Larry McDonald: S&P 500 Could Crash 30% Over the Next Year
https://www.youtube.com/watch?v=8F3x-mRHFUo
Language: en | ASR: large-v3-turbo @ 0a363e9161cbc7ed1431c9597a8ceaf0c4f78fcf

[00:00:00.000 --> 00:00:05.140] Speaker 1: The SP is going to drop 30%. NVIDIA is going to get cut in the next two, three years. This
[00:00:05.140 --> 00:00:10.260] Speaker 1: is the greatest cash out from billionaires in Silicon Valley we've ever seen. Run, don't
[00:00:10.260 --> 00:00:11.100] Speaker 1: walk the other way.
[00:00:16.120 --> 00:00:21.260] Speaker 2: Joining us today, Larry McDonald, founder of Bear Traps Report. Hi, Larry. Great to
[00:00:21.260 --> 00:00:21.440] Speaker 1: have you
[00:00:21.440 --> 00:00:21.720] Speaker 2: with us.
[00:00:21.800 --> 00:00:23.420] Speaker 1: Thanks for having me. What a pleasure.
[00:00:23.760 --> 00:00:28.620] Speaker 2: Yeah, same here. So it's going to be a great convo. The work you do is all about avoiding
[00:00:28.620 --> 00:00:32.560] Speaker 2: drawdowns, and it feels like we really need to be thinking about that right now. where are
[00:00:32.560 --> 00:00:37.440] Speaker 2: the greatest risks investors need to be positioned for right now? What's top of your radar?
[00:00:37.940 --> 00:00:43.580] Speaker 1: Well, you know, the year end setup is fascinating because the relationship between the
[00:00:43.580 --> 00:00:49.480] Speaker 1: index, so the S &P and what I call the dark side of passive investing,
[00:00:49.480 --> 00:00:56.280] Speaker 1: it's getting pretty crazy. Probably 60 Hall of Fame brands that are down 35 to 80
[00:00:56.280 --> 00:01:03.240] Speaker 1: percent and the index is at all season in years where
[00:01:03.240 --> 00:01:10.080] Speaker 1: the S &P's up 10, 15, 20 % and great brands are down. You want to get along the
[00:01:10.080 --> 00:01:15.240] Speaker 1: wonderful brands and maybe think about even shorting the index or by puts on the index. But
[00:01:15.240 --> 00:01:20.620] Speaker 1: that's what we're seeing the most sophisticated institutional investors behind me in our
[00:01:20.620 --> 00:01:23.620] Speaker 1: Bloomberg chat. That's a trade that I'm seeing people put on.
[00:01:23.800 --> 00:01:28.960] Speaker 2: We asked the experts closest to the real economy to make sense of it. The people who build,
[00:01:29.340 --> 00:01:34.720] Speaker 2: mine, and power real assets and put their own capital behind them. Then we connect the dots
[00:01:34.720 --> 00:01:40.860] Speaker 2: and tell you what it means for your money. Wealthion. It's interesting. It sounds like
[00:01:40.860 --> 00:01:47.360] Speaker 2: rotation within equities, look for the sort
[00:01:47.360 --> 00:01:52.380] Speaker 2: of beaten down, kind of sounds like a value trade. But I hear a lot of people really
[00:01:52.380 --> 00:01:58.580] Speaker 2: concern, listen, yeah, the S &P 500 is broken. What we look at, it doesn't represent what's
[00:01:58.580 --> 00:02:04.360] Speaker 2: really going on in the economy. But equities are not the answer because everything's
[00:02:04.360 --> 00:02:08.620] Speaker 2: delivered to AI, including the economy. And it's risky. It sounds like you're not bearish
[00:02:08.620 --> 00:02:14.380] Speaker 2: equities. You're just worried about the concentration. How do you see this?
[00:02:15.000 --> 00:02:21.720] Speaker 1: Well, yeah, it's because of AI. Think about this. essentially the S &P is 50 % tech. I
[00:02:21.720 --> 00:02:27.540] Speaker 1: mean, come on, you know? And so whenever I've seen that, whenever you see, like, remember
[00:02:27.540 --> 00:02:34.280] Speaker 1: you're, I'm a former Lehman trader and our book is right now, 1 million copies sold,
[00:02:34.640 --> 00:02:39.440] Speaker 1: colossal failure of common sense and when markets speak. And I tell my wife once a month,
[00:02:39.540 --> 00:02:44.000] Speaker 1: Maggie, if we sell a million books, we'll break even on our a Lehman stock, right?
[00:02:45.440 --> 00:02:52.420] Speaker 1: But the point I try to make is that in 2000, 2007, whenever you have one sector that is
[00:02:52.420 --> 00:02:57.100] Speaker 1: that big a part of the market, run. Don't walk the other way.
[00:02:58.520 --> 00:03:03.680] Speaker 1: And then you're going to take three IPOs. Think of the idiocy of this, right? And this is
[00:03:03.680 --> 00:03:09.220] Speaker 1: how passive investing gets gamed, right? So these three IPOs, SpaceX, Anthropic, and
[00:03:09.220 --> 00:03:15.960] Speaker 1: OpenAI, three years ago were worth $360 billion. Now they're at $5
[00:03:15.960 --> 00:03:21.640] Speaker 1: .1 trillion from $360 billion. And we're going to put them in the index. We're going to put
[00:03:21.640 --> 00:03:26.040] Speaker 1: it into the NASDAQ 100. We're going to eventually get them in the S &P. This is the
[00:03:26.040 --> 00:03:30.900] Speaker 1: greatest cash out from billionaires in Silicon Valley we've ever seen. And they're dumping
[00:03:30.900 --> 00:03:37.500] Speaker 1: the shares into the laps of Mr. and Mrs. Joe Lundqvill, average investor in their 401ks.
[00:03:37.500 --> 00:03:39.480] Speaker 1: it's disgusting and it should be stopped
[00:03:39.480 --> 00:03:42.860] Speaker 2: so retails the exit liquidity for private correct
[00:03:42.860 --> 00:03:43.740] Speaker 1: 100 private
[00:03:43.740 --> 00:03:44.020] Speaker 2: money
[00:03:44.020 --> 00:03:49.140] Speaker 1: and and it's just not exit liquidity it's evaluation look at just look at the relationship
[00:03:49.140 --> 00:03:55.820] Speaker 1: between anthropic and google right google came public at like 35 40 billion dollars you
[00:03:55.820 --> 00:04:00.000] Speaker 1: know anthropic's going to come public and you know whatever it is two trillion i mean it's
[00:04:00.000 --> 00:04:06.120] Speaker 1: just it's just crazy uh the relationships out there and uh and it's really um it's really
[00:04:06.120 --> 00:04:11.160] Speaker 1: quite pathetic. And nobody's really, everyone's just along for the ride. The indexes are
[00:04:11.160 --> 00:04:12.500] Speaker 1: all time high and no one really cares.
[00:04:12.940 --> 00:04:19.420] Speaker 2: So is this a stock pickers market where these other names in the S &P
[00:04:19.420 --> 00:04:26.400] Speaker 2: look attractive? Or is the AI trade, the bubble bursting going to be so
[00:04:26.400 --> 00:04:31.380] Speaker 2: damaging that it takes everything down with it, including the economy? And so even those
[00:04:31.380 --> 00:04:33.620] Speaker 2: names get taken down.
[00:04:33.800 --> 00:04:38.020] Speaker 1: Right. That's the tough thing. Nobody knows the answer to that question. I will say we've
[00:04:38.020 --> 00:04:44.740] Speaker 1: already had a 1987 crash in stock market. It's already happened. Anytime you have equities
[00:04:44.740 --> 00:04:50.320] Speaker 1: that are down 35, and we're talking like Harley Davidson, Lenar. I mean, Buffett was buying
[00:04:50.320 --> 00:04:56.660] Speaker 1: Lenar like 20 % above where it is now. Netflix, Bill Ackman was buying Netflix 10, 15 %
[00:04:56.660 --> 00:05:01.000] Speaker 1: above where it is now. I mean, these things are down 45%. So we've already crashed. No,
[00:05:01.060 --> 00:05:03.580] Speaker 1: they can go down more. But think about this, Maggie.
[00:05:05.360 --> 00:05:08.600] Speaker 1: Oil and rates, the last 60, 90, 100 days.
[00:05:10.100 --> 00:05:16.960] Speaker 1: The move in the last like six months or so, the 12 -month treasury is up 100 basis points.
[00:05:17.720 --> 00:05:24.180] Speaker 1: And oil, gas, diesel, what we call distillates, they're all up 60, 70, 120%.
[00:05:24.660 --> 00:05:31.000] Speaker 1: So we've already had a $300 billion punch to the face of the US consumer. That's why
[00:05:31.000 --> 00:05:37.240] Speaker 1: McDonald's and Home Depot are down at 30%, 35%. And so we've already done a lot of hiking.
