Bitcoin, Gold & Energy: The Next Massive Wealth Shift

[00:00] So, the bottom line for everybody watching us right now, in that kind of higher interest rate regime, companies that control assets are worth more. Uh whereas software companies and companies that control intellectual property, the Netflix of the world, all the software companies, in that new inflation regime, those companies are worth less. What's going on, guys? Today, we've got a very special treat. I've got Larry McDonald. He's a New York Times best-selling author, and he is the founder of The Bear Traps Report. In this conversation, he is going to walk through his view of what's happening in financial markets
[00:30] assets, and I think it is going to be eye-opening for all of you. We touch on why he thinks that we're going from a software and financialized world to something that needs money more hard assets in your portfolio. He recently just put Bitcoin into their portfolio for the first time, and he explains why. We talk about dollar dominance, the competition between deflation and inflation moving forward, what's going on on the geopolitical stage, and then we even get into some of the lessons that he's learned from some of the great investors throughout history. This conversation, again, made me think more critically about my portfolio and what's going on in markets, and I think it'll do the same thing for you. Here's my
[01:00] conversation with Larry McDonald. All right, Larry, I thought a great place to start the conversation is you've been talking a lot about this great rotation from kind of financial assets to hard assets, things around the energy, infrastructure, etc. What's your thesis as to why people should be considering this? >> Well, if you think about the last like 50, 60 years, especially the last 20, we were in a certain deflation regime from 2000, 1990 to 2020. And so, what that does over time
[01:30] is in Wall Street models for when you value companies, if if deflation is very certain, and it got it really climaxed in 2021, like 2021, because we had COVID, and we were in this like deflationary spiral, and then the Fed and Treasury went all in to get us out, you know, with massive fiscal. But, in that deflationary regime, if you if you look at that we talked about this in the book, um Um, how to I market speak, Uh, we look at the divi- discount model.
[02:00] Right? DCF, discounted cash flows. All that means is if if rates are zero with low inflation, certain companies like software are tremendously more valuable. So, imagine if you have a billion dollars of cash flow, right? One just one billion over 10 years in a certain deflation regime, that billion dollars is worth a lot more over 10 years, right? Now, say you have another you have another billion dollars in a certain inflation regime, it's worth
[02:30] less. Worth less over time. So, what happens is when you go into a new regime like this with a multi-polar world, global conflicts, big deficit spending, I mean, we're supposed to do a trillion dollars I'm trillion dollars on defense and now Trump wants more, right? So, that's 6% fiscal deficits versus three the past 50 years on average. So, the bottom line for everybody watching us right now, in that kind of higher interest rate regime, companies that control assets are worth more.
[03:03] Uh, whereas software companies and companies that control intellectual property, the Netflix of the world, all the software companies, in that new inflation regime, those companies are worth less. >> So, one of the things that I think we've seen from these like hyperscalers is they previously may have been considered software companies, but now they're going very hard and investing a lot of CapEx into actually owning, you know, physical assets, data centers, uh, you know, computer, etc. Um, are they doing that because they understand this from like a financialization standpoint or is that
[03:34] more so maybe from an investor's perspective you now have to question, you know, is Facebook a software company or do they own hard assets? >> Anthony, I was in San Francisco, um, in July. We hosted an elite uh, family office CIO dinner. We do this around the country. So, the Beer Trap support we host I we're hosting one tonight in New York at the Harvard Club. What we do is we get together and >> time. >> It's not me. To me, that's what the whole book's about. It's getting great
[04:05] mentors in a room and learning, right? Learning like anybody watching us right now, younger, you want to get your best mentors, take them out for coffee, take them out for dinner, and that's what we do at the Beer Trap support. That's we we gather and tell And we started hearing this in like May, June, July, and August. And the key to investing is measuring the life of a narrative. In other words, when I was a retail broker in the '90s, I was on Cape Cod,
[04:37] and um every narrative that came out of the Wall Street Journal or Wall Street research, I couldn't tell how old those narratives were. Because what what Wall Street would do is they would give the ideas to their institutional clients, and then after they're picked over, they would eventually make it to retail and then and the Barron's and the Wall Street Journal. And so, back then, and you and I were just talking about this, the way the rate of change of information that you've mastered mastered like the last 5 10
[05:07] years, monitoring that rate of change of information, if you do that in an ideas dinner setting or what we we host a Bloomberg chat with hedge funds, mutual funds, pension funds. And we can measure the life of those narratives. So, getting back to your your point about Mag 7, um I'm telling you right now, what we started to learn in like the spring and to summer was that this is a testosterone contest where Zuckerberg's
[05:38] challenging Larry Ellison. And we were One of the guys at the dinner was like really close friends with Larry. And if you look Look Larry Ellison just did, he essentially blew up his company. Fif- stock's 50% off cuz Zuck it's like it's like the Dr. Oppenheimer moment. And they're all going after each other. And so Zuck >> They're literally willing to risk implosion of their company for the potential to be a major part of this like AGI. >> 100%. Everybody wants to be first at the AGI master.
