Founder's Story
The Shocking Future: How Markets Are Changing with Larry McDonald—Crypto, AI, BRICS, and the New Administration’s Impact | S2 Ep. 161
Fri, 20 Dec 2024
Welcome back to Founder's Story! In this episode, Daniel Robbins sits down with Larry McDonald, founder of The Bear Traps Report and author of the newly released book, How to Listen When Markets Speak. Larry brings decades of investment expertise and invaluable insights on navigating today’s volatile markets and preparing for the future.Episode Highlights:The Journey to Bear Traps:Larry shares how he became a leading voice in financial analysis, writing A Colossal Failure of Common Sense during the 2008 financial crisis and connecting its lessons to today’s economic landscape.Market Insights for 2025 and Beyond:The shift from austerity post-2008 to massive fiscal and monetary responses totaling $16 trillion since COVID.Why today’s inflation pressures demand a new investment philosophy for the next decade.Predictions for 2025, including major restructuring in the U.S. debt market and its potential impacts.Investing in a Multipolar World:The rise of emerging markets and their increasing energy consumption.Why global energy infrastructure—including natural gas, uranium, and copper—may become the biggest beneficiaries of the AI and crypto boom.Lessons from Legends:Larry reflects on mentorship from investing greats like Charlie Munger, highlighting the importance of patience, discipline, and resisting the hype.The Reality of Crypto Investing:Why Bitcoin’s extreme volatility requires careful timing and discipline.The dangers of "testosterone-driven" investing and how liquidity drives crypto markets.BRICS and Global Shifts:The BRICS nations’ push away from the U.S. dollar and toward hard assets like gold.How overuse of sanctions by the U.S. has accelerated this trend.AI's Transformational Role:Why the true winners in AI will be those investing in the energy infrastructure to support it.Why NVIDIA’s valuation is a cautionary tale and where to look for real opportunities.Key Takeaways:Patience and timing are critical for successful investing—“All the great profits are in the waiting.”The next wave of investment opportunities lies in energy infrastructure, not just AI companies.Bitcoin and crypto are highly volatile and require a disciplined, long-term perspective.The global financial system is evolving into a multipolar world, requiring new strategies and insights.Connect with Larry McDonald:Follow him on Twitter: @ConvertBondEmail for a free trial of The Bear Traps Report:[email protected]@thebeartrapsreport.comLarry’s newsletter and book democratize market intelligence, providing everyday investors access to the insights of top hedge funds, mutual funds, and pension funds.Our Sponsors:* Check out Indeed: https://indeed.com/FOUNDERSSTORY* Check out Northwest Registered Agent and use my code FOUNDERS for a great deal: https://northwestregisteredagent.com* Check out Plus500: https://plus500.com* Check out Rosetta Stone and use my code TODAY for a great deal: https://www.rosettastone.com
Chapter 1: What is Larry McDonald's background in financial analysis?
Okay. Well, thank you very much. It's a pleasure to be with you guys. I really appreciate the platform and all that you've accomplished to get here and build this outstanding audience that you have. Essentially, we wrote probably the number one book during the financial crisis of 2008 to 2010. It was A Colossal Failure of Common Sense was the name. It's been published in 12 languages.
It was featured in the Academy Award winning movie Inside Job. So it was a very big book. And we wanted to connect that book to what's happening now. So the fiscal and monetary response to the financial crisis was about $4 trillion from, say, 2008, 2011, 12 and there. $4 trillion.
Now, the fiscal and monetary response to COVID, the regional bank crisis of 2023, and the spending going into the election of 2024 has been $16 trillion. Fiscal monetary. And so what happens is when you inject that much kind of, I guess, steroids into the economy, into the market, you create much more dislocations in terms of sustained inflation pressure.
And so most people watching us right now lived through an austerity period from 2008 to 2020. Europe was in austerity with Greece. We had the Brexit. We had Lehman. We had the Tea Party of the United States. So we were in this like a post-financial crisis austerity period where they were keeping the fiscal and monetary levers down somewhat.
And now we've gone into this overdose of fiscal and monetary, which is going to basically translate into much more sustained inflation. And so we need to understand we need a whole different investment philosophy for the next decade. So the portfolio of the 2010 to the 2020 portfolio is... is really in the rear view mirror. And we need a whole new investment philosophy looking forward.
I really appreciate you sharing that. And I remember the 2008. I can remember what happened. I lost a house. I mean, my whole life collapsed in 2008. How was I ever going to get there? Don't forget that time. But I learned a lot. I learned a lot. I was only in my 20s, so it's OK. I'm curious, then, as you are looking into 2025, I bet everyone comes to you and says, what are your predictions?
