May 9, 2025 – Political risk expert and author of Bear Traps Report Larry McDonald joins Jim Puplava to discuss his latest book, How to Listen When Markets Speak: Risks, Myths, and Investment Opportunities in a Radically Reshaped Economy. Larry explains how the world is on the brink of a seismic economic and geopolitical shift with the era of low inflation and U.S. dominance ending—and what that means for markets, the dollar, and your portfolio. Discover why passive investing, resource shortages, and rising global conflict are rewriting the rules for investors. Don’t miss this eye-opening conversation about the urgent changes shaping the next decade and how to prepare.
Website: Risks Analysis, Investment Newsletter, New York | The Bear Traps Report
Book: How to Listen When Markets Speak: Risks, Myths, and Investment Opportunities in a Radically Reshaped Economy
X profile: Lawrence McDonald (@Convertbond) / X
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Key topics discussed:
- Paradigm Shift: The end of U.S. unipolar dominance and the rise of a multipolar world, with escalating global conflict and persistent inflation.
- Passive Investing Risks: The dangers of overreliance on passive index funds and how it slows market reactions in times of crisis.
- Migration to Hard Assets: Anticipated shift from financial assets (stocks, bonds) to hard assets like energy, metals, and commodities.
- Reshoring & Inflation: The inflationary impact of bringing manufacturing back to the U.S. and the massive energy and infrastructure needs this creates.
- Fed Policy & Bailouts: Decades of bailouts and fiscal stimulus have fueled asset bubbles and entrenched higher inflation and bond yields.
- Credit Markets & Crisis: Warning signs in credit markets and the high risk of a looming credit crisis as debt rolls over at much higher rates.
- Energy and Resource Shortages: Looming crises in copper and other essential resources due to years of underinvestment and regulatory hurdles.
- Decline of the Dollar: Risks to the U.S. dollar’s dominance, the end of the petrodollar era, and rising global demand for alternatives like gold.
- Portfolio Strategy: Why traditional 60/40 portfolios may underperform, and the case for a new allocation emphasizing commodities and hard assets.
- Fourth Turning & Political Change: The societal and institutional upheaval of the current “Fourth Turning,” with predictions of new political parties and infrastructure overhauls.
Transcript
Jim Puplava:
Today is going to be a special treat as I'm going to be interviewing the author of my favorite book for 2025. In fact, I bought copies for my entire staff and insisted they read it. Joining me on the program is Larry McDonald. He's a political risk expert and founder of the Bear Trap Report, known for predicting the subprime crisis. He's also a former Lehman Brothers vice president. He regularly appears on CNBC, Bloomberg, and Fox Business. The name of his book is When the Markets Speak. Larry, I want to start our conversation with something that everyone who has read this book has noticed: a paragraph that sets the stage for what is happening. This was after 2022, when there was a $9 trillion loss of wealth in technology stocks and crypto. I want to read this: "This offers just a taste of what's to come and marks the very beginning of a seismic shift in the performance of financial assets. The economic world as we know it and the rules that govern it are over. In the coming decade, we'll witness a new era of persistent inflation, an escalation in global conflict, a multipolar world teaming up against the United States, the horror of a weakening dollar, a series of sovereign debt crises, and a thundering of capital out of financial assets into hard assets. The entire planet is soon to experience catastrophic shortages of natural resources. Imagine a world that is constantly short of energy supplies." You're talking, in that paragraph alone, about a major paradigm shift geopolitically, economically, and financially. As we're in the middle of this fourth turning, let's begin with that. I'd like to ask you what caused you to put this all into a book, because it was very prescient when you wrote it in terms of what's unfolding today.
