GOLD To Benefit From US Dollar Decline (Uncut) 02-06-2025

GOLD To Benefit From US Dollar Decline, Bears With Upper Hand | Lawrence McDonald

These are the types of crazy, crazy things that are going on out there. That’s why you’re seeing this bonds rally in the last couple of weeks, because this is starting to leak out. The last thing, which we got to get into, is the other big, big factors.

The descent team is starting to look at the U.S. asset side of the balance sheet. What are our assets? Everybody’s focused on liabilities. Everybody’s focused on debt, and I’ve been guilty of that.

But there are tremendous assets. Do you know that the United States has $800 billion of gold, and it’s been marked at $42? And if you market to market where it is now, it’s worth $800 billion. Hello and welcome to Soar Financially, a channel where we discuss the macro to understand the micro.

My name is Kai Hoffman, I’m the Ed.J.R. Mining guy over on X, and of course, your host of this channel. And I’m really looking forward to catching up with Larry McDonald again. He was a guest about six months ago on the channel, and a lot has changed.

As you know, new president of the White House, a lot of economic indicators have changed as well. And I’ve noticed yesterday, we haven’t talked about a recession in a long time. So we’ll catch up with Larry, see if the great migration of financial, or of money has set in yet.

We’ve discussed that last time as well. We’ll discuss gold and many other factors that are, or many other contributors to the economy right now. So a lot’s going on.

And if you haven’t heard of Larry, he’s an accomplished book author, New York Times bestseller. I have his book here as well. And of course, he’s the founder of the Bear Trap Report.

So really looking forward to catching up with him. And if you haven’t done so, hit that like and subscribe button. It’s a free way to support our channel, and we do tremendously appreciate it.

Now, Larry, it is great to have you back on the program. Thanks so much for joining us here today. Thanks, Kai.

Great to be with you. You really have a great platform. I appreciate it.

No, thank you so much. Yeah, I appreciate it. And you know, Larry, you were recently in Germany.

I think you went on a book tour pretty much right after our interview, or a few weeks after our last interview about six months ago. And maybe we’ll start there. Like, what’s something you picked up in Germany? What was the mood like? And what was some of the feedback you gathered? Well, the old joke is, Kai, you make about 10 times more in the speaking tour than you do actually writing the book.

Publishers, they take a lot out of authors. You know, they take a lot. But what’s fascinating is when you have a topic like Scott Besent, the incoming Treasury Secretary, and you have a topic like the election, and then you go to Geneva, you go to Zurich, you go to New York twice, you go to Miami.

I just got back from Vail. And what I do is, see, you get a nice speaking fee on a deal. What we’ll do is we’ll take a big chunk of that fee and have an ideas dinner in the city.

So we’ve done ideas dinners in Montreal, all since like August, Montreal, Toronto, New York, all these different cities. And each time we bring up the subject of tariffs. And here’s my general take.

At first, one thing we know for sure is Scott Besent, God bless him, very talented financial guy. But he was out there tipping his hand in September and October meeting with all kinds of hedge funds. And that’s why the dollar ripped.

So to some extent, the dollar priced in a ton, a ton of these incoming tariffs. And so when you see the news headlines, people think, oh, my God, the dollar is going to keep ripping. But it’s he’s been really talking his book so long.

The other thing is, there’s two tribes within the White House. There’s the Don Jr. JD Vance tribe that’s really annoyed with how high the dollar is. And I think Trump is, too.

And then there’s the Besent and Elon. And there’s another crowd that really is more supportive of a strong dollar. And they think that reshoring all these things, all these things they want to do eventually will normalize the dollar.

But that’s like on a chalkboard that works well. But near term, the dollar looks toppy because there’s been so much destruction from the dollar globally. And the last thing I think is really important is it’s very clear in the last month that we’re getting more and more detail.

So it’s like when you go on the speaking tour, you’re talking about Besent and you’re talking to people that know him well. We’ve got a number of friends that are very close to the White House. We’ve got a number of clients that are at these dinners that are really close to Besent.

And what it’s clear is it’s very much like financial repression, where they’re trying to keep interest rates below the rate of inflation. And that’s the way to get out of the debt hole. And the fascinating part is there’s all these new things, whether it be bank regulation, forcing the banks to own more treasuries, or things like, say, with our trading partners, using ownership of treasuries as part of negotiation and even reaching out to, say, the Bank of Japan and things like saying, listen, we’ve supported you financially for 50 years.

The C lanes across the planet Earth, which spent $25 trillion on defense the last 30, 40 years. Those C lanes have given you rich exports and the ability to sell products globally. And at the end of the day, we’ve been defending you at home.

We want you to take your treasuries and convert them into 100-year zero coupon bonds. So it’s $1.1 trillion of treasuries. Convert them into 100-year zeros.

And if you want, you need the cash, you can repo them at the Fed. These are the types of crazy, crazy things that are going on out there. That’s why you’re seeing this bonds rally the last couple of weeks, because this is starting to leak out.

