Larry McDonald: S&P 500 Could Crash 30% Over the Next Year

The S&P is going to drop 30%. Nvidia is going to get cut in half the next like two, three years. This is the greatest cash out from billionaires in Silicon Valley we've ever seen. Run. Don't walk the other way. >> Joining us today, Larry McDonald, founder of Bear Traps Report. Hi, Larry. Great to >> Thanks for having me. What a what a pleasure. >> Yeah, same here. So, uh it's going to be a great combo. The work you do is all about avoiding draw downs and it feels like we really need to be thinking about that right now. Where are the greatest risks investors need to be positioned for right now? What's top of your radar? >> Well, you know, the year-end setup is fascinating because the relationship between the index, so the S&P and what I call the dark side of passive investing, >> it's getting pretty crazy. probably 60 Hall of Fame brands that are down 35 to 80% and the index is at all-time highs. So the setup is during tax loss season in years where the S&P is up 10, 15, 20%. And great brands are down, you want to get long, the wonderful brands and maybe think of it even shorting the index or buying puts on the index. But that's what we're seeing the most sophisticated institutional investors behind me in our Bloomberg chat. That's that's that's a trade that I'm seeing people put on. >> We ask the experts closest to the real economy to make sense of it. The people who build, mine, and power real assets and put their own capital behind them. Then we connect the dots and tell you what it means for your money. Wealthy. It's interesting. It sounds like rotation within uh within equities. Look for the the sort of, you know, beaten down. kind of sounds like a value trade, but I hear a lot of people really concerned. Listen, yeah, the S&P 500 is broken. What we look at, it doesn't represent what's really going on in the economy, but equities are not the not the answer because everything's levered to AI, including the economy, and it's risky. It sounds like you're not bearish equities. You're just worried about uh the concentration. How do how do you see this? >> Well, yeah, it's because of AI. Um, think about this. Essentially the S&P is 50% tech. I mean, come on. You know, and so whenever I've seen that and whenever you see like remember you're I'm a former layman trader and our book is right now 1 million copies sold, colossal failure of common sense and when markets speak. And I tell my wife once a month, Maggie, if we sell a million books, we'll break even on our Leman stock. Right. But the the point I I try to make is that in 2000 2007 whenever you have one sector that is that big a part of the market run don't walk the other way. It's it's it's and then you're going to take three IPOs. Think of the idiocy of this, right? And this is how passive investing gets gained, right? So these three IPOs, SpaceX, Anthropic, and OpenAI 3 years ago were worth $360 billion. Now they're at 5.1 trillion from 360 billion. And we're going to put them in the index. We're going to put it into the NASDAQ 100 eventually going to be in the S&P. This is the greatest cash out from billionaires in Silicon Valley we've ever seen. and they're dumping the shares into the laps of Mr. Mrs. Joe Lungepale average investor in for their 401ks. It's disgusting and it should be stopped. So retail is the exit liquidity for private correct 100% >> private money >> and and it's just not exit exit liquidity it's a valuation look at just look at the relationship between anthropic and Google right Google came public at like 3540 billion you know anthropic is going to come public at you know whatever it is the two trillion I mean it's just it's just crazy uh the relationships out there and uh and it's really um it's really quite pathetic and nobody's really everyone just along for the ride. The indexes are alltime high and no one really cares. >> So, is this a stock pickers market where these other names in the S&P uh look attractive or is the AI trade the bubble bursting going to be so damaging that it takes everything down with it including the economy and so even those names get get taken down. >> Right? That's the tough thing. Like nobody knows the answer to that question. I will say we've already had a 1987 crash in the stock market. It's already happened. Like anytime you have equities that are down 35 to and we're talking like Harley-Davidson, LAR, I mean Buffett was buying LAR like 20% above where it is now. Netflix, Bill Aman was buying Netflix 10 15% above where it is now. I mean, these things are down 45%. So, we've already crashed. Now, they can go down more. But think about this, Maggie. oil and rates the last 60, 90, 100 days, the move in the in the last like six months or so, the the 12 months Treasury is up 100 basis points and oil, gas, diesel, what we call distillates, they're all up 60, 70, 120%. So, we've already had a $300 billion punch to the face of the US consumer. That's why McDonald's and Home Depot are down at 30 35%. And so we've already done a lot of hiking the ability of the Fed to hike further. I think that the economy I'm starting I'm starting to see the most sophisticated investors we work with hedge funds, mutual funds and pension funds and the bear traps and port people are starting to look at institutions are starting to look at duration again. Okay, in other words, long-term bonds because when you have that type of hits to the economy, um it's going to essentially accelerate economic risk. And then it's like in the 80s and 90s, Maggie, we had these supernova economies where the economy's piping hot, rates are up, oil's up, the consumer gets slammed, and all of a sudden we go into a supernova like like a like a star burning out. That's what's about to happen. So