. And so that’s what creates this incredible opportunity over the next six, nine months and energy slumber jays, you know the Nikes and the Boeings of the world. Hi
Andrew Brill 17:38
everyone. I’m one of your hosts here at wealthion, Andrew brill, in these weird economic times where the market is up and it could go down, a lot of people calling for a correction. Some people think it’s just going to keep going up. But if you need help being financially resilient, head over to wealthion.com/free. And we’ll give you a free no obligation. We don’t expect anything from you. We’ll just help you evaluate your portfolio and let you know what we can do to help again, head over to wealthion.com/free for a free, no obligation, portfolio review, and let us do the heavy lifting for you.
James Connor 18:16
So you made mention of the fact you think nat gas is going to go from 250 to five bucks. Oil is currently trading in the low 70s. Where do you see oil going? Oh,
Larry McDonald 18:25
oil. I mean, they have to refill the SPR right? Trump is going to drill, baby drill. But right now, oil production is still 13 point 5 million barrels a day, and we were in 2008 just below that. So it’s going to take a long time for that oil production to get to get caught up again, even with the deregulation slash oil production boom, it’s so oil prices in the intermediate term, we’re going to come out of this seasonality, which is, which is pretty, pretty horrific, all typically in October and September, October and we’re going to come into the new year with, you know, a China stimulus plan, potentially a, you know, a new president united states, or even under, even under a Kamala Harris presidency. You know, she’s, there’s the regulations on the energy production and expiration have been really intense. So some people think, you know, the Kamala Harris regime is, is even more bullish for energy. The bottom line is, Trump will, will attempt to refill the SPR the Strategic Petroleum Reserve, and that means we’re going to have to, you know, we’re going to have a real oil shortage. I think no matter who’s president next year, at least for the first first half, there’s a billion people in India that don’t have air conditioning. That’s one of the lines from our book. We’ve taken 5 million jobs out of the United States, 5 million jobs. We’ve exported them around the world. We’ve raised the standard of living dramatically in India, Bangladesh, all of these emerging market countries. So if you’re working in a call center in India, you’re making 10 to 40 times more than your great great grandparents. And so all of these people are driving mopeds. They’re consuming energy at a much greater pace than the previous generations. But the same time, we’ve decimated the Rust Belt in the United States, we’ve taken those 5 million jobs around the world, and we’ve raised that standard of living. But in terms of the global population, right now, we’re up almost a billion people over the last 10 years, 1 billion more human beings. It’s about 900 million people. So global exploration and what we call capital expenditures for oil and gas has essentially based on all the math and all the formulas. We think we’re about $3 trillion in deficit in terms of exploration investments in natural resources, in oil and gas, metals, uranium, and so we’re a $3 trillion hole. So So we’ve basically suppressed the supply of key natural resources through regulation, through all kinds of things, and we’ve increased the demand equation dramatically around the world. And so now it’s a really energy crisis set up for probably 2025
James Connor 21:25
to 2028 and I want you to expand on that. When you talk about an energy crisis setup, what exactly are you talking about like? Well, closing into the price of oil. It goes from 70 to 100 or 125 bucks a barrel. Yeah. Well,
Larry McDonald 21:39
that’s what happens is, when oil, when oil goes from 70 to 100 to 110 all of a sudden there’s certainty within the oil and gas complex. So then companies that do that do spend capital expenditures, can be can make those investments. So it’s like turning around three Air aircraft carriers in the middle of the Atlantic, because you’re suppressing through regulation and all kinds of things. You know, we had a commodity boom, and from 2010 to 2016 18, almost 2020 to some extent. But then we really had that commodity crash in 2016 and so we’ve, we’ve, because of that, all these CFOs at these companies have seen their previous three or four bosses get shot, and so they’re under invested. That’s what that’s we get into that $3 trillion of investment. So if you took, to keep it simple, if you took the 2010 to 2014 trajectory of capital investments in oil and gas, uranium and metals. If you took that trajectory to today, we’re 3 trillion in the hole. But like I said before, from 2014 today, we’re about a billion people greater population on the planet, and a lot of that, a lot of that emerging market population, because we’ve decimated the Rust Belt dramatically. We’ve raised that standard of living. These people are much more aggressive carbon consumers. So that’s the setup for the only way you’re going to get enough investment into the commodity complex is if you mass, if we have a massive, you know, 50% increase, 100% increase in oil, gas and uranium and and copper.