Lawrence McDonald:
Well, thanks so much for having me. It's very touching that you were so thoughtful to buy the books for your staff. It really means a lot to me and the team. The key to this book—my first book was a New York Times bestseller about Lehman Brothers, where I was a trader. We wrote that story, and it was very romantic with high drama because I worked my way up to the velvet circle at Lehman. Then you realize Lehman Brothers became a big bank failure. That book, A Colossal Failure of Common Sense, had a lot of drama and was published in 12 languages. Over the last 10, 15, 20 years, we've done 140 speeches in 16 countries and met so many talented, beautiful contributors and friends. Behind me, we run a Bloomberg chat on the Bloomberg terminal. If you think about it, it’s like a live ideas dinner. What we’ve been doing, and this is how we put together When the Markets Speak, is gathering intelligence from some of the most brilliant portfolio managers in the world. I’m kind of the quarterback. The bottom line is, when you run that kind of conversation with, say, 600 individuals in 20 different countries, all veterans in junk bonds, equities, or rates, you can see trend shifts and narratives from time to time. In 2021 and 2022, we started to see this in the chat, around, “Wow, this is a big secular change coming at us.” I wanted to write the book to democratize information and get people ready for it. The bottom line is, there’s no “I” in team. I owe so much to the entire group that helped me put the book together.
Jim Puplava:
You have some impressive people: Charlie Munger, David Tepper, David Einhorn—a host of high-level individuals. The collapse of the USSR ushered in our unipolar world with U.S. dominance and unprecedented disinflationary power, with a surging supply of just about every raw material to finished goods. You’re saying that era is gone. Let’s discuss the implications of a multipolar world and its ability to stabilize global markets.
Lawrence McDonald:
Well, a couple of evil things have happened. Jack Bogle and passive investing in indexes—he meant well, and it was a brilliant idea at the time. But when the money shifts from 51% market share of passive versus active to 52, 53, 54, 55%, it becomes more and more problematic because the mechanism in the market, the reaction function, stops working. In other words, there’s so much money in passive, and everybody’s making money as the stock market goes up. But when a big secular change is coming, the reaction function slows down the bigger passive gets. The index is like turning around an aircraft carrier. It’s happening, trust me. What we’re trying to say in the book is that everybody’s massively long on what we call financial assets—bonds, growth stocks, everyone’s 401(k)s in the same trade. That’s because it’s worked. When you go to the golf club, the bowling alley, or talk to your friends, they’re all making money in the same stocks. This trade has gotten bigger and bigger. Meanwhile, under the surface or just in front of us, the entire landscape has changed. We’re in a multipolar world now, a higher interest rate regime, and a much higher inflation regime. This is starting to trigger a huge migration of assets from financial assets to hard assets—companies that own things in the ground, whether it be phosphates, natural gas, oil, copper, or gold. Those groups have been reduced to a tiny portion of the market, and we’re going to see a massive secular change where the market rotates. The reaction function is slower today because of passive versus active, but the migration is clear. The NASDAQ 100 in February was worth $27 trillion, and recently it hit about $23 trillion. So, we’ve already seen about a $4 trillion migration.
Jim Puplava:
China’s entry into the World Trade Organization accelerated offshoring, resulting in the loss of close to 4 million jobs over the next two decades. Explain the role offshoring played in deflation, recycled trade surpluses, and why rates remained artificially low. One issue we’re seeing now is, as we try to reshore, we’re talking about tariffs. Money has been exiting the U.S., and a lot of that money supported our bond and stock markets.
Lawrence McDonald:
We went through a 15-year period where disinflation became more certain every year. In that kind of world, you want to be in growth stocks. Bonds work really well because they get lower yields. The Fed was buying bonds because inflation was low, suppressing interest rates to jack up asset prices. We went through this for a long time, but now we’ve crossed into a multipolar world with higher deficits and reshoring. Reshoring is a big part of what we talk about in the book. So many families have been displaced by what we call the East Coast and West Coast elites. If you’re in Washington, New York, Los Angeles, or San Francisco, you did great over the last 20 years. But if you’re in the middle of the country or the Rust Belt, there are fathers who go to the library to pretend they’re working or are driving for Uber after working in a factory making $140,000 a year. The good news is we’ve raised the standard of living globally. If you’re in Bangladesh or India, the average 20- or 25-year-old’s income has probably doubled over the last 10 years. The Davos crowd has done a wonderful thing for the planet by raising global living standards, but they’ve created far more carbon consumers. If you’re working in a call center in India, you’re making 40 times more than your great-grandparents. The first thing you do is get a moped or air conditioning. A billion people in India don’t have air conditioning. With reshoring and raising global living standards, we’ve created a new world of higher interest rates, higher inflation, and higher bond yields, triggering this colossal migration of capital from financial assets to hard asset portfolios.