The last thing, which we got to get into, is the other big, big factors. The descent team is starting to look at the U.S. asset side of the balance sheet. Like, what are our assets? Everybody’s focused on liabilities.

Everybody’s focused on debt. And I’ve been guilty of that. But there are tremendous assets.

Do you know that the United States has $800 billion of gold, and it’s been marked at $42? And if you market to market where it is now, it’s worth $800 billion. And you could take that gold from the Treasury, bring it to the Fed, repo against it, borrow against it. And that could be cash or bonds that the Treasury doesn’t have to sell this year.

These are the types of things that are going on behind the scenes. Yeah, lots going on. I’ve written, I’ve taken a lot of notes just based on what you’ve been saying, and we’ll dive deeper into all those topics here, Larry.

I’m trying to think where should we start? I think the tariff debate, of course, is very topical right now. It’s been used as leverage and threats just to see how far things can be pushed, but also to get to where things need to go. The U.S. and Canada agreed on border security measures that were supposed to be implemented anyway, but I think they’ve been fast-tracked now at 10,000 additional border guards and things like that.

How do we break this down, the tariffs? How real is that threat, and how are they being used? Maybe we need to analyze that as well, the meaning of tariffs for Donald Trump. Okay, so when you talk to Washington policy consultants that advise hedge funds and mutual fund managers, behind the scenes there’s a lot of progress with Claudia Scheinbaum. There’s a much better environment than meets the eye.

Now, the market has been picking up on this, and I think Trump on Friday was insulted a week ago. He looked at the market, like Walmart, for example, trading its highest percentage above its 200-day moving average, literally of all time, just above. Costco, highest valuation ever.

Stocks that should be sensitive to a trade war are at all-time highs. The Mexican peso, the loonie in Canada, these currencies, they have sold off some, but they’ve really rallied some now. There’s been a ton of complacency, and I think Trump was a little offended that people aren’t taking him serious.

Now, when you talk to people that are really close to the negotiations, what we’ve heard is there’ll be a February 1st announced date, and then an effective date in April, and that gives … There’s no Treasury team in Washington yet. Scott Bissett doesn’t have his team in place. There’s nobody that can really negotiate.

Trump’s been negotiating with Mexico, but there’s no team at Treasury negotiating. I think when you saw the Trump threat on tariffs, everybody freaked out. Then there was this quick agreement.

That’s because there’s been a lot going on behind the scenes around the border, around special forces going to Mexico. There’s a ton of things that they’ve already agreed on. We think they’ve already agreed on bringing the USMCA, which is at NAFTA.

That was supposed to be a renegotiation or discussion in July of 2026. We think Trump’s already got a July 2025 agreement to basically renegotiate again. There’s the headline, and then there’s Trump flexing the muscles, but then behind the scenes, at least with Canada and Mexico, it’s going a lot better than people think.

Yeah, absolutely. As you said, Trump’s not taking it serious because the market called the bluff a bit. As you said, Canadian dollar, Mexican peso has been ultra strong against the US dollar for a while now.

As you said, the stock market has just called the bluffs, like this is not happening. A lot of people said the tariffs wouldn’t happen. Then they were announced and they got cancelled within 24 hours.

I don’t want to get too political or anything here, but what do you make of that very short timeframe? I’m just trying to interpret. Did he achieve his goal with that, with his tariffs? This goes back to what… If you’re a hedge fund, you can pay a Washington consultant $10,000 a month, and they’re very close with different senators. They’re very close with people that are either close to Trump.

What they’ve been telling people is, like I said, there’ll be a February 1st announcement and an April real date, and so they can negotiate. In other words, what you just saw was the same thing. Trump announced it, but then he basically said, we’re going to take a month and talk.

It’s really the same thing that everybody’s been hearing. They haven’t cancelled any tariffs. It’s just that we’re going to have a discussion for 30 days about ways to cancel the tariffs.

There’s still a date in the future where those tariffs could go on if the negotiations don’t go well. Another thing I wrote down, which I’m stumbling upon, is you mentioned Scott Besson has been making the rounds going around Washington and other places, talking to investors about the tariffs. It’s more about the timing that I’m trying to understand, because I feel like Scott Besson wasn’t somebody Trump had on his ballot during his campaigning.

That’s the term I was looking for, his campaigning. It was a late addition to the Rolodex here of secretaries. What do you make of that? Was that just publicity stunt? I’m trying to wrap my head around the timing of it all, because you mentioned it, like Scott Besson has been marketing the tariffs before, hence the strength of the dollar.

Once they were announced the tariffs, the dollar didn’t do anything because the market just knew. Yeah, exactly. Everybody front-run the tariffs.

In other words, people were shorting the dollar in September and October. People were putting Trump trades on in October. You look at all kinds of different stocks, whether it be private prisons or Fannie and Freddie, all the Trump trades had priced in at least 50 to 60 to 70 percent of the win before the election.

I think you and I spoke about that last time. And so there’s two things going on. Number one, dissent.