James Connor 23:26
The one thing the Biden administration has done very well is they kept the price of oil low. They did the back door or backroom deals with the Venezuelans. They did the same thing with the Iranians. So they’re both of these countries are pumping out oil onto the open market, and that’s suppressing the price. Are you suggesting that regardless of who comes into power, whether it be Trump or Harris, that they’re going to let the price of oil rise? I mean, doing so would not be very political, or would be would piss off a lot of electorates.
Larry McDonald 23:58
Yes, well, you’re 100% right, like during election years. The if you look at oil in the fourth quarter in election years, the price, Republicans and Democrats do whatever they can to keep the prices lower. And then there’s kind of an equilibrium move the next year where you’ve got to somehow like, like that strategic petroleum reserve were millions and millions of barrels short, and so the better who’s president. In the next administration, there’s a rebalance, because if Kamala, if Kamala Harris, is president, then you know, she’s in office for four years, and so she’s willing in that first year to take some pain and to get that oil production back up. But like you said, the Biden team’s done whatever they can to keep oil prices down into the election. Trump is will aggressively want to refill the SPR and so that whole, I think, just regardless, at least for the first year, you’re going to have dramatically higher oil prices. Because we’re so far behind the curve in terms of production. So
James Connor 25:04
what does this do to inflation? Okay, let’s just assume oil goes from 70 up to $100 a barrel in a short period of time. What does that do to inflation? What’s that do to the global economy? And I guess, what’s that mean to interest rates?
Larry McDonald 25:19
Well, think of like by 1970 1971 inflation had come down from 6.1 6.2% down to close to four. So inflation had come way down. And Arthur Burns was head of the Federal Reserve at that time, and had celebrated the demise of inflation. And lo and behold, by 7374 we had this multipolar world. Tensions in the Middle East. Like I said before, you had a lot a lot more sustained inflation forces it. So you had this rebound in inflation dramatically higher. So typically, historically, inflation comes in these one to two to three different ways. And so there’s the first wave where inflation, the forces get underneath the surface, but then it, it’s underneath the seat, seat cushions, it’s, it’s deeply embedded in. And just take labor. Look at labor unions. Look at, look at the port strike that’s was now extended until January. But labor unions, look, look at the deal that just happened with with Boeing. I mean, they’re paying 35 40% more. And so when you’re when you’re a labor leave labor union leader, you’re dealing from strength because your your union ranks are a lot more motivated to aggressively ask for higher higher income and higher compensation per hour, because they’re coming home from from work every day with this incredibly nasty inflation. And so all of these forces are together, are coming together, where we’re going to have that second wave, just like we had from so 1968 to 70, we had inflation moves. The Fed hiked rates. They lowered inflation, and then from 70 to 7374 now that was a lot worse, because we had, we had a real crisis in the Middle East. But you know, let me tell you something, the probability of Israel hitting Iran’s oil facilities, I think, is 100% because Hamas and Hezbollah are funded by the oil and so in all of those rockets that you see raining down on on Israel, and all of that, all those resources really come from the oil money. And so you don’t really get, I think if you listen to we hosted a call this week with institutional investors, and if you really don’t get an end to the war in the Middle East, without really ending or really curtailing that oil production in in Iran, so that’s once we get that’s back to the multi polar world. If that were to happen, if Israel were to strike, then you’re going to see oil up 10, $20 and a real then the you have a real, real balance in inflation, then the Fed’s going to be forced to hold down interest rates. Because, remember, interest on the debt now, because interest rates are so high as $1.1 trillion 1.1 trillion up from two, 50 billion, you know, three, four years ago. So the Fed is starting to cut rates because they know if you’re the front end of the curve, your interest costs are 1.1 trillion. That is really crowding out a lot of government expenditures. So the feds can be forced in the next two years because of this multi polar world commodity prices, the feds can be forced to be forced to come in and kind of support the bond market, and that’s going to create a real historic rush into hard assets and commodities.
