GuShiio.com The Trump administration is currently implementing a “financial crackdown” to drive interest rates below the inflation rate.
Compiled by: Xu Chao, What to See on Wall Street
According to Larry McDonald, a former Lehman trader and founder of Bear Traps Report, the Trump administration is deliberately triggering an economic recession to solve (alleviate) the United States ‘$36 trillion debt problem.
Larry McDonald said in an interview released on March 3 that if interest rates remain at current levels, interest on U.S. debt next year will reach $1.2 trillion to $1.3 trillion. This is much more than defense spending. So Trump needs to lower interest rates. If they can reduce interest rates by 1%, they can save nearly $400 billion in interest next year.
No inflation cycle with inflation above 6% can end without unemployment reaching 5%, 6%, or even 8%. The U.S. government cannot curb inflation through large-scale fiscal spending, and the Trump team knows this. They need to trigger a recession so that interest rates can be lowered and debt maturity can be extended.
Larry McDonald warned that the United States is now in a period when interest rates will remain high even if it enters a recession. This is a very typical period of stagflation. This is much like the situation from 1968 to 1981, when the market was basically flat. But commodities, hard assets and companies with underground assets: these are the ones that protect against inflation.
The following are the core points of the interview:
Currently, the top 10% of consumers in the United States bear 60% of consumption, because the bottom 0% of consumers have been hit hard.
With the top 10% of consumers responsible for 60% of consumption, it is almost impossible to reduce interest rates and inflation without depressing asset prices. The Trump team is actually trying to push up interest rates and drive down asset prices.
In terms of U.S. debt interest rates, if interest rates remain at current levels, next year’s debt interest rates will reach US$1.2 trillion to US$1.3 trillion. This is much more than defense spending.
So Trump needed to lower interest rates, and they were very urgent and even panicked. If they can cut interest rates by 1%, they can save nearly $400 billion in interest next year.
The reason why the U.S. Treasury has not yet begun to extend debt maturities, that is, convert short-term bonds to 10-or 20-year bonds, is because they want to lower interest rates before doing so. They need to lower interest rates by 100 basis points so they can extend the maturity of their debt and then save about $400 billion in interest.
No inflation cycle with inflation above 6% can end without unemployment reaching 5%, 6%, or even 8%. You cannot curb inflation through massive fiscal spending, and the Trump team knows this. They need to trigger a recession so that interest rates can be lowered and debt maturity can be extended.
After Trump was elected, the U.S. bond market incorporated many growth expectations into its pricing, and the yield curve (treasury bond yield curve) became steep. Markets are currently trying to absorb (recession expectations), the transition from a steep yield curve to a sharp flattening of the yield curve now.
When Bill Ackerman came forward and said that the U.S. economy might grow by only 1%, it showed he was short, and he was basically betting on a recession.
The U.S. stock market is also signaling recession, with consumer necessities stocks (these are recession-resistant stocks) performing significantly better than consumer discretionary stocks in the past 3-4 weeks.
Copper is currently experiencing a capitulation. Copper prices fall sharply whenever there is an economic slowdown. But the current situation is that copper faces serious supply problems, and demand from data centers and post-war reconstruction may lead to a very large supply and demand gap. Investing in copper stocks can be very cost-effective at present.
The post-war reconstruction of Russia and Ukraine will lead to inflation, and the restructuring of global supply chains will also push up inflation. So the United States is now in a period when interest rates will remain high even if it enters a recession. This is a very typical period of stagflation. This is much like the situation from 1968 to 1981, when the market was basically flat. But commodities, hard assets and companies with underground assets: these are the ones that protect against inflation.
The real reason for the strength of the U.S. economy and U.S. exceptionalism is that the U.S. has a fiscal deficit rate of 7%, compared with only 3% in other developed countries.
The message that Musk and Trump have released over the past two weeks has basically been that they want to cut spending by $1 trillion. But to avoid triggering a very severe recession, they are trying to phase it out over five to 10 years.
Unfortunately, when U.S. fiscal spending is at such a high level and Musk reverses this trend so quickly, it triggers a very vicious cyclical shift that could be very bad for the market.