How are you feeling about with all the changes politically? How are you seeing 2025 playing out?
Well, first thing I want to say is there's no I in team. And so we've done 140 speeches in 16 countries over the last 14 years. And we've met, I've met some incredible people. And so we host a conversation with hedge funds, mutual funds, pension funds, some of the most impressive investors on planet Earth, many billionaires, many people that are worth a lot of money, but they're
You know, at the end of the day, you need good mentors. And so the content of our bear trap support of our book in this conversation today comes out of working with great mentors. And so what I'm what I'm really hearing is that as we go into the new year, the U.S. Treasury has been borrowing money to support the deficits on the front end of the yield curve in what we call T-bills.
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Chapter 2: What are the key factors driving market changes post-2020?
So as we look toward 25 and 26, with the new administration in Washington and They want to restructure, but it's like a 750-pound, say, woman or man that needs restructuring or needs to go for some liposuction.
And it's going to create some short-term pain in early 25, but by the midterms and by the selection, the administration, the Trump administration, is hopeful that we'll be in a much better spot. But there's a real... significant restructuring that's about to happen for the United States of America.
Wow. So when you're interviewing these people, these obviously very smart people alongside yourself, how are they feeling about things?
Well, the amount of risk taking the market, like the bullishness right now, The level of people in, say, the University of Michigan studies or positioning in the market, you can measure this through the amount of people that are actually long in the market, has essentially never been higher since 2000. I mean, it's really... No human beings ever really made money investing at this level.
In other words, at this level of hubris, of kind of like massive, massive bullishness. So... You're much better off over the last 20, 30 years sitting in the boat and waiting for those great moments that come along a lot of times. I sat down with Charlie Munger in my book, When Markets Speak. He said the hardest thing, Larry, I was in Omaha with him.
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Chapter 3: How is the investment philosophy changing for the next decade?
We sat down for 40 minutes and he said the hardest thing, Larry, is to stare at a screen all day and do nothing. He said all of the great prophets... All the great prophets are in the waiting. And he said testosterone is the greatest enemy of an investor, especially at a young age. Testosterone, it's, you know, J.P.
Morgan said in 1907, there's nothing in this world which will so violently distort a man's judgment more than the sight of his neighbor getting raped. And that's where we are today.
I mean, he would have a difficult time with social media then, right? Because all we do is see what we think is our neighbors getting rich everywhere, right? Buying Lamborghinis, flying private jets. Well, we don't know, right? That's reality. I'm curious then... What do you think makes a person become a billionaire?
These people that are super duper successful, uber successful, like Charlie and others who are worth tens of billions of dollars. Elon Musk just surpassed $400 billion net worth. What do you think separates those people from the ones that never make it?
Well, one thing with Elon in the last 20 years, Elon's a brilliant guy. But remember, central banks really were not allowing the business cycle to function, right? So we had a Lehman crisis that lasted a very short period of time. We had a Colby crisis that lasted a short period of time. And so if you look at, say, someone like Musk,
the SpaceX and Tesla vision would never have been successful without a huge injection of fiscal and monetary response, right? And so he's a brilliant guy, but there's different types of investors, right? Like Warren and Charlie have been successful through and made, you know, right now the market cap of, say, Warren Buffett's Berkshire is about a trillion dollars.
And the market cap of, say, NVIDIA is $3.6 trillion or so. And so Buffett and Munger, over 60, 70 years, turned this company into a trillion-dollar company through many, many, many business cycles. Whereas the new wealth of the last several years or last decade has really been supported by this $16 trillion fiscal and monetary response. Like we should have gone into recession in like 2022.
You had Jamie Dimon, you had Elon Musk, you had all these people claiming that the recession was just offshore. And the Biden team basically ramped up spending. We went from one point... $4 trillion, $1.4 trillion deficits in recent years to now close to $2 trillion. So they juiced the fiscal into the election because they didn't want to lose. Don't get me wrong. Both sides do this.
Bush, the team Bush in 2008 created tons of excesses to try to help McCain. And this is what happened in big election years. So at the end of the day, we just have to understand what's really happening. There's a lot of billionaires and millionaires that have been created by this $16 trillion of fiscal and monetary largesse, which is going to create a whole new inflation regime.
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Chapter 4: What should investors know about Bitcoin's volatility?
Yeah, but over time, that's pushing the bricks away from the dollar. And so if you look at central bank ownership of gold, it's exploded over the last 10, 15 years because it's of the threats from Washington around sanctions, around property confiscations. Billions and billions of dollars have been confiscated from Russian assets, and they're being dispersed throughout Europe right now.