Jim Puplava:
You talk about this East-West just-in-time supply chain. I remember reading about just-in-time inventory, reshoring, friend-shoring, and backup supply chains, which are inherently inflationary. As we bring factories back here, we’ll need power, electricity, and raw materials, and it’s going to be more expensive to produce here than when we were offshoring to China.
Lawrence McDonald:
The counterargument is that Trump and his team mean well with reshoring, but it’s going to take a long time. We’re probably never going to manufacture Nike shoes in New York. But will we reshore 10, 15, 20, or 30% of the jobs that left the United States? Yes, it’s going to take a while. At the same time, we’ve got this artificial intelligence renaissance where data centers popping up across the United States are huge energy and electricity consumers. We think electricity usage from data centers, reshoring, and other secular trends could triple our energy consumption at the local level over the next 10 to 15 years. Do we have the energy infrastructure to support this right now in the United States? Do we have enough natural gas, nuclear power, or copper wires to make up that ecosystem of power transformation? We don’t have those resources right now—they’re in the ground, up in Canada, or elsewhere. We’re spending all this money on capex for artificial intelligence. Tech companies like Meta, Google, and Apple are spending a trillion dollars, but we don’t have the infrastructure to support all those data centers.
Jim Puplava:
I want to talk about something that happened in the late ’90s: the Fed bailout of Long-Term Capital Management. You have a chapter called “Crossing the Rubicon.” When the Fed did that, they set the stage for future bailouts. We’ve seen this successively with each new market problem—the Fed injects liquidity. Talk about the problem this creates in terms of risk. It tells me that if I want to speculate and I’m big enough, I can do it because they’ve got my back if I go under, right?
Lawrence McDonald:
Exactly. They’ve conditioned markets for 30 years, over and over, whether it was Long-Term Capital, the S&L crisis, Lehman Brothers, or more recently. One stat from the book is so important: the fiscal and monetary response to Lehman Brothers was $4 trillion. The fiscal and monetary response to COVID, the regional bank crisis of 2023, and the fiscal juicing into the election—you can blame Biden, but many presidents do this—was $16 trillion. The Lehman response was $4 trillion, but COVID, the regional bank crisis, and fiscal spending into the election got you $16 trillion. It’s certain that over the next 10 years, we’re going to be on a much higher inflation and bond yield trajectory because they’ve chosen not to take the pain. Every time they avoid pain, they’re just adding more inflationary kindling and wood to the furnace.
Jim Puplava:
We saw a little of what can happen with this. From your book: “Whether it’s Big Oil in 1981, tech stocks in 2000, or financials in 2007, when a sector is dominant over an extended period, that’s where the most significant downside is lurking.” I’m talking about the Mag 7 and tech stocks because we saw that, Larry, in 2022 when money came out of these index funds. When that money came out, the big tech stocks, which were a larger percentage of the index, got hammered. Some of those stocks were down 40 to 50%. I don’t think investors today realize the risk in passive indexing.
Lawrence McDonald:
Let me give you an amazing stat. About 10 or 11 years ago, oil stocks were worth a little less than $4 trillion—about $3.4 or $3.5 trillion—and the NASDAQ 100 was worth about $4 trillion, so they were basically the same size. Today, oil and gas stocks are worth about the same, maybe $3.3 or $3.4 trillion, while the NASDAQ 100 is worth $23 trillion.
Jim Puplava:
Wow.
Lawrence McDonald:
If you think of Nvidia relative to the natural gas ETF, FCG (Frank, Charlie, George), the largest holding in FCG has an enterprise value of $40 billion—a rounding error for Nvidia. Nvidia is worth close to $3 trillion, while the entire FCG and NURM (uranium sector equities), the foundation to support artificial intelligence, are worth only a fraction of Nvidia. If you believe Jensen Huang and the big sales pitch from Nvidia and Wall Street’s growth trajectory for AI, then natural gas equities and the uranium sector need to go up 300 to 500% to support that growth trajectory.