[00:05:37.400 --> 00:05:43.220] Speaker 1: The ability of the Fed to hike further, I think that the economy, I'm starting to see the
[00:05:43.220 --> 00:05:47.160] Speaker 1: most sophisticated investors. We work with hedge funds, mutual funds, and pension funds at
[00:05:47.160 --> 00:05:51.420] Speaker 1: the bear trap support. People are starting to look at, institutions are starting to look at
[00:05:51.420 --> 00:05:56.720] Speaker 1: duration again. okay in other words long -term bonds because when you have that type it's
[00:05:56.720 --> 00:06:03.300] Speaker 1: the economy um it's going to essentially accelerate economic risk and then it's like in the
[00:06:03.300 --> 00:06:09.240] Speaker 1: 80s and 90s maggie we have these supernova economies where the economy's piping hot rates
[00:06:09.240 --> 00:06:14.840] Speaker 1: are up oils up the consumer gets slammed and all of a sudden we go into a supernova like
[00:06:14.840 --> 00:06:18.020] Speaker 1: like a like a star burning out that's what's about to happen
[00:06:18.020 --> 00:06:24.400] Speaker 2: so you see uh square square that with me that the crash has already happened but there's
[00:06:24.400 --> 00:06:30.860] Speaker 2: if you think that if it's the sophisticated investors think that a rescue it sounds like
[00:06:30.860 --> 00:06:35.520] Speaker 2: you're coming lower rates are coming because something's going to break talk to me about
[00:06:35.520 --> 00:06:40.660] Speaker 2: that middle part like how much worse does it get what does that break look like in order to
[00:06:40.660 --> 00:06:46.480] Speaker 2: be the catalyst for that sort of that that fall in long yields that's what you're saying
[00:06:46.480 --> 00:06:51.080] Speaker 2: right They're buying long duration because they think that the policymakers, the Fed's
[00:06:51.080 --> 00:06:52.920] Speaker 2: going to flip because they're going to need to.
[00:06:53.140 --> 00:06:58.100] Speaker 1: That's part of it. But it's more about the relationship between, like in our lifetimes,
[00:06:58.380 --> 00:07:04.940] Speaker 1: only maybe in the late 70s have we seen a bond market that is at this level of
[00:07:04.940 --> 00:07:05.540] Speaker 1: crashing.
[00:07:06.280 --> 00:07:06.520] Speaker 2: And
[00:07:06.520 --> 00:07:11.020] Speaker 1: the reason it's, rates were higher in the 80s right but what people don't understand is
[00:07:11.020 --> 00:07:17.900] Speaker 1: interest rates between 2017 and 2021 30 trillion
[00:07:17.900 --> 00:07:22.460] Speaker 1: of bonds were issued near one to zero to maybe two percent
[00:07:22.460 --> 00:07:23.280] Speaker 2: there's
[00:07:23.280 --> 00:07:30.080] Speaker 1: an apple bond behind me maggie that's trading at 47 cents on the dollar it's double a
[00:07:30.080 --> 00:07:36.700] Speaker 1: rated maggie it was issued at par 100 it's turning to 47 cents because it's a 2
[00:07:36.700 --> 00:07:43.220] Speaker 1: .55 % coupon and rates have gone up. So that bond's worth a lot less. So the point is, if
[00:07:43.220 --> 00:07:47.900] Speaker 1: you buy something like that, what would you rather own? Apple equity at 10 times sales,
[00:07:48.360 --> 00:07:53.700] Speaker 1: right? $5 trillion market cap. It's like brain debt to buy that thing here. Whereas you can
[00:07:53.700 --> 00:08:00.600] Speaker 1: buy the bond that's trading at 47 cents. It's paying 2 .55%, but your actual yield's
[00:08:00.600 --> 00:08:05.560] Speaker 1: much better than that. But guess what? If the 30 -year treasury for some reason and a
[00:08:05.560 --> 00:08:12.220] Speaker 1: recession goes back to 4%, that Apple bond's going to be worth about 72, 73. And the bottom
[00:08:12.220 --> 00:08:18.280] Speaker 1: line for people watching us right now, that's 18 % a year if that happens in the next three
[00:08:18.280 --> 00:08:25.080] Speaker 1: years. So it's like the 80s here, Maggie. Bonds are starting to offer equity like returns
[00:08:25.080 --> 00:08:28.480] Speaker 1: because they've crashed like it's 1929.
[00:08:29.280 --> 00:08:35.280] Speaker 2: So this is the smart trade, the smart money for you is everyone opportunistically looking
[00:08:35.280 --> 00:08:38.840] Speaker 2: for trades that will work if interest rates go down.
[00:08:39.180 --> 00:08:44.180] Speaker 1: Right. And another one, I mean, let me just look at, think about Nike, Maggie, right? Think
[00:08:44.180 --> 00:08:50.780] Speaker 1: about nike uh you have you have um the olympics in 2028 right this is nike now
[00:08:50.780 --> 00:08:57.760] Speaker 1: uh almost 75 80 off you've got free cash flow at nike near 3
[00:08:57.760 --> 00:09:03.560] Speaker 1: billion over the next year 51 billion market cap and guess what in the last week 360
[00:09:03.560 --> 00:09:10.200] Speaker 1: million shares traded and the float is 1 .1 billion okay 1 .1 billion
[00:09:10.200 --> 00:09:16.580] Speaker 1: shares. So 360. So in other words, the capitulation score that we're getting in Nike is
[00:09:16.580 --> 00:09:23.080] Speaker 1: Category 5. It's like Exxon Mobil in November of 21. Think about that capitulation.
[00:09:23.400 --> 00:09:28.640] Speaker 1: It's like Intel a year and a half ago. We're talking like Category 5 storm as in a
[00:09:28.640 --> 00:09:28.960] Speaker 1: hurricane.
[00:09:29.160 --> 00:09:29.720] Speaker 2: This
[00:09:29.720 --> 00:09:36.400] Speaker 1: is what just happened to Nike. When you can buy a world -class brand that's trading 30 %
[00:09:36.400 --> 00:09:43.380] Speaker 1: below its 200 month moving average. You do that every day of the week and twice on Sunday.
[00:09:43.600 --> 00:09:47.800] Speaker 2: It's funny, Larry, because you're the author of the Bear Traps Report, but this is like a
[00:09:47.800 --> 00:09:53.800] Speaker 2: really bullish conversation about parts of the market that you think are
[00:09:53.800 --> 00:09:56.180] Speaker 2: grossly mispriced.
[00:09:56.300 --> 00:10:02.580] Speaker 1: Yeah. Make no mistake. I think the S &P, once we get through this dumping of the IPOs, the
[00:10:02.580 --> 00:10:07.200] Speaker 1: S &P is going to drop 30 % over the next year. It's probably going to be flat for eight
[00:10:07.200 --> 00:10:12.920] Speaker 1: years. Let's see what happened in 2000 to 2010. The S &P didn't go down. I mean, it didn't
[00:10:12.920 --> 00:10:18.020] Speaker 1: move. It was flat. There's been two periods in the last 50 years where the S &P was flat
[00:10:18.020 --> 00:10:23.740] Speaker 1: for seven years. This is what we're coming into. But within the market, there are gems on
[00:10:23.740 --> 00:10:25.320] Speaker 1: the floor that have to be picked up.
[00:10:26.040 --> 00:10:31.600] Speaker 2: I love that visual. So let's talk a little bit about what we'll dig in again about sort of
[00:10:31.600 --> 00:10:37.280] Speaker 2: portfolio construction and framework in a minute. it. But let's talk a little bit about
[00:10:37.280 --> 00:10:43.200] Speaker 2: bond yields, because it seems all of this is centered on yields going lower, right? That's
[00:10:43.200 --> 00:10:48.640] Speaker 2: the premise, that yields have to flip at some point. So government bond yields around the
[00:10:48.640 --> 00:10:53.120] Speaker 2: world rising. Demand for U .S. Treasuries at the long end has been dismal. I mean, we've
[00:10:53.120 --> 00:10:58.060] Speaker 2: seen terrible auctions, some OK, but some really bad, especially when you're talking about
[00:10:58.060 --> 00:11:02.660] Speaker 2: 30 -year. Are we watching a sovereign bond crisis gather steam?
[00:11:02.900 --> 00:11:09.880] Speaker 1: There's no question. Watch the European banks socked chin down, I think, 20 % in the
[00:11:09.880 --> 00:11:16.660] Speaker 1: last three, four weeks. They're exposed to French paper. And so you've got a really nasty
[00:11:16.660 --> 00:11:23.060] Speaker 1: situation with the global bond market. That's probably going to trigger that kind of crisis
[00:11:23.060 --> 00:11:27.300] Speaker 1: in the index, the S &P, in the next couple of months. I think yields could go a little
[00:11:27.300 --> 00:11:32.640] Speaker 1: higher. But what I mean is in terms of, I'm sorry, the U .S. 30 -year, U .S. 10 -year. You
[00:11:32.640 --> 00:11:38.360] Speaker 1: can go higher, but this is where you want to start adding in. If they do go higher, it'll
[00:11:38.360 --> 00:11:45.300] Speaker 1: be a blow -off, nasty, and then a reversal. Because from here, any more that rates
[00:11:45.300 --> 00:11:52.000] Speaker 1: go up, bond prices come down, and you start to create, Maggie, massive, massive stress
[00:11:52.000 --> 00:11:56.060] Speaker 1: within the banking system. Because think of Bank of America. I mean, we're seeing guys,
[00:11:56.400 --> 00:12:01.920] Speaker 1: we're seeing a lot of players behind me shorting Bank America because, you know, they're
[00:12:01.920 --> 00:12:06.040] Speaker 1: sitting on all that commercial real estate that they sold these commercial real estate
[00:12:06.040 --> 00:12:12.080] Speaker 1: loans to 2 % to 3%, right? They're going to refinance it like 7%, 8%, 10%. I mean, they're
[00:12:12.080 --> 00:12:18.080] Speaker 1: sitting on hundreds of billions, not to mention, you know, they have like $300 billion of
[00:12:18.080 --> 00:12:24.280] Speaker 1: deposits that are at zero, Maggie, zero, right? zero interest rates because there's some
[00:12:24.280 --> 00:12:28.560] Speaker 1: you know retired couples out there that still have their money in these savings accounts of
[00:12:28.560 --> 00:12:33.320] Speaker 1: zero guess what's going to happen maggie these muse systems that you're seeing from meta
[00:12:33.320 --> 00:12:37.940] Speaker 1: they're going to go around people are going to say oh what can i do about my banking uh
[00:12:37.940 --> 00:12:43.800] Speaker 1: deposit and muse is going to go out there and say hey hey hello is anybody home why are you
[00:12:43.800 --> 00:12:49.320] Speaker 1: in the zero interest rate bank account when you can get four percent over here And you know
[00:12:49.320 --> 00:12:49.920] Speaker 1: what's going to happen?