[06:08] And so what happened was is you had companies that were incredible cash cows for 20 years. So everybody watching us right now has got these stocks in their 401K. And these companies have just flipped their business model to being cash cows to capital intensive businesses, cash burning businesses. If you look at the cash burn look at Meta. They had 50 60 70 billion of free cash flow. That's going to get down to five. >> Crazy. >> Oracle had 30 billion positive and now they're probably 10 to 15 negative, right? So
[06:40] cash burning machines now trying to to build that bomb first. >> How do you know if it's worth it or not in the end? Like if if we get the benefit of hindsight later, what will you look at to say this was worth it? >> This This This Once again, this is the birth of a narrative. So this the first stage of the narrative was the big investors uh buy them. So that's why you people were chasing Oracle, they were chasing Microsoft. And that was in the in the phase where Wall Street was not intimidated by the cash burn.
[07:11] Now we're in the second stage. There's three stages of this where um well, if you look at the Mag 7 today, 14% drawdown in a bull market, right? Now, you can say and then S&P's only down five, right? Um you look at Google, 17% off new low yesterday. So the companies that are burning the cash uh people are looking at like this like a moment with the dot-coms or let's just say the better example is um the shale revolution where
[07:42] it's it's called malfeasance around like you're just malinvestment. In other words, there's such a waste of the testosterone to spend the money, there's not a lot of thought behind it around and return on invested capital. And so now we're in a stage where people are show me. You know, they want to be shown and that's why this drawdown in the Mag 7 probably lasts right now the the Nasdaq 100 was worth 34 trillion maybe 6 months ago. Now we're talking
[08:12] about 30 trillion. So 4 trillion is left and gone into energy. >> Mhm. Now, I don't get the sense that you're buying Facebook stock because you think that they are now all of a sudden like this capital intensive, you know, kind of hard asset business. So what do you see as attractive in the market when you think about this rotation from financialized assets to hard assets? >> Okay, Zuckerberg is amazing, right? This guy destroyed investors in 2022. 70% drawdown on the stock. It's like Jensen. These guys blow up investors all
[08:43] the time. Now, if you buy and hold these stocks, it's a lot like Bitcoin. It's easy to say on a Bitcoin chart or or a meta stock chart or especially Nvidia is very similar. It's easier to look at the long-term chart and say, "Wow, I you know, I I I I should have bought 10 years ago." To me, that's all If you're if you're 30 years old, you got a beautiful fiance, she wants to buy a house. These kids buy these stocks and they buy Bitcoin or whatever and they say, "Oh, I'm going to hold forever." cuz they see
[09:13] the chart in the book, you know, the and it's like such BS because nobody can weather that 70% drawdown. So Mark Zuckerberg and Jensen at So Facebook and Meta told us in 2022 that the metaverse chips and the AI chips, I'm sorry, no, I'm sorry, and the crypto chips were the future. So, right before right before the biggest AI boom in history, Jensen wasn't buying any
[09:44] any stock back. These guys were convinced that uh that meta chips, metaverse chips, and crypto chips were going to have like be the future. And then they flipped it. They brilliantly flipped it in '22 uh '20 '22 and '23. I'll give them credit for that. But, they blew up investors in '22. Like 70% drop. >> How much do you think of that was their doing versus the just the Fed height rates at the fastest pace in history and >> Okay. >> let's blame them. >> That's fair, but Zuck, if you look at what Zuckerberg did brilliantly, um
[10:14] he looked at his employee base, fat, dumb, and happy. He cut the fat uh similar to what uh Elon did at at Twitter. And uh so, Zuck, to get himself out You're absolutely right. It was it was the Fed was hiking rates and we're we We essentially went to a soft recession. But, it was it was really the company was just massively over-invested in the metaverse. Imagine having division after division and and you know, working group after