Jim Puplava:
You feel we’ve entered a period of secular stagnation. What causes that?
Lawrence McDonald:
Secular stagnation was the period from 2010 to 2020, with disinflation, constant Fed QE, and very slow economic growth. Larry Summers coined the term, where there was certain deflation, austerity in Washington, the UK, and Greece, with the Tea Party pushing fiscal discipline—a totally different world of disinflation. The Fed was doing QE—that’s secular stagnation. Now we’ve moved into a period where the German government, which was the hallmark of austerity three or four years ago, had a “black zero” picture in its Finance Ministry symbolizing a hardcore austerity regime. Now Europeans are saying they need to spend more on defense because the U.S. is pulling back. This ties to Ferguson’s Law by Niall Ferguson, the best financial historian. His point is that if defense spending is crowded out by interest on debt, you have a big secular problem, and that country, like the U.S., will fall globally. That’s what’s happened—U.S. defense spending is now lower than interest payments. We’re going to have to pull back on defense over the next 10 years, meaning other governments will spend more. You have massive global fiscal spending, and in the U.S., enormous fiscal deficit spending. With no austerity in the world, you get a higher interest rate and higher inflation regime.
Jim Puplava:
You also talk about countries having policies to protect their industries—tariffs—and workers against ferocious competition. Wall Street focused on the effect of cheap imports, and companies bought back stock instead of investing. Did cheap debt and financing distort that? For almost 13 years, we dealt with 0% interest rates, and nobody talks about the side effects for savers. Retirees who used to get money from Treasury bills or CDs got nothing, right?
Lawrence McDonald:
In that disinflationary world, Jim, the Fed could be much more aggressive in supporting the bond market during stress. Every time there was a problem, they came in with QE, creating TINA—There Is No Alternative—forcing money into other assets. This allowed companies to borrow at extremely low rates year after year, and S&P 500 companies bought back obscene amounts of stock. Look at Berkshire Hathaway’s annual meeting and Apple’s stock buybacks over the last decade—hundreds of billions of dollars. Buffett now knows it’s the end. He’s taken his Apple position from a billion shares down to 300 million. In a higher interest rate regime, it’s going to be much harder for companies to do these buybacks, so that artificial market support will be curtailed.
Jim Puplava:
I want to talk about the new consensus in Washington you mention in your book, particularly the suppression of volatility, which gave a false sense of safety to investors. Over the last decade, Larry, investors went into products or investments they had no business being in. Most people, when they retire, de-risk their portfolios because they depend on what they’ve saved, but that’s not what happened in the last decade. Investors went into speculative areas like junk bonds due to low interest rates.
Lawrence McDonald:
It started with private credit. That low interest rate regime pushed money into high-yield junk bonds and private credit, creating a big bubble there. There’s a line in the book: when you don’t allow the cleansing process of the business cycle to function over longer periods, you create excesses that become so big it’s hard for central banks and governments to let markets work. If they allowed capitalism and creative destruction—the key to capitalism, cleansing out the bad apples—it would be painful because the excesses are enormous. Right now, over the last decade, they haven’t allowed creative destruction. Every whiff of a recession brings massive fiscal and monetary responses, building up more problems. It’s starting to unwind and will probably unwind over the next three to five years. The probability that the highs for the S&P 500 are in right now for the next five to 10 years is extremely high. We’ve done everything to pump up the S&P through buybacks, not allowing the business cycle to function, and aggressive fiscal and monetary support. The probability that the S&P peaked in February, with that high lasting five to 10 years—like from 1999-2000 to 2008-2010 when the NASDAQ got back to highs—is what we’re heading for again.
Jim Puplava:
With QE over the last decade, there was a suppression of volatility. The VIX was down at the bottom. I want to talk about one of the first Vesuvian eruptions, January 2018, Volmageddon. Let’s talk about that and how we may see more of it.