People don’t really know. The one thing I’ve been getting some pushback on dissent, people don’t really know, kind of to your point, how much influence he’s really going to have over Trump. He’s incredibly talented.

Trump respects him because he’s been on the buy side. He’s been in a seat like Janet Yellen was a labor market economist. God bless her.

Very smart. But she’s never been in a risk taking seat. She really doesn’t understand the same thing with Jack Lew.

There’s a lot of Treasury secretaries that have never been in risk taking seats. That’s what Trump respects about dissent. And you look back to the financial crisis, John, Hank Paulson had been in that risk taking seat.

So Trump wanted to bring that type of person back. But that doesn’t mean that person has really high, really high influence over Trump. So there’s some question about that.

But in terms of the timing, the one thing that I’ve heard from all the very people, the closest people to Trump have all told me the same thing. He wants as much pain away from the midterm elections as possible because the midterms are in 2026 in November. And if you remember, in 2018 in November, those midterms cost him dearly because he lost the midterms.

He lost the House. And he feels in his mind he would not have been impeached if he’d won the House because the House controls so much in terms of what, you know, what procedures. Right.

And so that’s why you’re seeing them being more aggressive and very fast acting now, because they want to. And that’s why I think the market’s vulnerable here in the short term, because they’re going to bring up all the dirt, all the heavy punches are going to come out as far away from the midterms as possible. Larry, we’ve got a little bit ahead of ourselves, but it was really interesting because you just touched on the health of the market.

I think we need to really just get a quick overview, like from your point of view, how healthy is the market? How strong is the economy? I mentioned in my intro, like I haven’t talked about the recession here on this channel in quite a while, surprisingly, which I’ve noticed. So it’s like I’m curious what your thoughts are on the whole economic situation in the U.S. or globally in general. And of course, the health of the market right now, maybe give us a bit of an overview.

The health of the market. In a bull market, the MAG-7 leadership should be moving together and should have a high correlation. And that was the case much of the last couple of years.

What we’re seeing now is there’s been a real breakdown in the MAG-7 with Microsoft or NVIDIA. It’s almost like some of these stocks are being used as funding mechanisms for other speculative parts of the market. In other words, people selling NVIDIA, buying Bitcoin and whatever.

Microsoft has underperformed gold by 38 percent like the last few years. I mean, that’s the last year, I think it is, since last February. So Microsoft is underperforming like a lot of MAG-7.

So there’s this fundamental problem in the market right now is that we’re at incredibly lofty levels and the MAG-7 has invested. Let me give you an example. Microsoft’s CapEx budget is supposed to be $80 billion this year.

A couple of years ago, it was $20 billion, $15 billion. And so the visibility on return on invested capital for some of these big, big tech stocks, these companies have gone from cash-producing cows, like cash-producing cows to capital-intensive businesses. And if you look at the street forecast for Microsoft earnings, we’re supposed to be up 20, 30 percent the next couple of years.

At the same time, what we call this CapEx, this artificial intelligence investment, it’s gone up so much it’s really going to start to hit earnings. So if you look at Microsoft, if you look at some of these, some tech stocks are pricing in really a problem with earnings because it’s like a scene from The Sopranos. They all have a gun in each other’s head and the testosterone level in Silicon Valley is off the charts.

Oh, you’re investing $50 billion? I’m going to have to do $80 billion. You know, they’re all trying to outgun the next guy. And this is creating this big problem for MAG-7.

This is why, if you look at MAG-7 equities, about a trillion dollars has left them and gone into other things, whether it be industrials, German equities. German equities are destroying Microsoft the last couple of months. So there’s definitely a rotation going on there.

But in terms of the market itself, this is probably the most important part of this call. The one thing I’m hearing is that the labor market was supported by government spending. And if you look at jobs over the last year and a half, you’ve had a ton of jobs coming from government spending.

And there’s a big fiscal cliff with Doge coming in, in other words, Biden did a $1.9 trillion deficit last year. And then in the first quarter, he did $800 billion of deficit spending. So he did $1.9 trillion last year of deficits.

And then in the first quarter, which is in the new Trump year, this year, he did $800 billion of deficit spending on the way out. And if you do the math, that’s like a $3 trillion deficit run rate. And so now, he really sandbagged Trump because they got to bring spending down.

And that spending down is going to impact the labor market. The other thing is ICE. I’ve heard this from three, four different hedge funds in the last week.

If you do the math, the amount of immigrants and migration that’s been part of job creation has been very strong. And now, because of these aggressive ICE roundups, so you’ve got the federal government through the ICE group, they are rounding up migrants. And so what’s happening in the labor market is people, say you’re a migrant, you’re hiding out in someone’s basement now.

You’re not going to work. This is very disruptive. And I’m not taking a political view here, but let’s get facts, facts.

If you have this huge labor supply that’s now pulled out of the market, number one, it’s inflationary. But number two, it also slows down the economy because companies can’t grow at the same pace because we’ve lost a lot, maybe lost a million workers in the last month. Yeah, I think I might have been listening to Adam Taggart’s Thoughtful Money the other day.