you see uh square square that with me that the crash has already happened but there's if you think that if if these sophisticated investors think that a rescue it sounds like you're coming lower rates are coming because something's going to break. Talk to me about that middle part like how much worse does it get? What does that break look like in order to >> be the catalyst for that sort of that that fall in long yields? That's what you're saying, right? They're buying long duration because they think that the policy makers, the Fed's going to flip because they're going to need to. >> That's part of it, but it's more about the relationship between like in our lifetimes um only maybe in the late '7s have we seen a bond market that is at this level of crashing >> and the reason it's rates were higher in the 80s, right? But what people don't understand is interest rates between 2017 and 2021 30 trillion of bonds were issued near one to zero to maybe 2%. >> There's an Apple bond behind me, Maggie. That's trading at 47 cents on the dollar. It's double A rated, Maggie. It was issued at par 100. It's trading at 47 cents because it's a 2.55% coupon. and rates have gone up. So that bond's worth a lot less. So the point is if you buy something like that, what would you rather own? Apple equity at 10 times sales, right? $5 trillion market cap. It's like brain debt to buy that thing here. Whereas you can buy the bond that's trading at 47. It's paying 2.55%. But your actual yields much better than that. But guess what? If the 30-year Treasury some for some reason in a recession goes back to 4%. That Apple bond's going to be worth about 7273. And the bottom line for people watching us right now, that's 18% a year if that happens in the next 3 years. So it's like the 80s here, Maggie, bonds are starting to offer equity like returns because they've crashed like it's 1929. Hm. So that this is the smart trade, the smart money for you is everyone opportunistically looking for trades that will work if interest rates go down, >> right? And another one, I mean, let me just look look at think about Nike, Maggie, right? Think about Nike. Uh you have you have um the Olympics in 2028, right? This is Nike now. Uh almost 75 80% off. You've got free cash flow at Nike near three billion over the next year. 51 billion market cap. And guess what? In the last week, 360 million shares traded. And the float is 1.1 billion. Okay? 1.1 billion shares. So 360. So in other words, the the capitulation score that we're getting in Nike is category 5. It's like Exxon Mobile in November of 21. Think about that capitulation that it's like Intel a year and a half ago. We're talking like category five storm as in a hurricane. This is what just happened to Nike. When you can buy a worldass brand that's trading 30% below its 200 month moving average. You do that every day of the week and twice on Sunday. It's funny, Larry, because you you're the author of the bear traps report, but this is like a really bullish bullish conversation about parts of the market that you think are like grossly mispriced. >> Yeah, I I I make no mistake. I think the the S&P once we get through this this dumping of the IPOs, the S&P is going to drop 30% over the next year, it's probably going to be flat for eight years. That's what happened in 2000. From 2000 to 2010, the S S&P didn't go down. I mean, it didn't it didn't move. It was flat. There's been two periods in the last 50 years where the S&P was flat for seven years. This is what we're coming into. But within the market, there are gems on the floor that have to be picked up. >> I love that visual. So, let's talk a little bit about well, we're we we'll we'll dig in again about sort of portfolio construction uh and and framework in in a minute, but let's talk a little bit about bond yields because it seems all of this is centered on yields going lower, right? That's the premise that yields have to flip at some point. So, government bond yields around the world rising. Demand for your treasuries at the long end has been dismal. I mean, we've seen terrible auctions, some okay, but some really bad, especially when when you're talking about 30-year. Are we watching a sovereign bond crisis gather steam? >> There's no question. Watch the European banks uh sock chin down, I think, 20% in the last maybe 3, four weeks. They're exposed to to French paper. And so, you've got a really nasty situation with the global bond market. um that's probably going to trigger that kind of crisis in the index, the S&P in the next couple of months. I think yields could go a little higher, but what I mean is in terms of I'm sorry, US say the US 30-year US 10year, you can go higher, but this is where you want to start adding in uh that if they do go higher, it'll be a blowoff. uh nasty and then a reversal because from here any more that rates go up bond prices come down and you start to create Maggie massive massive stress within the banking system because think of Bank America I mean we're seeing guys we're seeing a lot of players behind me u shorting Bank America because you know they they're sitting on all that commercial real estate that they sold these commercial real estate loans two to 3% right they're going to refinance hands at like 7 8 10%. I mean, they're sitting on hundreds of billions. Not to mention, you know, they have like $300 billion of deposits that are at zero, Maggie. Zero, right? Zero interest rates because there's some, you know, retired couples out there that still have their money in these savings accounts at zero. Guess what's going to happen, Maggie? These Muse systems that you're seeing from Meta, they're going to go around. People are going to say, "Oh, the what can I do about my banking uh deposit?" And Musea is going to go out there and say, "Hey, hey, hello. Is anybody home? Why are you in the zero interest rate bank account when you can get 4% over here?" And you know what's going to happen? 