Lawrence McDonald:
That was a period of a lot of fiscal and monetary support, with Trump as president. Inflation was starting to surprise to the upside, and China was threatening on the tariff deal. The VIX exploded because central bankers had suppressed volatility and bond yields, pushing investors into volatility selling. There were billions of dollars in volatility control funds just selling equity market volatility. Every time the VIX went up, they’d sell more, double down, triple down. It worked for a long time, then exploded in February and March of 2018. That was a precursor for what’s ahead. From August to now, we’ve had two similar VIX moves, telling us we’re in a whole new volatility regime.
Jim Puplava:
One of the biggest lessons I’ve learned in my career is following the credit markets. To me, bond investors are the smartest guys on the street, and moves in credit markets foreshadow and lead equities. Let’s talk about that.
Lawrence McDonald:
Credit has been very tight—low yields on junk bonds—for a couple of reasons. The Fed suppressed the cost of capital for so long that high-yield managers had tiny coupons. Now interest rates are higher, but the spread between Treasuries and junk bonds has been low over the last six months, though those coupons are high, bringing in buying. Recently, the high-yield index is at a level where it was in August, but the S&P is 10% above August levels. In our chat, we talk to the smartest hedge funds, and we’re starting to hear real cracks in private credit leaking into high yield. It’s just a start, but there’s a very high probability of a meaningful credit crisis in the next year. Many companies issued bonds during COVID, locking in great yields, but those bonds will roll over at much higher yields in the next 12 to 18 months. You want to raise cash now, sit in the boat, and wait for the real opportunity. That’s what Buffett’s doing—his cash position is up another $14 billion from February, around $350 billion now.
Jim Puplava:
He’s like $350 billion now?
Lawrence McDonald:
Yeah, $350 billion. He knows we’re heading into a period where passive investing unwinds. The oldest boomers are now about 79 years old; 10 years ago, they were 69. Boomers have about $79 trillion in wealth, while millennials have only $8 or $9 trillion. The largest, wealthiest part of America is turning 80, forcing people out of the market, out of passive, and into commodities, alternative assets, and higher-yield bonds.
Jim Puplava:
In your book, you talk about this inflationary environment we’re in the beginning stages of. Inflation is baked into our future, and you say, “Buckle up.” Let’s talk about that. We were so used to disinflation for three or four decades—bond yields fell for almost four decades. That environment is changing. We’re seeing it with Treasuries, and you also talk about volatility in the bond market with the MOVE index. We’ve seen mishaps in the Treasury market we’re not used to.
Lawrence McDonald:
When we talk to European investors, they’re freaked out because U.S. debt is so high, the U.S. is starting to act like an emerging market country. In the last month, we’ve had bonds selling off (higher yields), stocks lower, and the dollar lower. That’s the type of thing you see in emerging markets, and it’s freaking out global investors. If you’re a pension fund manager in Europe, you’ve got a gun to your head to reduce dollar exposure. It’s not just Trump’s fault—it’s Trump and Biden. Biden juiced spending by a trillion dollars in the first quarter, jacking up the deficit. Bond investors were already freaked out heading into this tariff game. Trump’s playing tough guy on tariffs, creating a situation where people think foreign counterparties won’t buy our bonds. We had huge stress in the bond market, and the basis trade—a complicated trade with Treasuries—blew up in early April. For the first time, the U.S. started acting like an emerging market country, really freaking out the global investment community.
Jim Puplava:
I want to move to the chapter on energy. You talk about ESG policies and how about $2.5 trillion of needed investment was foregone by companies. You see this with big oil companies—if they were drilling, it was on Wall Street, not offshore or in the ground. You’re talking about higher energy prices, and I don’t see how we can avoid that. We’re not making new discoveries or investments, and with population growth in emerging markets like India, where people buy scooters or air conditioning when they make more money, this world runs on fossil fuels. We’re myopic in thinking we can get rid of them.