I forgot who the guest was, but I think it was Adam who mentioned he’s been driving past construction sites and they’re just empty because workers are, as you said, scared to show up and do the work because they’re worried about ICE rates. So that sort of covers that as well. It really paints that picture.

Yeah. And then if you look at the bond market, so we’re supposed to be in this animal spirits period, you know what I mean? Animal spirits, trunk growth, growth outlook. And that’s the whole S&P 500 trajectory with earnings.

And lo and behold, I mean, bonds are rallying, like the two-tenths curve is flattening. And in a real growth environment, the two-tenths curve, we should be steepening. All that means is people are like buying the long end or the front end’s going up because inflation, the long end.

So the curve’s going like this, flattening. And people are buying bonds because they’re worried about the economy. And that’s not really animal spirits.

So there’s a big, the most important part of this, one of the most important parts of this, our discussion is that the bond market right now is pounding the table that we have an economic problem. And the stock market is pounding the table that we have a big growth trajectory ahead of us. Yeah.

It’s like maybe since you’re on the bond market and we’ve had the discussion on this channel before, but how much is the bond market influencing the Fed? The term bond vigilante comes up. I’ve mentioned it a few times here on this channel. Now that the bond interest rates, especially on the 10-year is dropping, it seems like it’s easing pressure on the Fed to raise rates.

I watched the press conference with Jerome Powell, pretty neutral, nothing too exciting was said there, in my opinion. What are your thoughts on the Fed and how they will behave? Last time we chatted, you predicted about 100 basis point cuts. I think we’ve seen two cuts since, so 225 basis points.

So we’re due for two more, Larry, based on your prediction back in late August when we last spoke. Where are things headed and what’s the influence of the bond market here? Well, one thing you won’t hear anything on CNBC or Bloomberg or interest on the debt is one, if they keep rates, if rates stay up, your interest on the debt is like 1.1 trillion a year, which is more than, you know, more than defense, more than Medicare, Medicaid. So they need to get that front end down.

And also when you have 36 trillion debt, you need you need to get interest rates below the rate of inflation. That way you can monetize and you can actually get out of the dead hole. So that’s the secret agenda that they can’t say publicly.

And we’ve cut interest rates 100 basis points since September. And the economy is definitely slowing relative to expectations. So you’re 100 percent correct.

This is this gives them a lot. This move down in bond yields gives them a lot of leeway to cut and they will use every inch of leeway that you. Yeah, it’s like I was looking at the Fed schedule and the Fed calendar is like the next Fed meeting is only March 18th.

A lot can happen until then. That’s like seven weeks, eight weeks almost away from from now. What are you looking at like right now? It’s like we touched on the various topics like you touched on the labor market, for example, as one of the number one mandates, of course, is the unemployment rate for the Fed.

And inflation is another topic you touched on. What do you expect to happen? Let’s assume let’s get our crystal balls out a little bit. And what factors are you looking at that could influence the Fed bond market is one thing.

But what else should the Fed be looking at? Well, so, yes, so the labor market and Doge and Trump and ICE and all of these potential disruptions from tariffs. So if you throw tariffs on a CFO that’s now trying to hire people, all these things make people more cautious than uncertainty. And that’s makes the job spent the Fed’s job a lot easier.

And so so all there’s like seven different forces now that work with us like six months ago that are are leaning toward a more dovish Fed and a more economic weakness. Remember, the one thing that’s worked high the last like three years, we have gone twice now, maybe three times between. So if you look at like if you look at the Bank of America, hard landing expectations.

Right. We have gone from very low hard landing expectations in late twenty one by the end of twenty two. So we went from like five percent of the survey expecting a hard landing to maybe 30 by the end of twenty two.

And it’s a 23 that came way down again. And then by by the second quarter, 23, it exploded again because of Silicon Valley Bank. And so your probability of a hard landing in terms of these surveys, in terms of what the investors are thinking about, has gone back and forth like a tennis ball.

And to your point, in recent weeks and probably, yeah, I think right now we are at peak soft landing, no landing belief. And that’s also peak hard landing. I should say the peak low and hard landing expectations right now with like peak, peak low.

But that tennis ball is just going to bounce back up. And so the best the one trade that’s worked the best is when when hard landing expectations peak, you want to be getting long stocks. So hard landing expectations go up to 30, 30, 40 percent.

If you’ve got long stocks last three years, every time that happened, that’s a good thing to do. And then when hard landing expectations crash to where they are now, it’s a it’s a great time to take money off the table and position yourself for more defensively. You mentioned something I want to get.

I don’t want to move too far away from the Fed just now because you mentioned something earlier is like keep interest rates below the rate of inflation. And going by official numbers, the rate of inflation is 2.9 percent. Right.

What number are you applying? And like when you made that statement, like what’s your like run us through your line of thinking, perhaps like when you make that statement. OK, so this is a couple of things. Number one, the Fed’s inflation target the last 10 years was 2 percent in what clients do.

