How to Navigate the New Investment Paradigm | Lawrence McDonald

In Episode 450 https://hiddenforces.io/podcasts/how-to-navigate-the-new-investment-paradigm-lawrence-mcdonald of Hidden Forces, Demetri Kofinas speaks with Lawrence McDonald, the founder of The Bear Traps Report and the author of a recently published book about the risks and investment opportunities present in today's radically reshaped economy titled "How to Listen When Markets Speak." In today's conversation, Demetri and Lawrence discuss how social media and the gamification of investing have amplified behavioral biases and fueled the AI boom, as well as the growth of crypto and other "tertiary" assets. They then zoom out to examine how the macro environment has changed since the Covid 19 pandemic, and how the government's response to both the GFC and covid crisis have sent investors scrambling for new frameworks to help them understand government's role in the economy and how to position themselves and their client's portfolios for a radically new world—one that you will not learn about in financial text books or most macroeconomics courses. Kofinas and McDonald also explore the "dark side of passive investing," the extreme concentration risk present in a handful of AI-linked mega-caps, the risk to markets of more capricious government trade policies, and why Lawrence McDonald believes that one of the most underappreciated opportunity sets in AI lies not at the intersection of semiconductors and AI companies, but in the physical energy and delivery infrastructure needed to power them. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 11/17/2025

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest on this episode of Hidden Forces is Lawrence McDonald, the founder of The Bear Traps Report and the author of a recently published book about the risks and investment opportunities present in today's radically reshaped economy titled, "How to Listen When Markets Speak." In today's conversation, Larry and I discuss how social media and the gamification of investing

• 0:40Demetri Kofinas?

  have amplified behavioral biases and added fuel to the AI boom, crypto, and other tertiary corners of the market. We then zoom out to examine how the macro environment itself has changed since the COVID-19 pandemic and how the government's response to both the GFC and the COVID crisis have sent investors scrambling for new frameworks to help them understand the role played by government in the economy and how to position themselves and their clients' portfolios for a radically different world than the one that we learned about in our financial textbooks and macroeconomics courses. We also explore the dark side of passive investing, the extreme concentration in a handful of AI-linked mega caps, the risk to markets of more capricious government trade

• 1:23Demetri Kofinas?

  policies, and why Larry believes that one of the most underappreciated opportunities sets in AI lies not at the intersection of semiconductors and the AI companies themselves, but in the physical energy and delivery infrastructure needed to power them. If you want access to our premium feed, which provides you with subscriber-only content as well as transcripts and intelligence reports for conversations like this one, go to hiddenforces.io/subscribe, where you can also learn how to join in on the conversation by becoming a member of the Hidden Forces Genius Community. Genius members have access to bimonthly Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats.

• 2:07Demetri Kofinas?

  And if you still have questions, feel free To send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice. All opinions expressed by me and my guests are solely our own opinions and should not be relied upon as the basis for financial decisions. And with that, please enjoy this timely and valuable conversation with my guest, Lawrence McDonald. Larry McDonald, welcome to Hidden Forces.

• 2:48Speaker 01

  You know, it's great to be with you guys. I've heard a lot about the platform. Congratulations.

• 2:53Demetri Kofinas?

  Thanks, Larry. That makes us sound like we're a bigger deal than we are, calling us a platform. I like that. I'm going to start referring to this as a platform instead of a program. So, you know, you've been on my radar for a very long time, but it was one of our genius members who was at a recent private gathering of yours down in Panama who suggested to me that I reach out and have you on the show. And I've heard great things about your network and the types of people that you have access to interact with. So I'm very excited to speak with you today. Why don't we start with your background? How did you get started in finance and how long have you been working on the research side of the business?

• 3:28Speaker 01

  Well, I started off in the retail side of the business in the 90s and we were fortunate enough, we created a website in the 90s. I wanted to diversify kind of away from the retail financial advisor setting. And so we created convertbond.com. We sold it to Morgan Stanley in October of 99, probably the best trade of my life because if we didn't sell the website at that point, we probably would never have sold it because it was right before the crash. And then I went to Lehman Brothers and I was on the deck of the Titanic as we're heading toward that iceberg. And this was the largest bankruptcy in the history of financial markets.

• 4:13Speaker 01

  It was like a really almost a $790 billion failure. And I was fortunate enough to write the inside story about the collapse of Lehman Brothers. It became a New York Times bestseller. It's now published in 12 languages. And we've done about 140 speeches in 16 countries talking about, you know, the crisis. We built up this incredible network of mentors. So we run a Bloomberg chat behind me with hedge funds, mutual funds, pension funds, the most sophisticated investors in the world. And we democratize that information in our new book, How to Listen When Markets Speak.

• 4:55Demetri Kofinas?

  You know, this wasn't a question that I had. So I've got lots of questions here. I don't know how familiar you are with the show, Larry, but I'm pretty well prepared. But oftentimes I come up with questions in the middle of an interview. And here's one that I wasn't initially prepared to ask, but just hearing you answer this. So you sold your first research business in the late 90s. You were at Lehman. You've amassed this very large and influential network of people that you advise and work with. And you've been publishing letters and books for decades. How do you avoid not getting caught up in your own bubble? Or your own echo chamber where you're so focused on putting out research notes and thought pieces that you neglect to really sit back and reflect on what's going on in the world and in markets that you may not have readily available answers to?

• 5:40Speaker 01

  Well, I mean, to me, when I was in the 90s, I was a financial advisor. It really disgusted me how uneven the playing field is. In other words, I would see research and I'd find out years later that the institutional investors would get the research first and the financial advisors would get picked over research. And it really infuriated me. So I've just had this, you know, mission to democratize information. I want to even that playing field between the average investor, the family office, the wealth manager, and the high, high institutional investor.