[00:12:51.200 --> 00:12:56.460] Speaker 1: $150 billion is going to leave Bank of America over the next year, maybe five years. And
[00:12:56.460 --> 00:13:01.600] Speaker 1: that's a huge, juicy part of their profits. They're ripping off investors right now because
[00:13:01.600 --> 00:13:07.240] Speaker 1: they're sitting on that money. They're taking in the $200 billion, $300 billion. I think
[00:13:07.240 --> 00:13:14.120] Speaker 1: it's $600 billion total. And they're giving the clients maybe 1%, and they're putting it in
[00:13:14.120 --> 00:13:15.800] Speaker 1: treasuries and getting 4 % to 5%.
[00:13:15.800 --> 00:13:22.280] Speaker 2: Who? I've been hearing more and more. And of course, news just rolled out. So this is just
[00:13:22.280 --> 00:13:27.800] Speaker 2: the beginning of us sort of understanding what a sort of AI assisted, you know, search will
[00:13:27.800 --> 00:13:34.800] Speaker 2: look like and what that means. Who benefits from that or what companies benefit from that?
[00:13:34.800 --> 00:13:38.960] Speaker 1: Well, first of all, let's talk about just for a second. Let's talk about Mr. Zuckerberg.
[00:13:39.100 --> 00:13:45.860] Speaker 1: The guy incinerated $300 billion on the metaverse. He changed the name of the
[00:13:45.860 --> 00:13:52.560] Speaker 1: company to Meta from Facebook. It's hilarious. He incinerated $300 billion. Now, he's
[00:13:52.560 --> 00:13:57.020] Speaker 1: created a product. Think about it. They had a world -class business that's essentially a
[00:13:57.020 --> 00:14:02.440] Speaker 1: monopoly, right? Instagram, Facebook, nobody can compete with them. Anybody that's come
[00:14:02.440 --> 00:14:08.320] Speaker 1: along, it's been, you've got a monopoly power. They had 30, they had like 30, $40 billion
[00:14:08.320 --> 00:14:13.220] Speaker 1: free cash flow two years ago. 40 billion, maybe two to three. Now they're going to go
[00:14:13.220 --> 00:14:18.180] Speaker 1: negative free cash flow, minus 20 billion. Okay, so you're talking about they're
[00:14:18.180 --> 00:14:22.780] Speaker 1: incinerating cash. They're creating a product called Muse. And guess what? Google announced
[00:14:22.780 --> 00:14:27.420] Speaker 1: one today. Apple's going to have one. There's going to be 40 of these things. And it's a
[00:14:27.420 --> 00:14:33.780] Speaker 1: free product, Maggie. So imagine burning the cash. You have an oligopoly, monopoly business
[00:14:33.780 --> 00:14:39.200] Speaker 1: of cash flow. You take that cash, you're burning it, spending it on AI for this product
[00:14:39.200 --> 00:14:45.460] Speaker 1: that you're giving away, which has no barriers to entry. It's just, you know, so that's -
[00:14:45.460 --> 00:14:48.240] Speaker 2: So clearly Meta, not the beneficiary of this.
[00:14:48.300 --> 00:14:54.160] Speaker 1: Yeah. So me, let's get to the question. Intuitive Surgical, Baxter. there are these
[00:14:54.160 --> 00:15:01.100] Speaker 1: companies that have the data slumber j slb they have the data maggie slumber j i
[00:15:01.100 --> 00:15:05.560] Speaker 1: think the stock could potentially double triple next five ten years uh same thing with
[00:15:05.560 --> 00:15:11.080] Speaker 1: intuitive surgical when you have the data think about robotics and surgeries all of these
[00:15:11.080 --> 00:15:14.840] Speaker 1: doctors around the world it's going to be a certain the percentage of robotic type
[00:15:14.840 --> 00:15:18.420] Speaker 1: surgeries globally are going to probably go up like five six hundred percent but if you
[00:15:18.420 --> 00:15:25.320] Speaker 1: have the data that's where you can really absolutely capitalize on artificial
[00:15:25.320 --> 00:15:31.980] Speaker 1: intelligence. And so Baxter, Intuitive Surgical, and Schlumberger are three big picks for
[00:15:31.980 --> 00:15:34.140] Speaker 1: really companies that will harness the power of AI.
[00:15:34.400 --> 00:15:38.900] Speaker 2: So the data is the moat now for
[00:15:38.900 --> 00:15:39.920] Speaker 1: these
[00:15:39.920 --> 00:15:44.120] Speaker 2: companies. What about in financials, though? This is very disruptive, what you were talking
[00:15:44.120 --> 00:15:49.260] Speaker 2: about, this idea that I understand And if you're commoditizing, giving away AI tools and
[00:15:49.260 --> 00:15:53.040] Speaker 2: products, and people are reluctant to pay for them, not the winner of the AI revolution.
[00:15:53.040 --> 00:15:56.920] Speaker 2: You own the data, own the moat. You're the winner of the AI revolution. But what about the
[00:15:56.920 --> 00:16:03.900] Speaker 2: disruption that's coming? If you have that kind of reallocation of
[00:16:03.900 --> 00:16:08.200] Speaker 2: savings, you're talking about a bank run. And you're saying five years. I think you're
[00:16:08.200 --> 00:16:12.960] Speaker 2: probably being generous, and you suspect it could be a lot quicker than that. Maybe
[00:16:12.960 --> 00:16:16.420] Speaker 2: generationally older people are slower to do it. let's give them a little bit more time on
[00:16:16.420 --> 00:16:21.480] Speaker 2: that. That's hugely disruptive to the way the financial system works.
[00:16:22.020 --> 00:16:28.780] Speaker 1: Yes. And the rate of change on the CapEx, the big warning sign is the capital expenditures.
[00:16:29.000 --> 00:16:35.180] Speaker 1: This is a testosterone contest in Silicon Valley. They don't have any idea when the payoff
[00:16:35.180 --> 00:16:39.620] Speaker 1: is. And what's going to happen is the payoff is more out in the future. There's more
[00:16:39.620 --> 00:16:45.780] Speaker 1: disruption in the near term and um then all of a sudden politicians look at the left wing
[00:16:45.780 --> 00:16:51.180] Speaker 1: in europe and the united states they're coming at this hardcore they want to slow it down
[00:16:51.180 --> 00:16:56.940] Speaker 1: and when once these guys start to uh slow down the capex which probably happens in the next
[00:16:56.940 --> 00:17:02.040] Speaker 1: two to three months then you're gonna have a big reset in the mag 7 and that's where you
[00:17:02.040 --> 00:17:06.760] Speaker 1: really don't want to touch the mag 7 or the indexes because once again the index is i mean
[00:17:06.760 --> 00:17:11.480] Speaker 1: it should be if you're a fiduciary, right? Imagine you're like a fiduciary and somebody,
[00:17:11.700 --> 00:17:15.720] Speaker 1: like a 75 -year -old person gives you a million dollars, right? A million dollars, you're
[00:17:15.720 --> 00:17:19.760] Speaker 1: going to put in the stock market, 75 -year -olds going to put 500 ,000 of that as
[00:17:19.760 --> 00:17:26.680] Speaker 1: essentially an AI. I mean, this is absolute madness, Maggie. It's madness and it
[00:17:26.680 --> 00:17:27.700] Speaker 1: has to be outed.
[00:17:28.200 --> 00:17:32.880] Speaker 2: Everything we do on this channel has one goal, to make you a sharper, better informed
[00:17:32.880 --> 00:17:37.420] Speaker 2: investor, someone who understands the macro forces shaping your money before the mainstream
[00:17:37.420 --> 00:17:42.680] Speaker 2: catches on, but information is only half of it. The other half is acting on it. And that's
[00:17:42.680 --> 00:17:47.200] Speaker 2: what Wealthy on Membership is for. It's how you go from watching these conversations to
[00:17:47.200 --> 00:17:51.700] Speaker 2: putting them to work in your own portfolio. Membership opens three doors, access to
[00:17:51.700 --> 00:17:56.680] Speaker 2: advisors, helping build real assets into your portfolio, and for accredited investors,
[00:17:57.040 --> 00:18:00.960] Speaker 2: access to specialized funds. To learn more, the link to become a member is in the
[00:18:00.960 --> 00:18:02.100] Speaker 2: description box below.
[00:18:03.540 --> 00:18:10.440] Speaker 2: So again, I think where you put things in terms of asset allocation depends on how you see
[00:18:10.440 --> 00:18:14.660] Speaker 2: this playing out. Let's talk about this macro regime a little bit because I think it's
[00:18:14.660 --> 00:18:15.240] Speaker 2: really important.