Our clients in the Bloomberg chat behind me, we run a Bloomberg chat with hedge funds, mutual funds, pension funds in more than 20 countries. And what clients do is they actually use a or they use younger people to read all the speeches for the last 10 years of all the governors. And if you read those speeches, the commitment to the 2 percent inflation target was so rock solid, so firm they wanted even below 2 percent at some points.

Right. And this is like the last 10 years. Now, if you look at the last like 18 months, the amount of Fed speak that’s been like that’s been tolerating, that’s been tolerating a higher level of inflation is if you analyze all the Fed speak, it’s been going up dramatically.

And so what I mean is they’re not going to come out and say they have a new higher inflation target directly because that would freak out the market. But over time, they’re softening their language around getting toward that 2 percent inflation target. And that’s because financial this financial repression, all that means is keeping interest rates below the rate of inflation.

And so that’s what they want to do over time. And that’s how you get out of a 36 trillion dollar debt hole. There’s only two ways out.

You can default the Argentina way or you can keep interest rates below the rate of inflation and kind of inflate your way out of this. That’s what they’re trying to do. Now, does that mean right now that interest rates are below the rate of inflation? No, but it’s a big, big, huge difference in their language and their acceptance.

And we just cut interest rates 100 basis points with the Atlanta Fed GDP, you know, two and a half percent. You’ve never seen that. You’d have to go back to the 90s to see the 80s, you know, the real financial repression.

So they clearly want higher inflation. They’ve been everything, all their language, all their actions point toward financial repression. And that’s just a path, the path toward keeping interest rates below the rate of inflation.

Yeah, it’s like it’s an interesting topic. I was just going through the transcript while you’re talking because Jerome Powell, they talked about the 2% inflation target at the press conference at the end of January. And I found the question was Scott Horsley.

I forgot which outlet. Oh, it was NPR. And they were talking about the five-year review that you said the 2% inflation target won’t be on the table.

And he said, can you talk about that? And he’s like, well, A, we shouldn’t talk about it when we’re not meeting it anyway. And B, he’s like no central bank really has that 2% target on their radar screens at all right now. So they’re sticking to it very, very strictly.

Like we could discuss at length how they got to 2% and how it’s a made up number from, I think it was back in the 70s, Larry, correct me if I’m wrong, but that’s what I’m, right. So that’s a very interesting topic that we should discuss. Maybe on the Fed, like it’s such an interesting topic, the Fed, because President Trump, Elon Musk, they’re sort of anti-Fed.

And Jerome Powell always was, I would say like, schnippish is the German word. He was almost like feisty, like when he got asked about whether he had any contact with President Trump or whether they talked about it or whether they had any contact at all. And he was like, no, we didn’t talk.

No, no, no, no. Like you could sort of pick up a passive aggressive undertone there. Do you think President Trump, at some point, once he’s done with his tariff discussion, will sort of target the Fed and Jerome Powell and ask him like, sir, we got to lower interest rates here? Trump came out in Davos stating he wanted interest rates lower.

And Trump has also talked oil a lot lower. And I just got back from the Bales Symposium with a lot of great strategists and hedge fund managers, and there was a big debate around oil. Oil has a huge connection with interest rates.

And so there’s things Trump can do to get oil down. But the problem is his other part of his agenda around Iran, like taking that 1.5 million barrels of production offline. That’s a huge oil positive, right? Now you can drill baby drill, but that’s going to take a little while.

But it’s very clear that Trump stated that he wants rates lower. And that’s where we get back to the set. The Treasury has these tools on the asset side of the balance sheet and on the regulatory side to get interest rates lower.

And so it’s not just about the Fed. The Trump team are real financial market practitioners. Not like you said, this isn’t political, but the Biden team was essentially, they used to call it the faculty lounge, right? The Biden Treasury, the faculty lounge.

It’s a bunch of academics. They’re not market practitioners that have been in a risk-taking seat. So the Trump team has a lot more skills at getting rates down.

And you can see that’s the bond market starting to react to that. Yeah, no, it’s interesting. I was just reading the transcript again here and just rereading what he asked, what he answered, what Chair Powell answered to the question, whether he had any contact.

And he also asked to comment on the Davos demand for lower interest rates. And he’s like, no, we’ve had no contact. We’ll continue to do our work.

The public should remain confident that we’ll do our work as promised or as mandated, right? So really, really interesting topic of discussion there. Scott Besant is an interesting topic as well. I fanboyed a little bit when he was announced.

I’ve listened to a few of his podcasts. But you made a statement earlier that you said Scott Besant is not as influential on Trump as the public might think because the public or the market sort of expect Besant to tame Trump when it came to tariffs. What’s his role in that regard? Does he have a negating factor or input on Trump? Well, that’s what I mean is when you talk to institutional investors or Washington consultants, there is a group of people that are questioning how much influence he has over Trump.