150 billion is going to leave Bank of America over the next year, year, maybe five years. And that's a huge juicy part of their profits, right? They're ripping off investors right now because they're getting they're sitting on that money. They're taking in the three 200 300 billion. I think it's 600 billion total. Um, and they're they're getting they're giving the the clients bigger 1% and then they're putting it in treasuries and getting at four or 5%. >> Who I I've I've been hearing more and more and of course Muse just rolled out. So this is just the beginning of us sort of understanding what a sort of AI assisted you know search will look like and what that means. Uh, who benefits from that or what companies benefit from that? Well, first of all, let's let's talk about just for a second. Let's talk about Mr. Zuckerberg. The guy incinerated $30 billion on the metaverse. He changed the name of the company to Meta from Facebook. It's hilarious. He incinerated 300 billion. Now, he's created a product, right? Think about they had a worldclass business that's essentially a monopoly, right? Instagram, Facebook, nobody can compete with them. Anybody that's come along, it's been you got a monopoly power. They had 30 they had like 30 40 billion dollars of free cash flow two years ago. 40 billion maybe two to three. Now they're going to go negative free cash flow minus 20 billion. Okay. So you're talking about they're incinerating cash. They're creating a product called Muse. And guess what? Google announced one today. Apple's going to have one. There's going to be 40 of these things. And it's a free product, Maggie. So imagine burning the cash. You have an oligopoly monopoly business of cash flow. You take that cash, you're burning it, spending it on AI for this product that you're giving away, which has no barriers to entry. It's just, you know, so that's >> so clearly Meta not the beneficiary of this. >> Yeah. So me, let's get to the question. Intuitive, Surgical, Baxter, there are these companies that have the data. slumber SLB they have the data Maggie slumberge I think the stock could potentially double triple the next 5 10 years uh same thing with intuitive surgical when you have the data think about robotics and surgeries all of these doctors around the world it's going to be a certain the percentage of robotic type surgeries globally are going to probably go up like five 600%. But if you have the data, that's where you can really uh absolutely t capitalize on artificial intelligence. And so Baxter, Intuitive Surgical, and Slumber are our three big picks for really companies that will harness the power of AI. >> So you like you you you the data is the moat now. Uh >> right. Right. >> Those companies, what what about in financials though? This is a very disruptive what you were talking about this idea that I understand uh if you're commoditized and giving away AI tools and products and people are reluctant to pay for them not the winner of the AI revolution you own the data own the moat you're the winner of the AI revolution but what about the disruption that's coming if you if you have that kind of reallocation of savings you're talking about a bank run um and it and you're saying five years I think you're probably being generous and you suspect it could be a lot quicker than that um maybe generationally older people are slower to do it. Let's give them a little bit more time on that. That's hugely disruptive to the way the financial system works. >> Yes. And and the rate of change on the capex. The big warning side is the capital expenditures. This is a testosterone contest in Silicon Valley. >> They don't have any idea when the payoff is. And what's going to happen is the payoff is is more out in the future. There's more disruption. in the near near term. And um then all of a sudden politicians, look at the left wing in in Europe and the United States, they're coming at this hardcore. They want to slow it down. And when once these guys start to uh slow down the capex, which probably happens in the next two to three months, then you're going to have a big reset in the MAG7. And that's where you really don't want to touch the MAG 7 or the indexes because once again, the indexes, I mean, it should be if you're a fiduciary, right? Imagine you're like in a fiduciary and somebody g like a 75 year old person gives you a million dollars, right? A million you gonna put in the stock market 75 year olds going to put 500,000 of that as essentially an AI. I mean this is we this is absolute madness. It's madness and it has to be outed. >> Everything we do on this channel has one goal to make you a sharper, better informed investor. someone who understands the macro forces shaping your money before the mainstream catches on. But information is only half of it. The other half is acting on it. And that's what wealthy on membership is for. It's how you go from watching these conversations to putting them to work in your own portfolio. Membership opens three doors. Access to advisors, helping build real assets into your portfolio, and for accredited investors, access to specialized funds. To learn more, the link to become a member is in the description box below. What what so again I think where you put things depends on in terms of asset allocation depends on how you see this playing out. Let's talk about this macro regime a little bit because I think it's really important. Are we why what tells you that we are in a situation that's like maybe the 1980s where you have this supernova economy and then you're going to see some sort of you know uh recession