[10:44] working group after working group focused on the metaverse. That was his like dream model. That's why he changed the company to meta, which is insane cuz now you should you should change it to So, the the bottom line is this This guy's just an amazing guy because he's blown up his business a few times, and people still have incredible faith in him. So, >> when you look at um maybe let's take a Tesla, right? They've got a lot of hard assets. They've got AI injected into it. Um I think that from my perspective, I've looked at a company like that and
[11:14] said, uh I know it's going to be super volatile. I know that there's going to be mass controversy and debate over this. It reminds me a lot of Bitcoin in the early days. Um I bought some stock, and I said, "But, I'm going to hold this regardless what hap- It could go down 80%. I sized it correctly. Just like this is a thing where if this guy can pull off owning the humanoid robot market, that's worth a lot more than it's worth today, right? >> Well, that's the key of sizing the trade, right? >> Yeah, but but do you look at a business like that as like the hard assets or are
[11:44] you thinking more like go by energy infrastructure and lithium and copper and you know and and what people would consider you know kind of the old school more infrastructure blue collar type businesses? >> Yeah, it's real hard asset companies. So So when we went into this 1968 to 81 regime which we talked about in the book, it was the multipolar world, so global conflicts, Middle East, um we're coming out of a war in Vietnam where Uncle Sam and the Great Society,
[12:14] very similar today, like massive fiscal spending on the war and the Great Society, big social spending. And so in that period from 68 to 81, by the end of it all, um technology stocks became less than 6% of the S&P and materials, industrials, and energy were 49% of the S&P 500 composition. Now, in the
[12:45] book we make this point in how to listen to what markets say, but we're not going back to 49, but are we you know, are we going back to right now we're about 14 for those groups, industrials, materials, and energy? Probably 12 to 14 in the last couple years. We're going back to 30. >> So you get like the percentage of those companies is going to double and how much of that is they grow versus the tech and financial shrink? >> It's fascinating. If you look today at it just I was looking this morning at Google
[13:15] uh versus Chevron. Yeah, so Chevron's making new highs, um still a small market cap. You know what? The best trade in the world right now is for AI and energy is Schlumberger. They just did a pact with Nvidia. Schlumberger's data processing for energy companies that are exploring and controlling logistics. Schlumberger is I think I think it could be a triple quadruple
[13:45] from you can fit 70 I'm pretty sure this number you can fit 75 Schlumberger's SLB which is the dark horse unknown AI company. You can fit 75 of these in Nvidia. When >> When when you think about the precious metals and and all this stuff a lot of people talk about gold and silver but copper lithium some of these other ones seem to be much more kind of speculative but needed for a lot
[14:16] of the robotics and your space and and things like that. How do you look when you're saying okay I want to go into materials and precious metals etc. Are you just buying a basket and it's more about I want exposure or you kind of single name picking and saying hey you know actually copper is my bet or you know or this is my bet instead of just saying look give me a basket of the precious metals or or other materials? >> Well one of the things that's interesting for people watching us right now and you and I can do this tonight. Uh you just say you have an hour tonight before you go to bed just you're looking
[14:46] on chat GPT or you're looking at Grok. And you ask Grok to rebuild Iran >> Mhm. >> parts of Israel the Ukraine Gaza and throw in LA there Los Angeles with the fires right? >> Yeah. >> Over the next 10 years how much copper is going to be needed right? You're the number is and then you take that number and then you say >> How much is available in the world? >> Um exactly what's global production? The
