Title: Larry McDonald: The Bond Market's Biggest Contrarian Trade
Show: The Julia La Roche Show
Guest: Larry McDonald (Bear Traps Report)
Date: 2026-SEP-08
URL: https://youtu.be/EWOqRYVWgbg
Length: 40:50
Note: Verbal fillers (um/uh/"you know" as interjection, stutters and false starts) removed; wording otherwise verbatim. All (mm:ss) timestamp lines preserved. Auto-transcript name garbles corrected to: Bessent (ASR rendered "Bessembinder"/"percent"), Mamdani ("Mondami"), VIXY ("Vixy"), risk parity ("our party"), Trichet, DSA. Two garbled passages are left AS SPOKEN and flagged inline: "the spin and water" (oil-service names alongside Schlumberger — company not identifiable) and "our coal CNR is up 32%" (coal name as spoken). Two host-read sponsor reads (Augusta Precious Metals ~08:42-09:58; Monetary Metals ~20:21-21:30) are marked inline as ads — they are NOT content and the advertised products are not McDonald picks.

(00:00) When you don't allow the business cycle to function, you're not allowing creative destruction and you're creating Bernie Madoffs on street corners. You're literally manufacturing them. And so these guys in Washington, they're not allowing the business cycle to cleanse the bad guys and they're just creating more bad guys and they're creating more bad habits and a lot of bad loans are out there that are under the surface that are just starting to metastasize.
(00:27) >> Larry McDonald, founder of The Bear Traps Report, best-selling author, including of your latest book, How to Listen When Markets Speak: Risks, Myths, and Investment Opportunities in a Radically Reshaped Economy. And certainly, friend of this show and someone we are thrilled to share with everybody who will be making more frequent appearances.
(00:50) I think we're going to get you on every 5 weeks. Great to see you, as always, Larry. >> Thank you, Julia. And thanks for the whole team. You guys do a great job. >> Well, we appreciate you and this audience absolutely loves hearing from you. I always love reading the comment section when you're on and so I know they're going to be absolutely thrilled to hear the news today.
(01:11) All right, Larry, it's been a while since I've actually taped a podcast. Matt and I both been on vacation for a while and gosh, I feel like there's been so much action lately, a lot of developments. So let's start with the macro picture, the setup today. What's been on your radar of late? Where do you see things headed in the back half of the year? What are you paying most attention to right now? Maybe what you're hearing from the folks that you've been talking to on a regular basis.
(01:41) >> Right. So that's where you got to work on gratitude and blessings and I work on gratitude every morning and every night, but it's about when we hit a million books sold on A Colossal Failure of Common Sense and How to Listen When Markets Speak. So when you do that, you do a lot of speeches around the country, especially this summer.
(02:02) And around the world like London, Zurich, Geneva. And then we do ideas dinners on the backside. So it's in San Francisco last week, Montreal and Toronto. And all I am is like a conduit to an incredible group of mentors that are veteran investors around the world. And so what I find, and here's the fascinating thing.
(02:27) If you do the ideas dinners and you host the chat behind me during the day, you host it. And we do the cage matches. I got to tell you about my cage matches, but if you think of me, I'm like the Dana White of finance because we get a bull and a bear in a Zoom room like this. And they fight to the death.
(02:47) It's absolutely hilarious. But what's important for people watching this right now is what we do with all that intelligence gathering, that triangulation of information is share that information with our clients on the Bear Traps Report and our viewers. And when we see two to three portfolio managers that don't know each other, that are very strong in a vertical, say commodities or high yield or whatever it is, financials.
(03:17) When they don't know each other and they all of a sudden shift with a view and they kind of agree on this trend shift either toward a new trade, a new position, that's what gets us excited. >> And right now, when you're seeing those shifts, where are they taking place at the moment, amongst those investors? What are the ones that are standing out to you right now? >> I find it really interesting that there's a gentleman in the chat who was pounding the table bull on the financials like last 2 years. He was
(03:53) long a lot of the XLF names. And he made his clients about a billion dollars during the subprime crisis. But he's been a raging bull and now he's turned much more bearish. Bearish on Bank of America, bearish on Goldman, bearish on the financials as a whole. We can get into that. And we had Lee Robinson on this on the last week.