Lawrence McDonald:
Exactly, Jim. What happened in the last decade is mind-blowing. We went into this Green New Deal regime, like Jonestown, where everyone was drinking the Kool-Aid, talking about carbon-neutral 2040 or 2050, or taking diesel cars out of Europe by 2025. The lunacy of these assumptions was off the charts. Now, Washington and scientists are walking it back—carbon-neutral 2050 is really 2100. The only way to get to that green meadow is through investing. If you take the 2010-2014 capital investment regime in oil, gas, metals, nuclear, and uranium, and project it to today, we’re in a $3 trillion hole relative to the previous path. That’s because of a commodity bear market in 2016, forcing companies to focus on capital retention, dividends, and less investment—not just environmental restraints, but also global environmentalists. Countries like Panama have incredible copper properties—high-grade, close to the surface, accessible to the Pacific or Atlantic in five minutes—but the mine’s been shut down for political reasons. The same is true in Peru and Chile. Global copper production and new mines are stalling due to environmental regulations and political pressures. We’re heading for a copper crisis in 2026, 2027, or 2028 when data centers come online. We’ve got a billion more people than 10 years ago, artificial intelligence, and Bitcoin, which at $100,000 consumes energy equivalent to South Africa. Add in the Ukraine rebuild—it’s a copper nightmare crisis, like the OPEC oil crisis in the ’70s, but in copper, coming in 2026-2028.
Jim Puplava:
We’ve seen this with the IEA consistently underestimating petroleum demand, talking about peak energy demand by the end of this decade, saying we won’t need this stuff. They’ve been consistently wrong. You mentioned copper and energy—mining runs on diesel fuels for loaders, trucks, and everything else. Nobody’s thought this through. How are we going to do this if we’re not allowing mines? I’m thinking of the Resolution Mine in Arizona, which has been in the permit stage for over a decade.
Lawrence McDonald:
We just did a call with Adrian Day, a top metals and mining strategist and a big contributor to our book. He has a chart showing the last four decades of major copper mines coming online, and in this decade, it’s way down. Copper mines take billions of dollars and years to bring online—it’s like turning around an aircraft carrier. You need to get way ahead of it, and we’re way behind. Look at the Trump team—they know. Look at what they’re trying to do in Greenland and Ukraine. They know China and Russia have outflanked the U.S. in rare earths, which are critical for robotics and new technologies. We’re a decade or two behind, and Congress is waking up to this. It’s a big part of the book, with a half-chapter on rare earths and how far behind we are.
Jim Puplava:
It’s interesting because, going back to Buffett, he’s raised about $350 billion in cash, but he owns a significant portion of Occidental Petroleum and has a major investment in Chevron. He’s investing in energy, probably seeing the same thing we see.
Lawrence McDonald:
He sold down his Apple stake by 600 million shares and is redeploying that money into Oxy and Chevron. At the Berkshire annual meeting, Greg Abel and Buffett said energy infrastructure and artificial intelligence are the place to be. They’re looking at natural gas, uranium, nuclear power, and copper. It’s the train of the next decade.
Jim Puplava:
I want to talk about the investment thesis in your book. Growth stocks do well in periods of low inflation or disinflation. On Wall Street, discounted cash flows use lower interest rates for valuations. Inflation changes this paradigm from growth to value and hard assets. Let’s talk about where we need to go, because your book is about a paradigm shift and how to position yourself for what we’re likely to see over the next decade or more.
Lawrence McDonald:
This gets back to the reaction function. Normally, when you move into a higher interest rate, higher inflation regime, the discounted cash flow (DCF) model is based on the risk-free rate. If the risk-free rate is 1 or 2%, you want to be in software companies and growth stocks. For a software company with a billion dollars of cash flow over 10 years, those cash flows are worth more in a low-interest-rate, low-inflation regime. In a higher interest rate, higher inflation regime, that same billion dollars of cash flow is worth less. Portfolio construction on Wall Street migrates from growth stocks to value companies that own assets in the ground, like Berkshire owning Occidental. You can buy Occidental for four times EBITDA, with assets that protect against inflation. The money is migrating, as you see with Buffett, but because of the passive overdose, many are stuck in the S&P 500. With passive representation near 60%, the reaction function from growth to value is much slower than it would be normally. In the old days, the market was full of active managers like Buffett, choosing what to buy and sell. Now it’s mostly passive, so even though we’re in a higher interest rate, higher inflation regime, the migration is slower—but it’s happening.