Nobody really knows. It’s just that Trump needs him around the dollar, around rates, around the U.S. asset side of the balance sheet. So I think he’s going to have a heavy influence on Trump because Trump needs Treasury in a big way.

I mean, think about think about this. This is what we’re up against. The Freedom Caucus.

Now, right now, there’s only three seat majority in the House. This is so important for investors. There basically is no majority in the House.

Three seat majority is nothing. The Freedom Caucus is a group of conservatives with 31 members. And if you look at those 31 members, 12 of them have never voted to raise the debt ceiling.

And so that is a shocking statistic. And that’s what I mean around right now, around Trump needing dissent, because one thing we can do is, like I said earlier, around the U.S. gold assets of Treasury, we’re going to run into a problem where Trump wants to cut taxes. He wants to use tariff revenues to raise revenues.

But this budget and the deficit spending that came out of Biden, Biden handed Trump such a deficit mess that the Freedom Caucus is much more motivated than they were last time around. I mean, we’ve just run $3 trillion deficits, $2 trillion deficits year after year after year. So if you’re one of those 31 members of the Freedom Caucus, those 12 people have never voted to raise the debt ceiling, we’re going to have a real debt ceiling showdown in June, July, August.

And right now we’re in extraordinary measures. And so that Trump budget and the ability to raise the debt ceiling because of that group, that those 31 members are so powerful right now because the House majority is only three seats. And so that Trump’s really going to need dissent.

So that’s why I think he’s going to listen to dissent. Now, no, really interesting. I’m curious what dissent will do.

He’s really financially illiterate. So I’m curious whether he can navigate those choppy waters, especially when it comes to bond issuance over the next 12 months, because the U.S. has to refinance quite a bit as well. Larry, I want to jump around a little bit because we talked about the great migration of capital and it sort of touches on like the Nvidia performance to a degree, the market becoming a bit more nervous.

So I’m curious if you think the market is becoming a bit more nervous and whether we finally started to see the $10 trillion worth of capital starting to move into other asset classes. Gold is, of course, one I want to talk about. But have you seen that maybe start? It seems like a constant wave of capital flowing out of the main markets, but I’m curious if a bigger wave has already happened or is happening right now.

Well, there’s two elements to this. Remember, in 1981, after that kind of higher interest rate regime, higher inflation regime from 1968 to 81, when we got through that long period of inflation and higher rates, the industrials, the materials and energy were 49% of the S&P 500’s composition. 49%.

In recent years, it’s got down almost 12% for those three groups, industrials, materials and energy. And what I find interesting is that if you look at industrials, look at the BIS ETF, which is the industrials. And if you look at it versus the NASDAQ, for 10 years, year in and year out, it underperformed.

But since 2021, when this new inflation regime started, the BIS ETF is outperforming the NASDAQ, which would be unheard of. So there’s no question that there’s a migration that’s already started. There’s absolutely no question.

Like I said, if you look at gold versus the Q’s or gold versus S&P, gold’s outperforming the last two, three years since 2021. If you look at German equities versus, say, Microsoft or just the DAX today, the DAX is essentially outperforming the Q’s in recent months. The NASDAQ is essentially unchanged for the last three to five, even since July, most of it.

And the German equities are making new highs. And so there’s global equities that own their value stocks, global equities that own assets in the ground. These stocks are being bid.

Now, what you’re talking about in terms of the great migration into, say, platinum, palladium, silver, gold, that is still very, very early. If you look at platinum this week, it is making a great move versus gold or versus just on the chart. If you look at silver, silver’s been strong, not as strong as gold.

The gold-silver ratio is still up near 90. That’s insane. That should be in the 60s.

So to your point, and when you talk to people like Adrian Day, right, Adrian Day is a long-term advisor to us, partner. And he’s like, listen, there really are no inflows into, say, gold miners and silver miners. In essence, there’s been outflows.

And so even though the gold miners are up like 15, 16% year-to-date, outperforming the market by a lot. So you need a big move, which is starting to get to bring those tourists back, right, those tourists into that migration. But the migration’s happening.

It’s just happening slowly. And it’s happening across different parts of the market. It just hasn’t really gotten to commodity metals so far just yet.

Like I’ve always used to say, like, we need to scare the 401k money to start seeing that move. And I was talking from the mining perspective because I come from the mining industry and junior mining industry in particular, where we’re seeing a lack of just volume in general. Like funds are available, but it’s just volume in the markets that is lacking right now.

And I think that’s what Adrian is addressing as well, because the sector has been able to raise money. So the retail is not really there yet. My question is like, maybe it’s a bit outdated almost because DeepSeek happened last week, you know, and everything moved so fast.

But sort of, was that the big, the black swan that economists have been warning us about? Like, is that the sort of the wake up call for retail to potentially shift allocations? You mentioned the bond market, perhaps, or safe haven assets. Is that what we needed to see for 401k money to get scared? Yeah, that’s the thing. So one of the clients brought up a good point to me.