[15:17] numbers are and then you you listen Elon right? You let's listen to Elon. Elon's saying 10 million robots >> Mhm. >> will be produced in the next 10 years. And he said he's actually said I think 40 or 50 million. 10 million robots. The copper that's needed in that, the silver um the silver electricity conductivity, the aluminum that's needed for the power grid. Well, in our trade alerts last year we
[15:47] were big buyers of the silver names, Alcoa, Timestamp trade alerts were all in on companies that are supporting the power grid for artificial intelligence, um but also supporting um the con- the copper side. >> Mhm. >> And so you just think of all the copper for robotics, all the copper for the rebuild of the power grid, which is a $2 trillion project. Um and then you just look around the rebuild wars. One of the points that Niall Ferguson makes in the
[16:18] big- beginning of my book, I'm really proud of Niall Ferguson, the Harvard laureate, best-selling author. He wrote the forward and he's like, I'll never forget we're at the we're at the Harvard Club a couple of years ago and he's like, "Larry, wars are so inflationary because it's the rebuild over the next 10 years and the demand for those strategic >> Let's Let's talk about this cuz this is actually probably area where we may not agree and I enjoy learning it when uh when I disagree with somebody. So, in the short term, I think right now people see the Iran conflict, oil prices
[16:48] spiking, there's a lot of like short-term inflationary pressures that are happening. I would argue over the medium to long term there's this massive deflationary force that's slowing the US economy. Um you get tariffs, you get deportations, you get AI and robotics, right? And those are all uh pretty deflationary. Um what I don't know is who wins that battle in the short term. So, put aside for a second the next, you know, I don't know, uh 3 to 6 months. 2 years, 3 years from now, are you more convinced that we get higher inflation
[17:18] or we get lower inflation over kind of that medium couple years. >> Okay. When I was writing the book, we sat down with Random House, we did the proposal, Patrick Robinson and James were really helpful. They were my ghostwriter partners. And that was the big pushback that we got because in the book because the second half of the book is all about inflation and hard assets. We wrote the book in 2021-22 and the pushback when there's a lot of inflation then.
[17:48] >> You guys nailed it then. >> Yeah, 2021 was was was the disinflation then 2022 was the high pick. But the bottom line the it's more terrifying terrifying part of writing the book is knowing what you're what you know is coming at us on technology around AI, around job displacement like you said, around robotics, all massive deflationary forces. Um I just think at the end of the day there's nothing in the world that can
[18:19] offset the fiscal and monetary gross disgusting irresponsibility. I mean both Republicans and Democrats uh I was watching Mark Halperin last night. He's got I I like Mark. He's a kind of I call him middle of the road guy. He's Republicans and Democrats on his show. And he had a couple of Republicans on there and and I've I've voted Republican many times and these Republicans are just all in on 6% fiscal deficits. Like 6% fiscal deficits. True that's a
[18:50] trillion eight as far as the eye can see. And that's a lot of printing and that's a lot of currency debasement and >> Which would lead to the inflation you're talking. >> Yes. Yeah. So what's I don't disagree actually with any of that. I think that what we don't know is if you talk to somebody like an Elon Musk, he keeps talking about this like supersonic tsunami of AI robotics, etc. And he had this great interview with Peter Diamandis on the Moonshots podcast and what he talked about was the government will not be able to print enough money. Actually, we'll be begging
[19:21] the government to print more money because the deflationary force is so big. Now, >> That's quite a statement. >> I think that's the question, right? Like is that right or not? And I think it's very well defined in terms of if it is not this massive deflationary force that would, you know, warrant the supersonic tsunami description and and kind of his viewpoint, yeah, of course it's going to be inflationary, right? Like they're going to print money, they're going to run this deficit. The X factor in the equation is how deflationary is AI and robotics and how quickly does it happen, right?