• 6:20Speaker 01

  And I think that the internet, Twitter, has accelerated this to my benefit. And it's kind of just been a lifelong mission because... As a financial advisor in the 90s, every day I was at work and you would just realize that you were getting kind of second, third-hand information in terms of research.

• 6:38Demetri Kofinas?

  Do you feel like people's financial acumen has improved or worsened in the course of your career?

• 6:44Speaker 01

  Oh, it's dramatically improved, yeah, it's dramatically improved. But one of the problems I see, one of the things that I think is an opportunity for people listening to us right now, is because of the democratizing of information, the rate of change, the speed of transfer of information, the capitulation on sell-offs is much more spectacular and it creates opportunities. In the old days, like in the 90s or even 2000s, a stock would sell off over time. But today, everyone's getting the stop-loss at the same moment. Everyone on Twitter is basically doing kind of the same thing, whereas they're buying breakouts. And when that channel changes, everyone's puking out.

• 7:29Speaker 01

  That's why if you look at this year, Chipotle, Lululemon, the target, the tax loss opportunities this year are so spectacular because everyone has puked out a lot of these really fantastic companies that are, you know, 50, 60, 70% off.

• 7:47Demetri Kofinas?

  Does that suggest that social media and the hijacking of people's limbic systems who spend too much time on the internet have amplified some of the more deleterious behavioral biases of investors? And that this has actually increased the challenges associated with portfolio management today and therefore also created opportunities for those investors who are better able to govern their passions, so to speak?

• 8:12Speaker 01

  100%. Just look at Robin Hood, look at, you know, the way, what they've done with Bitcoin and crypto is just so sick. You know, there's eight cryptocurrencies outside of Bitcoin that have lost investors $210 billion.

• 8:30Speaker 01

  From the hots, $210 billion, the Solanas of the world, we can go through the coins, but we wrote about this this weekend and the little guy, because of technology, information transfer, because a lot of these websites, these broker dealers allow you to buy crypto on leverage and, you know, the inexperienced investor gets flushed out. And I'm telling you right now, and I know this firsthand from investors that in our network, a lot of times the stop losses are pretty well known within the financial ecosystem. And as we've seen Bitcoin and not just Bitcoin, but more so the tertiary coins in recent

• 9:11Speaker 01

  months, especially the last 30 days, you're talking about people getting flushed out, stopped out because what sellers will do, they'll create a capitulation, they'll sell into that, they want to knock out those stops. They want to force that capitulation and buy on the cheap. And the Michael Sellers of the world and these clowns on the internet that talk about long-term track records for Bitcoin or any kind of crypto, it's complete garbage because when asset classes drop, you know, 50 to 90% four or five times in a decade, long-term track records are absolute garbage, meaningless. They mean nothing because

• 9:53Speaker 01

  the little guy is getting stomped out, knocked out and selling in the hole. That's why you see spectacular volume with crypto on the hole and nobody's calling these guys out. Bitcoin's long-term track record means nothing because people have been getting stopped out on Bitcoin and shitcoins for much of the last five to seven years.

• 10:14Demetri Kofinas?

  Yeah. So in other words, the bottom of the pyramid, which has less liquidity, which is most people, can't sustain those drawdowns. So they also amplify the wealth discrepancies and disparities in society.

• 10:25Speaker 01

  Hundred percent, hundred percent. Because you know what the sales pitch is, oh, I'm gonna buy and hold Bitcoin. I don't need it, right? Or I'm gonna buy and hold crypto. And that's what people do. Young people psychologically condition themselves into a lie, right? Because what happens is when you, when you say that, all of a sudden, you have an asset that goes down eighty percent, seventy percent. It stays there for a year and a half, two years. The testosterone's flowing through a young person's body, especially men. And you wanna buy the house. There's a line in our book, J. P. Morgan, 1907. He said, "There's nothing in this world which will so violently distort a man's judgment more than the sight

• 11:10Speaker 01

  of his neighbor getting rich," right? In other words, you're in crypto for the long haul, it drops seventy percent, stays there for a year and a half, two years. You see someone making money on Tesla, or you wanna buy that house, or you wanna buy that car. And guess what? You sell. And that's what happens. And that's the reality of crypto. It's the reality of Bitcoin.

• 11:30Demetri Kofinas?

  Yeah, I mean, I think even though we've made a lot of progress in sort of democratizing knowledge about behavioral science in the last two decades, I still think it's the most underappreciated part of investing.

• 11:42Speaker 01

  I agree.

• 11:42Demetri Kofinas?

  So let's pivot to some of your recent notes. In your most recent one, your Washington Pressure Point note. By the way, how many notes do you publish a week or a month? Like, what different categories? What are the different names? Like, how many of those do you have?

• 11:54Speaker 01

  Sure. We recap the institutional chat. So remember, that's the conversation between hedge funds, mutual funds, and pension funds. We recap that overnight, Monday through Friday. And then we recap it once a week with the turning point. If someone doesn't, maybe someone doesn't need the information every day. The Washington Pressure Points came out in the, within the last year, and it has to do with the point in our book around the financing of the debt load, that thirty-seven trillion dollar dev, thirty-eight trillion, and how much has to be financed. And those bond sales and what we call bond vigilantes that have appeared several times in the last year, we're trying to make sure retail investors

• 12:38Speaker 01

  don't get body slammed by the bond market.

• 12:40Demetri Kofinas?

  Would you also agree that understanding government and the relationship between government and the private sector is more important today than it's been at any other point in your career?