or you're going to see a a correction and then you're going to have policy makers step in. Why >> is is that how you see it? Correct me if I'm wrong. >> Yeah. Well, never forget the rule of 72. So if you can get 9% on a bond, your money doubles in eight years. If you get 6% on a on a bond, your money doubles in 12 years. And so and that's in a tax deferred account, of course. Now bond once bonds start offering equity like returns like they did in the 80s and and that's because interest rates go up, bond prices come down, um it starts to steal market share from the equity market and that's the big threat. The second threat is like gold and silver and hard assets. Right now there's 43 trillion Maggie in the NASDAQ 100. >> In March, there was 30 trillion in the NASDAQ 100. This is America's wealth, Maggie. In the fourth quarter of 2022, there was 12 trillion in the NASDAQ 100. So, we've gone from 12 to 30 to $43 trillion. Think about that. Now when you have a shock with interest rates, oil multipolar world, we talk about this in our book how to listen when markets speak that be in when you have a sustained inflation regime the um the models start look at looking at discounted cash flow and all that means is companies that control hard assets oil and I'm talking about assets like oil and gas uh coal companies um any kind of metals those companies tend to gain a larger portion of the market share of the market. So think about from 1968 to 81, Vietnam war, high interest rates, the great society, big government spending. Um by the end of this inflation, high interest rate regime. By 1981, 50% of the S&P 500 was industrials, materials, and energy. 50%. Today we're like 14%, right, for those groups. So we're not saying we're going back to 50%. But over the next five years, we have to look forward, >> not back, right? >> Next five years, trillions are going to come out of financial assets, which are essentially growth stocks. They're going to go into companies that control hard assets. And the percentage of the S&P that's that's long industrials, materials, and energy, and that's going to go from, you know, 12 to 14% to 20 to 30%. That's where you want to you want to call your financial financial advisor and have them reconstruct the S&P for you and with putting more uh more of your assets into those groups than into tech, which is essentially 50% of the S&P. As a as a as a 70-year-old or a 60-year-old, you can't put a million dollars in the market and have 500,000 of that essentially be a small amount of stocks that are all exposed to AOK. It's it's it's it's just absolute madness. It has to be it has to be outed. >> And yet if you had done that and people have been calling for that for a while, you missed a lot of gains, right? It's the trade has has been to buy the dip in the NASDAQ and it's worked. >> You know what people say that to me that's a lot of BS. Gold is crushing the NA like look at the XME, right? Which is a metals ETF last two years, three years, four. It's basically destroying the the NASDAQ, but nobody knows because it's not on CNBC every day. you know, gold like gold over the last two, three years. It's it's just amazing how how much airtime this gets because it's because it's a bubble. But yeah, there's there's parts of the market that are destroying the NASDAQ. Look at the mag 7 up 15%. You know, since last October 15 16 the uh oil service names are up 50%. Slumber, nobody talks about it. It's it's crazy. The the max seven it's a joke. We talk about it a lot here on wealthy on but but this is the narrative we hear and this is why people come to us with questions because they hear this and then they you know sit with their neighbor and whose portfolio is going skyhigh and they say you know oh I got out of they have that regret like I got out of Nvidia I thought it was rolling over everyone's kind of waiting for that crash that doesn't seem to come >> you listen you can't make money over the long time you can't buy stocks that are trading at 10 you know Apple at 10 times sales for 30 years. It traded between two to six times sales and you know they have what's the new product? you know, it's it's and then Nvidia like they're ripping off all these other guys with the chips and they're overcharging now and eventually you know the new generations of chips, the older chips are going to get cheaper and cheaper and cheaper and Nvidia is going to get cut in half the next like two three years >> and that is in everyone's portfolio probably in multiple places which is what we worry about. What? Maggie, in the 90s and 2000s, the top two stocks in the S&P 500 were maybe five or 6% of the S&P. Right now, the top two stocks, Nvidia's 8%, so call it Apple at like six, 13% of the S&P is in two stocks. So, once again, I give you a million dollars and you get 130,000 in two stocks. Bob Marley cracks smoking investing. crack smoking. >> I think everybody can relate to that. It kind of feels like getting through the day anymore, Larry, with all the headlines. So, let's talk about two things that are on the radar. I want to get your take on. Uh, one of them is, uh, the fact that we have had China central bank making record purchases of gold in September. We have the Bundes Bank president talking up the case for central banks diversifying into gold sort of out loud in in popular media. How much does that impact the price of gold? Because as you say, we've had the short-term pulling it down. Is it a marginal support? Is this a bigger trend that that is going to look very different than what we've seen in past gold cycles? How are you thinking about that relative to gold? >> Well, my favorite word in our first book was hubris. And that was the layman team. And that's just like an out of touch group of people. Washington