[19:52] And >> Right. >> I don't know what the answer is. Well, that's what Right, but I think that's what people are speculating on. >> to your last question. So, to me there could be two trades. Like we're in this what we talked about in the book is the 2020 to 2030 regime is is more certain inflation. And then somewhere around 28, 29, 30, you could get that >> Some some change. >> Big time. >> Yeah. Let's talk about dollar dominance. I think there's two different vectors here that are interesting. One is
[20:23] obviously all of the geopolitical things that have happened. We sanctioned the hell out of Russia, we went after the oligarchs. I think China has really decided, "Hey, we are going to just de-fiat ourselves and and really pour into gold." Iran obviously has a huge part of this. But the second vector is you guys recently selected Bitcoin for the portfolio for the first time. And so, I'm assuming that this stuff is all kind of related, but how do you just think about like dollar dominance in the modern, you know, environment? >> Well, first thing I do is as a team, we look at the Bitcoin gold Bitcoin ratio
[20:55] or Bitcoin to gold. Keep it simple. Uh that was like in the high 30s. And whenever and this is just 5 years of data, but whenever it's hit 13, 14, 15, you want to and I can send I can send you the chart. We can show the chart. But, it's a good time to lighten up on on gold and buy some Bitcoin. So, that's what we did cuz we were massively long gold and silver. And then also, the Brent gold to Brent
[21:26] ratio, right? That reached literally two standard deviations above the COVID level. So, now think about Think about how low Brent was, right? Brent was destroyed and so gold was this ratio of of gold versus Brent like 2 months ago reached, I mean, parabolic crazy insane level. Now, it's crashed back down cuz cuz Brent's up and gold's down. So, yeah, we look for those types of relationships. And then, at the end of the day, uh Bitcoin has become
[21:56] I think the fact that the biggest point is the fact that it made its way into the ETF model and it made its way into a more broad like the fact that Jamie Diamond was kind of uh Jamie and uh Larry Fink 5 years ago were kind of like and now they're we can Jamie still hasn't embraced it vocally, but he's embraced it within the bank. And we know what Black uh Blackstone and BlackRock, excuse me, with with Larry Fink has embraced it. So, that tells me
[22:28] those large drawdowns that we saw, those three 70% drawdowns in Bitcoin, because there's only like 30 families that control huge You should know these numbers, but supposedly there's 30 families control 60% of the flow. So, what happens is the the market goes into a risk-off. This is what happens to all these poor young kids, right? They don't get it. Like, you're long a you're long a high beta asset that moves triple what the market moves on the downside. That's why you had the three 70% drawdowns.
[22:59] And you've had these families that you go into a risk off regime, one family has a liquidity problem, they need to sell a lot of Bitcoin in a short period of time, and that's what causes these and then then selling to get selling. >> Mhm. It's like contagion risk, yeah. >> now if the the market this is like gold, like what like 75 100 years ago, as the market matures and it it broadens out, those drawdowns should get less significant. >> Mhm. >> Um so, if you think about the 370%
[23:30] >> percent drawdowns for Bitcoin in the last 7 years, gold's biggest drawdown in the last 10 years is about 22%, maybe we just crossed that again in the last week. But, go gold's still a much better store of value because it's something that you can put several million dollars into and you're not going to get those 70% drawdowns. But, I think going forward, Bitcoin's going to be far less volatile and you want to have a combination of gold, platinum,
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[26:02] track record of security and performance so that you can trade with confidence. Sign up today at archpublic.com and start your automated trading strategy for free. No catch, no hidden fees, just smarter trading. Your crypto, your exchange, your profits. Arch Public. Go to archpublic.com and tell them I sent you. >> When you start to think about the dollar dominance, so like put Bitcoin and gold aside for a second, um it does feel like there are certain people who are buying those assets on pure speculation, right? Especially in
[26:32] Bitcoin uh in the early days. Um Now, there's a lot of buying, especially gold, that doesn't seem to be very like speculative in nature. It is central banks who are using it as a defensive tool, right? They are basically saying I'm going to get rid of these treasuries, US dollars, etc. Do we have a problem? Should Should we Would you about the US dollar uh as the global reserve currency? >> we talked about this in the book where the last 10 years, Republicans and Democrats have taken a billy club and hit many