[00:18:17.460 --> 00:18:22.440] Speaker 2: What tells you that we are in a situation that's like maybe the 1980s where you have this
[00:18:22.440 --> 00:18:28.880] Speaker 2: supernova economy and then you're going to see some sort of recession or
[00:18:28.880 --> 00:18:34.160] Speaker 2: you're going to see a correction and then you're going to have policymakers step in. Why?
[00:18:34.860 --> 00:18:37.340] Speaker 2: Is that how you see it? Correct me if I'm wrong.
[00:18:37.640 --> 00:18:44.460] Speaker 1: Yeah. Well, never forget the rule of 72. So if you can get 9 % on a bond,
[00:18:44.720 --> 00:18:50.000] Speaker 1: your money doubles in eight years. If you get 6 % on a bond, your money doubles in 12
[00:18:50.000 --> 00:18:55.660] Speaker 1: years. And so, and that's in a tax deferred account, of course. Now, once bonds start
[00:18:55.660 --> 00:19:01.320] Speaker 1: offering equity -like returns like they did in the 80s, and that's because interest rates
[00:19:01.320 --> 00:19:08.060] Speaker 1: go up, bond prices come down, it starts to steal market share from the equity market.
[00:19:08.540 --> 00:19:14.280] Speaker 1: And that's the big threat. The second threat is like gold and silver and hard assets. Right
[00:19:14.280 --> 00:19:18.540] Speaker 1: now, there's 43 trillion maggie in the NASDAQ 100.
[00:19:18.980 --> 00:19:19.640] Speaker 2: In
[00:19:19.640 --> 00:19:25.880] Speaker 1: March, there was 30 trillion in the NASDAQ 100. This is America's wealth. Maggie, in the
[00:19:25.880 --> 00:19:32.440] Speaker 1: fourth quarter of 2022, there was $12 trillion in the NASDAQ 100. So we've gone from $12 to
[00:19:32.440 --> 00:19:39.240] Speaker 1: $30 to $43 trillion. Think about that. Now, when you have a shock with
[00:19:39.240 --> 00:19:44.060] Speaker 1: interest rates, oil, multipolar world, we talk about this in our book, How to Listen to
[00:19:44.060 --> 00:19:50.980] Speaker 1: Market Speak, that when you have a sustained inflation regime, the models start looking
[00:19:50.980 --> 00:19:56.780] Speaker 1: at discounted cash flow. And all that means is companies that control hard assets, oil and
[00:19:56.780 --> 00:19:57.620] Speaker 1: gas,
[00:20:00.240 --> 00:20:07.240] Speaker 1: coal companies, any kind of metals, those companies tend to gain a larger portion of the
[00:20:07.240 --> 00:20:08.540] Speaker 1: market share of the market.
[00:20:08.780 --> 00:20:08.980] Speaker 2: So
[00:20:08.980 --> 00:20:15.840] Speaker 1: think about from 1968 to 81, Vietnam War, high interest rates, the Great Society,
[00:20:15.840 --> 00:20:17.140] Speaker 1: big government spending.
[00:20:18.420 --> 00:20:25.080] Speaker 1: By the end of this inflation, high interest rate regime, by 1981, 50 % of the S &P
[00:20:25.080 --> 00:20:29.240] Speaker 1: 500 was industrials, materials, and energy.
[00:20:30.620 --> 00:20:37.620] Speaker 1: 50%. Today, we're like 14 % for those groups. We're not saying we're going back to 50%, but
[00:20:37.620 --> 00:20:43.920] Speaker 1: over the next five years, we have to look forward not back right next five years trillions
[00:20:43.920 --> 00:20:48.340] Speaker 1: are going to come out of financial assets which are essentially growth stocks they're going
[00:20:48.340 --> 00:20:53.160] Speaker 1: to go into companies to control hard assets and the percentage of the s p that's that's
[00:20:53.160 --> 00:20:58.500] Speaker 1: long industrials materials and energy energy that's going to go from you know 12 to 14 to
[00:20:58.500 --> 00:21:04.680] Speaker 1: 20 to 30 that's where you want to you want to call your financial financial advisor and
[00:21:04.680 --> 00:21:07.780] Speaker 1: have them reconstruct the s p for you and both putting
[00:21:09.160 --> 00:21:15.000] Speaker 1: more of your assets into those groups than into tech, which is essentially 50 % of the S
[00:21:15.000 --> 00:21:20.540] Speaker 1: &P. As a 70 -year -old or a 60 -year -old, you can't put a million dollars in the market
[00:21:20.540 --> 00:21:25.740] Speaker 1: and have $500 ,000 of that essentially be the small amount of stocks that are all exposed
[00:21:25.740 --> 00:21:30.800] Speaker 1: to AI. It's just absolute madness. It has to be outed.
[00:21:31.740 --> 00:21:36.660] Speaker 2: And yet, if you had done that and people have been calling for that for a while, you missed
[00:21:36.660 --> 00:21:41.880] Speaker 2: a lot of gains right it's the trade has has been to buy the dip in the nasdaq and it's
[00:21:41.880 --> 00:21:42.140] Speaker 2: worked
[00:21:42.140 --> 00:21:47.840] Speaker 1: you know what people say that to me that's a lot of bs gold is crushing the net like look
[00:21:47.840 --> 00:21:52.700] Speaker 1: at the xme right there was just a metals etf last two years three years for it's basically
[00:21:52.700 --> 00:21:57.340] Speaker 1: destroying the nasdaq but nobody knows because it's not on cnbc every day
[00:21:57.340 --> 00:21:57.860] Speaker 2: you
[00:21:57.860 --> 00:22:04.000] Speaker 1: know gold like gold over the last two, three years. It's just amazing how much
[00:22:04.000 --> 00:22:09.740] Speaker 1: airtime this gets because it's a bubble. But yeah, there's parts of the market that are
[00:22:09.740 --> 00:22:16.300] Speaker 1: destroying the NASDAQ. Look at the MAG -7 up 15%, you know, since last October, 15, 16.
[00:22:16.760 --> 00:22:23.660] Speaker 1: The oil service names are up 50%. Schlumberger, nobody talks about it. It's crazy. The
[00:22:23.660 --> 00:22:25.020] Speaker 1: MAG -7, it's a joke.
[00:22:25.460 --> 00:22:29.780] Speaker 2: We talk about it a lot here on Wealthion, but this is the narrative we hear, and this is
[00:22:29.780 --> 00:22:34.720] Speaker 2: why people come to us with questions, because they hear this, and then they sit with their
[00:22:34.720 --> 00:22:40.340] Speaker 2: neighbor whose portfolio is going sky high, and they say, oh, I got out of, they have that
[00:22:40.340 --> 00:22:44.480] Speaker 2: regret. Like, I got out of NVIDIA. I thought it was rolling over. Everyone's kind of
[00:22:44.480 --> 00:22:48.140] Speaker 2: waiting for that crash. That doesn't seem to come.
[00:22:48.540 --> 00:22:52.740] Speaker 1: Listen, you can't make money over the long term. You can't buy stocks that are trading at
[00:22:52.740 --> 00:22:59.460] Speaker 1: 10, you know, Apple at 10 times sales. For 30 years, they traded between two to six
[00:22:59.460 --> 00:23:04.440] Speaker 1: times sales. And, you know, they have, what's the new product? You know, it's, and then
[00:23:04.440 --> 00:23:09.640] Speaker 1: NVIDIA, like they're ripping off all these other guys with chips and they're overcharging
[00:23:09.640 --> 00:23:13.960] Speaker 1: now. And eventually, you know, the new generations of chips, the older chips are getting
[00:23:13.960 --> 00:23:18.260] Speaker 1: cheaper and cheaper and cheaper. And NVIDIA is going to get cut in the next like two, three
[00:23:18.260 --> 00:23:18.560] Speaker 1: years.
[00:23:19.160 --> 00:23:22.860] Speaker 2: And that is in everyone's portfolio, probably in multiple places,
[00:23:22.940 --> 00:23:23.360] Speaker 1: which is
[00:23:23.360 --> 00:23:24.240] Speaker 2: what we worry about.
[00:23:24.680 --> 00:23:31.180] Speaker 1: Maggie, in the 90s and 2000s, the top two stocks in the S &P 500 were
[00:23:31.180 --> 00:23:37.580] Speaker 1: maybe 5 % or 6 % of the S &P. Now the top two stocks, NVIDIA is
[00:23:37.580 --> 00:23:44.500] Speaker 1: 8%, and so call it Apple, it's like 6%, 13 % of the S &P is in two stocks. So once again,
[00:23:44.580 --> 00:23:51.360] Speaker 1: I give you a million dollars, you get $130 ,000 in two stocks. Bob Marley, crack
[00:23:51.360 --> 00:23:53.920] Speaker 1: smoking investing, crack smoking.