James Connor 28:49
And so if I understand you correctly, you think inflation might be subdued for now, but come 2025 it’s going to accelerate again, and the Fed’s going to be forced to act. They’re not going to be able to cut interest rates in their in in the face of higher inflation, they might even increase interest rates. What do you think of that scenario? Yeah,
Larry McDonald 29:10
so think of what just happened. Um, the Fed just cut. The Fed just cut interest rates before an election with Atlanta Fed GDP at 3.3 3.5% that is, I mean, that is just madness, right? And so we’re cutting interest rates with higher oil prices. I mean, oil prices are bouncing. What we call every economist on the street is talking about how strong the economy is. We’ve got a China fiscal stimulus. That is a big surprise. We have a two, almost a $2 trillion deficit in Washington that that is up, you know, we’re up. The CBO told us, you know, nine months ago we were going to be like, 1.3 $1.4 trillion deficit this year. Now we’re coming in, you know, 1.8 to 2 trillion and so we’ve got this massive fiscal. Overdose. You’ve got a huge fiscal and monetary stimulus coming from China. We’ve got tensions in the Middle East with oil prices. The probability of a really sharp bounce in inflation, I think, is almost certain, and that and that gets you back to a more hawkish fed sometime in the next year. But once again, the Fed can’t stay here. This is where I’m getting if the Fed stays higher for longer, to try to kill inflation, interest costs are 1.1 trillion a year, up from two 50 billion. So they need to get the front end down to lower those interest costs on T bills right now, the average is an amazing step. So picture in your mind, 3.5 35 trillion debt in the United States, 35,000,000,000,030 5 trillion of debt, 15 trillion of that rolls over in 2024 2526 so the United States, 35 trillion of debt, 15 of that rolls over in 2425 26 the average weighted coupon on the US debt load is 2.5 2.6% think about that. 2.5 2.6 that means if the Fed really goes higher for longer and hikes rates again, or threatens to hike, that means that that average weighted coupon, because that 15 trillion is rolling over and from it goes from 2.6% to maybe three four. That means your interest on the debt is going to go from 1.1 1.2 up to $1.5 trillion and so and then you’re into a real Liz trust moment in the United States, which probably happens the first quarter of next year.
James Connor 31:36
Interesting. And if this scenario plays out the way you envision, what does this do to the S P? The S P continues to make new highs every other day. Where do you see the S P going?
Larry McDonald 31:46
Well, the S P, you know, the Trump administration. The think of the 2006 16 election. So the S P was down 4% into the Trump win, and it was flat for 18 months before so think of 2016 we were flat for 18 months, and we were down 4% from the summer into November. Here the s, p is up year over year, almost 46% so we’re up 46% into the election. And so what’s happening is you can see in a lot of these Trump trades, you can see in the regional banks, a lot of these Trump trades are up a lot, and so the markets this time around is pricing in a Trump victory of some kind. And so because of that, and because of the fact that we’re running into this fiscal crisis in the first quarter, if Trump wins, he’s going to most likely take the pain, similar to what Reagan did. So when Reagan did in this kind of same environment, inflation, he took the pain early, and there was some really tough period. Reagan was elected. 8019 8081. Was tough, 82 was tough, but by 8384 they took the pain, and Reagan was able to be reelected in almost in a landslide against against Mondale in 1984 and it’s a very similar situation where, because the Biden team, like I said, they want to win the election, so they’ve juiced fiscal almost up to 2 trillion a year with rate cuts, with the China stimulus, you know, with higher energy prices and problems in the Middle East, all of that feeds into the sustained inflation. Trump will try to do something in the new year to handle this crisis. We have real crisis coming in the first course. So stocks, stocks get hammered between now and, say, April, but then then over the course of the Trump administration, most likely there, there’s a deregulatory regime, there’s a tax but I don’t think they’re going to get away with the tax cuts, with the $35 trillion debt hole. But overall, there’s, there’s a much more favorable backdrop, backdrop to Trump over the course of the of the course of entire four years of administration. So you could have, you know, a big move down, the big move back up. If Kamala wins, the problem is, and here, here’s the thing, if you’re, if you’re watching us right now, if Kamala Harris wins, and she doesn’t have the House and the Senate, especially the house, then it’s a big fiscal cliff, because the Republicans will really enforce austerity onto her like, and it’s not fair, and it’s just classic, like, all of a sudden the Tea Party people are going to come back. But you saw today this week. Paul Tudor Jones, it’s one person after another is talking about this reckless, UNSUSTAINABLE fiscal path in Washington, and it’s Republicans and Democrats, right? But Kevin McCarthy literally pushed forward this debt ceiling agreement too late in the summer of 2022 that expires in the first quarter of next year. And so we’re going to have this no question if Kamala Harris wins and she doesn’t have the House and Senate, which is, I think, likely if she if she wins. Millions, then you’re talking about a huge fiscal cliff. And all that means is when you’re doing $2 trillion deficits every year and all of a sudden, wash, you know, the house, forces you back to 800 billion, there’s a massive amount of fiscal cut in spending, and that’s a big hit to the economy in the short term, and that creates a big, big downdraft
James Connor 35:22
in q1 and q2 of this year, there was this ongoing debate whether or not the US was going to go into a recession. Now we don’t hear any anyone talk about it. The economy continues to be very strong. Unemployment, for the most part, is still at a decent level, S, P and the Nasdaq continue to go higher. What are your thoughts?