From a portfolio perspective, referring to the period of high interest rates and high inflation from 1968 to 1981, the 60/40 equity bond strategy may no longer be appropriate, and investors need a higher proportion of commodity allocation.
The Trump administration is currently implementing a financial crackdown to drive interest rates below the inflation rate. He would talk to U.S. allies to buy more U.S. debt at lower interest rates. They will also ask bank regulators to force U.S. banks to buy more U.S. Treasuries.
This is the only way out of the US$36 trillion to US$37 trillion debt dilemma, and there is no other way but to default on the debt.
The following is the full text of the interview
Host: Larry McDonald, founder of “The Bear Traps Report” and author of your latest book,”How to Listen to the Voice of Markets: Volatility Reshapes Risks and Investment Opportunities in the Economy.” Of course, you are also an old friend of our program. It’s really been too long since we communicated with you.
We haven’t invited you since your new book came out last year. But, God, Larry, I think this is the right time. Nice to meet you.
Considering what is happening in the economy and markets, I can’t think of a more suitable guest than you. It’s nice to meet you. It’s really great.
Larry McDonald:
Thanks for inviting me. It has been an incredible year. Some points in the book are beginning to emerge, such as continued high inflation and a shift to value investing and hard assets, with gold outperforming the Nasdaq index. I am very pleased to see that these views have been verified.
Host: Yes, the timing is just right. Like I said just now, I can’t think of a more suitable guest than you. Because we haven’t invited you for a while, and our program has developed a lot since then. Some of the audience may be listening to you for the first time, and I look forward to taking this opportunity to get to know you.
However, let us take a step back, focus on the overall situation, and talk about the overall framework. What situation are we in now? Maybe you can talk more about your prospects. Larry, you know, you can elaborate slowly, set the stage for us, and then we can delve into some of the topics and clues that arise.
Larry McDonald:
Okay. What we discuss in “How to Listen to the Voice of Markets” is the fiscal and monetary response to the Lehman Brothers incident (approximately $4 trillion), as well as responses to the COVID-19 epidemic, the 2023 regional banking crisis and elections. A lot of fiscal money was invested during the election period, and a $1.9 trillion stimulus plan was launched last year.
Then in the first quarter of this year, the Biden administration spent another $800 billion before leaving office, which was deficit spending rather than spending backed by corresponding funds.
So if you add that up, basically over the past five quarters, there has been $1.9 trillion in deficit spending, and then another $800 billion. They do this because in an election year, they are trying to avoid a severe recession.
They have created a lot of persistent inflationary pressures, and now it can be said that these pressures are beginning to show their bad side. Now Trump is forced to try to reduce inflation through various means we call financial oppression. We can explore this issue in depth.
But in the end, the rich are doing well because interest rates have risen and they are making a lot of money saving. Here’s an unbelievable situation.
This is the most important situation this week. Now, the top 10% of consumers bear 60% of consumption. So the top 10% of consumers now bear 60% of consumption, because the bottom 0% of consumers have been hit hard.
You can see this in many different companies, and there is a lot of evidence to prove it. So the rich are doing well because they can make an extra 300 basis points on money market funds. Their asset prices have risen sharply and their wealth has increased significantly.
But Greenspan talked about the wealth effect in the 1990s.
That’s why we need to talk about the wealth effect this week, because what actually happens is that because the top 10% of consumers bear 60% of consumption, it’s almost impossible to reduce interest rates and inflation without depressing asset prices. So ultimately, I think what the Trump team is trying to do by raising interest rates and other means is that they are actually trying to push up interest rates, and by doing so, they will drive down asset prices.
Host: Okay. This provides a good framework for our discussion. I didn’t know and ignored this point, which is that the top 10% of consumers bear 60% of consumption.
Wow, this shows me how distorted the economic situation is. You know, when you talk about the people who really benefit from these policies and the people who don’t. So when we talk about the economy, some people will say that the economy is fine or something, but when you start to study carefully, for example, what makes up the economy, maybe the situation is not as optimistic as you think.