[27:04] different countries over the head. Now, the Russia example is a good one because Russia-Ukraine tragedy, Russia deserved um a very strong response. The problem is when you use your muscle, and this is what I call Washington hubris, Republicans and Democrats. Hubris is one of my favorite words because the Lehman the Lehman management team, our first book was about Lehman. It was a New York Times bestseller. It is about
[27:35] I was on the deck of the Titanic and we're heading toward the iceberg. And in like two >> You called it and said, "Hey, that there's iceberg ahead, right?" >> Well, I that's one thing one thing I great mentors. Mike Gelband saw this coming and he's he was like the star of of the book. Uh he now founded Exodus Point, which is like $8 billion fund. Mike is an amazing guy, my former boss. But, you know, I look at today and I I just think you know, that that volatility that um
[28:06] looking back to '08 and looking back to today and you know, looking at the potential for some type of large event it is high now. And so, you want to have your assets not so much in what we call financial assets. So, there's there's two things. You can have your assets in financial assets, which are bonds and and stocks. Those are just paper certificates. Um we we think that there's a big dollar moment where dollar debasement is so
[28:38] prevalent around the world. Country after country, now we're hitting punching Iran upside the head. We're going after Greenland. We obviously went into Venezuela. Both Republicans and Democrats have had this hubris around kind of disrespecting global trading partners and global partners of all kinds. Uh hitting Russia upside the head with property confiscation. So, is the natural path globally away from the dollar into hard assets
[29:08] uh the next 10 years and into things like Bitcoin? I think so with the And remember, the dollar ownership got so crazy out of whack. It was like 60, 70, 68% of global assets were in dollars, right? Like it it got really extreme to the point where we used to call it the dollar wrecking ball. Like if the dollar rallied 20, 30, you know, 15% it caused like massive disruptions in the world. And so, people got the global community got so long
[29:40] dollars in like 2018, 19, 20. And now uh this this move by the White House with Trump, all these different moves plus Democrats, Republicans, it's hubris. And yeah, and I think the dollar the dollar's going to lose control on the downside the next 10 years. >> As all of this is happening, one area where there are stress and cracks is private credit. And um I think that uh there's the headlines which are driving more concerns and leading to the redemptions and then the gating and and there's kind of like a whole psychology to it.
[30:10] But the underlying asset, are you worried about it? Do you think that there's real issues there or is this more of a psychological, you know, kind of phenomenon and and there's uh kind of maybe more panic than there is uh real concern? >> Okay, so it's not as big as the subprime mess. But >> Because of the size? >> Yeah, the size. Well, so what happened is in the um Boaz Weinstein, I really respect Sabah and uh Kieran Goodwin. Um they've been out there on Twitter
[30:41] educating people about What happened is the financial advisors of America, the Merrill Lynches of the world, Morgan Stanley, they the private credit community went into these guys offering luscious, gorgeous financial incentives for the branch managers, for the management teams to really shoehorn their financial advisors. Like if you're a financial advisor in LA, I mean we
[31:12] were out there like last summer. And the guy said in like in the last month and a half, there've been 12 different wholesalers from the private credit group that are coming in and trying to jam this garbage down the throats of financial advisors. But in order, Anthony, in order to get the financial advisors and high net worth individuals and you know, I don't want to say dumb money but in every cycle um
[31:42] there's early money and late money into an asset class. And so they needed that last stage of liquidity to provide exit liquidity for some of the early investors and they promised these financial advisors and their clients quarterly liquidity on an asset that is disgustingly illiquid. Because imagine a private credit portfolio This is like a basket of like
[32:12] 150, 200 companies that are all around the United States. They're not publicly traded. Uh their their financials are okay. We Who knows? Mystery meat. And um when I sat down with Charlie Munger, he said um you know, just that the hubris that you see coming into markets and in bull markets that can really get out of hand. So, the bottom line with private credit is
[32:43] this quarterly liquidity creating these gates. All that means for for people watching us right now is because they promised this group of people quarterly liquidity um the gates are typically 5%. And what we've seen across like seven different uh private credit players, the demand for the uh liquidity is like 10 15%. So, you So, people want 15% of the people want the money back, but they're only giving 5% per quarter.