• 12:50Speaker 01

  Oh my God, yeah, because, I mean, essentially, interest on the debt is 1 to 1.1 trillion, and interest rates have gone up into a massive... There's a scene in the book, right? Forty percent of all dollars ever created were done so between 2020 and 21 with Trump and Biden. So forty to forty-one percent of all dollars ever created in the history of the United States were created in that little period. And so that's created... There's a really good line, too. This is a better line to help you understand. The fiscal and monetary response to Lehman Brothers, which was the greatest financial

• 13:32Speaker 01

  crisis of all time, was $4 trillion. The fiscal monetary response to COVID, the regional bank crisis of 2023, and then kind of juicing the fiscal spending into the election of '24, that was $16 trillion. And so that's why, like you said, that public policy and markets is much more intertwined today.

• 13:57Demetri Kofinas?

  So this is somewhat of a meta-question, Larry, because you wrote in one of your most recent notes that your clients have been requesting a comprehensive one-stop-shop that will provide them with information about Treasury issuance and stuff like the reverse repo facility and the Treasury General Account, which is basically the government's bank account, along with stuff like commercial bank reserves and the fiscal budget and the financing path of Washington, as well as what you call real liquidity. And my question is, what is the deeper question or set of questions that you think your clients and readers of your research are really asking you for when they say that they want a "one-stop-shop"

• 14:40Demetri Kofinas?

  that includes all of this information related to the government's finances and the interaction of its balance sheet with the broader economy? Because I feel like many podcast listeners in particular, who seem to express interest in whether the TGA is drawn down or whether we're seeing inflows into the RRP, are really grappling with a deeper question or set of questions about the government's role in the economy. And they're looking to develop a new understanding and a new framework for thinking about how the economy and markets operate today. Does that resonate with you?

• 15:19Speaker 01

  Well, if you think of like, the annual deficits, right, are in recent years at between 6% and 8% annually. That's in Washington. And you can call it modern monetary theory, you can call it wherever you want, but both Democrats and Republicans chose to go down this road of much more, this is World War II type spending. I mean, this is, you look back through the 90s and the 2000s, the annual deficits were 1% to 3% in worst case. And now we're in this 6% to 8% for the last like 3, 4 years. So the amount of treasuries you have to sell to fund that, and then you have, in the

• 16:03Speaker 01

  world, less buyers than we had, we're getting far less help from China. You know, we've taken sanctions, we've hit countries over the head with all kinds of sanctions the last 10 years, 20 years, Democrats and Republicans. And then we confiscated Russian private capital after the tragedy in Ukraine, $300 billion. And then we had the trade war. So the amount of foreign buyers of treasuries relative to previous decades, we're getting a lot less help. And that means we need to sell more bonds, we need more help from our trading partners. And that's why, to your point, and you're spot on, the zeitgeist is like, investors

• 16:43Speaker 01

  now around the world are much more careful about analyzing this problem. Because it's a little banana republic-like, we're walking down that path, and if we don't have enough buyers of the paper, then we're going to have a big, big bond crisis. And people have talked about this for a couple of years and it hasn't emerged. The Treasury Department has done a number of things, they've got some tricks up their sleeve, which they've been executing with.

• 17:10Demetri Kofinas?

  So you mentioned this term real liquidity when listing out things that your clients and readers are looking for information on. Michael Howell of Cross Border Capital, who's been on the show as well, also puts brackets around the term liquidity and has developed his own gauge of global liquidity that takes into account more than just the traditional monetary aggregates. What is it that you mean when you say real liquidity?

• 17:35Speaker 01

  Well, there's the academic version that's M2 money supply, or then you take the RRP, and that's the reverse repo facility, or the TGA, the Treasury General Account. If the Treasury General Account is going up and up and up and up, and that means that's the Treasury's checking account, that means they're taking in tax receipts and they're not spending it, for whatever reason, whether it be the government shutdown, that's pulling liquidity out of the market. But when we were in San Francisco this summer, a client really opened my eyes to what a lot of sophisticated investors are actually measuring liquidity in a different way. And this was a hedge fund manager that manages money from one

• 18:16Speaker 01

  of the largest families, the tech family in the valley. And I guess the best way to measure liquidity, I think, and this is kind of his thoughts, and looking back, we have a model that tracks it this way, is you look at tertiary assets versus established. So you look at Bitcoin, for example, versus Solana. So that's established versus Solana's more tertiary, or Avalanche, or any one of these, we call them shitcoins, right? Or you just look at the NASDAQ versus Bitcoin. So something's going on. When the rate of change of Bitcoin or tertiary assets accelerates and starts to underperform established, think

• 18:55Speaker 01

  about meme stocks, profitless stocks, or the most shorted stocks, stocks that are really speculative, that when a company is really speculative, and let's just say it has a $10 billion market cap and no sales, at some point, that stock almost becomes a bit like a shitcoin, right? So what a lot of professional investors are doing today to measure liquidity is they're looking across like 17 of these verticals. Look at digital asset treasury stocks, like MicroStrategy.

• 19:27Speaker 01

  All of a sudden, this group of hot equities, which was dramatically outperforming for a long time, is now underperforming. Same thing with meme stocks. Look at ARK stocks in recent months. So yeah, so there's different ways to measure liquidity. There's the traditional academic way. And then there's the real kind of day to day way in the market.

• 19:48Demetri Kofinas?

  So I feel like 2008 was this watershed moment that at least within my own circles created two types of people. Those who, when faced with their own failed forecasts, responded by rethinking their assumptions and improving their or seeking to improve their understanding of the world. And those who doubled down on their preexisting models despite their failures. Because throwing them out and starting over is it's just hard. And I feel like the same thing has happened after COVID. All this interest in the fiscal side of the balance sheet and how the government interacts with the private sector is a result of the fiscal interventions during COVID and the failure in particular of higher interest rates to contract the economy. Would you agree with that?