from both Democrats and Republicans. The hubris in Washington the last 10 years, they've been hitting emerging market countries over the head with sanctions. They pro they confiscated property from the Russians, you know, with the war, which is, you know, Russia did some horrible things. But at the end of the day, when you do that, you know, other countries are like, you know what, they could do that to me. >> And that's why China's holdings of treasuries are down like 600 700 billion in recent years. and they're taking those treasury assets and they're buying gold and buying other things and so yeah, so the Washington basically triggered this massive incentive for all kinds of central banks to take money out of treasuries and put it into gold. They're literally smoking in the dynamite shed in Washington. Now, given what we've seen going on that we see that happening, uh, we have all the pressure on yields. We're approaching the midterms. Are you anticipating or expecting any kind of policy action from the Trump administration to try to address what they're seeing when it comes to yield, energy, the economy? They got their back up against the wall. This is this is a really sight exciting sexy story and I'm getting this remember we do the ideas dinners in 10 countries a year. New York next week, Miami, Palm Beach over the week after that. Um so we sit down with the best hedge funds, mutual funds and pension funds at a private room and we really kind of triangulate information. We're trying to figure out, okay, you listen to the news cycle, what's priced in, >> you know, what do people what what's overpriced in and what's not priced in. That's what we specialize in the bear trap report. What's not priced in is the awareness of stable coins. >> I sat down with John Carlo, the CEO of Tether earlier this year in a private room. It's absolutely jaw-dropping. You've gone from a 100red billion of stable coins and think stable coins own T bills, Bitcoin and gold, mostly T bills. So there's treasuries. So you gone from 100 billion to 300 billion today, maybe 350. Look at Circle Equity, right? We did a trade alert. It's 62 this year. It's up into the 90s. If the Clarity Act passes in Washington, they're going to basically start to force money into stable coins. I think stable coins probably go in the next five years to a trillion trillion and a half. And what that means is they're going to force international investors. Say you have a trucking company in Brazil. Put your money in the bank, right? The bank in Brazil or Argentina, the currency's all over the place, right? It's it's torture for some of these people. Absolute torture. And so you take some of that money, you put it into a stable coin, and now all of a sudden you're in T bills, right? And so you have much more stability. So they're going to steal trillions of dollars from global the global banking system. They're going to actually create a mechanism where think of the Euro dollar clearing in in London. They hate that. They want to bring it back. They want to they're going to force international investors. If you want to own US assets, you want to own Nvidia, you want to own real estate, you have to own a stable coin first and and have your money in the stable coin. That'll force money into treasuries, the front end of the yield curve, and that's how they can finance this $40 trillion debt hole. The only way out, Maggie, of a $40 trillion debt hole, there's two ways. Default or inflate your way out. And what that's what we call financial repression. When you suppress rates through mechanisms and tricks, um you you create financial repression, and that's what drives money into hard assets. So when when they inflate the Royale, I think the stable coin story is super important. Uh when they in if they first of all, who are they? When you say they they are going to force everyone into stable coin, who are they? >> Well, let's be let's be clear. This is not Republican or Democrat. This is a financial crisis if they don't do it because we already we already saw China's got 600 billion less treasuries. um Japan, other countries like France, France is trying to finance themselves, you know, their rates are going through the roof. Everyone's offering higher interest rates. So, the US is going to have to they is like the the whether it be the Fed and the bottom line is think of World War II. Okay, after World War II, the Fed and Treasury, there are white papers out there, you can explore them. The Fed and Treasury worked much closer together. And because we were trying to finance this colossal war, imagine trying to finance AI. Imagine trying to finance World War II. And so this is what we're up against. Uh they're going to work. When I say they, the Fed and Treasury, Republicans and Democrats are going to create these mechanisms that are very financial repression-like, and that's going to drive a lot of money from financial assets to hard assets. And so it sounds like the they the US government at large from all sides are getting ready to pull out the mother of all bazookas. >> Yes. Cuz think about it, the the fiscal and monetary response to Lehman Brothers was 4 trillion. The fiscal and monetary response to COVID and the regional bank crisis of 2023, plus the elections and all the all the games they're playing. when you run 6% deficits, the fiscal and monetary response this time since co is 17 trillion Maggie versus four after leaving. So yeah, they are their backs against the wall here. They they're going to have to pull out every trick in the book to to to to get out of this devil. So when you're talking to all of these sort of people that are living in the future, all of these super smart folks, how I think that the the average thought was that it's going to be