Larry McDonald:
Yes, if you look at companies like Dollar General that cater to the bottom 60% of consumers, almost every such company is in a pretty difficult situation. As for companies that target high-end consumers, especially airlines.
Airlines have been very profitable this year, and any company that serves high-end American Express card customers is doing a good job. I think the current situation is that in terms of debt interest, if interest rates remain at current levels, debt interest rates next year will reach US$1.2 trillion to US$1.3 trillion. This is much more than defense spending.
So they needed to lower interest rates, and they were very urgent and even panicked. And to do that, if they can cut interest rates by 1%, they can save nearly $400 billion in interest next year.
Larry McDonald:
When Janet Yellen was Treasury secretary in an election year last year, she didn’t want big swings in the bond market. So she issued two standard deviations more Treasury bonds than short-term bonds. When you issue treasury bonds, their prices don’t fluctuate much.
Imagine if you and I had to borrow $5 trillion. If you issue these $5 trillion in treasury bonds, there will be almost no fluctuations in them, right? Because they expire within a year. But if you issue $5 trillion in long-term bonds, their prices will fluctuate like this, right? This brings us back to the issue of interest rates.
The Trump administration and some people close to him criticized Yellen for issuing so many bonds during the recession. In the past few years, the amount of government bonds issued has actually been two standard deviations more than normal.
So we now have a lot of short-term debt. That’s what emerging market countries do, right? So they have been criticizing Yellen.
But guess what, so far, they haven’t started to extend the maturity of their debt, which means converting short-term bonds to 10-or 20-year bonds. But guess what? They want to lower interest rates before doing so.
They want to lower interest rates. That’s why they are trying to use these tariff measures to suppress the market. Every time the market rises, Trump steps in.
It’s like he has more means to take more severe measures, right? This is what is happening. They need to lower interest rates by 100 basis points so they can extend the maturity of their debt and then save about $400 billion in interest.
Host: This is very interesting. Okay, so let’s talk about tariffs as a means to achieve this goal. I want to hear more about this. Yes, let’s start from the perspective of tariffs as a means of lowering interest rates.
Larry McDonald:
Yes, tariffs do have inflationary factors, but in the short term, they will also lead to large-scale economic contraction because they will bring various uncertainties.
And it’s not just a tariff issue. The intensity of these Immigration Enforcement Actions (ICE) has also made the labor market very uneasy. Imagine if you were a company and you hired immigrant workers, and now ICE enforcement is increasing, these enforcement actions.
So ICE’s enforcement actions will drive out immigrants to a certain extent, which will cause labor to be lost from the economy, which is inflationary, but from another perspective, it will also cause the economy to shrink because companies cannot operate as efficiently as they used to. Then in terms of tariffs, when you impose tariffs on other countries, it slows down economic growth because chief financial officers (CFOs) cannot make decisions.
You know, with the uncertainty of tariffs, no CFO can really make decisions right now. So they had to start cutting labor and hiring less. That’s why you’ll see an additional 20,000 more initial jobless claims this week, one of the largest increases in years.
Host: So do you think we are on a path where some kind of negative growth accident may occur? Do you think we have a chance of heading for a recession? What more do you think about the economic outlook?
Larry McDonald:
Yes. If they can slow economic growth, remember, Stan Druckenmiller, one of my favorite investors of all time, whose view is that no inflation cycle with inflation above 6% can end without unemployment reaching 5%, 6%, or even 8%.
You can’t curb inflation through massive fiscal spending, you just can’t do it, and that’s what Biden’s team is trying to do. This will only hurt ordinary people, as consumers at the bottom are overwhelmed by inflation.
So the Trump team knows this. They need to trigger a recession so that interest rates can be lowered and debt maturity can be extended.
And it would actually make the playing field more level, because if inflation fell, it would actually be better for the bottom 60% of consumers, right? So they want to reduce inflation, and that’s what they’re trying to do.
They are basically trying to move slowly towards recession. That’s why the market has behaved so strangely this week because everyone is digesting it.
Host: You are right, the market did behave strangely this week. What message do you think the market is sending? I mean, you can even factor in the sharp decline in Bitcoin. What exactly does the market want to express?