Like when you go from like passive being say 58% of the market to 61, 62, every percentage is a more powerful factor. Passive, all passive means is the S&P 500 has all this 401k money in it. They go into an index fund that has to own these big stocks and the market is market cap weighted.

So the money just flows into smaller and smaller group of stocks. And if you look at the sickening performance, I mean, this is, if you look at the chart of Costco and Walmart, this is, this is the sickness, the passive investing right now. I’m telling you real sickness.

I mean, you look at the price to earnings ratio, look at any kind of historical normal valuation. These things are two standard deviations outside the norm. This is the, this is a real under, underbelly sickness in passive investing because when passive gets too big, then nobody’s doing their homework.

Everybody’s just owning the index. Everybody’s 401k is in 20, essentially in 20 different stocks, because that’s most of the market cap of the index. And if you look at these big market cap stocks, the Walmarts and the Costco, they’re the most vulnerable.

Like, like 18% of Costco’s business is exposed. I think they’re free cash flows exposed to Canada and Mexico. Trump’s like pounding the table on a trade war and Costco’s making new highs.

I mean, that’s classic, classic. The market’s reaction function, the traditional reaction function in a market of say news and things like that has been neutered by passive. And it’s, it’s pretty disgusting.

Eventually it’s going to be very, very ugly. No one knows. All I can tell you is the oldest baby boomer right now, the oldest baby boomer in America is essentially turning 79 to 80 years old, 79.

They control about 80 trillion of wealth. So this group of people that controls 80 trillion of wealth is turning essentially 79 to 80, and they’re going to need at that age to own more bonds, own other things besides stocks. And so there’s a very vulnerable point here in the next year and a half, two years, I think we’re coming to a period where the market like 1968 to 81 essentially goes sideways and the market rotates all that capital into other things because at the end of the day, $80 trillion of wealth is turning 80 years old.

Yeah. Which boasts wealth of the gold market, very positive comment there. And that’s what I’m taking away from it.

Perfect segue. I just made for myself here to talk about gold, Larry, but you touched on it earlier as well. And you, you mentioned activating gold on the U S balance sheet.

And that, that is a very interesting topic. I had Andy Shechtman here on the program. We spoke at the Vancouver resource investment conference recently got a lot of attention because he said, if we were to revalue gold to $142,000 per ounce on the balance sheet, not in the market, there’s a very clear distinction, but on the balance sheet, we could get rid of the debt or at least balance the debt.

So you made a similar comment. You didn’t talk about revaluation, but you talked about activating gold and borrowing potentially against it, which is very similar to revaluing it and getting rid of the whole debt. It’s a similar concept.

So $800 billion, $800 billion though, that’s just a drop in the bucket though. Like that just is gone. Right.

Let’s talk about the role of gold, especially the last few weeks, gold has been extremely strong yesterday. We’ve seen an all time high at 20, 28, 80, roughly per ounce. Like what’s the role of gold in that scenario? And let’s dive a little deeper here.

Well, one thing we have a model that tracks the gold miners versus gold and it tracks momentum in gold. It tracks flows. If you look at, say, the RSI of say Barrick Gold versus the RSI, the weekly or the daily on the GLD, the spread is pretty crazy.

And so we just put out a high commission call. Right now, the Barrick Gold, for example, ratio to gold itself is in a screaming, screaming zone where you want to start to sell gold and buy some gold miners. They’re just too cheap.

And stocks like Barrick have been hit with what we call jurisdictional risk in Africa, mine, mining problems in different countries, mine, mine confiscation, which just happens. This is a traditional problem in mining globally. But yeah, the first thing I want to say is gold right now is so extended.

It’s relative to the gold miners. And or, for example, if you look at the GDXJ, which is the junior miners versus the GDX, that’s also starting to make a move. And so if you look across platinum versus gold, platinum and palladium are one of the cheapest ratios versus gold.

And so if you’re in gold right now, you want to be taking, say, you have a million bucks in gold. You want to take 200,000 and just buy some platinum, palladium, buy some Barrick, buy some new bond to buy some gold miners and buy some what we call tertiary metals as third tier metals, because those spreads are just crazy. And this goes back to my book, is that when you take when you take sanctions and punch them on the head of emerging market countries for 20 years, whether it be Republicans and Democrats, we’ve conditioned governments around the world to just own gold and diversify away from dollars.

And there’s no question that central bank ownership of gold has reached really crazy levels. And they can’t really own gold miners. They can’t really own platinum.

They can’t own silver. And so these things that this trend is really reach what we call like extreme levels. And so that’s probably the biggest point around gold.

In terms of in terms of percent, there’s no question. So in the United States, we’ve got assets and liabilities. Everybody’s focused on.

We’ve got 200 trillion of unfunded liabilities that Stan Druckenmiller talks about. Those are future commitments to Medicare recipients, pensions from the military, 200 trillion dollars of unfunded liabilities. And then we have the 36 trillion of debt.