[33:14] And that's where it creates more of a run. And that's cuz people see that and then say, "Hey, wait, wait, wait, wait. Let me get first in line, right?" >> Yeah. And they exactly then then that spills over to high yield. >> And credit like the Greek legendary like Greek word for credit, credete, is is about trust. And what's amazing about Lehman and the financial crisis in my my first book is that the trust when it breaks, it waterfalls because it's just like a massive run on the bank. Um in this
[33:44] case, there's a run on all those business development companies and and the KKR's the private credit and the and the and the private equity companies that went all in on this space. And now that's spilling over to the banks. Like look at the financials this year. The financials are underperforming the S&P by the most since almost Lehman. >> Mhm. When um when you think about uh private credit having these cracks, let's say that there are real concerns there and the marks are wrong and and kind of all the things that are alleged are true. Does that mean private equity
[34:15] also has issue? Because if private credit sitting at the top of the stack has the issue, what about the guys underneath? Like is the equity worth zero? >> It It's right. It's Well, now Now, when you say that, you're 100% right around like like if you look at a normal company will have private credit. It's It's still sitting above private equity. The good news for private equity is there is a good chunk of it that um is not leveraged. There's some some chunk of it. This is where somebody has to do the math. Like So, in other words,
[34:46] let's just say you have a trillion dollars of private equity. I'd say at least 40% of that, those companies are pretty leveraged. Maybe maybe maybe 60%. Um there'll be some slug of that that's not really leveraged. So, yeah, on the 60% of the of that just trillion-dollar slice, 65%. Yeah, there's private private credit above and it's just going to cram down the value of private equity. And that's why you're seeing KKR, Blackstone, um all these companies are down like
[35:18] 40, 50, 60%. >> Mhm. >> on the on the threat equity side. >> Mhm. It um as I watch this all play out, it then brings me back to okay, if you're an investor and you're watching a transition from financials or financialized type of software, etc., to hard assets, private credit has cracks, uh the US dollar is trash, um treasuries did the exact opposite what everyone thought would happen with the conflict.
[35:48] Um Where do you go? Right? Like is it just literally find hard assets and it's, you know, real estate, gold, Bitcoin, and and those types of assets? >> Well, when I sat down, so I sat down with some great people in the book. I sat down with David Tepper, um Einhorn, Hall of Famer David Greenlight Capital. But I was in Omaha with Charlie Munger and uh I'll never forget, he said, "Larry, always be aware beware of the three L's."
[36:18] I said, "Charlie, what are the three L's?" Said, "Liquor, ladies, and leverage." And then I was laughing and he was he and he talked just talked about the cycles of like about and like he he's almost talking about the future around like private credit which is it's just another version of other instances. And then he said there's only there's only one thing worse than the three L's. It's the three M's. I said, "Charlie, what what what what are the three M's?" He said, "Mark to
[36:48] market, mark to model, and mark to myth." >> Mhm. >> And the point is is that those three L's and those three M's go back 50, 60, 70 years and history just repeats. It's just a different flavor every time. >> Can we get prolonged recessions in the United States? Like one of my theories has always been for now a couple years, we've pretty much outlawed these things, right? If we get some sort of big next global financial crisis, the central bank, you know, they dust off the old
[37:18] playbook, they got it. We're going to go interest rates to zero, we're going to print trillions of dollars. We know we'll destroy the dollar over the long run, but I promise guys, be careful, you know, the stock market will be back to all-time highs before the end of the year. Agree with that or no? >> Well, I would say right now, if you think about trade, two-year treasuries have gone this vicious sell-off. So, interest rates are up on two-year treasuries, bond prices are down, and I'm seeing some of the most sophisticated institutional clients
[37:48] buying twos here because of this private credit situation. If Trump tries to do the off-ramp, um this time the off-ramp is coming into a private credit crisis. It's coming into a crisis where oil's made this big move, crunched the consumer, and then AI is disrupting lots of jobs. So, that's like you said, that brings on recession risk. Goldman just went from like 10 15% to 30% in terms of recession probability.