• 20:33Demetri Kofinas?

  And have you experienced a demand from your readers for information that helps them understand these forces and how to think about the government's role in the economy post COVID?

• 20:43Speaker 01

  You're spot on. I mean, so Lehman goes down in 2008. President Obama kicked butt in the election, won a big landslide. But then in 2010, he lost the most seats in the House since the 1920s. And what happened was we went into this period where we were doing all this fiscal and monetary coming out of Lehman. And the monetary was through what we call quantitative easing. And a lot of that was staying on the central bank balance sheets and the bank balance sheets. And we can talk about that. But at the same time, the fiscal lever got chopped off by the loss in the House from the Democrats. And we had this like two year period, three year, really

• 21:28Speaker 01

  four or five year period of gridlock where we took the deficit from say 1.1, 1.2 trillion. And because Republicans and Democrats were not agreeing on spending, that deficit went from annually 1.1 trillion down to a little bit, I think a little bit less than 400 billion. So it was a massive fiscal austerity period. They called it the Tea Party. This created this real incredible backdrop of what we call deflation, disinflation, and the portfolio construction for that changed dramatically. In other words, if your long, long duration equities like software companies or Mag7

• 22:09Speaker 01

  or whatever kind of stocks, they do really well, especially software companies, in a certain deflationary world. So let's just say you have a 10 years of cash flow, right? So you got a software company that pays a billion dollars of cash flow over 10 years. If you have certain deflation, that billion dollars of cash flow is worth a lot, lot more. But then COVID comes along, supply chains are stressed, and all of a sudden Republicans and Democrats are like, oh, those jobs over in emerging markets that we sent to China and Vietnam, we want to bring those back. So all of this inflation pressures that never really didn't exist in the previous decade have exploded to the surface.

• 22:52Speaker 01

  Like I said, that fiscal monetary response was enormous, 16 trillion. And that's created this fiscal slash much higher inflation regime, higher interest rates, higher inflation, that is killing consumer confidence, university emission consumer confidence. And all kinds of consumer confidence indicators are trading below Lehman 2008 levels with the stock market at all time highs. That tells you that people are really stressed in the middle class.

• 23:24Demetri Kofinas?

  Okay, so how do you square that? And what does that imply about the way that our economy works today? And the relationship between the economy and financial markets?

• 23:33Speaker 01

  It's really ugly. And if you look at Chipotle's earnings, or if you look at this K-shaped economy, I really don't like that term because people don't really understand what it is. But you know, think of like the letter K, you've got one group, like look at-

• 23:47Demetri Kofinas?

  The haves and the have-nots.

• 23:49Speaker 01

  Yes, yes. So let's look at the have and have-nots. So look at Expedia and Airbnb's earnings that came out in the last three weeks. I mean, if you listen to those calls, you'd think they were in this raging bull market, right? But then you look at the restaurants and not just Chipotle. We calculated there's like 20 restaurants that are down more than 20%. Domino's Pizza crushed. Chipotle, and if you look at the comments that are coming from the CEOs, they're talking about young people, middle-class people, that people just can't afford that type of lifestyle anymore. And you could see it in certain companies and you could see it in certain sectors. But then again, a kind of the wealthy upper class that's now getting a lot more interest on their checking account.

• 24:34Speaker 01

  Oh, by the way, you know, imagine if you've had like five million bucks in a money market fund. You were getting 1% a year. Now you're getting four and a half, 4%, right? So you've had a 300% pay raise. Those people are out spending much more money on travel. And that's why you're seeing this Expedia slash Airbnb upside. And then you're seeing restaurants and some regional banks and some REITs, Commercial Real Estate Investment Trust, off a lot, like really a lot of pain there.

• 25:04Demetri Kofinas?

  So I do want to circle back to that. But let's talk a little bit about the government shutdown since we're talking about the government and the fiscal side. And we just got news last week that the government shutdown is technically over. Though I know that that's not, it doesn't work sort of one-to-one. There are some lagging effects as a result of what has occurred over the last several weeks especially. What are some of the lasting effects of the shutdown in your view? And to what degree have investors and policymakers been handicapped, especially by the delay in the release of government data?

• 25:36Speaker 01

  Okay, so there's one important thing. We did some really good research on this with clients behind me. But the first week of a shutdown means almost nothing because the paychecks haven't really been stopped yet. But once you go past that second, third week, there's like an exponential destruction that, you know, we're, and we calculated the amount of paychecks across the military or across different parts of the government that were, you know, on hold for those, because we went in five weeks, right? So the fourth and fifth week, the economic destruction was probably 20 times. What the first week was. And if that's why the White House and I think Congress panicked because they knew if they went on a couple more weeks. We would go into a real hard landing or a recession.

• 26:22Speaker 01

  And so that's kind of your first thing. So the data is now. Still isn't out. We're Mike. I think we're going to get the jobs numbers this week, the inflation data. So a lot of the data is now. In this mystery meat category because the government's been shut down. So these are the short term effects like so the data is going to get really bad. That's why if you look at the bond market, you look at oil. You got a big move down in yields. That that's telling you that the market is pricing in some type of hard like or some bad economic data. Same thing with oils telling you that. But other than that, the government shutdown impact will dissipate over the next. You know, six months, it doesn't have long lasting implications, but it has like. Definitely short nasty ones.

• 27:05Demetri Kofinas?