[00:23:55.600 --> 00:23:59.400] Speaker 2: I think everybody can relate to that. It kind of feels like getting through the day
[00:23:59.400 --> 00:24:03.840] Speaker 2: anymore, Larry, with all the headlines. So let's talk about two things that are on the
[00:24:03.840 --> 00:24:10.780] Speaker 2: radar I want to get your take on. One of them is the fact that we have had China's central
[00:24:10.780 --> 00:24:15.160] Speaker 2: bank making record purchases of gold in September. We have the Bundesbank president talking
[00:24:15.160 --> 00:24:21.740] Speaker 2: up the case for central banks diversifying into gold sort of out loud in popular media. How
[00:24:21.740 --> 00:24:27.760] Speaker 2: much does that impact the price of gold? Because as you say, we've had the short term
[00:24:27.760 --> 00:24:34.600] Speaker 2: pulling it down. Is it a marginal support? Is this a bigger trend that is going to
[00:24:34.600 --> 00:24:38.520] Speaker 2: look very different than what we've seen in past gold cycles? How are you thinking about
[00:24:38.520 --> 00:24:39.320] Speaker 2: that relative to gold?
[00:24:39.580 --> 00:24:45.560] Speaker 1: Well, my favorite word in our first book was hubris, and that was the Lehman management
[00:24:45.560 --> 00:24:48.820] Speaker 1: team. And that's just like an out -of -touch group of people.
[00:24:50.060 --> 00:24:55.140] Speaker 1: Washington, from both Democrats and Republicans, the hubris in Washington the last 10
[00:24:55.140 --> 00:25:00.160] Speaker 1: years, they've been hitting emerging market countries over the head with sanctions. They
[00:25:00.160 --> 00:25:06.300] Speaker 1: confiscated property from the Russians with the war, which Russia did some horrible things.
[00:25:06.440 --> 00:25:11.300] Speaker 1: But at the end of the day, when you do that, other countries are like, you know what? They
[00:25:11.300 --> 00:25:12.040] Speaker 1: could do that to me.
[00:25:12.280 --> 00:25:12.720] Speaker 2: And
[00:25:12.720 --> 00:25:18.080] Speaker 1: that's why China's holdings of treasuries are down like 600, 700 billion in recent years.
[00:25:18.280 --> 00:25:22.320] Speaker 1: And they're taking those treasury assets and they're buying gold and buying other things.
[00:25:22.320 --> 00:25:29.280] Speaker 1: And so, yeah, so the Washington basically triggered this massive incentive for all kinds
[00:25:29.280 --> 00:25:35.520] Speaker 1: of central banks to take money out of treasuries and put it into gold. They're literally
[00:25:35.520 --> 00:25:38.060] Speaker 1: smoking in the dynamite shed in Washington.
[00:25:38.940 --> 00:25:45.640] Speaker 2: Now, given what we've seen going on, that we see that happening, we have
[00:25:45.640 --> 00:25:52.100] Speaker 2: all the pressure on yields. We're approaching the midterms. are you anticipating or
[00:25:52.100 --> 00:25:57.380] Speaker 2: expecting any kind of policy action from the trump administration to try to address what
[00:25:57.380 --> 00:26:01.660] Speaker 2: they're seeing when it comes to yields energy the economy they got their back up against
[00:26:01.660 --> 00:26:02.080] Speaker 2: the wall
[00:26:02.080 --> 00:26:08.960] Speaker 1: this is this is a really exciting exciting sexy story and i'm getting this remember we
[00:26:08.960 --> 00:26:15.440] Speaker 1: do the ideas dinners in 10 countries a year new york next week miami palm beach over the
[00:26:15.440 --> 00:26:21.040] Speaker 1: week after that um so we sit down with the best hedge funds mutual funds and pension funds
[00:26:21.040 --> 00:26:26.080] Speaker 1: in a private room and we really kind of triangulate information we're trying to figure out
[00:26:26.080 --> 00:26:28.780] Speaker 1: okay you listen to the news cycle what's priced in
[00:26:28.780 --> 00:26:29.760] Speaker 2: you
[00:26:29.760 --> 00:26:33.860] Speaker 1: know what are people what what's overpriced and what's not priced in that's what we
[00:26:33.860 --> 00:26:39.480] Speaker 1: specialize in the bear trap support what's not priced in is the awareness of stable coins i
[00:26:39.480 --> 00:26:45.580] Speaker 1: sat down with john carlo the ceo of chether earlier this year in a private room, it's
[00:26:45.580 --> 00:26:50.980] Speaker 1: absolutely jaw -dropping. You've gone from 100 billion of stablecoins. Think of stablecoins
[00:26:50.980 --> 00:26:57.520] Speaker 1: own T -bills, Bitcoin, and gold, mostly T -bills. So there's treasuries. So you got from
[00:26:57.520 --> 00:27:02.840] Speaker 1: 100 billion to 300 billion today, maybe 350. Look at circle equity, right? We did a trade
[00:27:02.840 --> 00:27:08.420] Speaker 1: alert at 62 this year. It's up into the 90s. If the Clarity Act passes in Washington,
[00:27:09.240 --> 00:27:13.440] Speaker 1: they're going to basically start to force money into stable coins. I think stable coins
[00:27:13.440 --> 00:27:20.360] Speaker 1: probably go in the next five years to a trillion, trillion and a half. And what that
[00:27:20.360 --> 00:27:25.640] Speaker 1: means is they're going to force international investors. Say you have a trucking company in
[00:27:25.640 --> 00:27:30.240] Speaker 1: Brazil, put your money in the bank, right? The bank in Brazil or Argentina, the currency is
[00:27:30.240 --> 00:27:34.720] Speaker 1: all over the place, right? It's torture for some of these people, absolute torture. And so
[00:27:34.720 --> 00:27:39.880] Speaker 1: you take some of that money you put it into a stable coin and now all of a sudden you're in
[00:27:39.880 --> 00:27:45.500] Speaker 1: t -bills right so you have much more stability so they're going to steal trillions of
[00:27:45.500 --> 00:27:50.160] Speaker 1: dollars from global the book global banking system they're going to actually create a
[00:27:50.160 --> 00:27:54.440] Speaker 1: mechanism where they get the euro dollar clearing in london they hate that they want to
[00:27:54.440 --> 00:27:58.280] Speaker 1: bring it back they want they're going to force international investors if you want to own u
[00:27:58.280 --> 00:28:01.860] Speaker 1: .s assets you want to own nvidia you want to own real estate you have to own a stable coin
[00:28:01.860 --> 00:28:07.280] Speaker 1: first and have your money in the stable coin that'll force money into treasuries, the front
[00:28:07.280 --> 00:28:13.560] Speaker 1: end of the yield curve, and that's how they can finance this $40 trillion debt hole. The
[00:28:13.560 --> 00:28:19.680] Speaker 1: only way out, Maggie, of a $40 trillion debt hole, there's two ways. Default or inflate
[00:28:19.680 --> 00:28:24.940] Speaker 1: your way out. And that's what we call financial repression. When you suppress rates through
[00:28:24.940 --> 00:28:31.220] Speaker 1: mechanisms and tricks, you create financial repression, and that's what drives money into
[00:28:31.220 --> 00:28:31.840] Speaker 1: hard assets.
[00:28:32.100 --> 00:28:36.620] Speaker 2: So when they inflate the way out, I think the stablecoin story is super important.
[00:28:38.760 --> 00:28:45.440] Speaker 2: First of all, who are they? When you say they, they are going to force everyone into
[00:28:45.440 --> 00:28:47.120] Speaker 2: stablecoin. Who are they?
[00:28:47.520 --> 00:28:53.060] Speaker 1: Well, let's be clear. This is not Republican or Democrat. This is a financial
[00:28:53.060 --> 00:28:59.420] Speaker 1: crisis if they don't do it. Because we already saw it. China's got 600
[00:28:59.420 --> 00:29:05.640] Speaker 1: billion less treasuries um japan other countries like france france is trying to finance
[00:29:05.640 --> 00:29:10.200] Speaker 1: themselves you know their rates are going through the roof everyone's offering higher
[00:29:10.200 --> 00:29:15.320] Speaker 1: interest rates so the u .s is going to have to they is like the the whether it be the fed
[00:29:15.320 --> 00:29:21.280] Speaker 1: and the bottom line is think of world war ii okay after world war ii the fed and treasury
[00:29:21.280 --> 00:29:25.180] Speaker 1: there are white papers out there you can explore them the fed and treasury worked much
[00:29:25.180 --> 00:29:30.960] Speaker 1: closer together and because we were trying to finance this colossal war. Imagine trying to
[00:29:30.960 --> 00:29:36.180] Speaker 1: finance AI. Imagine trying to finance World War II. And so this is what we're up against.
[00:29:36.860 --> 00:29:41.060] Speaker 1: They're going to work, when I say they, the Fed and Treasury, Republicans and Democrats,
[00:29:41.280 --> 00:29:45.760] Speaker 1: are going to create these mechanisms that are very financial repression like, and that's
[00:29:45.760 --> 00:29:49.760] Speaker 1: going to drive a lot of money from financial assets to hard assets.
[00:29:50.180 --> 00:29:57.180] Speaker 2: And so it sounds like they, the US government at large, from all sides, are
[00:29:57.180 --> 00:29:59.460] Speaker 2: getting ready to pull out the mother of all bazookas
[00:29:59.460 --> 00:30:05.320] Speaker 1: yes because think about it the fiscal and monetary response to lehman brothers was four
[00:30:05.320 --> 00:30:11.800] Speaker 1: trillion the fiscal and monetary response to covid and the regional bank crisis of 2023
[00:30:11.800 --> 00:30:17.100] Speaker 1: plus the elections and all that all the games they're playing when you run six percent
[00:30:17.100 --> 00:30:22.700] Speaker 1: deficits the fiscal and monetary response this time since COVID is 17 trillion Maggie
[00:30:22.700 --> 00:30:29.240] Speaker 1: versus four after leaving. So yeah, they are their backs against the wall here. They're
[00:30:29.240 --> 00:30:33.480] Speaker 1: going to have to pull out every trick in the book to get out of this dead hole.
