Chapter 1: What is the main topic discussed in this episode?
So the bottom line for everybody watching us right now, in that kind of higher interest rate regime, companies that control assets are worth more, whereas software companies and companies that control intellectual property, the Netflix of the world, all the software companies in that new inflation regime, those companies are worth less.
Chapter 2: What is the great rotation to hard assets thesis?
What's going on, guys? Today, we've got a very special treat. I've got Larry McDonald. He's a New York Times bestselling author, and he is the founder of the Bear Traps Report.
Chapter 3: How is AI spending impacting market dynamics?
In this conversation, he is going to walk through his view of what's happening in financial markets and various assets, and I think it is going to be eye-opening for all of you. We touch on why he thinks that we're going from a software and financialized world to something that needs many more hard assets in your portfolio.
He recently just put Bitcoin into their portfolio for the first time, and he explains why.
Chapter 4: What strategies should investors consider in the current market shift?
We talk about dollar dominance, the competition between deflation and inflation moving forward, what's going on on the geopolitical stage, and then we even get into some of the lessons that he's learned from some of the great investors throughout history.
This conversation, again, made me think more critically about my portfolio and what's going on in markets, and I think it'll do the same thing for you. Here's my conversation with Larry McDonald.
All right, Larry, I thought a great place to start the conversation is you've been talking a lot about this great rotation from kind of financial assets to hard assets, things around the energy infrastructure, et cetera. What's your thesis as to why people should be considering this?
Well, if you think about the last like 50, 60 years, especially the last 20, we were in a certain deflation regime from 1990 to 2020. And so what that does over time
Chapter 5: Will we see higher or lower inflation in the future?
is in Wall Street models for when you value companies, if deflation is very certain, and it really climaxed in 2021, like 2021, because we hit COVID, and we were in this deflationary spiral, and then the Fed and Treasury went all in to get us out with massive fiscal. But in that deflationary regime, if you look at that, we talk about this in the book, How to Listen to Market Speak.
We look at the discount model, right? DCF, discounted cash flows.
Chapter 6: How does dollar dominance compare to Bitcoin and gold?
All that means is if rates are zero with low inflation, certain companies like software are tremendously more valuable. So imagine if you have a billion dollars of cash flow, right? Just one billion over 10 years in a certain deflation regime. that billion dollars is worth a lot more over 10 years, right? Now, say you have another billion dollars in a certain inflation regime. It's worth less.
Worth less over time. So what happens is, When you go into a new regime like this with a multipolar world, global conflicts, big deficit spending, I mean, we're supposed to do a trillion dollars on defense and now Trump wants more, right?
Chapter 7: What are the risks associated with private credit and liquidity issues?
So that's 6% fiscal deficits versus three the past 50 years on average. So the bottom line for everybody watching us right now, in that kind of higher interest rate regime, companies that control assets are worth more
Whereas software companies and companies that control intellectual property, the Netflix of the world, all the software companies, in that new inflation regime, those companies are worth less.
So one of the things that I think we've seen from these hyperscalers is they previously may have been considered software companies, but now they're going very hard and investing a lot of capex into actually owning physical assets, data centers, compute, etc., are they doing that because they understand this from like a financialization standpoint?
Or is that more so maybe from an investor's perspective, you know, have to question, you know, is Facebook a software company?
Chapter 8: Where should investors allocate capital right now?
Or do they own hard assets?
Anthony, I was in San Francisco in July. We hosted an elite family office, CIO dinner. We do this around the country. So the beer trap support, we're hosting one tonight in New York at the Harvard Club. What we do is we get together- That's big time. No, it's not me. To me, that's what the whole book's about. It's getting great mentors in a room and learning, right?
Learning, like anybody watching us right now younger, You want to get your best mentors, take them out for coffee, take them out for dinner. And that's what we do at the Bear Trap Support. We gather intelligence that way. And we started hearing this in May, June, July, and August. And the key to investing is measuring the life of a narrative.
In other words, when I was a retail broker in the 90s, I was on Cape Cod. And every narrative that came out of the Wall Street Journal or Wall Street Research, I couldn't tell how old those narratives were. Because what Wall Street would do is they would give the ideas to their institutional clients.
And then after they're picked over, they eventually make it to retail and the Barron's and the Wall Street Journal.
Back then, and you and I were just talking about this, the way the rate of change of information that you've mastered, mastered like the last five, 10 years, monitoring that rate of change of information, if you do that in an ideas dinner setting or we host a Bloomberg chat with hedge funds, mutual funds, and pension funds, and we can measure the life of those narratives.
So getting back to your point about MAG7, I'm telling you right now, what we started to learn in the spring to summer was that this is a testosterone contest where Zuckerberg's challenging Larry Ellison. One of the guys at the dinner was really close friends with Larry. And if you look at what Larry Ellison just did, he essentially blew up his company.
The stock's 50% off because Zuck, it's like the Dr. Oppenheimer moment. And they're all going after each other.
And so Zuck- They're literally willing to risk implosion of their company for the potential to be a major part of this like AGI. 100%.
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