  Yeah, and while I don't mean to understate. The impact of the shutdown. It doesn't come close to the impact of this administration. In the way that it has conducted policy. The uncertainty it's generated, the corruption. The rapid loss of support for the president among some members of his base. I mean, how do you think about that, Larry? Like when you look at what's going on like Marjorie Taylor Greene, for example. Has come out openly against Donald Trump. He's beginning to lose support also in some of his important. Influencers on social media. There's a mutant. There's a there's a bit of a mutiny. We're seeing the early stages of a mutiny in the MAGA coalition. How does someone like you try to get his arms around? Those kinds of political indicators.

• 27:50Demetri Kofinas?

  They're not easily quantifiable, but which can have an enormous disproportionately enormous impact on markets.

• 27:57Speaker 01

  You know, I've been hearing about this like social unrest revolution. For a long time, the whole ICE thing. We haven't seen any evidence of it in terms of impact on the markets yet. But it's something that's in the conversation with institutional investors all the time. Trump's approval rating really low. A lot of times. Presidents run into this and especially in the second, third year.

• 28:23Demetri Kofinas?

  Yeah, but he's going for broke, Larry. He's going for broke. He's not listening to his own base.

• 28:29Speaker 01

  Yeah, well, you could say, I mean, Biden was intellectually intoxicated, right? For like, it was a vegetable. So they're both in there's like, the one thing, the one thing I don't buy into, like, Trump's bad, Biden's good, but listen, they both have huge flaws, right? And the way the country was run under the Democrats was screwed up in a lot of ways. And the way it's run under the Trump Republicans, it's screwed up in a lot of ways. To have, to your point, to have that revolution within the party.

• 28:57Demetri Kofinas?

  Yeah, I mean, fair enough, though there, there is a difference, you know, certainly the flavor is different. But also I think the difference between Trump, one of the key differences is that we've moved from a phase of covert corruption. Where if you're caught, quote, red-handed, it's a problem for you. Whereas today, it's all happening out in the open. And I think that's especially challenging because there's been a lag, you know, after Trump came into office, the.

• 29:27Speaker 01

  You're not talking about Nancy Pelosi's like trading.

• 29:29Demetri Kofinas?

  Yeah, but everyone already knows that.

• 29:31Speaker 01

  Hold on, that's not out in the open?

• 29:34Demetri Kofinas?

  No, it's no, because she denies it. No, because she denies it, Larry. She denies it.

• 29:37Speaker 01

  No, but no, it's one.

• 29:39Demetri Kofinas?

  Trump doesn't deny it.

• 29:40Speaker 01

  Her returns relative to her pay is out in the open. Her, her, she should not be have that kind of net worth with that kind of package.

• 29:48Demetri Kofinas?

  Sure, but she denies it though.

• 29:49Speaker 01

  It's your map.

• 29:49Demetri Kofinas?

  I hear you. I hear you. The difference is she didn't, my point is, she denies it.

• 29:53Speaker 01

  Well, you're telling me Don Jr. and then.

• 29:55Demetri Kofinas?

  Donald Trump openly embraced it with their coins and their shit pumps and all that crap. They've basically said, we're going to take what is already going on, the corrupt Nancy Pelosi's, the Obamas with their estates in Antucket or wherever they are, and we're going to. We're going to take it to the next level. We're going to go full banana republic. We're going to out Argentina, Argentina. And so I think besides all the other ways in which that's bad, I think it's also beginning to filter through to the MAGA base. Where you're beginning to see some of the, the big MAGA supporters start to break with the president. And I think that is a problem. I mean, the center of the story is, for whatever reason, is the Epstein, quote, Epstein list. There's no actual Epstein list, but. It's a heuristic for.

• 30:40Demetri Kofinas?

  The people that have benefited from whatever it was that Jeffrey Epstein was running, his whatever, whatever you want to call it. But I, my point is that I feel like, you know, we might have been able to get through this administration without as many hiccups if he didn't lose support from his base. What seems to be happening is that he's losing that support. And that could mean a big change coming up at the midterms. And that is my point about trying to wrap your arms around this unquantifiable risk to markets that's coming from the political side. And again, so much more is coming from the political side, Larry, whether it's fiscal expansion or whether it is political volatility, because we have not addressed the deeper fundamental economic challenges post 2008.

• 31:23Speaker 01

  Yeah, this crypto thing by the White House, it was a real bad thing to do because if you look at it, it's like, like I said, the tertiary coins, just eight of them have lost $210 billion off the local highs. So that's from 2021 to now. So you can never really quite know where the high was. But some, some of the highs on the coins were recent. Some of the highs on the coins were 2021. But that's $210 billion of wealth destruction that's affected a lot of voters. And you could say that whole Genius Act and the whole, there's some good parts of the Genius Act, which I think are going to be phenomenal for global payments. But the way the White House embraced some of these tertiary

• 32:08Speaker 01

  coins, a really bad part of the cycle is, yeah, it's going to leave a big stain. I do not, I'm not defending that at all.

• 32:15Demetri Kofinas?

  No, I think for many of us, it was obvious that Trump's North Star was not rightsizing the financial system or addressing corruption in Washington. It seems that it's really about what benefits him and his group. And again, in a much more open way. It's just a significant change in degree. And I think that is

• 32:36Demetri Kofinas?

  Unnerving for investors to understand it, and I think it undermines investor confidence. And so much to your point, I mean, you talked about this earlier about the capital account surplus that the United States runs and its need for foreign capital in order to sustain the value of the dollar, sustain moderately high yields on treasuries. And so much of that is, it's not petrodollars, it's confidence in the American legal system, in property rights, in the strength of American empire. And I think the risk that, I think you're sort of touching on here, when your investors reach out to you, or your clients reach out to you, looking for a one-stop-shop to understand the role that Washington is playing in all of this, I think there's a lot of anxiety

• 33:17Demetri Kofinas?

  around a potential discontinuous change in the role of the United States internationally, what that means for the dollar, what that means for interest rates, for the deficit, for these asset markets that are at all-time highs. I mean, it's a scary environment, which is why I led with some questions about what people are asking you, because it feels like, you know, folks like you and I are who people come to for continuing financial education, or when they're models for understanding the world, and financial markets no longer work. And they're trying to interpret that information about the world that's coming at them in real time. There are some other things that we haven't touched on, like the decision for a new Fed Chair. You'll have to remind me when that date is, when Trump has to make that decision about who's going to replace Chairman Powell.