[00:30:33.860 --> 00:30:37.920] Speaker 2: So when you're talking to all of these sort of people that are living in the future, all of
[00:30:37.920 --> 00:30:43.600] Speaker 2: these super smart folks, how I think that the average thought was that it's going to be
[00:30:43.600 --> 00:30:48.300] Speaker 2: financial repression and it's going to be yield curve control, devalue the dollar, yield
[00:30:48.300 --> 00:30:55.080] Speaker 2: curve Control, maybe some other sort of operation, latest name. How does stable coins
[00:30:55.080 --> 00:31:01.000] Speaker 2: look different or does it? Do stable coins change what that bazooka looks like?
[00:31:01.160 --> 00:31:06.980] Speaker 1: Well, in some ways, it's a part of yield curve control. In other words, they're not going
[00:31:06.980 --> 00:31:13.040] Speaker 1: to come out and say yield curve control. That's like saying the pilot wants all the fannies
[00:31:13.040 --> 00:31:15.000] Speaker 1: and the seats in the plane. we're
[00:31:15.000 --> 00:31:15.440] Speaker 2: crashing
[00:31:15.440 --> 00:31:22.440] Speaker 1: yeah they're going to just do white paper and slowly look what they
[00:31:22.440 --> 00:31:26.820] Speaker 1: did with the trend mean you know this they're changing the goalposts on inflation right so
[00:31:26.820 --> 00:31:33.080] Speaker 1: the definition of inflation like in the 80s and 90s and 2000s the formula we probably have
[00:31:33.080 --> 00:31:37.500] Speaker 1: like 15 inflation now use the old form they take the change of the formula your formula
[00:31:37.500 --> 00:31:38.480] Speaker 1: again this week
[00:31:38.480 --> 00:31:38.900] Speaker 2: yeah
[00:31:38.900 --> 00:31:44.960] Speaker 1: in the PC. So, so yeah, so stable coins are part of it. Whereas if you force an extra 2
[00:31:44.960 --> 00:31:51.500] Speaker 1: trillion in stable coins, they have to own T -bills, right? Which is treasury bills. And so
[00:31:51.500 --> 00:31:55.020] Speaker 1: then you sell the debt on the front end of the yield curve, you got all these new buyers.
[00:31:55.280 --> 00:31:59.340] Speaker 1: And in some ways, that's, it's not yield current control, but it's like another.
[00:31:59.780 --> 00:32:04.880] Speaker 2: It's increasing demand for treasuries, which should help. Right. And then, but, but it's,
[00:32:04.960 --> 00:32:07.560] Speaker 2: it's a little bit different, I think, than people were thinking because you're also
[00:32:07.560 --> 00:32:14.080] Speaker 2: increasing demand for dollars. No, I mean, some people have pushed back on the devaluation,
[00:32:14.300 --> 00:32:20.560] Speaker 2: debasement of the dollar, because if you institute some kind of global stable coin, you're
[00:32:20.560 --> 00:32:25.960] Speaker 2: basically reigning back in the euro dollar market from the wilderness, and you are
[00:32:25.960 --> 00:32:28.640] Speaker 2: maintaining the dollar as a reserve currency. Yeah,
[00:32:28.860 --> 00:32:34.820] Speaker 1: it's exactly. It's a speed bump toward the US. We talked about this in our book, When
[00:32:34.820 --> 00:32:41.060] Speaker 1: Markets Speak. We have a bearish dollar chapter. We wrote the book in 2023. So we made a
[00:32:41.060 --> 00:32:45.380] Speaker 1: great call. We wrote it in 22, 23. So we made a great call in dollar. Dollar is much lower
[00:32:45.380 --> 00:32:51.040] Speaker 1: now. But in my lifetime or my kids' life, we're probably not going to lose our reserve
[00:32:51.040 --> 00:32:55.360] Speaker 1: currency status. They're going to come up with all these types of speed bumps along the
[00:32:55.360 --> 00:32:55.560] Speaker 1: way.
[00:32:55.560 --> 00:33:02.400] Speaker 2: So why does that mean that hard assets
[00:33:02.400 --> 00:33:07.420] Speaker 2: are the trade as opposed to equities? If you're sort of pulling rates down, you're
[00:33:07.420 --> 00:33:12.320] Speaker 2: basically creating all this liquidity to keep the whole thing going. Does that just not
[00:33:12.320 --> 00:33:16.980] Speaker 2: magnet toward equities? Because that's kind of what happens usually when we see rates
[00:33:16.980 --> 00:33:20.840] Speaker 2: lower. It's certainly what equity people think now. I see people in chats all the time
[00:33:20.840 --> 00:33:25.420] Speaker 2: saying Fed's eventually going to have to ease. That's just going to be rocket fuel for the
[00:33:25.420 --> 00:33:25.960] Speaker 2: NASDAQ.
[00:33:26.360 --> 00:33:30.540] Speaker 1: Right. But I'm talking about equity. So I'm talking about companies that control hard
[00:33:30.540 --> 00:33:34.140] Speaker 1: assets versus companies that control, say, software. So
[00:33:34.140 --> 00:33:37.720] Speaker 2: you're being discerning about where that money is going to go to. There are going to be
[00:33:37.720 --> 00:33:39.760] Speaker 2: better winners. There are going to be winners out of this.
[00:33:40.000 --> 00:33:44.860] Speaker 1: So there's a scene in our book where we talk about discounted cash flows. So it's really
[00:33:44.860 --> 00:33:50.240] Speaker 1: simple. So say you have a company, A, right? and it produces a billion dollars of cash flow
[00:33:50.240 --> 00:33:55.520] Speaker 1: over 10 years, like a software company, a billion dollars of cash flow in 10 years. Think
[00:33:55.520 --> 00:34:01.960] Speaker 1: about that. If you're in a 3 % to 6 % inflation regime with higher interest rates, that
[00:34:01.960 --> 00:34:08.440] Speaker 1: billion dollars is worth a lot less, a lot less 10 years from now. Now, company B
[00:34:08.440 --> 00:34:15.260] Speaker 1: controls oil and gas, gold, silver, in the ground, natural get all kinds of assets
[00:34:15.260 --> 00:34:22.200] Speaker 1: if you're in that higher inflation regime those assets increase so
[00:34:22.200 --> 00:34:28.520] Speaker 1: the value of the company increases and that's why in that 1968 -81 regime where you had the
[00:34:28.520 --> 00:34:33.180] Speaker 1: higher global yields and the higher inflation that's where those types of companies
[00:34:33.180 --> 00:34:39.700] Speaker 1: flourished whereas the companies that own intellectual property tech those go out of favor
[00:34:39.700 --> 00:34:43.280] Speaker 1: in that kind of regime, if that regime lasts for a long period of time.
[00:34:44.820 --> 00:34:49.660] Speaker 2: There's been a, I want to stay on the bazooka issue or policy response issue for a moment.
[00:34:49.860 --> 00:34:54.860] Speaker 2: So there, a lot of people have been watching with interest, some of the people who've been
[00:34:54.860 --> 00:34:56.760] Speaker 2: coming onto Treasury as counselors.
[00:34:58.540 --> 00:35:04.120] Speaker 2: We emailed briefly about this, Judy Shelton, long time sound money advocate, David Zervos,
[00:35:04.300 --> 00:35:10.660] Speaker 2: and sort of wondering, are they cooking something up here? Do you think that there is some
[00:35:10.660 --> 00:35:16.140] Speaker 2: chance that they revalue the gold? That's that's especially with Judy Shelton coming on.
[00:35:16.240 --> 00:35:21.840] Speaker 2: That's one of the, you know, hypothesis that's running around. Do you see any potential for
[00:35:21.840 --> 00:35:27.560] Speaker 2: that as a way to try to, as Scott Bestin said in the very beginning, recognize the assets
[00:35:27.560 --> 00:35:31.600] Speaker 2: on the balance sheet and not the debt? They've been kind of laying the groundwork for some
[00:35:31.600 --> 00:35:36.680] Speaker 2: of this stuff. Does it seem like that is in any way imminent based on what the
[00:35:36.680 --> 00:35:37.960] Speaker 2: conversations you're having with folks?