Larry McDonald 35:40
So that’s exactly my point. Is that the team Biden, this has happened twice now in the last four years. There was two there’s a there was an inflation scare in 2022 in October, and then there was also an, I’m sorry, recession scare, 2022 in October, recession. And then we had a recession scare in 2023 with the banking crisis in both of those instances, both times, the fiscal and monetary response was strong, and that’s why the fiscal and monetary response to COVID, plus the banking crisis and plus the economic shock of 22 has been $16 trillion versus 4 trillion after Lehman, and so that’s what I mean. It’s like they’ve done everything they can to prevent the recession, and you’re absolutely right, like recession probability in the first quarter is rising. They juice fiscal and they did whatever they could to get us through the election without a recession, but that’s creating all this sustained inflation. And it’s like this massive, like a cocktail, kind of a recipe for a new inflationary regime. Quite
James Connor 36:48
often, when we get a significant correction or crash in the markets, it’s because of something no one saw coming. It’s like getting broadsided going through an intersection, and you lived through the oh 809, great financial crisis. And during that time period, in 2007 it was the collapse of a Bear Stearns high grade structured credit fund, a couple of funds that no one even heard of. They were relatively small too, but that was really the first sign that there was trouble coming. Do you think there could be another potential Black Swan event happening right now? And if so, what would it be?
Larry McDonald 37:24
Well, in private credit, it’s, it’s a real mystery meat sandwich where, if rates are low, there’s a lot of private credit, private equity, private private transactions have been done the last like five years that were done at really horrible prices. And same thing, commercial real estate. But as the Feds promised to cut rates, and they cut rates 50 basis points, I think the Fed knows this, by the way. I think it’s very obvious. The Fed is worried about a crisis there. That’s why they’re starting to cut. But if inflation doesn’t allow the Fed to cut anymore, and if inflation keeps rates up here, you’re going to have a big default cycle in private credit, and potentially that’s going to leak over to public credit as well. So your private credit, so you want to look at your black stones, you know, your what we call the business development companies. You want to look at those stocks, because they’re great. They’re going to be great canaries in the coal mines, because if there’s a problem in private, credit will show up there first. But I think that’s like, it’s when you talk to it like, like I said, most of our clients are institutional investors, and you talk to them about where, you know, there’s an old saying we talk about my first book and buffet Buffett’s buffet is famous for this statement, but he’s calls it mark to model, and then, I’m sorry, it’s the starts of mark to market. So most, most public companies have to mark their most, most banks have to mark their bonds or their assets to market. When a company gets a little leeway on that in an illiquid place like Clos or something like that, collateralized loan obligations, they can mark to model. So you mark to market, Mark to model, and then the last stage is Mark to mint. So it’s the three M’s, and that’s where private credit is right now this, if you talk to anybody that really knows anything about credit markets, I think you know 40% but 30% of the private credit market is marked to myth, and that’s where you get a real nasty crisis that’s out there. If the Fed can’t get rates down, the Fed needs to get rates down 100 basis points in the next year, or there’s a massive credit crisis. So in
James Connor 39:39
summary, it sounds like you’re expecting a very tumultuous 2025 maybe you can just wrap up for us how investors should be positioning themselves going into 2025
Larry McDonald 39:53
well, just think of like I said, hard assets of value, like the commodity space is been to. Destroyed since, you know, going back to 2011 your, say, the ratio of, say, the Dow Jones, Industrial Average, versus SIG, just gold, to keep it simple, it’s now 16, almost, almost 16 one. So the Dow versus gold that that’s probably going to come down historically, that should come in 19 in the 80s, it reached almost one to one, right? So we’re not going to get there. But does that come down to like, you know, eight to one, five to one? Yeah. So your stocks which are financial assets versus hard assets. So you want to be in silver, platinum, palladium, companies that own large reservoirs of commodities, PHP, Rio, Tinto valet, you want to own companies that own large quantities of metals and oil and gas. Companies like Occidental Petroleum. Buffet owns Occident. He owns 80,000 shares, 80 million shares above where the stock is today. We’ve calculated because, because you’ve got a lot of tax law selling there, as I mentioned earlier, and so you can buy companies you you still, we’re still going to have a drawdown the market. But the, I think the major part of the market that gets hurt are what we call financial assets, and the companies that don’t necessarily own large quantities of hard assets. Well, that
James Connor 41:27
was a great conversation, Larry, and as we wrap up, maybe you can just tell us your you’ve been on the road marketing your new book. Where are you going to be in the coming weeks?
