The Shocking Future: How Markets Are Changing with Larry McDonald—Crypto, AI, BRICS, and the New Administration’s Impact | S2 Ep. 161

0:05Hey, everyone. Welcome back to Founder Story. Today, we have Larry McDonald. and Larry, you have an incredible history. I mean, I wish we had a two-hour show because I think we can go through your whole history here. You are the founder of the Bear Traps Report, and your new book is How to Listen When Markets Speak. The markets, I mean, it's huge right now, right? This is everywhere, everything, everyone's talking about it. So many changes happening. So I'd love to understand from your perspective, before we even dive into everything about the future predictions, what you're seeing. How did you even get started and why did you write this book?

0:47Okay. 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 Jobs. 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 to 2011, 12 and there.

1:38$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 and 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.

2:40And 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 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. I will never forget that time. But I learned a lot. I learned a lot.

3:24I was only in my 20s, so it's okay. 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.

4:11But 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. and a lot of this money is about 15 trillion of debt that matures between 24, 25 and 26, which is about half the United States debt. And so as that rolls over, it's been pushing bond yields higher. And right now the baby boomers are turning, the oldest boomers are turning 79.

4:58So the whole world's structured a little different. So as we look toward 25 and 26, with a 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?

5:51Well, 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 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 time.

6:34When I sat down with Charlie Munger in my book, When Mark could speak, he said the hardest thing, Larry, I was in Omaha with him. 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 profits, all the great profits 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 rich. And that's where we are today.

7:23I 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, we're not allowing the business cycle to function, right?

8:14So we had a Lehman crisis that lasted a very short period of time. We had a COVID 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 Berkshires 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.

9:09Whereas 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$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. The team Bush in 2008 created tons of excesses to try to help McCain.

9:57And 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. I was reading something around since like 2020 during the pandemic, the last few years, like more billionaires were made than ever before. When I think we would normally think the opposite, but we're not really so in tune with what's really happening. So I'm glad you shared these because this is really opening up my eyes.

10:34I didn't even know about a lot of these things. When it comes to crypto, BlackRock now, you know, they have the Bitcoin ETFs and BlackRock is talking a lot about Bitcoin. How are you feeling about crypto and what the markets are reacting to maybe even having more ETFs in the future? I don't know, but how are you overall looking at crypto? Well, crypto has been an extremely deadly investment for young people. Once again, the testosterone, the lies on Twitter, everybody pretends they've owned crypto or Bitcoin for all these years. Most people haven't. I mean, let's come on. I mean, you've had four drawdowns, two of 80%.

11:21Since 2017, you've had two 80 % drawdowns. And then you've had two more of 55 and 62. So at the end of the day, I'm a huge Bitcoin bull, but you want to buy it when you don't see the strippers. When you see the strippers taking off their clothes and trying to get you to buy a different coin, look out. When Michael Saylor is tweeting X every single day about his returns and about his new strategy, look out and put your money in cash and wait for the next 50 to 80 % drawdown. There's no asset class in the world of any quality that's had four drawdowns since 2017 of this kind. Now, you can say that Bitcoin's destroyed gold over the long haul Every imbecile knows that, right?

12:13But gold's largest drawdown over the last 10 years has been 22%, right? And so the NASDAQ's biggest drawdown over the last 10 years has been like 34%. But Bitcoin's had four drawdowns of 80, 80, 64, and 52. So it sure has got a little green apples. You're going to get another chance. But once again, testosterone is your greatest enemy as a young person. and you want to sit in the boat and really wait for that great buying opportunity. And don't buy Bitcoin when you see the strippers. That's what you want to do. They're very convincing. They're very convincing. So I could see, you know, if I was in my 20s, I would be totally out of control trying to buy just because they're everywhere.

13:02And it seems like reality. But you said it best. Most likely, these people have already sold. You know, they're touting whatever they're touting. and it's probably not the truth. There's a lot of people, and we've talked to a few guests before about BRICS. So with Bitcoin, if you do the math, there's about 40 or so families that control 60 % of the flow. And so what happens is when you're long Bitcoin, you're actually just long liquidity, right? This is very important. So think of like August. On August 5th, there was financial there was stresses in the financial markets the vix had a big move and in in six days six days six days bitcoin dropped 31 think about that like what asset class does that because and essentially what that what i'm saying is you're essentially you're not long the fiat currency bs all this stuff all this sales pitch you're just long ultra liquidity now over time you are long the fiat alternative.

14:07But in the near term, short term, you're just long excess liquidity. If liquidity starts to dry up, which had happened on August 5th because of a situation with the Bank of Japan and the carry track, you will be obliterated in Bitcoin. And so everybody has this long term give, just watch out for, you're essentially long, and you're essentially short the VIX. So when you're long Bitcoin, you're short equity volatility. So every time the VIX is made a move up above, say, 30, 30, 40. Bitcoin's been in a 30 to 50 to 80 % drawdown every single time. Thank you for clarifying that. It seems like many people, when they look at crypto, it's like the lottery.