And so those two things are horrible. But then if you look at the asset side, we’ve got the Tennessee Valley Authority. We’ve got toll roads potentially in the United States.

We can privatize I-95 or what interstates. You know, this is what’s being talked about in the White House for a fact in the gold assets. You’re right.

It’s about 800 billion dollars. It’s marked at forty two dollars. If you market up to 18, it’s worth about 800 billion.

But that would be a huge factor for the bond market this year because it’s 800 billion in bonds that you don’t have to sell. And that’s very financial repression is. And that also helps you get through a debt ceiling problem.

And so just don’t think of it as gold. Think of all the assets, all the commercial real estate. There’s just tons of assets on the asset side of the U.S. balance sheet.

Now, it’s an interesting topic because gold can play that pivotal role. And Scott Besent, we know, is a fan of gold, actually, because he owns quite a chunk of it as well. Maybe just to wrap it up, like gold and U.S. dollar, Larry, like the trends intact for higher gold prices.

And what about the U.S. dollar? Is it going to remain where we’re at right now at 108 roughly on the Dixie? And yeah, just maybe to summarize the conversation here. OK, so this week we had what we call a bear hammer, like two bear hammers on the dollar. All that means is like when you see a really big inflection point between bulls and bears, the bulls tried to break the dollar out again because of tariffs, because of the trade war.

There’s a lot of reasons to own the dollar. Right. But they’re so well known.

And we have seen a really what we call a big, big candle. And all that means in terms is that when the bulls try to break out the dollar and the bears come in and then you see a big reversal. It’s a big psychological event, at least in the short term.

So short term, high conviction. I think the dollar is heading lower because it’s priced in a ton of things. Right.

It’s priced in American exceptionalism. It’s priced in tariffs on and on. If you look around the world, like, say, Japan from September from September 15th to January 10th, the yen was down 14 percent and natural gas was up a lot.

Oil was up a lot. So countries that are importing energy are having big inflation problem now because the United States is actually exporting inflation because, say, you’re Japan. Your currency’s gone down 14 percent, but oil went up 15 to 20 percent against you.

Natural gas went up 50, 5, 0. And so this there’s a lot of things driving this right now. And then we get back to the ice in the United States, the disruption of tariffs, the uncertainty around growth. We’re having a growth shock wake up in the United States, because if Trump’s threatening tariffs every day, that’s if you’re a CFO of your treasury, you’re not going to hire as many people.

If ICE is rounding up lots of lots of migrants every day, like you said, people aren’t showing up at construction sites. That’s that’s very growth contracted. That’s very dollar negative.

And so, yeah, I think we’ve reached a point here. And then we get back to the deficit. We have like I said, we have a very narrow majority in the House.

We have austerity coming from Doge. We have the Freedom Caucus, which wants budget cuts relative to where Biden was. We could have a 500 billion dollar fiscal cliff.

Like in other words, you go from one point nine trillion spending last year. Trump takes it down in the second half of this year. That’s very bond bullish.

That’s very that’s very negative in the dollar. Right. And so this is I think what’s coming at us is that kind of like stagflationary period where they’re trying to keep rates down with all these different moves, economy slowing down, but inflation still sticking.

No, fantastic. Larry, it’s like really, really good conversation. We need to have you back very soon and just talk about developments in the markets, tariff impacts and all of that.

Maybe around Easter, we’ll need to get you back on the program to see how the first hundred days played out and sort of put some perspective around that. In the meantime, really appreciate you joining us. Like where can we follow more of your work? How can we join your Bloomberg chat group? Well, we have a discord chat now for smaller investors in that you can reach out to Tatiana at thebeartrashreport.com. What we do is we talk to the institutions around the world and then with charts and with the conversation with our team and with the hedge funds, we have that conversation on discord for family offices, retail investors.

If you’re an institutional investor, we’ve got Bloomberg chat and that’s just reach out to us on Bloomberg. And then it’s lgm atlawrencegmcdonald.com. That’s my email. I’m at convertbond on Twitter.

You can reach out to us there too. No, fantastic. Larry, really appreciate your time.

Thank you so much for joining us here on SOAR financially. Hope to catch up with you again very, very soon. Stay on for a second.

I’ll be back with you in a second here because I need to say thank you to our listeners and our audience. I really hope you enjoyed this conversation with Larry McDonald. Make sure to check out The Bear Trap Report.

It’s all linked down below. And if you haven’t done so, that’s his first book, New York Times bestseller about the Lehman disaster and a colossal failure. Come on camera, focus.

There you go. The Collapse of Lehman Brothers. And of course, the second book you’ve seen during the interview is How to Listen When the Markets Speak.

Because the markets are speaking or yelling at you right now. And we just need to interpret it properly. So I hope we could help educate a little bit and make everything a little more palpable, understandable, what is going on here.

If you enjoyed the conversation, hit that like and subscribe button. It helps us out tremendously, and we always appreciate hearing from you. Leave a comment down below.

It is much appreciated. We’ll be back with lots more this week. Thank you so much for joining us.

Take care.