Larry McDonald:
Well, think about the past four years, right? The market has gone through three different trends. If you look at a Bank of America survey a month ago, the probability of a hard landing is less than 3%. In 2022, this probability is almost 40%, and in early 2023 it dropped to less than 5%, about 4% to 5%.
So we’re talking about the probability of a hard landing in the minds of investors in the Bank of America survey. Over the past three or four years, this probability has fluctuated back and forth like a tennis ball. So what happened three weeks ago, four weeks ago? With a market-friendly presidential candidate winning the election, market expectations for growth and earnings are really high.
At that time, the market included many growth expectations in pricing, and the yield curve (Treasury yield curve) became steep. So when you look at the yields on two-year and ten-year bonds, the yield curve really got steep after Trump was elected, which suggests that the market is looking for high growth.
But in the end, the Trump team knew behind the scenes that there were these structural problems in the Treasury bond market.
We have to extend the maturity of our debt, and there is serious inequality, and inflation is hurting the bottom 60% of consumers. So now the market is trying to absorb this transition from large-scale growth expectations and a steep yield curve to the current sharply flattening yield curve.
In the silver market and interest rate futures markets, the risk of a recession has been priced. We are moving from large-scale expectations of GDP growth of 5% and 6% to a possible economic contraction.
Bill Ackman said this last week, and last Friday he also said that we originally expected GDP growth of 4%, 5%, but now he expects growth of only 1%. He is chief investment officer of Pershing Square Capital Management, a well-known fund manager and one of the most respected investors of all time. I like Bill Ackerman a lot, he’s your friend, and he’s done well on this show.
But, you know, Bill Ackerman came out and said these things, and first of all, it showed that he didn’t think the situation was optimistic. He is one of the greatest investors of the past 30 years, which suggests he is short, and he is basically betting on a recession.
Host: Yes. Steve Cohen also does not speak publicly often. It would be great if he could come on our show, and I would convey this wish to the outside world, but he doesn’t come out often and talk about these things, and he’s one of the greatest traders of all time. Okay, you mentioned the yield curve, can you talk about the actual situation? How do changes in the yield curve have to do with signs of a recession? Is this also one of the signs of recession?
Larry McDonald:
Yes. We have a model, we have a model of market sentiment, and we also have a model to measure the rate of change in the yield curve and the change in oil prices. We will also focus on transportation stocks.
If you look at the past three or four weeks, whenever you see transportation stocks lagging significantly behind, and at the same time, consumer necessities stocks (these are recession-resistant stocks) have outperformed consumer discretionary stocks. At the same time, the bond market experienced violent fluctuations and the yield curve flattened.
At the same time, oil prices fell. When these four factors appear at the same time, if you use our model to measure their rates of change, you get a very strong signal, because the last time we saw this type of signal was in February 2020. We also talked about this issue in the book. The market has a very keen sense of smell.
At the end of February 2020, the stock market was still rising, but transportation stocks fell sharply, and bond prices of companies that are sensitive to the economy also fell sharply.
Oil prices fell, and consumer necessities stocks, such as companies like P & G, cosmetics, alcohol and other things you need in life, where these recession-fighting stocks are located, performed significantly better than the S & P Consumer Nonessential Goods Select Industry Index (XLP).
So when these four factors occur at the same time and change rapidly in the same direction, it tells us where the market is going, and the market is sending us messages every day that these signals indicate that the probability of a recession is rising significantly.
Host: Okay. You mentioned capitulation, and I would love to hear more about it. Are we preparing for more capitulation selling? Are we starting to see this?
Larry McDonald:
Are we preparing for more situations? Well, in some respects, there have been quite serious capitulation selling, such as a sharp fall in copper-related stock prices.
If you think so, let me give you an interesting example of a transaction. Copper prices have been suppressed because think about cognitive dissonance, right? This means when you have two opposing beliefs. The market is like a human being, over the past 40 years, whenever we have had an economic slowdown, copper prices have dropped sharply, just like they did when Lehman Brothers collapsed.
So investors who are watching our show right now have the experience that investing in copper can bring a bad experience when the economy slows down.