[38:18] Uh when you >> By the way, when that happens, I have to remind everyone cuz they did, you know, a bunch of these guys, the prediction markets are up, etc. Even if you're at 30% or 40%, it still means that there's a higher probability that we don't get the recession, right? It's only after 50% is it more likely than not. >> Right. No, you're 100% right. The direction of travel is still important. Yeah, when you're when you're in that little zone, yeah, there's a there's a zone there that you're talking about. You're 100% right. But, I think that the street is caught off guard on the private credit thing. And so, the bottom line is, yeah, the next recession
[38:50] they go they go all in, they cut rates aggressively. That's why if you buy twos here, if you buy a two-year bond or three-year, no, a three-year a three-year treasury, um you're getting close to 4.5% but if the bond if if if interest rates go down, the bond price could go up. So, you can actually make 10% in in short-term treasuries now, if we go into a hard landing. So, that's one thing I'm seeing people do. But then, to your point, is the next time we go in,
[39:20] the debt-to-GDP is when Lehman went down, debt-to-GDP was 75-80%, right? Now, we're going in at 120-125%. So, what that means is when they do the QE lever this time, uh the hits to the dollar is worse. That's why that's why I think we're coming into this golden age of hard assets or companies that control assets. Your energy sector, your industrials, your materials are probably going to go from 12% to 14% of the S&P to maybe 30% of
[39:52] the S&P over the next 5 years because of what you just just talked about. >> What are you concerned about right now, um in financial markets that maybe other people are not thinking about? Is there anything that you're like, "Hey, this is a huge red flag to me, but I don't hear people talking about it?" >> Um you know, the the job loss thing on AI people have started to talk about, but like you could you could have like hundreds of thousands of job losses later on the year from disruption that comes in from just look at companies like Expedia. Um
[40:23] There's a lot of companies that could really get wiped out. Um Then I think that central banks uh ownership of different assets right? So ownership of treasuries uh the UK I think is a big situation, right? Uh Nigel Farage is probably going to be the next prime minister. But they're like a much dirtier shirt than the United States. So they've already had that Liz Truss moment. All that
[40:54] means is they're kind of they've got this the situation with natural gas and LNG in Europe is much worse. So it's causing much more inflation. So the UK could have like a real sovereign crisis because they're going into recession, they're really levered. The central bank wants to hike rates. The last time that happened was the Liz Truss moment where the natural tendency of central banks is when the inflation spikes because of say energy they try to hike rates to slow down
[41:26] things. And when you do that, when you're really that levered, you could have a run on like a UK situation where people really panic out of the government bonds of say the United Kingdom and that potentially hit that potentially would help to your treasuries because people would run into twos the short term. That would help the dollar a little bit for the short term. That's my my wild card. >> If somebody buys the book, what are they going to learn? >> They're going to learn about great mentors, building relationships,
[41:56] inspiration about you know, I was I started off as a pork chop salesman off of Cape Cod. I mean uh I'm no brainiac. I just I work really hard at building relationships, building great mentors. The book It's It's a little bit more complex than the my my first book. The first book anybody could read. This book has very entertaining parts of it. But also some complex parts. But people are just going to learn like 30 years of investing secrets
[42:28] that I've gathered from all the great mentors. >> Well, I hope people go and pick it up. The book is how to listen when markets speak and your first one was excellent. So I'm assuming this one is good too. Thank you and sorry about the book plugs, but I tell my wife hey if you're not plugging then no one's going to buy it. >> As a former Lehman trader over Sunday brunch say honey if we sell a million books we'll break even on our Lehman stock. >> All right, thank you very much. We'll do it again. All right. Good to see you my
[42:58] friend.