• 34:02Demetri Kofinas?

  There's also the Supreme Court ruling that we're waiting on regarding the President's tariff authority. And of course, there is the Fed rate decision coming up in December. Where do you rank these in terms of importance? And what should investors be paying attention to here?

• 34:17Speaker 01

  Well, I would say the Fed Chair thing has been out there, and they're narrowing it, narrowing it, narrowing it. So that's pretty much a known known. You know, it's Hacet and down to, you know, I think the Waller is out of the picture now. And I would say if it's Hacet, one of the clients made a point this weekend, and so what we do is we have a conversation in the Bloomberg Terminal and on Discord, and a number of clients have said that Hacet is kind of like a, you know, you think about the central bank of Turkey and Iran, and the control that he has over the central bank, right? Or if you think of like, the view is that the Hacet...

• 35:00Speaker 01

  Fed share seat from a global institutional investor in, say, Canada is much less trusting of that Fed share White House relationship. It's a step toward the banana republic direction in terms of a of just too cozy relationship. So I think that the market could be underestimating that. In other words, that could create some the long end, the 30 year if has it is put at the seat, the 30 year could really sell off, I think. In terms of this whole tariff tax revenue thing, if the Supreme Court dances around it, it's not a big deal.

• 35:40Speaker 01

  But if they create a really stern decision on because Trump's, you could say, and I completely agree with this, there's a there is a White House abuse of power, like in the Brazil situation, you don't like, you say you like Bolsonaro, you don't like Lula, and therefore you're going to defend Bolsonaro through, you know, the White House should not be going down those types of roads. And and I can see the Supreme Court's definitely going to push back on executive branch abuses and power abuses. And both Republicans and Democrat administrations have gone through this where the War Powers Act push and it is all different times throughout history, the executive branch gets aggressive. And I think there's no question they were very aggressive here.

• 36:25Speaker 01

  But there's some wiggle room in there for them to kind of like be narrow and go after some tax revenues. But if it was more broad, then all of a sudden we're going to have a huge, I think it's like $300 billion of assumed tax revenues that we're getting from tariffs. And if that was to cut down to like 75, once again, that would create a nasty shock in the bond market.

• 36:47Demetri Kofinas?

  I have a question about that because yes, I understand that causal mechanism, but also couldn't it also be seen as dollar positive for the same reason that has its appointment would be seen as negative for the dollar and for the treasury market? Because it's it's the United States legal system asserting itself, drawing a line in the sand, saying thus far, no further executive?

• 37:06Speaker 01

  Yeah, so yeah, if it was, I see what you're saying. Yeah, so if it was narrow and it wiped out a lot of tax revenue. Yeah, it could be a dollar positive.

• 37:16Demetri Kofinas?

  Maybe not in the short term, but maybe in the long term.

• 37:18Speaker 01

  Well, no, but you're right. But higher yields would be dollar positive, too.

• 37:22Demetri Kofinas?

  Well, depending on why they're going up, I suppose.

• 37:24Speaker 01

  Yeah, especially if they go up in the, but if they go up in the five year to 10 year, that's all of a sudden, our paper yields more than the rest of the world relatively. Yeah, that brings in money. People buy bonds, so that brings in demand for dollars.

• 37:36Demetri Kofinas?

  So what do you think determines which of those paths we go, we end up on? Are you able to determine it just based off the Supreme Court's decision? Is that what we're waiting for? Or what's the sequence here? That we should be paying attention to as investors?

• 37:49Speaker 01

  Well, when you saw the minutes, there are these oral arguments. The oral arguments came out last Monday, Tuesday. The probability of Trump losing went up a lot. So the oral arguments point towards some type of, like, if you look in the betting sites, you'd be looking at the markets. What's weird is the markets, even though the betting sites are telling us that the probability of Trump losing went up, the markets haven't really reacted to it the way they should.

• 38:16Demetri Kofinas?

  Why?

• 38:16Speaker 01

  I think it's because it's just, people are just, there's so much noise around it. And there's not a lot of clarity as to how narrow they get. And we are like a risk on bull market. It's pretty, you know, you got a lot of people buying dips and, you know, the most incredible thing to me in my whole career is right before COVID or right before Lehman Brothers, like the February 2020, with all the evidence in the world that COVID was accelerating all through Asia and Europe, the market was going straight up every single day from February 10th to February, like, 25th. It was just, and it was just ignoring, like encroaching, like really hardcore evidence

• 38:58Speaker 01

  of a potential problem. So, you know, bull markets are, can get really stupid like that.

• 39:03Demetri Kofinas?

  Do you feel like complacency is a word that describes the zeitgeist today, not just in markets, but generally, in a way that we haven't seen before in our lives?

• 39:15Speaker 01

  Well, complacency to me, it's always the same, but today with options and zero day options and what we call single days, zero day, it's created a much more wacky level of complacency. But at the end of the day, all it means is that you got a bunch of monkey speculators that are just buying dips and what they're doing is they're buying breakouts. And every time the market pulls back, they are buying because it's worked over and over again. And the longer it works, the more and more junkies it brings into the trade.

• 39:45Demetri Kofinas?