(04:19) Lee's a famous investor in Europe. Same thing. Lee's been really bullish the last couple of years. He's turned much more bearish and he has a new fund where he's focusing on tail risk. In other words, buying insurance because right now insurance on the market is pretty cheap relative to the risks. It's one of the most attractive spots in the last several years.
(04:43) And so yeah, we're seeing a lot of investors buying downside protection on the market because a lot of people are up. Hey, if you're up 18% on the year, 16%, you take 1% of your gains and buy protection. That's what the smart money's doing right now. >> When you say buying protection or insurance, is this like CDS? What are they buying specifically? >> Right, there's a lot of ways to skin that cat.
(05:13) You can buy CDS, you can short, you can buy puts on say Bank of America which are really cheap or the vol on the financials cheap. You can buy puts on the S&P 500. There's a lot of different ways to do it. There's ETFs to get long volatility. They're expensive and they're leveraged sometimes. You got to be very careful.
(05:32) And remember when you buy an ETF that is short something, the portfolio manager has to rebalance that every day. So there's a real decay. So it's something you don't want to marry. You kind of want to rent. But renting something like that like the VIXY ETF for September and October, we think makes a lot of sense.
(05:56) >> So I take it there's been a shift from stay long to now it's late cycle, the setup's looking different. Is that correct? >> Yeah, it's a lot of things like together like the data center financing has been really aggressive, right? And so if you do the dinners, you can see there's a lot of billionaire investors are more and more and more uncomfortable with when the payoff is going to be on these trillions of dollars of investing.
(06:26) So we're really coming toward a wall where at some point the crazy investing is going to stop or slow down. And that's probably in the next couple of months. The Mag 7 ETF is underperforming the gold miners, underperforming the copper names, underperforming the coal names.
(06:50) It's just really pathetic. It's like literally the year-to-date it's up like 4, 5% and all the companies that control hard assets, which you and I have been talking about for a couple of years, are just destroying big tech. Absolutely destroying. And so I think it's because the return on invested capital mystery meat that's in there has got a lot of people uncomfortable and guess what? And this is probably the most important takeaway.
(07:20) What these guys have done behind the scenes is when you talk to people that are close with these companies, the board members in San Francisco, the cash burn at say Meta, Microsoft has been so vicious in terms of the capital expenditures. And when you burn a lot of cash, it makes the board members very very very very uncomfortable.
(07:43) And so what they've done to appease investors behind the scenes is they've done, just look at Meta, 30 billion of off-balance sheet financing up to 600 billion in recent very fast like last 2-3 years. And so same thing across the board. And so a lot of this off-balance sheet financing is on the banks now and what the banks end up doing is the banks are the one buying the credit default swaps on the Mag 7 companies aggressively because they've lent all this money off the balance sheet. And that's got a lot
(08:18) of investors pretty uncomfortable because if that turnaround date when the cash flow burns is supposed to turn into profits, and so eventually you're going to burn cash and then create cash. You're going to create free cash flow. If that's in 2030, 29, okay. If that's in 2031, 32, 33, Houston, we have a problem.
(08:42) >> [SPONSOR READ - Augusta Precious Metals - host-read advertisement, not content] We have had a lot of conversations on this show about gold. And after the move we've seen lately, there's a natural question. Is it too late? It's understandable because when an asset moves this significantly already, price tends to become the focus. But one of the things that I've learned from the many investor conversations I've had is that price isn't the first question they ask.
(09:07) They want to know why they should own something, the role it should play in their portfolio, and what they are trying to accomplish by owning it. And if you're exploring these questions yourself, Augusta Precious Metals is an educational resource for exactly that. Their experienced education team offers personalized one-on-one web conferences where you can ask questions, learn how owning physical gold and silver works, and understand how a gold IRA differs from purchasing precious metals directly.