Jim Puplava:
In your book, you talk about the decline of the U.S. dollar and the end of the petrodollar. We’re seeing that in the Middle East, with Saudi Arabia selling oil denominated in yuan and other Gulf states following. If this plays out and gets worse, you’ll need a dollar hedge, like precious metals or hard assets. Let’s talk about a portfolio that works well in this paradigm shift.
Lawrence McDonald:
This goes back to what I mentioned earlier, where the world’s reserve currency is acting more like an emerging market country. In the last month, we had a significant move down in stocks, bonds, and the dollar. If you’re a portfolio manager in Europe, Canada, or Asia, you’re getting hit on all angles—something that happens in countries like Brazil. From a sanctions point of view, over the last 20 years, both Republicans and Democrats have hit emerging market countries with sanctions or capital confiscation. With Russia, whatever you say about Ukraine, confiscating their capital after a decade of sanctioning emerging markets was the ultimate hubris. Washington is smoking with overconfidence in the dollar. We’ve jacked up deficits and are trying to pay for them by taxing the world through aggressive trade talks. We’ve sanctioned emerging markets and confiscated capital, driving money away from the dollar. Look at a chart I posted on Twitter today about gold versus the GLD share count. Central banks globally are buying gold to diversify away from dollars, but the GLD share count isn’t following because central banks don’t buy GLD. European and Asian investors are two standard deviations above the 20- or 30-year norm in dollar exposure. There’s a gun to their heads to reduce dollar exposure because Biden jacked up the deficit by a trillion dollars in 100 days, Trump’s threatening tariffs, and we’ve sanctioned emerging markets for a decade. Watch the Canadian and Aussie dollars—people are forming a basket of alternatives to the U.S. dollar.
Jim Puplava:
In this transition, your last chapter talks about where to put money—hard assets like gold, silver, copper, cobalt, lithium, uranium, oil, and natural gas. In an inflationary environment where the dollar is losing value, you’ve got to protect yourself.
Lawrence McDonald:
You want a portfolio positioned for the AI revolution and the transition to the green meadow. We need nuclear power and natural gas to get to carbon-neutral 2100. It’s a totally different portfolio construction. The old 60/40 portfolio—60% stocks, 40% bonds—is now 30/30/40: 30% commodities, 30% stocks, 40% bonds. In the stocks and commodities section, you’ll have copper, uranium, cobalt, and companies producing strategic metals. Five or ten years from now, a Rio Tinto or BHP could be at the top of the S&P 500. Exxon or Chevron were number one in the ’70s or ’80s, and we’re probably heading back to that kind of world.
Jim Puplava:
That’s amazing because we’re 30% invested in commodities for this reason. I want to throw out a final question. You mentioned the fourth turning—we’re in the middle of it. Usually, in a fourth turning, when you come out, the old institutions are gone, replaced by new ones and a new paradigm. If you look out 10 years from now, Larry, what do you think we’ll look like coming out of this?
Lawrence McDonald:
We’ll clearly have three or more political parties in the United States instead of two. The establishment Republicans and Democrats have hurt their base, which is why we see figures like Trump. We’re heading toward a world with insufficient natural resources, and we’ll need to massively rebuild the U.S. power grid, which will take $2 trillion. The grid is like a 90-year-old man—30 years old in some spots, 40 in others. It’s a world of robotics and artificial intelligence, but people forget the amount of copper needed for robots, AI, and the power grid. It’s tons and tons of copper.
Jim Puplava:
Incredible. I want to highly recommend your book to our listeners. As I mentioned, I bought it for my entire staff. When I picked it up, Larry, I couldn’t put it down. Kudos for writing something this profound. You were prescient in predicting the subprime crisis, and I think this book predicts what’s coming. Well done, my friend.
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