  Yeah, and you know what it is, Larry? I mean, just thinking about this, this concept of complacency, it feels like in our society in general, I mean, to your point about like, as long as it keeps working, we've forgotten why it works. We've forgotten how things work, why they work to begin with, how they got there, whether we're talking about, you know, bridges and tunnels and infrastructure, whether we're talking about the rules-based liberal order and what got us here. Like, we are just kind of, almost kind of like the inheritors of a great fortune. And we have now just gotten to the place where we take it for granted. And I worry about the nature of change in those dynamics when the dynamic flips and how discontinuous it is.

• 40:27Demetri Kofinas?

  And again, I feel like this is what so many of us, at least those of us who are interested in these topics and explore them intellectually, this is what so many of us are worried about. Like, it's deep down, I think even for mainstream audiences, I think it explains some of the appeal of like zombie movies. I mean, there's always a perpetual appeal for these types of end of the world films and sort of artwork. But I do feel like people understand on some level that things are unsustainable and that there's a sort of inertia that's keeping the ball moving, but that at some point, things are going to start to fall apart. And I don't think it's clear either, I mean, even for me, on exactly how to navigate that situation.

• 41:08Demetri Kofinas?

  I feel like it's going to require a day-to-day, week-to-week, month-to-month assessment as we go through it, because in part, government is going to play such a huge role in that situation. I mean, do you think about that at all? Again, this is not a question, I have so many questions that are in this outline, but how do you think about how government, and governments in the West especially, Are going to have to respond over time to the underlying structural problems that we've been talking about here, the deficit, debt, the need to reshore, re-industrialize, like all the level of capital expenditures that need to occur. I mean, how do you think about that as an investor?

• 41:48Speaker 01

  Well, Dimitri, one of the things that you can use your platform, to me, there's this structural horrific thing going on. We call it the dark side of passive investing. In other words, if you think of the top two stocks in the S and P 500, in the 90s, the top two stocks were maybe 6%, 7% of the S and P. Even 2000s, the top two stocks were maybe 7%, 8% of the S and P 500. Today, the top two stocks are close to 16% of the index. And so what's happened is complacency and passive money, in other words, once passive

• 42:30Speaker 01

  investing, all passive means is, if you think of active management means, somebody's running the money, buying stocks and bonds, and they're picking the stocks, that's active. Passive means you just own the index. And what's happened is there's this complacency around, oh, the index always beats everyone. Okay, hedge funds can't outperform the index, all this moronic, idiotic, I mean, just like it's like Jonestown cult of people saying the same thing over and over again. And for a lot of years, that thinking was right. The problem is, it's now at a point where if you have a million, say you're 80 years old, the oldest boomer is now returning 80, right? They control almost 80 trillion of

• 43:12Speaker 01

  wealth. And say you're 75, 80 years old, you had a million dollars in the stock market in the S and P 500, that's $160,000. It's in two AI stocks, Microsoft at 14x sales, which is 2 to 3 standard deviations greater than the 30-year mean, and Nvidia at 31x sales, which is

• 43:38Speaker 01

  Again, two to three standard deviations greater than the 20 year mean or average. And so this is something where the regulators will cry, there'll be house hearings. This is going to be like, you watch, because at some point passive investing is evil. Because what if the top two stocks were 25% of the S and P, right? There's going to be hearings, there's going to be all this controversy because we got way too overweighted. There's no regulatory reaction now and there won't be until somebody gets, a lot of people get really, really hurt. And nobody's talking about this and it's just a travesty, I think.

• 44:14Demetri Kofinas?

  That's super scary. I mean, Mike Green has been on the show talking about it for many years. I know David Einhorn also has been. So it's definitely something that people have been ringing alarm bells about, but it's got a force of its own. You know, it's like a giant death star.

• 44:28Speaker 01

  But remember, Dimitri, five years ago, the top two stocks in the S and P were maybe 9%, 10%. So in recent years, it's gone to now 16. And yeah, it's much worse now than it was five, six, 10 years ago. And yeah, it's just getting worse and worse. The other crazy thing is when all this money's in passive, State Street, Vanguard, Black Rock, those shares are not for sale unless there's a crash or a sell off. And so what happens is people just know that all the shares are locked up and if companies doing buybacks.

• 45:06Demetri Kofinas?

  It's like crypto.

• 45:07Speaker 01

  Yeah, well, so Walmart's trading at 40 times earnings because they're high weighting in the S and P. Target's trading at 12 times earnings, right? So you could say Walmart's a better company, all baloney, right? Sure, that's true. But it's never been that, like the spread between those two companies was normally maybe, okay, maybe Walmart had a P E of, say, 18 and Target had a P E of 12. Okay, that's fine. But 40 times earning versus 12, these types of distortions have ruined the market.

• 45:40Demetri Kofinas?

  So I have a bunch of questions for you about the Fed, Fed policy, the dual mandate, you know, what's the concerns about inflation versus job market data. But honestly, like, how much does any of this really matter? Like, how much does the Fed and short-term interest rates really matter today when compared to all the other things we've talked about?

• 45:58Speaker 01

  You know what? The Fed thing is worth less and less and less. Because 10 years ago, it was the only game in town. We had, like I said, we had that vicious austerity between 2010, 2020, where they took the deficit from 1.2 trillion a year down to 400 billion. And it was a tea party. And whatever the Fed did, it was secular SaaS stagnation and the Fed policy meant a lot more. Now with the fiscal stuff and reshoring and all these inflationary impulses that are just oozing through the economy with all this fiscal. I mean, think about the Fed raising interest rates for keeping them here

• 46:42Speaker 01

  with the amount of fiscal that both Biden and Trump have done. It's like literally shooting a squirt gun at a fire. I mean, just, there's just way too much fiscal relative to what the Fed's trying to do to slow down inflation.