Larry McDonald 41:37
We’re heading to Austin, Texas for a nice, what we call like a round table book signing. And then we’re doing a ideas dinner in Dallas, Dallas with Texas capital bank. Has been really, what a great bank in the Midwest. And and those are the two, two next ones. And then we’re off to Miami in in November, my the 19th, be there with John and Jerry and I think Grant Cardone and that crew. And so it’s Austin in early November, and then Dallas, early November, and then on the 19th, be out to Miami. So
James Connor 42:13
you interviewed many people for this new book, How to listen when markets speak. Was there one or two people that you enjoyed speaking with the most.
Larry McDonald 42:21
Well, Charlie Munger was amazing. You know, I sat down with him in Omaha. Mark Cuban was really helpful. Mark. Mark has really helped me over the years. You know, he’s, he’s really thinks a different way around, around, you know, technology companies and sustainable, sustainable technologies and and then obviously, David Einhorn, legendary investor, value investor, David Tepper, those are the ones that were just, you know, really incredible support. Mike alkin. We sat down with Mike in the in the uranium space Sachem Cove, and he really helped us on that side. And then we sat down with Adrian day on the on the on the metal side. With Adrian really got us very long a lot of these silver miners, silver and gold miners, which, if you look at the ratio from of, say, you know, gold miners to the metal, those ratios are starting to break out again. So Adrian’s point is really in the early endings of a move there, and that’s that’s all in our book, How to listen when markets speak. Well,
James Connor 43:26
once again, that was a fascinating discussion. Larry and I want to thank you for making time today.
Larry McDonald 43:31
Thanks for thinking of us, and we’ll see you at the top. Thanks
Andrew Brill 43:35
for watching everybody you’ve been watching Jimmy interview Larry McDonald about his book, How to listen when the market speaks. And we thought this would be a great opportunity to bring in Brett retmeister from our partner, Ria, wind, rock, wealth. Brett, thanks for joining me, and we’re going to talk a little bit about what Larry spoke about now. Jimmy had asked him about what investors that he speaks to are concerned with. I’m wondering if you’re watching the clip, if you’re finding the same thing about what investors are concerned with today. I
Brett Rentmeester 44:08
mean, generally, Yes, Andrew, from the perspective of, there’s a great unrest right now. Yes, stocks markets are up tremendously. But under the hood of that is, you know, a great concern about policy. And, you know, I think when we talk to investors, there’s probably four or five things they bring up. The main issue has to do with spending, debt and money printing. You know, people aren’t stupid, and they generally know that there’s a price to pay for printing money out of thin air and overspending and not having reasonable budgets. Now that doesn’t happen immediately, but that price over time is inflation, higher interest rates and even a devaluation of the currency. So the currency is also on people’s minds. So US dollar, both from that perspective, but also as we um. To kind of face a growing BRICS coalition looking to get away from $1 centric world. And then two other factors, we’re in one of the most overvalued stock markets on paper, so that’s in people’s consciousness. And then finally, and maybe most importantly, I’d say, a period of political and institutional instability. The segment before, was talking about a book The fourth turning, which I brought off my shelf, one of my favorites. But the insight is that at a fourth turning, or a crisis period in history, people lose faith in the institutions that they accepted in the past. So, you know, I think we’re looking towards those kind of issues ahead
Andrew Brill 45:41
now, he also talks about the period that what the period we’re in now, it’s kind of echoing the period from 1968 to 1981 you and I did an interview about a paper you wrote about 1974 so tell us about what you’re finding about this period compared to back then.