[00:35:38.140 --> 00:35:44.220] Speaker 1: Right. So an empire in decline is what the United States is, kind of like the U .K. 80
[00:35:44.220 --> 00:35:49.160] Speaker 1: years ago. And what happens along the way with the U .K. is they start moving out of Hong
[00:35:49.160 --> 00:35:56.000] Speaker 1: Kong. They start, you know, taking, reining things in or monetizing assets. And the United
[00:35:56.000 --> 00:36:00.660] Speaker 1: States has like all kinds of assets, Tennessee Valley Authority, parts of Yellowstone,
[00:36:00.840 --> 00:36:07.820] Speaker 1: gold. But we have a lot more debt than our government assets. We have a lot of wealth
[00:36:07.820 --> 00:36:13.340] Speaker 1: on that balance sheet too, which they can tax, right? But the government assets relative to
[00:36:13.340 --> 00:36:17.020] Speaker 1: the debt is actually pretty crazy small. One of the things they could do, and this is what
[00:36:17.020 --> 00:36:23.340] Speaker 1: an empire in decline would do, is they wouldn't reprice the gold, maybe put it up as
[00:36:23.340 --> 00:36:28.880] Speaker 1: collateral and use it as a mechanism to support the treasury market with that collateral
[00:36:28.880 --> 00:36:33.500] Speaker 1: somewhere. Yeah, there's a lot of tricks they can pull. We call it the sense bag of tricks,
[00:36:33.680 --> 00:36:39.840] Speaker 1: right? We sat down with the next Treasury official at one of our dinners in recent weeks,
[00:36:39.880 --> 00:36:45.900] Speaker 1: and he was pretty confident that dissent has a number of weapons. Just think of this whole
[00:36:45.900 --> 00:36:49.940] Speaker 1: debt ceiling thing, right? We're going to hit the debt ceiling in January. We're going to
[00:36:49.940 --> 00:36:54.520] Speaker 1: have a split Congress, right? So most likely the House and Senate might be controlled by
[00:36:54.520 --> 00:36:59.580] Speaker 1: the Democrats. Whenever you have that split government, maybe you go into what would hit
[00:36:59.580 --> 00:37:04.460] Speaker 1: the debt ceiling. next thing you know treasury has a trillion dollars in the tga that's
[00:37:04.460 --> 00:37:08.780] Speaker 1: their checking account right and then they have extraordinary measures of another 300
[00:37:08.780 --> 00:37:14.800] Speaker 1: billion so we might not have any treasury issuance between like march april may june july
[00:37:14.800 --> 00:37:20.580] Speaker 1: next year no net issuance i'm talking about net it's complex but might have no net issuance
[00:37:20.580 --> 00:37:26.520] Speaker 1: so that yeah there's a lot of things that they can do to to really get bond prices up over
[00:37:26.520 --> 00:37:30.960] Speaker 1: the next uh six to nine months and this is like bonds are in a bear market we're just
[00:37:30.960 --> 00:37:36.940] Speaker 1: talking about a bear market rally right bonds are in a vicious bear um the probability of a
[00:37:36.940 --> 00:37:42.040] Speaker 1: bear market rally look at the tlt that's something we're starting to to look at and buy
[00:37:42.040 --> 00:37:47.800] Speaker 1: again the zroz because if you get a counter trend rally in the in the tlt and in bond
[00:37:47.800 --> 00:37:54.240] Speaker 1: prices um between now and say in time next year you could potentially make with the coupons
[00:37:54.240 --> 00:37:55.540] Speaker 1: 10 20 30 percent
[00:37:55.540 --> 00:38:00.820] Speaker 2: it's probably good to ask time frame what is the time frame you're using for a lot of the
[00:38:00.820 --> 00:38:05.160] Speaker 2: things that you're talking about? And we'll go through and sort of, you know, go over some
[00:38:05.160 --> 00:38:07.540] Speaker 2: of what you've mentioned, but what's your general timeframe?
[00:38:07.900 --> 00:38:12.260] Speaker 1: Well, I think with the Nike and the bear market rally and Nike and say bonds, that's like,
[00:38:12.920 --> 00:38:18.480] Speaker 1: if in years where the S &P is up a lot, if you buy a basket of stocks that have that tax
[00:38:18.480 --> 00:38:24.140] Speaker 1: loss selling intensity, so the mutual fund quarter year end is typically the September 30th
[00:38:24.140 --> 00:38:29.960] Speaker 1: October 30th. You know what, Maggie, they want these stocks off the pad, right? They don't
[00:38:29.960 --> 00:38:34.880] Speaker 1: want to show people they own these things. So they puke them out. And then the retired
[00:38:34.880 --> 00:38:39.820] Speaker 1: couples around the country are looking at their statement a year end. The accountant comes
[00:38:39.820 --> 00:38:46.800] Speaker 1: in and says, hey, we need some losses. So they sell the dogs the next 30 days, and then
[00:38:46.800 --> 00:38:52.180] Speaker 1: they buy it back in 31 days. And that's why you get this amazing January effect with the
[00:38:52.180 --> 00:38:59.020] Speaker 1: losers. So yes, I think between now and June, July, these bonds and this kind of beat
[00:38:59.020 --> 00:39:04.320] Speaker 1: -down basket of stocks could offer 30%, 40%, 50 % returns in some cases.
[00:39:04.580 --> 00:39:08.160] Speaker 2: Wow. Dogs on sale. I think we want to pay attention to that.
[00:39:08.580 --> 00:39:09.620] Speaker 1: Dogs on sale.
[00:39:10.120 --> 00:39:17.100] Speaker 2: So just to circle back, you were talking about Apple before. And you sounded negative,
[00:39:17.140 --> 00:39:20.920] Speaker 2: and yet you sounded interested in Apple's bonds with the idea that bond yields were going
[00:39:20.920 --> 00:39:26.000] Speaker 2: to go down. So did I understand that correctly? And what is the distinction when you're
[00:39:26.000 --> 00:39:28.340] Speaker 2: looking for some of those opportunities,
[00:39:30.040 --> 00:39:34.020] Speaker 2: you know, equity versus bond? Because it sounds like Apple's a commodity. They, you know,
[00:39:34.100 --> 00:39:39.200] Speaker 2: their memory costs are going up. They haven't had new products. And yet the bonds look
[00:39:39.200 --> 00:39:42.080] Speaker 2: attractive if those treasury yields do go down, right?
[00:39:42.560 --> 00:39:49.560] Speaker 1: Maggie, they're selling phones for $3 ,400. I mean, the first
[00:39:49.560 --> 00:39:51.460] Speaker 1: iPhone I ever bought was like $700.
[00:39:52.780 --> 00:39:56.120] Speaker 1: Now, granted, there's a lot more memory in there, a lot more sophistication, the whole
[00:39:56.120 --> 00:39:56.340] Speaker 1: thing.
[00:39:56.500 --> 00:39:58.840] Speaker 2: We're doing more with them. They're the center of your life.
[00:39:59.080 --> 00:40:03.920] Speaker 1: Oh, yeah, yeah. But it's hard to sell. I mean, when you have McDonald's and Home Depot down
[00:40:03.920 --> 00:40:10.720] Speaker 1: 35 % and Harley Davidson, all these consumer -facing companies, why is Apple at
[00:40:10.720 --> 00:40:16.380] Speaker 1: $5 trillion? dollars. So I'm actually seeing people, this is a sophisticated trade, but if
[00:40:16.380 --> 00:40:20.560] Speaker 1: you buy the bonds at 47, you take the coupons, say you put a million bucks in, you get the
[00:40:20.560 --> 00:40:27.160] Speaker 1: coupons, maybe that's $30 ,000 on a million. And you buy like two -year puts on the Apple
[00:40:27.160 --> 00:40:33.060] Speaker 1: equity. So think about this. So if the bonds are at 47, the only way that bond goes to 40
[00:40:33.060 --> 00:40:37.480] Speaker 1: is if interest rates go up another one or two percent. That would decimate the economy.
[00:40:37.480 --> 00:40:44.080] Speaker 1: That would kill Apple stock, right? Because they sell to consumers. So that's the type of
[00:40:44.080 --> 00:40:49.140] Speaker 1: trade where bond volatility is through the roof. You're crashing over here. Stock
[00:40:49.140 --> 00:40:55.300] Speaker 1: volatility is low and high prices. And so it's like a seesaw and it's going to flatten out.
[00:40:55.700 --> 00:40:59.140] Speaker 1: And so that's why people are starting to look at bonds.
[00:40:59.500 --> 00:41:03.580] Speaker 2: Yeah, that's super interesting. This is why it's not your passive game anymore, because
[00:41:03.580 --> 00:41:08.460] Speaker 2: that is a much more sort of active view of what's going on. So let's talk about when we're
[00:41:08.460 --> 00:41:12.160] Speaker 2: looking at the sort of portfolio a wheel. And let's face it, this is still what an awful
[00:41:12.160 --> 00:41:17.280] Speaker 2: lot of people do. And I hear you bullish on hard assets. A lot of people interested in
[00:41:17.280 --> 00:41:21.780] Speaker 2: commodities. We've been talking a lot with our audience about what diversification looks
[00:41:21.780 --> 00:41:26.920] Speaker 2: like into real assets. But if the AI trade rolls over, what does that mean for commodity
[00:41:26.920 --> 00:41:33.900] Speaker 2: demand? How much of that commodity, hard asset story, energy story is linked to
[00:41:33.900 --> 00:41:36.640] Speaker 2: the demand, future demand that's expected to come from AI?
[00:41:36.640 --> 00:41:42.980] Speaker 1: Right. So that is a piece of mystery meat. So the first stage of AI is very
[00:41:42.980 --> 00:41:49.100] Speaker 1: inflationary because look at Caterpillar. The stock is up 300 % in like a year and a half.
[00:41:49.300 --> 00:41:56.120] Speaker 1: It's nuts, you know, because all of those data centers need construction equipment and
[00:41:56.120 --> 00:42:00.120] Speaker 1: things like that. So, and then think of all the building out of the data centers, think of
[00:42:00.120 --> 00:42:05.940] Speaker 1: all the copper, you know, think of, think of like this, there's hundreds of thousands of
[00:42:05.940 --> 00:42:11.120] Speaker 1: tons of copper are going to be needed for the data centers to rebuild the power grid.