• 46:56Demetri Kofinas?

  Hmm. So you said that the dollar, because of a sharp drop in foreign exchange volatility, is regaining its appeal as one of the world's most attractive assets for the carry trade, where investors borrow in lower yielding currencies such as the Japanese yen or Swiss franc and then reinvest that money into higher yielding dollar assets. What explains the drop in dollar foreign exchange volatility? And what is the causal relationship between the government shutdown and that volatility?

• 47:23Speaker 01

  Okay, so government shutdown creates demand for bonds. It lowers bond volatility. And so the bond volatility has become way down. In terms of foreign exchange volatility, it has a lot more to do with tariffs and this crash that we had, the dollar. So in the book, we make a really hardcore determination around a bearish view on the dollar. But the move from the dollar from 2020 to now, if you look at the rate of change, it's been one of the most severe we've ever seen. And so that is creating this dynamic where the dollar was extremely oversold. When we had the tariff debates or tariff fight, a lot of foreign investors moved away from the dollar.

• 48:08Speaker 01

  This created a lot of dollar volatility. The thing is, we're coming out of that. And so that's the biggest driver of really stabilizing the dollar.

• 48:16Demetri Kofinas?

  So you think we're on the verge of a period of prolonged dollar strengthening? Like, how do you think about that?

• 48:22Speaker 01

  No, no, no. What we are trying to say there in the note is that The rate of change in the dollar move is from 2022 to now has been one of the most severe sell offs that we've had. And the fact that things have stabilized around, we're getting much more clarity around trade. The trade uncertainty in April for the dollar was spectacular. I mean, there were some weeks in April where the dollar was down, stocks were down, and bonds were down. Like, that's something you only see in emerging market countries, right? And so that freaked out a lot of people. The certainty around, or the knowledge of what tariffs are going to look like, is creating a bounce in the dollar. But it's just the bounce within a bear market. It's just coming out of an

• 49:07Speaker 01

  extreme oversold level.

• 49:09Demetri Kofinas?

  So what does the return of this dynamic, or return of carry into the dollar, tell us about the broader risk appetite?

• 49:15Speaker 01

  Well, the carry trade's been out there for a long time. And there are periods where it gets popular again, a periods where it breaks down. It started to break down in April with all the volatility in the market. But in terms of the carry trade per se, there are not any strong views there. Like, it's a trade that comes back and forth with countries like Japan, where, you know, people can borrow money there for almost nothing, and put money in our bonds, or put money in US corporate bonds, and make a spread, and then try to hedge out the currency risk. The one thing I would say is that the long duration bonds

• 49:53Speaker 01

  in Japan, in France, in the UK, have been in a much higher regime. Like, this is one of the things that's driving money toward hard assets, is that anybody in the long duration assets in the US, Japan, UK, France, is losing money since 2022. And every day, every week, every month, that people are losing that kind of money, it's pushing money into hard assets and other types of assets besides the duration.

• 50:22Demetri Kofinas?

  So last question for you, Larry. We've talked a lot today about the risks. We've talked about all sorts of ways in which our economy, our political economy, is screwed up.

• 50:33Demetri Kofinas?

  What are the opportunities in your view for investors, especially those that maybe people aren't really paying attention to?

• 50:39Speaker 01

  Well, the one thing is this whole year-end tax loss selling thing where in years where the S and P is up a decent amount and there's a big divergence between winners and losers. There's a lot of stocks right now that have been dramatically underperforming the market. A lot of like big, famous household names, the Lulus, the Chipoleys, the Targets. So to me, that's one of the big opportunities that we talk about. But the biggest of all is the AI power play. Everyone is in the chips. This is the dumbest trade in the world. It's the most overbought, it's the most concentrated.

• 51:19Speaker 01

  Everyone's in Micron, Nvidia, and the amount of wealth that's in the chip side is idiotic relative to the power and the social bottlenecks. I call it social and power bottlenecks. These billionaires are putting these data centers in some of the wrong places in the United States. Counties in the United States, there's all kinds of protests because you're going to rip billionaires in Silicon Valley or flexing their muscles with this spending around data centers and investment, trillions of dollars. It's distorting the cost of electricity around the country and it's creating power bottlenecks, social inequality bottlenecks, protests.

• 52:03Speaker 01

  And so the execution of this, everyone should really sell and take down exposure to the chips and build exposure to natural gas, coal, nuclear power, uranium, things that are going to actually power this data center power renaissance.

• 52:23Demetri Kofinas?

  Larry, it was great having an opportunity to speak with you, man. Thank you so much for coming on the show. Do me a favor, give out your website for people who may want to follow your research and let us know also, like, do you use Twitter regularly? Like, what are some of the ways in which people can follow you and keep up with your work?

• 52:39Speaker 01

  Thank you, Dmitry. It's, well, how to listen to market speak, been in the top, it's been in the top five or 10 on Amazon all month, all year. And then at, at Convertbond on Twitter. And if anybody wants a copy of our latest reports, it's [email protected].

• 52:56Demetri Kofinas?

  Awesome, Larry. And anyone who is interested in accessing our subscriber-only content? Including the transcript and intelligence report for this conversation and other episodes, or if you're interested in joining our Genius Community and having the opportunity to ask these questions directly to Larry and other podcast guests on our live Q and As or in person at our various dinners, weekend retreats, and other in-person events that we host all over the world, you can do that at hiddenforces.io/subscribe. Larry, thank you again for coming on the show. It was great speaking with you.

• 53:31Speaker 01

  Thanks, Demetri.

• 53:33Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at @cofenus, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.