financial repression and it's going to be yield curve control. Um devalue the dollar, yield curve control, you know, maybe some other sort of operation latest name. How does stable coins look different or does it do stable coins change what that bazooka looks like? Well, in some ways it's a part of yield curve control. In other words, they're not going to come out and say yield curve control. That's like saying uh the pilot wants all the fannies in the seats on the plane when the >> we're crashing. >> Yeah, ladies and gentlemen. No, they >> stay calm. We're crashing. >> Yeah. They're going to just do white paper and slowly look what they did with the trend mean, you know, this they're changing the goalpost on inflation, right? So >> the definition of inflation like in the 80s and 90s and 2000s the formula we we probably have like 15% inflation now we use the old for formula they change the formula or formula again this week in the PC so so yeah so stable coins are part of it whereas if you force an extra two trillion in stable coins they have to own T bills right which is treasury bills and so then you sell the debt on the front end of the yield curve you got all these new buyers and in some ways That's it's not yield curve control but it's like another >> it's keeping it's it's increasing demand for treasuries which should help right and then but but it's it's a little bit different I think than people were thinking because you're also increasing demand for dollars no >> I mean some people have said have push back on the devaluation debasement of the dollar because if you institute some kind of global stable stable coin you're basically reigning back in the euro dollar market from the wilderness and you are maintaining the dollar as the reserve currency. >> Yeah, it's it's exactly it's a speed bump toward you know the US we talk about this in our book when markets speak. We have a bearish dollar chapter. We wrote it and we wrote the book in 2023. So we made a great call. We wrote it in 2223. So we made a great call in dollar. Dollar is much lower now. But in our in my lifetime or my kids like we're probably not going to lose our reserve currency status. They're going to come up with all these types of speed bumps along the way. >> So why does that mean that equities are uh or hard assets are the trade as opposed to equities? if you're sort of pulling rates down, you're basically creating all this liquidity to keep the whole thing going. Does that just not magnet toward equities? Because that's kind of what happens usually when we see rates lower. It's certainly what equity people think now. I see people in chats all the time saying Fed's eventually going to have to ease. That's just going to be rocket fuel for the NASDAQ, >> right? So, but but but I'm talking about equity. So, I'm talking about companies that control hard assets versus companies that control, say, software, you So you're being discerning about where that money is going to go to. They're going to be better winners. There are going to be winners out of this. >> So there's a scene in our book where we c talk about discounted cash flows. So it's really simple. So say you have a company A, right? And it produces c a billion dollars of cash flow over 10 years like a software company. A billion dollars of cash flow in 10 years. Think about that. If you're if you're at a six three to six% inflation regime with higher interest rates, that billion dollars is worth a lot less. >> A lot less 10 years from now. Now, company B controls oil and gas, gold, silver in the ground, natural gas, all kinds of assets. Um, if you're in that higher inflation regime, those assets um increase, so the value of the company increases. And that's why in that 1968-81 regime where you had the higher global yield and the higher inflation, that's where those types of companies flourished. Whereas the companies that own intellectual property, tech, those go out of favor in that kind of regime when that regime lasts for a long period of time. >> There's been a I I want to stay on the bazooka issue or policy response issue for a moment. So there a lot of people have been watching with interest. Uh some of the people who've been coming on to Treasury as counselors uh yeah we emailed briefly about this Judy Shelton longtime sound money advocate uh David Zervos and sort of wondering are they cooking something up here? Um do you think that there is some chance that they revalue the gold? That's that's especially with Judy Shelton coming on. That's one of the, you know, uh, hypothesis that's running around. Do you see any potential for that as a way to try to, as Scott Besson said in the very beginning, recognize the assets on the balance sheet and not the debt? They've been kind of laying the groundwork for some of this stuff. Does it seem like that is in any way imminent based on what the conversations you're having with folks? >> Right. So, an empire decline is what the United States is kind of like the UK 80 years ago. And what happens along the way with the UK is they start moving out of Hong Kong. They start, you know, taking reigning things in or monetizing assets. And the United States has like all kinds of assets. The Tennessee Valley Authority, parts of Yellowstone of a gold. Um, but we have a a lot more debt than our our our government assets. We have a lot of wealth uh on that balance sheet, too, which they can tax, right? But the government assets relative to the debt is actually pretty crazy small. One of the things they could do and this is what an empire in decline would do is they yeah they would repric the gold maybe put it up as collateral and use it as a mechanism to to support the treasury market with that collateral somewhere. Yeah, there's there's a lot of tricks