[00:42:11.780 --> 00:42:17.580] Speaker 1: Maggie, there's a billion people in India that don't have air conditioning, you know, so
[00:42:17.580 --> 00:42:23.060] Speaker 1: you have to build out energy infrastructure over there. And so hard assets are the place to
[00:42:23.060 --> 00:42:29.020] Speaker 1: be. But then if the AI trade slows down and you go from, say, you're supposed to do a
[00:42:29.020 --> 00:42:34.720] Speaker 1: thousand data centers built in the next seven years, and that number comes down to seven,
[00:42:35.100 --> 00:42:40.620] Speaker 1: you know what? It does slow down the hard asset trade. But remember, there's $43 trillion
[00:42:40.620 --> 00:42:47.400] Speaker 1: of wealth in the NASDAQ 100, and in the metals ETF, the XME, it's like not even a trillion
[00:42:47.400 --> 00:42:53.600] Speaker 1: dollars, right? So because there's so much wealth over here and no wealth over here
[00:42:53.600 --> 00:43:00.320] Speaker 1: relative, household wealth in 1981, household wealth was like 4 % of assets of
[00:43:00.320 --> 00:43:06.360] Speaker 1: American wealth was in commodities or commodity equities. Now we're like less than maybe
[00:43:06.360 --> 00:43:07.200] Speaker 1: 1%.
[00:43:07.200 --> 00:43:07.860] Speaker 2: And
[00:43:07.860 --> 00:43:13.180] Speaker 1: so even if there's an AI slowdown, it's that rebalancing of the wealth globally that will
[00:43:13.180 --> 00:43:18.180] Speaker 1: support these stocks. By the way, these stocks are cheap. You can get natural gas companies
[00:43:18.180 --> 00:43:24.840] Speaker 1: get 8%, 9%, 10 % free cash flow yields. Look at Antero range resources. The companies are
[00:43:24.840 --> 00:43:30.060] Speaker 1: buying back 10 % to 15 % of the equity underneath you with that free cash flow.
[00:43:30.060 --> 00:43:30.900] Speaker 2: And
[00:43:30.900 --> 00:43:37.280] Speaker 1: so on valuation alone, it just, I'm not saying things can't go down, but your risk -reward
[00:43:37.280 --> 00:43:42.860] Speaker 1: to belong, something that is producing free cash with the company buying back stock
[00:43:42.860 --> 00:43:47.660] Speaker 1: underneath you, that risk -reward is a lot better than the AI insanity.
[00:43:48.200 --> 00:43:52.740] Speaker 2: Yeah. And we talked about stablecoin, and this is something we'll continue to look into
[00:43:52.740 --> 00:43:57.200] Speaker 2: because this is a really big change that's coming. I'm not surprised it's all the talk at
[00:43:57.200 --> 00:44:01.880] Speaker 2: your idea dinners. What's the trade on stablecoin? that's what i think gets people stumped
[00:44:01.880 --> 00:44:05.840] Speaker 2: i mean is it is it circle it seems limited is there a trade there
[00:44:05.840 --> 00:44:11.380] Speaker 1: that's the problem yeah the only one there's i mean i'm sure others are going to be circles
[00:44:11.380 --> 00:44:15.720] Speaker 1: one of the main ones because you think of the market share globally now um you've got
[00:44:15.720 --> 00:44:20.360] Speaker 1: tether and circle are probably 60 70 80 percent of the market there'll be new players that
[00:44:20.360 --> 00:44:21.860] Speaker 1: come on maybe ipos that
[00:44:21.860 --> 00:44:22.360] Speaker 2: that
[00:44:22.360 --> 00:44:25.840] Speaker 1: allow you to take care of that but then there's on the other side of the coin there's
[00:44:26.660 --> 00:44:32.920] Speaker 1: bitcoin and gold right so just look at tether when i sat down with sean carlo he's like
[00:44:33.360 --> 00:44:37.680] Speaker 1: you know the vault he has in switzerland this gold is mind -blowing
[00:44:37.680 --> 00:44:42.200] Speaker 2: i was obsessed when i saw the stories of them buying gold i don't think it got nearly the
[00:44:42.200 --> 00:44:43.060] Speaker 2: amount of attention it should
[00:44:43.060 --> 00:44:47.340] Speaker 1: oh yeah no he's backing up the truck he's got his he has his own stable coin this is his
[00:44:47.340 --> 00:44:51.640] Speaker 1: own coin that's backed by gold then he's got the tether which is gold and t -bills and
[00:44:51.640 --> 00:44:57.220] Speaker 1: bitcoin Bitcoin, we've been buying. We bought some this summer on the lows. You know,
[00:44:57.280 --> 00:45:02.320] Speaker 1: Kramer put the sell on it. God bless him. But, you know, we bought some on the lows and we
[00:45:02.320 --> 00:45:07.460] Speaker 1: recently lightened it. I'm worried about quantum computing because at the dinners, you
[00:45:07.460 --> 00:45:11.540] Speaker 1: know, two years ago, if we said quantum computing is a threat to Bitcoin, you know, it was
[00:45:11.540 --> 00:45:12.300] Speaker 1: like a joke.
[00:45:12.700 --> 00:45:13.140] Speaker 2: But,
[00:45:13.260 --> 00:45:18.900] Speaker 1: you know, now I would say 50 % of institutional investors think it's a threat five to seven
[00:45:18.900 --> 00:45:24.420] Speaker 1: years from now. But then the other side of that coin is, you know what, if it's a threat to
[00:45:24.420 --> 00:45:30.160] Speaker 1: Bitcoin and unlocking the code to the creation of Bitcoin, then what's it going to do to
[00:45:30.160 --> 00:45:31.520] Speaker 1: your bank account, Maggie?
[00:45:33.900 --> 00:45:34.360] Speaker 1: Are
[00:45:34.360 --> 00:45:38.640] Speaker 2: you looking at cybersecurity? Are you looking at anybody who's solving? Is anybody is
[00:45:38.640 --> 00:45:40.460] Speaker 2: anybody looking and playing in that area?
[00:45:41.020 --> 00:45:45.560] Speaker 1: That's an area. And now the cybersecurity stocks are all crazy right now. But yeah, all the
[00:45:45.560 --> 00:45:48.520] Speaker 1: dips. Absolutely. We've got to create a basket of those.
[00:45:48.900 --> 00:45:53.100] Speaker 2: You know, we'll finish up here, Larry, but this has been a fascinating conversation. And I
[00:45:53.100 --> 00:46:00.080] Speaker 2: think it just shows that you can't just have a sort of, I don't even want to call it
[00:46:00.080 --> 00:46:03.560] Speaker 2: passive, but it sounds like we're in an environment where you have to be really nimble. You
[00:46:03.560 --> 00:46:07.100] Speaker 2: have to be paying attention. You have to be looking at your portfolio all of the time
[00:46:07.100 --> 00:46:12.560] Speaker 2: because there's so many cross currents. How do you stick to your investing principles when
[00:46:12.560 --> 00:46:18.280] Speaker 2: you have this sort of, you know, bull market in this really narrow NASDAQ that never ends.
[00:46:18.280 --> 00:46:23.980] Speaker 2: You have these signs of things changing, and then it seems like it rolls back. You have
[00:46:23.980 --> 00:46:27.900] Speaker 2: massive government intervention in a way that we haven't seen in a long time. How do you
[00:46:27.900 --> 00:46:29.400] Speaker 2: kind of stick to your investing principles?
[00:46:29.680 --> 00:46:35.300] Speaker 1: Right. And that's the thing. Whenever something's too good to be true, you always want to
[00:46:35.300 --> 00:46:41.960] Speaker 1: start to go the other way. And so passive investing, it looks like the dumb, it's really
[00:46:41.960 --> 00:46:47.180] Speaker 1: dumb money to me, but it works because more and more money comes into passive and the
[00:46:47.180 --> 00:46:52.640] Speaker 1: indexes have to buy the top six stocks and it just becomes dumber and dumber and dumber.
[00:46:53.160 --> 00:47:00.100] Speaker 1: And so, but we're at a point where it's so extreme with the 50 % of the S
[00:47:00.100 --> 00:47:06.780] Speaker 1: &P that's in one sector that people are starting, like literally the best, so about
[00:47:06.780 --> 00:47:12.060] Speaker 1: 10 % of our clients are financial advisors and they're literally reconstructing the S &P.
[00:47:12.220 --> 00:47:16.620] Speaker 1: I'm talking like the big guys that have like billion dollar financial advisors. They don't
[00:47:16.620 --> 00:47:20.560] Speaker 1: trust their in -house research. They love bear trap because they can, you know, they listen
[00:47:20.560 --> 00:47:24.340] Speaker 1: to their in -house research, but they also want to have another view. And so they're, yeah,
[00:47:24.420 --> 00:47:30.260] Speaker 1: they're just, buy the RRSP or the S &P 500 equal weight, which is, that's another way to
[00:47:30.260 --> 00:47:36.300] Speaker 1: own the S &P or have a financial advisor reconstruct the S &P for you that puts more weight
[00:47:36.300 --> 00:47:37.980] Speaker 1: on companies that control hard assets.
[00:47:38.520 --> 00:47:42.520] Speaker 2: Fantastic stuff. Larry, so fun. This went by so quick. I could keep you much longer, but,
[00:47:42.540 --> 00:47:45.680] Speaker 2: you know, we know we see those screens blinking behind you, so we know you got a lot of
[00:47:45.680 --> 00:47:48.800] Speaker 2: work to do. But thank you for your time, and come back and see us again soon.
[00:47:49.220 --> 00:47:50.520] Speaker 1: Thanks, Maggie. All the best.