But this time the situation is completely different for two reasons. First, compared with the past three decades, new mining of major copper mines around the world may have dropped by 70%, which means that the number of new copper mines launched has dropped significantly. So we have serious supply problems because we are seriously under-investing in this area.
But this is only part of the reason. Think about it, take the reconstruction of Ukraine, for example. You can search on ChatGPT to see how many buildings and infrastructure Ukraine needs to rebuild, and then think about Los Angeles, the Gaza Strip and other places.
You will find that there will be massive reconstruction over the next five years, which will require large amounts of copper and other metals. Then look at the spending of the seven major technology giants (MAG Seven (Microsoft, Apple, Google, Amazon, Nvidia, Meta and Tesla) in data centers. It’s like a fierce competition.
They are all competing with each other, trying to outdo each other. Microsoft plans to spend $80 billion this year, up from $40 billion last year. Zuckerberg of Meta (formerly Facebook) is also showing off. I think they plan to spend $55 billion this year.
If you do the math, their spending will reach about $2 trillion in the next few years. Think about it, what are the main commodities used in data center construction? It’s copper. So now that everyone is investing frantically in artificial intelligence-related projects, you should also invest in copper-related stocks.
The prices of these copper-related stocks, such as Teck Resources, Freeport-McMoRan, and COPX, have fallen by 30% to 40%. You are in a very favorable position now because of the severe underinvestment in copper around the world over the years, which has resulted in the suppression of copper supply.
If we look at the capital expenditures in the copper and oil and gas industries from 2010 to 2014, if you compare the situation during that period with the present situation, our investment gap in this area is about US$2 trillion to US$3 trillion. That is to say, we are seriously under-invested in this area. This is because all capital expenditures go to artificial intelligence. Our power grid in the United States is 50 years old in some places and 30 years old in some places. So we’re going to apply all this investment in technology to an old power grid.
The power grid is dilapidated and needs to be rebuilt. This is a $2 trillion project involving hard assets such as copper and aluminum. This is the investment direction for the next five to ten years.
Host: So these are the hard assets you are optimistic about now. This is also a theme in your book. Judging from our conversation, it feels like a large part of the Western world’s resources are not reasonably allocated. Maybe as you said in your book, the world has changed. Many people watching this show may not know this concept, but it can be said that it is a bit like the Fourth Turning in the financial field. Can you elaborate on this point in more detail?
Larry McDonald:
Yes, well, we moved 100,000 of the 5 million jobs in the United States to around the world. So we have greatly improved living standards around the world, but we have also contributed to the decline of the American Rust Belt. So what’s happening now is, in the Rust Belt, when fathers come home to their children, they might have had a job that would make $150,000 a year, but now they have to work in restaurants with an annual salary of $30,000,$40,000 or $50,000.
With such tremendous structural changes taking place in the United States, we have made life difficult for many working classes through inflation and job exodus.
Today’s world is more diverse. Over the past 20 years, we have lived in a unique world landscape, where the United States is the most powerful country and there is almost no war. But now we have two wars going on, which makes supply chains unable to function effectively. War brings great inflation. I have spoken with Neil Ferguson, David Tepper, and David Einhorn in the book.
They all told me that the war will continue to cause inflation for many years because of post-war reconstruction, such as infrastructure reconstruction in Ukraine. This will cause inflation to remain high for years to come.
And because we have politically ignored the Rust Belt, we need to restore all these jobs and bring them back to the United States. So we are bringing semiconductor jobs back to the United States. When you rearrange the supply chain, it brings more inflation.
So we are now in a period when interest rates will remain high even if we enter a recession. This is a very typical period of stagflation. This is much like the situation from 1968 to 1981, when the market was basically flat. But commodities, hard assets and companies with underground assets: these are the things that will keep you resilient against inflation.
If you look at the discounted cash flow model (DCF model), we call it the discounted cash flow. In an environment where deflationary expectations are stable and inflation is low, software companies or technology growth stocks will perform well. Between 2010 and 2020, it was a typical period of deflation, and it was not just deflation.