they can pull and we call it the sense bag of tricks, right? We sat down with the next uh Treasury official at one of our dinners uh in recent uh weeks and he was pretty confident that descent has a number of weapons. Just think of this whole debt ceiling thing, right? We're going to hit the debt ceiling in January. We're going to have a split Congress, right? So, most likely get house the House and Senate might be controlled by the Democrats. Whenever you have that split government, maybe maybe you go into we hit the debt ceiling. Next thing you know, Treasury has a trillion dollars in the TGA. That's their checking account, right? And then they have extraordinary measures of another 300 billion. So we might not have any Treasury issuance between like March, April, May, June, July next year. No net issuance. I'm talking about net issuance. So it's complex, but might have no net issuance. So that yeah, there's a lot of things that they can do to to to really get bond prices up over the next six to nine months. And this is like if bonds are in a bare market. We're just talking about a bare market rally, right? Bonds are in a vicious bear. Um the probability of a bare market rally, look at the TLT. That's something we're starting to to to look at and buy again the ZOZ because if you get a counter trend rally in the in the TLT and in bond prices uh between now and say in time next year, you could potentially make with the coupons 10 20 30%. It's probably good to ask time frame like what is the time frame you're using for a lot of the things that you're talking about and we'll go through and and sort of you know go over some of some of what you've mentioned but what's your general time frame? >> Well I think with the Nike and the bare market rally and Nike and say bonds that's like if in years where the S&P is up a lot if you buy a basket of stocks that have that tax loss s intensity. So the mutual fund quarter year end is typically the September 30th or October 30th. They you know what Maggie, they want these stocks off the pad, right? They don't want to show people they own these things. So they puke them out and then uh the retired couples around the country are looking at their statement a year in the the uh the accountant comes in and says, "Hey, we need some losses." So they sell uh the dogs the next 30 days and then they buy it back in 31 days. And that's why you get this this amazing January effect with the losers. So So yeah, so I think between now and June July, these these bonds and this kind of beaten down basket of stocks could offer 30 40 50% returns in some cases. >> Wow. Dogs on sale. Uh I I think we want to pay attention to that. >> John's on sale. Uh so uh and just to circle back, you were talking about Apple before and it's I you sounded negative and yet you sounded interested in Apple's bonds with the idea that bond yields were going to go down. So did I did I understand that correctly? And what what is the distinction when you're looking for some of those opportunities um you know equity versus bond because it sounds like Apple's a commodity. They you know their memory costs are going up. They're they're haven't had new products and yet the bonds look attractive if those Treasury yields do go down, right, >> Maggie? They're selling phones for three $3,400. I mean, for the love of I mean WHEN YOU THE FIRST IPHONE I ever bought was like 700 bucks. I mean, now granted, there's a lot more memory in there, a lot more sophistication, the whole thing. >> We're doing more with them. They're the center of your life, you know? >> Oh, yeah. Yeah. But like, it's hard to sell. I mean, when you have McDonald's and Home Depot down 35%. And and Harley-Davidson, all these consumerf facing companies, why is Apple at $5 trillion? So, I'm actually seeing people, this is a sophisticated trade, but if you buy the bonds of 47, you take the coupon, say you put a million bucks in, you get the coupons, maybe that's $30,000 on a million, and you buy like two-year puts on the Apple equity. So, think about this. So if the bonds are at 47, the only way that bond goes to 40 is if interest rates go up another one or two percent. That would decimate the economy. That would kill Apple stock, right? Because they sell to consumers. So that's the type of trade where bond volatility is through the roof. You're crashing over here. Stock volatility is low and high prices. And so it's like a seessaw and it's going to flatten out. And yeah, so that's that's why people are starting to look at bonds. >> Yeah, that's super interesting. This is why it's not it's not your passive game anymore because that is a much more sort of active view of what's going on. So let's talk about when we're looking at the sort of portfolio wheel and let's face it, this is still what an awful lot of people do. And I hear you bullish on hard assets. A lot of people interested in commodities. We've been talking a lot with our audience about what diversification looks like into real assets. But if the AI trade rolls over, what does that mean for commodity demand? How much of that that commodity, you know, hard asset story, energy story is linked to the demand, future demand that's expected to come from AI, >> right? So that that is a mystery piece of mystery meat where so the first stage of AI is very inflationary because look at Caterpillar. The stock was up 300% in like a year and a half. It's nuts, you know, because all of those uh data centers need construction equipment and things like that. So, and then think of all the building out of the data centers. Think of all the copper, you know, think of think of like there's there's hundreds and thousands of tons of copper are going to need to be needed for the data centers to rebuild the power grid. Maggie