(09:35) It's really about getting educated before deciding whether any of it makes sense for you. To learn more, visit Juliabuygold.com or text Julia to 35052 for Augusta's free guide. Because ultimately, the question isn't whether or not the price of gold has changed, it has. The question is whether or not the reasons for owning gold have changed.
(09:58) And based on everything I've learned through these conversations, I don't think they have. [END SPONSOR READ] >> So you're saying the banks are doing the loans, but they're also buying the CDS. Are they trying to hedge? >> Yeah, that means that the banks have done a lot of things in the last year that are really bad.
(10:21) They're trying to appease SpaceX, they're trying to appease OpenAI, they're trying to appease the Mag 7. And so yeah, they've drifted what we call style drift. They've drifted into areas that are fairly speculative for them because it's very attractive for a bank because think of like the Mag 7 companies, they have double A rated free cash flow.
(10:44) That's a big thing. So a bank will loan off balance sheet against that free cash flow, which looks like a good bet because it's secured by the cash flow. But if the companies don't produce free cash flow positive after this burn and that turnaround date on when we go from cash burning to cash creation, if that's further out in the future, then we have all of a sudden a lot more risk.
(11:11) That's why we think the big big banks are the ones that are aggressively buying the credit default swaps. And to us, that is a cousin, it's not a mirror, but it rhymes a lot with 2006, 2007, 2008. >> You also have your Lehman systemic risk indicators. Where did those sit? What are the ones that stand out to you right now? >> Well, during the conversation we have our indicators and what people are talking about is the triple C's are like blowing out wider every day.
(11:47) What that means is higher yields and lower bond prices. And the investment grade bonds, so you think of like a sandwich. The investment grade bonds at the top because of all the data center financing. If you look at the LQD ETF versus the S&P 500, the LQD is like rolling over hard. It's exposed to all this data center financing.
(12:13) And then at the bottom, the loan market and the triple C's are both acting pretty poorly. And then you look at the business development companies, the Blue Owls of the world. Then you look at the private equity like KKR. But the difference between like if you pull up a chart of KKR versus the financials, it smells to high heaven.
(12:37) Same thing with Blue Owl. There's something going on in the private credit side and in the triple C side with the loans where there's real credit deterioration. I'm not saying it's not 2000, late 2007 or anything like that in terms of a big blowup, but it's me.
(12:59) It's definitely, I would say, late 2006 type dynamic where we're going to start to see. Remember New Century? There's a scene in our first book, A Colossal Failure of Common Sense, where we went out and saw the bodybuilders on the West Coast, these lugheads selling all the mortgages, the subprime. And it was a great scene and that was 20 years ago this week that we were out there.
(13:25) And yeah, you're seeing some of the same kind of. At the end of the day when you don't allow the business cycle to function over longer and longer and longer periods of time, you're not allowing creative destruction and you're creating Bernie Madoffs on street corners. You're literally manufacturing them. And so these guys in Washington, they're not allowing the business cycle to cleanse the bad guys and they're just creating more bad guys and they're creating more bad habits and a lot of bad loans are out there that are under the surface
(13:55) that are just starting to metastasize. >> So you've kind of seen this movie before. It certainly rhymes of it. I take it this is no longer idiosyncratic. >> Right. The thing about election years and in midterm elections especially there's a lot of things they can do to get us through that and you can see them trying to do it.
(14:27) They're trying to get us through midterms. And that's why the midterms are, that's why the next like 6 months are pretty pretty dangerous because they're doing everything they can on the fiscal side to get us through, right? They're doing some very strange things at the United States Treasury playing with the yen, right? Threatening to buy on the curves like to do almost like factor QE quantitative easing.
(14:55) And at the same time backstopping the Bank of Japan financing. So yeah, there's a lot of things they're doing now that after the midterms are probably going to start to give away. That's another thing that people are concerned about. And but above all, the DSA is also the socialists.