During that period, the certainty of deflation was very high. But starting in 2020, we are facing higher inflation expectations and more certain inflation trends.
If you use a discounted cash flow model, consider inflation, mainly looking at interest rates. If interest rates and inflation are high, then portfolio managers around the world will want to hold stocks in companies like BHP and Rio Tinto, they want to hold gold, they want to hold assets.
They want to hold shares in companies that own resources such as oil and copper. In the economic environment of a high-inflation, diversified world from 1968 to 1981, these different types of stocks performed well, while portfolio models shifted from 2010 to 2020.
Host: Okay, it sounds. Our inflation may persist, and in a stagflation environment, this is the most difficult period for all asset classes, but do you think we should allocate hard assets if we may face a recession, what else?
Larry McDonald:
Yes, in the first stage, we mainly have inflation problems and inequality problems. They need to reduce inflation.
They need to reduce inflation. So they need to trigger an economic slowdown, or they are trying to do that through measures such as tariffs and immigration enforcement.
They want to spread the pain as much as possible, and we have a close relationship with the team in Washington. When you talk to people who are close to Trump or Yellen, they want to have pain, but want it to be as far away from the middle class as possible, right?
They need pain to reduce inflation. But this means that because inflation is like a problem hidden under the carpet, it will not disappear easily. So this means that inflation will persist as the economy slows down, and as in the world from 1968 to 1981, stagflation is really starting to manifest itself.
Just look at the performance of growth stocks and value stocks. There have been big changes in the past three weeks, such as value stocks significantly outpacing growth stocks. Gold mining companies outperformed the Nasdaq index. Looking at the comparison between Enbridge and Microsoft, Enbridge performed 40% better than Microsoft last year, something that hasn’t happened since the 1980s.
Onkyo performed 38% better than Microsoft last year, unprecedented since the 1980s. That’s why we’re going back to an era that required a completely different approach to portfolio construction.
Host: Okay. By the way, maybe this sounds like we need to endure some pain in the short term to solve some long-term challenges.
Larry McDonald:
Exactly. This is what Musk and Trump are trying to achieve. I mean, think about what they said this week.
What they said was so crazy, I’m not even sure if they really meant it. They basically told us very firmly that they were going to cut spending by $1 trillion. So now our annual spending is $7 trillion, and Musk said we want to bring that down to $6 trillion.
You can’t do this in a year. The fiscal deficit we are talking about now is about 7% of GDP, while the average level in developed countries is about 3%.
So the core view of American exceptionalism has basically become, oh, we can spend at a fiscal deficit rate of 7%, compared with 3% in other developed countries. This is the reason for the strength of the U.S. economy and American exceptionalism.
But if you try to reduce total spending from $7 trillion a year to $6 trillion, you will trigger a very severe recession. So what they’re trying to do should be phased in over 5 to 10 years, because unfortunately, when your fiscal spending is at such a high level and you reverse that trend so quickly, it triggers a very vicious cyclical shift that can be very bad for the market.
Host: Yes, you did mention that we needed a different portfolio structure. Can you remind everyone what kind of structure this will be? It’s no longer a combination of 60% stocks and 40% bonds. From your perspective, what does the new portfolio structure look like?
Larry McDonald:
Well, yes, it may be 40% stocks, 40% bonds and 20% commodities, or 35% or 35%. We have a higher proportion of commodity allocation models. Just remember that from 1968 to 1981, when we experienced the diverse world pattern of high interest rates, high inflation, and the Vietnam War.
At the end of that period, 49% of the S & P 500 stocks were industrial, oil, natural gas and materials stocks. In the past few years, this proportion has dropped to 12%. So we don’t think there’s going to be a return to 49%, but if you look at the chart of industrial stocks, industrial stocks have performed well over the past three or four years compared to the Nasdaq, and that performance is accelerating.
So like industrial ETFs (such as ETFs that represent industrial stocks), which is something you should be watching, there are also oil and gas ETFs (XLO) and materials ETFs (XMI).
So oil and gas, materials and industrial stocks have accounted for about 12% of the S & P 500 in recent years, and all the money has gone to technology stocks, right?