Brett Rentmeester 46:00
Yeah, yeah, we did. It was called Echoes of 1974 and can be found on our website, but I would concur with a lot of his thoughts. Now, of course, no two periods are the same in the world. Was very different then versus now, but we had essentially five lessons from the 1970s that I think should still resonate with people today. And if you think about that period, 1968 to 1981 It started as a period of low inflation, and we ended with, you know, almost 14% or higher, actually 16 and a half percent short term rates by 1980 so let me just list the five lessons. One was that inflation and interest rates, although they’re volatile, they were upward trending, and they went in a wave. They weren’t straight line. People thought inflation was maybe Okay, and then it came back. So, you know, I think we’re probably heading down that path once again. The second was that anytime you have extreme market valuations, you’re going to have a period of pain at some point. Back then, it was the Nifty 50 stocks that in 1974 lost over half of their value. Today, it’s AI and other things people are excited about on the technology front, the third lesson was, anytime you have political instability rising, you have a loss of faith in government. Back then, it was Nixon and Watergate today. I don’t even need to go into all the political instability, you know, we’re we’re talking about around the country. The fourth, and again, a mirror of today, was called War energy in the Middle East. So we’re kind of back to that same dilemma and instability in the Middle East. And then finally, on a longer term basis, was the insight that there’s a changing of guard in currencies about every 100 years or so across the world. Now that period in back in 1971 was important because that’s when Nixon officially took us off convertibility to gold. Since then, we’ve been running in a different kind of world with really no regard for currencies tied to something of real value. So you know, the question is, from this point forward, what lies ahead for the dollar
Andrew Brill 48:11
now, Brett, in his book, Larry also, and in his his discussion with James, he also spoke about the positioning of our portfolios and how right now they’re sort of geared towards 2010, to 2020, but they’re not evolving. I guess the way they should Is this something you agree with it? Or do we need to revamp the way we look at our portfolios? Think
Brett Rentmeester 48:34
we do? I think we need to rethink the wisdom of kind of the conventional 6040 portfolio, or stock and bond mix both have pretty tremendous headwinds going forward. For stocks, the headwind is overvalued prices. So even if a company delivers on the promise, are they just overpriced enough to not really make money for bonds, it’s really about interest rates. So if interest rates rise, that’s a major headwind to bonds, and you end up losing value over time. So I think again, taking some of the lessons from prior periods, mainly in the 1970s if you have a scenario of overvaluation where interest rates are rising, that tends to hurt most stocks and bonds together. Now we saw that back in 2022 which was one of the worst markets on record for US investors, when stocks and bonds both fell together and people are used to them behaving differently, but that wasn’t the case. So our guidance is, hey, we live in the world. We live in. So you’ve got to have one foot in the current system. So you probably are going to have some stocks and bonds. But on the stock side, you should be hedged. You should be more in value. Names, hard assets, energy infrastructure, like master limited partnerships are an area we’ve had a lot of success with. On the bond side, you should probably be thinking about interest rate risk, so maybe short term Treasuries are a good place to hold out. But outside of that, the foot outside of the system. Would be thinking about what could go wrong in the world. And with that mindset, I think you want to consider precious metals, both gold and silver. I think there are other, lot of other hard assets that tend to do well in trying times. And there’s some unique niches, like build to rent real estate that you and I spoke about, that you know, as it gets more unaffordable for people to buy their first home. People are choosing to rent, but they want to do it in a more home, like, you know, system. And then finally, cryptocurrency, still a wild card, but something that investors should consider as as the world keeps printing money out of thin air,
Andrew Brill 50:36
and Winrock isn’t is innovative in that way you look at alternative investments, and not just equities or bonds and stuff like that, right?
Brett Rentmeester 50:46
That’s right. I mean, it’s a big part of what we do, and honestly, I think it’s why clients end up finding us, because they want someone bringing them ideas and not giving them what worked yesterday, but more of a list of things that are likely to succeed under the conditions we laid out here.
Andrew Brill 51:02
Yeah. So if you’re looking for help being financially stable and keeping it that way given the uncertain economic times, you can head over to wealthion.com/free and you’ll find Winrock. You can help. Head over to Winrock wealth.com and find Brett and his partners, and they’ll certainly be able to help you out and point you in the right direction. That’s for sure. I mean, that’s what, that’s why we partnered with you, and we trust you, and you know you’ve done a great job for us, but you know that’s, that’s our this will do this from time to time. We’ll have Brett and his partner, Chris and brandy on to, you know, try and give some perspective on to what some of our other guests are talking about. So Brett, thanks so much for joining me. I really appreciate it. Thank
Brett Rentmeester 51:43
you.
James Connor 51:44
Well, I hope you enjoyed that discussion with Larry McDonald, and it gave you some insights on what to expect here in the coming months. It sounds like 2025 might be a tumultuous year. We all need help when it comes to planning and preparing for our financial future. And if you have a financial advisor and you’re happy with them, then great, stick with them. But if you don’t, or maybe you want another opinion, consider having a discussion with a wealthy on endorsed financial advisor at wealthion.com/free it’s a free service that wealthion offers to anyone who has an interest and there’s no obligation on your part. You can find out more information@wealthion.com slash free. If you like this content, please subscribe and like and share, and if you want to check out some more content, check out this video now.