(15:14) There's a lot of clients that we talk to. So let's just look at the DSA candidates. If you control say three or four or five seats in the House, not a big deal. But all of a sudden, if they control 25, 30 House seats and one or two Senate seats, that's something that is getting a lot of people's attention as well. >> Talk to me about that, the risk there with more DSA seats, the potential there to get occupied.
(15:42) What do you see as the longer-term risks ahead for investors to be paying attention to if that happens? >> Right. So that would really unwind the long end, right? Because their spending is even more aggressive than Trump's, and their taxation on the property confiscation side would be negative for risk assets.
(16:04) They would really soak the rich. And so, but they would definitely, in terms of the credit quality of the United States. AOC. How can AOC be ahead of Gavin Newsom right now? Like in the betting sites, in the colleges and all these things. So you have for your centrist candidates on the Democratic Party, well, he's not even a, I guess I wouldn't call him a centrist, but he's definitely a centrist when you compare it to the DSA side.
(16:35) So I think the good news is at this point in time in 1992, Bill Clinton wasn't even on the radar. So I think it's going to get ugly in the short term where it's going to look like the DSA is going to really make a big move here, and then there will be a candidate that comes out in the Democratic Party, more centrist, that we probably haven't heard much about.
(17:02) And the DSA, because of Mamdani in New York, and everything that's going on with these individual House races and the Senate race in Michigan, this is something that's getting a lot of attention. And that's kind of, you look at the Treasury activity, the way it's acting, it's acting like we have a term premium problem or a supply of Treasury issuance problem.
(17:29) That's one thing that people are talking about behind me is that inflation expectations have actually been, I can't believe it how tame they've been with diesel fuel breaking out and with, I guess you got corn and wheat and all the agricultural commodities breaking out. But the inflation expectations were coming down in this whole movement bond yields globally is just driven by too much supply and at the same time Mag 7 and all these hyperscalers to finance these data centers, they're issuing an extra 5,
(18:06) 600, 700 billion of debt over 12 to 24 months. So it's like too much supply of paper and politics around the world, including in the United States and France, we have a big election coming up, right? We had an election in Germany over the weekend. So the bond market globally is definitely more uncomfortable with the political setup that's coming at us.
(18:30) >> I take it, Larry, you don't think inflation's as tame as people might perceive it to be. >> Well, the bad news and the good news, if you're an inflation believer the move in diesel this summer, it's going to start playing out in the next couple of months.
(18:50) So that's why it's a lot like 2022 where in 2021 into 22. In 2021 into 22 in that third, fourth quarter of 21 the expectations for earnings was very high. The Fed governors were pounding the table that inflation was transitory. And so inflation expectations were tame in '21 and then all of a sudden they exploded higher.
(19:17) And now if you look at what just happened this weekend, every single weekend, the Saudis are hitting. Sorry, the Iranians are hitting the Saudis. They're hitting ships every weekend. So even though the White House says we're open, the strait's been closed for almost 200 days and that's going to, your CPI next week and the next month after that, the next three CPI prints are very treacherous and you can buy equity volatility very cheap relative to that kind of
(19:55) risk. And now you've got PPI as well. And so there's a little bit of a catch-up coming at us from this move in commodities which should really start to rekindle or re-spark inflation. >> [SPONSOR READ - Monetary Metals - host-read advertisement, not content] Gold has been one of the few standout assets of the last few years, reaching new record highs as investors respond to rising fiscal deficits, geopolitical uncertainties, and growing demand from central banks worldwide.
(20:21) But here's something most people still overlook. Price appreciation isn't the only way to benefit from owning gold. What if your gold didn't just sit in a vault, but actually generated a return? With Monetary Metals, you can earn a yield on gold paid in gold without having to sell. Instead of earning in dollars that can be eroded by inflation or policy changes, you can earn more ounces of gold.
(20:47) That means your gold holdings are growing in real terms, not just nominal ones. Earning gold offers a fundamentally different approach. You're not just preserving wealth, you're increasing your exposure to a hard asset over time. So you're earning additional ounces of gold while still benefiting from any potential price appreciation. It's a way to make gold a productive asset, not just a defensive one.