If this changes, the share of oil and gas, industrial and materials stocks in the S & P 500 index could rise from 12% to 14% five years from now, and we believe this ratio will eventually be close to 25% to 30% of the S & P 500 index. This is the new portfolio structure you need.
Host: Yes, I’m sorry. I’ve always loved inviting you to the show. It’s been a long time since I invited you, and like I said, it’s great to invite you this week. I know the audience will love this weekend special. Before it ends.
There are a few things. Everyone go buy Larry’s book. I saw on social media that you were on a book tour. If you haven’t read this book, if you haven’t read “How to Listen to the Voice of the Market”, please buy it and read it.
Let me tell you, I listened to the audio version and it was really great because I especially liked the conversations you captured in the book. Let everyone know that obviously we need to promote this book. Tell me more about the Bear Market Trap Report. I know you have a great community. Then share some final thoughts. What do you want the audience to think about? Now it’s your turn to speak.
Larry McDonald:
Thank you so much. You know, I’m proud to start out in the financial retail business. We wrote a book about Lehman Brothers, made it on the New York Times bestseller list, and has now been translated and published in 12 languages.
I realized that doing a book speaking tour makes about 10 times more money than writing a book because publishers make a lot of money. But the best part is getting to know a lot of people. In the past ten years, we have been to London six times, Toronto, Vancouver six times, Boston, New York, and Miami.
We have just returned from Geneva. We created a Bloomberg chat group, which was kind of like collecting information from very smart investors. These investors come from hedge funds, mutual funds and pension funds. What we do is collect information and provide investors with a perspective on market conversations.
That means we’ll be focusing on what billionaires, professionals and industry people are talking about and focusing on this week. So we have Bloomberg chats with the best institutional investors every week and summarize them in the Bear Market Trap Report. This is not an ordinary newsletter.
This is not something written by someone sitting on the lake of Michigan. This is information gleaned from the best investors in the world. We want to democratize information and share it with small investors. I want to conclude by saying that I just came back from an event hosted by Whales and Position, which was a great group with a lot of interesting people.
Saul Tannenbaum, Post, Chim, Bionico were all there. It’s great that there are many excellent strategists as guest speakers, as well as many famous fund managers. So it was a mixed gathering of strategists and fundamental analysts, and everyone talked for 40 minutes. I gathered a lot of information from that meeting and the various idea dinners we hosted. I have hosted many of these dinners around the world, such as in Miami and New York. What we do is talk to investors and find out what they really think about the current market.
At first, like in September and October, we knew that the Treasury Department was meeting with various hedge funds. But the situation was still unclear at the time. It is now clear what path they are taking, which is so-called financial suppression.
They hope to manipulate interest rates to keep them below the inflation rate. By manipulating interest rates, like talking to our trading partners, like Canada, Mexico, or more to Japan, Germany, you have to buy more U.S. Treasuries at lower rates, if you want to be our ally, you have to do this. By the way, they will also ask bank regulators to force U.S. banks to buy more U.S. Treasuries.
This is financial repression, an attempt to drive interest rates below the inflation rate. This is the only way out of the $36 trillion to $37 trillion debt dilemma, and there is no other way than default (we call it a debt default). We’ve discussed a lot of these stories, but it goes back to……
Host: Go back to what the Bible says or solve the problem through financial suppression, by lowering interest rates below the inflation rate over time. I think this is the agenda of the Trump administration’s Treasury Department, and I think the Federal Reserve thinks the same. Wow.
Host: Thank you very much. Seriously, I feel like I have learned a lot from you in this half hour, and I know the audience must feel the same way.
Host: You are always welcome to our channel, and we are happy to invite you, Larry McDonald, founder of Bear Market Trap Report and author of multiple books, including How to Listen to the Voice of the Market and The Collapse of Common Sense: The Story of Lehman Brothers (a wonderful book that made the New York Times bestseller list, and I learned a lot about you from it). Larry, thank you so much for taking the time. It’s always a pleasure to communicate with you. I really appreciate it. I hope you have a good weekend. See you next time and take care.
Larry McDonald:
Have a nice weekend too.
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