14:51The hope is I'm going to get 10 ,000 % return. I invest a penny and maybe it goes to$100 ,000, which we know is pretty rare. But it's those people that you mentioned before that that get me too excited about it. So going back to BRICS, people are all over the place. We've talked to many people and they're all over the place about this. And I am very confused as to what's really happening. So is it really challenging Western financial system? Is it not? What is your perspective on BRICS? Okay. So in our book, what we talk about is over the last 15 years, 20 years, Republicans and Democrats have used a sledgehammer and they've hit country after country after country over the head with sanctions, with property confiscation.

15:46And these are weapons that should be used like once every 10 years. Like when Russia invades Ukraine, that's when you want to use your sanctions, right? That's when you want to use maybe some some aggressive tools. But unfortunately, over the last 20 years, both Republicans and Democrats have overused these weapons. And it's really hubris, like in terms of Washington policy and people in Washington, you know, where the United States of America could push people around. 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 of the threats from Washington around sanctions, around property confiscations, billions and billions of dollars and confiscated from Russian assets.

16:39And 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.

17:28I feel like we've never been so global in the sense of how we are connected with one another. 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 market 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 and the book and the whole thing. We decimated. I mean, opioid deaths and life expectancy in the American Rust Belt are pathetic.

18:14They're disgusting. We're the strongest country in the world in terms of healthcare spending, but we have a life expectancy in the Rust Belt and in CLE 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 um 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 you're so you're a young person you're making more money you get a moped get air conditioned you're 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?

19:34Bitcoin. Bitcoin right now, at$100 ,000, the annual energy consumption, for the love of God, is South Africa. Okay? And like two years ago, it might have been Finland or even much smaller countries. But if Bitcoin doubles again, because of the calculation of the equation in the formation of Bitcoin, it's going to basically require the annual electricity demand or energy demand of, say, France or Germany. And then if you add in artificial intelligence, the data centers globally and all the power that's going to be needed to fund, everybody's heard the stats. A Google search versus a chat GBT search, it's like chat GBT is 10 to 15 times more energy because of the processing.

20:23And so we are at the cusp of one of the greatest potential bull markets in natural gas equities, uranium-type nuclear power plays. There's essentially this hole toward the green meadow. In other words, carbon neutral 2050 is impossible, and it's really going to be carbon neutral 2100. The solar and wind solutions are a complete and other joke relative to these emerging demands from AI, crypto and the emerging markets. And so you want to get on that bridge to the green meadow. And that's in some of these other areas where you want to position yourself for this incredible bull market in energy and electricity production.

21:10I can't help myself but ask ChatsGVT really stupid questions, but I'm going to commit to stop doing that because it's using up energy and I can't help myself. I just ask like dumb questions for no reason. So let's talk about AI though. How are you seeing or what are you thinking about? Obviously, you had mentioned NVIDIA, 3 trillion plus insanity, a bunch of these AI companies or Meta, all these companies adding AI and now stock markets through the roof, stocks through the roof, a lot of excitement. Then you have on the flip side, people talking about so many jobs, thousands, maybe millions of jobs being decimated all around the world.

21:52How are we going to deal with that? What are your thoughts on the future of the impacts of society with AI? 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. 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 uh there's a lot of investors that with when you see stocks with big gains it typically will sell anybody that has it mentioned 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 there's this so near term all these high flyers are going to get probably hammered in january on the other side of the coin stocks like intel intel right now is worth about 80 billion dollars 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 the company because to get nvidia to double from here it has to basically go to almost a seven trillion dollar company and us gdt is 29 trillion you know it's just it's a complete lunacy and idiocy whenever you see the morons on wall street all upgrading stock and buy buy buy it's like these people were so bearish on india video 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.

23:48And so now everybody's coming in. It reminds me of 2000, where in 2000, everybody wanted to belong, Cisco, KDS, Uniface, Global Crossing, kind of the infrastructure for the internet. And they weren't looking at things like the formation of Google or Match.com or all these things that would actually benefit from the new revolution. 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.

24:33You 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 that'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, in 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.

25:18And then they're looking, they're seeing this because they've been in it for so long, but they're really looking at this from a different perspective, which is why I'm glad you have your book. It's amazing. It opened up my eyes for a lot of things. If people want to get in touch with you, they want to buy your book. They want to find out more information. I know you have your newsletter. You have a lot of content that you create as well for people. How can they get in touch? Well, on Twitter, we're at ConvertBond. If you want to get our letter, we'll give you a free couple of months. Tatiana at TheBearTrapsReport.com, where we are all about crowdsourcing information, democratizing information.

25:56In other words, working with the billionaires, working with the big funds and kind of sharing that gathering intelligence with a wider audience. 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's Story. Thanks, Larry. All the best. you