there's a billion people in India that don't have air conditioning you know so you have to build out energy infrastructure over there and so hard assets are the place to be but then if the AI trade slows down and you go from say you're supposed to do a thousand data centers built in the next seven years and that number comes down to to seven you know what it does slow down the hard asset trade but remember there's 43 trillion of wealth in the NASDAQ 100 and in the metals ETF the XME it's like a not even a trillion dollars right so because there's so much wealth over here and no wealth over here relative household wealth in 1981 household wealth was like 4% of of assets of of American wealth was in commodities or commodity equities now we're like less than you know maybe 1% >> and so so even if there's an AI slowdown it's that rebound balancing of the wealth globally that will support uh these stocks. And by the way, these stocks are cheap. You can get natural gas companies get 8 n 10% free casual yields. Look at Antaro range resources. The companies are buying back 10 to 15% of the equity underneath you with that free cash flow. M >> and so on valuation alone it just I'm not saying things can't go down but your riskreward to be long uh something something that is producing free cash with the company buying back stock underneath you that riskreward is a lot better than than the AI AI you know insanity. >> Yeah. We um and we talked about stable coin and this is something we'll continue to look into because this is a really big change that's coming. I'm not surprised it's it's all the talk at your idea dinners. What's the trade on stable coins? That's what I think gets people stumped. I mean, is it is it circle? It seems limited. Is there a trade there? >> That's the problem. Yeah, the the only one there's I mean, I'm sure others are going to become circle is one of the main ones because you think of the market share globally now. Um, you've got Tether and Circle are probably 60 70 80% of the market. There'll be new players that come on maybe IPOs that that take care of. But then there's on the other side of the coin there's um Bitcoin and gold, right? So just look at Tether. When I sat down with Sean Carlo, he's like, you know, the vault he has in Switzerland, this gold is mindblowing. >> I was obsessed when I saw the stories of them buying gold. I I don't think it got nearly the amount of attention it should. >> Oh yeah. No, he's backing up the truck. He's got his he has his own stable coin. This is his own coin backed by gold. Then he's got the Tether, which is gold and tea bills and and Bitcoin. Bitcoin we've been buying. We bought some this summer on the lows. Uh you know Kramer put the sell on it. God bless him. But um you know we bought some on the lows and we recently lightened it. I'm worried about quantum computing because at the dinners, you know, two years ago if you said quantum computing is a threat to to Bitcoin, you know, it was like a joke. >> But you know, now I would say 50% of institutional investors think it's a threat five to seven years from now. But then the other side of that coin is you know what if it's a threat to Bitcoin and unlocking the the code uh to the creation of Bitcoin then what's it going to do to your bank account Maggie you know I mean what the heck >> are you looking at cyber security are you looking at anybody who's solving is anybody is anybody looking in playing in that area >> that that that's an area now the cyber security stocks are all you know crazy right now but yeah on the dips absolutely we got to create a basket of those >> you know We we'll finish up here, Larry. This has been a fascinating conversation, and I think it just shows that um you can't just have a uh sort of I don't even want to call it passive, but it sounds like we're in an environment where you have to be really nimble. You have to be paying attention. You have to be looking at your portfolio all of the time because there's so many crossurrens. How do you stick to your investing principles when you have this sort of, you know, bull market in this really narrow NASDAQ that never ends? you have these signs of things changing and then it seems like it rolls back. You have massive government intervention in a way that we haven't seen in a long time. How do you kind of stick to your investing principles, >> right? And that that's the thing. Whenever something's too good to be true, you always want to start to go the other way. And so passive investing, it looks like the dumb like looks, it's really dumb money to me, but it works because more and more money comes into passive and the indexes have to buy the top six stocks and and it just becomes dumber and dumber and dumber. And so, but we're at a point where it's it's so extreme with the 50% of the of of the S&P that's in one sector that people are starting like literally the best. So about 10% of our clients are financial advisors and they're literally reconstructing the S&P. I'm talking like the big guys that have like billion dollar financial advisors. They they don't trust their in-house research. They love bear trap because they can, you know, they listen to their in-house research, but they also want to have another view. And so there, yeah, they're just by buy the RRSP or the S&P 500 equal weight, which is that's another way to own the S&P or or have a financial advisor reconstruct the S&P for you. That puts more weight on companies that control hard assets. >> Fantastic stuff, Larry. So fun. This went by so quick. I could keep you much longer, but you know, we know we we see those screens blinking behind you, so we know you got a lot of work to do, but thank you for your time and come back and see us again soon. >> Thanks, Maggie. All the best.