So at the end of the day, the BRICS are... Investing in hard assets, rare earth metals, all kinds of alternatives to the dollar. And whether or not that's going to be successful, nobody really knows. But there is a trend shift away from the dollar over the next, say, the last three to five years and looking forward to the next 18 years.
So with all of the changes, you had just brought up a geopolitical or an international change with war and a lot of politics changing recently from presidents to prime ministers to lots of different things happening globally. I feel like we've never been so global in the sense of how we are connected with one another. Yeah.
What are you seeing when it comes to investments or what are you looking at with all of these global changes?
Yeah, so what we talk about in our book, When Markets Speak, is around we're much more in a multipolar world now. So the globalists in Davos spent the last 15, 20 years. We took 5 million jobs out of the United States, 5 million. We decimated families in the Rust Belt. And just, you know, you look at J.D. Vance and his life story in that movie, in the book, and the whole thing. We decimated.
I mean, opioid deaths and life expectancy in the American Rust Belt are pathetic. They're disgusting. We're the strongest country in the world in terms of health care spending, but we have a life expectancy in the Rust Belt and in some of these states that's crashing lower. It's disgusting.
The good news is we've raised the standard of living in Bangladesh, India, China, all throughout the emerging world. If you work in a call center in India, you're making 10 to 50 times more than your great, great grandparents. But the dark side of this is that we've created all these new emerging energy consumers globally, and they're consuming a lot more carbon.
And so the carbon neutral goals of the globalists, they really shot themselves in the foot because by really moving jobs out of the United States, We've created more energy demand. I mean, just think of young people in India. There's a billion people in India that don't have air conditioning. A billion people. And imagine, so you're a young person, you're making more money.
You get a moped, get air-conditioned. You're consuming energy at a much greater pace. So the energy consumption globally is spectacular. And then you throw in onto that artificial intelligence, right? Bitcoin. Bitcoin right now, at $100,000, the annual energy consumption, for the love of God, is South Africa. And like two years ago, it might have been Finland or even a much smaller country.
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Chapter 5: How do BRICS nations affect the global economy?
Well, first of all, in years where there are big gains in the market, like this year, and especially essentially two years ago today, NVIDIA was worth about $850 billion today. And today it's worth $3.6 trillion. So $850 billion to $3.6 trillion. So there's a lot of gains in the stock.
And what happens is when you go into the new year, there's a lot of investors that when you see stocks with big gains, it typically will sell. Anybody that has imagined, say you have like a $200,000 gain in Nvidia. If you sell it now, you pay the tax on April 15th. If you sell the stock January 5th, you pay the stock April 15th, 2026, right?
So near term, all these high flyers are gonna get probably hammered in January. On the other side of the coin, stocks like Intel, Intel right now is worth about $80 billion. You got to think about when you look at a stock, don't look at a stock price. So a video might be whatever, it's $130. That's idiotic. You need to look at the value of your company.
Because to get NVIDIA to double from here, it has to basically go to almost a $7 trillion company. And US GDP is $29 trillion. You know, it's just a complete lunacy and idiocy. Whenever you see the morons on Wall Street all upgrading stock, it's like these people were so bearish on NVIDIA two years ago.
I mean, NVIDIA had literally the highest sell ratings, the lowest price targets a year and a half ago, not even two years ago. And so now everybody's coming in. It reminds me of 2000, where in 2000, everybody wanted to be long Cisco, KDS, Uniface, Global Crossing, kind of the infrastructure for the Internet.
And they weren't looking at like things like the formation of Google or Match.com or all these things that would actually benefit from the new technology. And so it's the same thing today. Everybody's in the wrong trades. Everybody's in kind of the infrastructure of the AI world, and they're not really investing in the energy infrastructure. I mean, just think of copper.
These copper names are cheap. The amount of copper that it's going to take to get NVIDIA to that valuation is... You need an entirely new, the U.S. power grid is 50 years old in some spots, 30 years old in others. So you need a whole, you need like a trillion and a half dollar remade of a fat and disgusting U.S. power grid, like it's outdated, that can't support all these data centers.
And so the great investments for artificial intelligence are going to be in the support system, the energy system to get us there.
Wow. I learned a lot today, Larry. I mean, I'm very, very appreciative. And something I'm just reading between the lines, people that are very wealthy are looking at these things. They're looking at the long game, like you said, Charlie.
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Chapter 6: What role does AI play in the future of investments?
So Tatiana at thebeartrapsupport.com or Valentina at thebeartrapsupport.com. We can help you out there.
but thanks it's been great it's been great to catch up and have a blessed new year and christmas amazing thank you for joining us today on founder story thanks larry all the best in honor of military appreciation month verizon thought of a lot of different ways we could show our appreciation like rolling out the red carpet giving you your own personal marching band or throwing a bumping shindig.
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