(21:09) As more investors turn to gold for wealth preservation and portfolio diversification, a natural question follows. If you're going to own gold, why not earn gold while you own it? Thousands of investors are already earning a yield in physical gold and silver through Monetary Metals. You can learn more at monetary-metals.com/julia.
(21:30) Now, back to the rest of the episode. [END SPONSOR READ] >> I know diesel is one of those critical inputs to the global economy. I also drive a diesel engine. It cost almost 100 bucks to fill up this weekend. So definitely noticing. >> And what was that like a year and a half ago? >> Not that much. I can tell you that.
(21:54) It's quite jarring now. Okay. I wanted to get your take on what we've seen out of the Treasury from Treasury Secretary Scott Bessent and the moves in the bond market. What was your reaction? >> The one thing about Scott Bessent is for a Treasury Secretary he's a brilliant financier.
(22:24) He's like Paulson where, Hank Paulson, you have the former head of Goldman Sachs. And Bessent is really close with Stan Druckenmiller. He's really close with Kevin Warsh. He's a real practitioner. Whereas the Yellen Fed, a lot of the clients globally would call the Yellen Fed the faculty lounge, or the Yellen Treasury I should say, because there was a Yellen Fed and a Yellen Treasury.
(22:51) But it was really as with the faculty lounge. And so Bessent is much more like Trichet at the ECB, but over at the Treasury side where he's being very proactive. >> And what do you mean by that? >> The reason I'm comparing him to Trichet is Trichet was on the ECB side, not at Treasury, but he was extremely extremely proactive. He would look three steps ahead before he moved a piece on the board.
(23:19) And Bessent's been doing this. He knows that there's a financial problem in Japan. He knows that we're issuing a lot of paper in the United States and global yields are all breaking out. And like I said, the Mag 7 companies are issuing, there's a chart that I saw this weekend.
(23:41) Like if you think of how much 10-year and 30-year paper we issue every year, the Mag 7 companies are issuing a lot of money on the long end. And it's really like it's a big threat to long-term issuance. So what Bessent's been doing is he knows this. He actually kind of put a gun on the table in the last month where he said, "Listen, we may not issue as much on the long end.
(24:10) " So the first thing he did was threaten to not issue as much 10s and 20s. And then he came out and said, "Oh, we might issue less. Yes, we might do that. But we also might start to buy 10s and 20s and do kind of an operation twist." So yes, he's been extremely proactive because he knows this is a real powder keg of TNT because if global yields break out with inflation expectations because of diesel prices and everything that's going on with commodities and the global backdrop, the banks could really get hammered
(24:53) because remember, interest rates up, bond prices down. Do you know there's a Google bond? It's a long-term bond. It's backed by Google. It was issued this year. It's gone from par to 88. >> Just this year alone? >> Just in 6 months. And it's a 6 and an eighth coupon. It's a long-term bond for sure, but that shows you the amount of paper out there.
(25:24) There's an Apple bond you and I have talked about that's gone from par to 49. And that's once again, interest rates up, bond prices down. There's over 30 trillion of paper that was issued between 2018 and 2021. 30 trillion. Now, not all that's still outstanding. Some of it's been redeemed. Some of it's rolled over.
(25:50) But just playing round three with ChatGPT or Grok, it start to ask questions about where is this paper now? The Apple bond was issued in 2021, 22. It's now at 49, 48. Call it 50. And so that tells you there's a lot of. When interest rates go up globally, bond prices come down. And so those losses are sitting on the bank balance sheets.
(26:17) And it's very dangerous. And Bessent knows this. That's why he's I think threatening to really contain the long end of the US in terms of issuance, in terms of potentially buying bonds. >> Could there be some Silicon Valley banks kind of sitting out there that we don't know about? >> Yeah, I don't think it's Silicon Valley Bank, those. Yes.
(26:39) So those guys made a huge mistake by being long a lot of duration. The good thing is, and they were caught really flat-footed because we were in this transitory, transitory, transitory world of just like if from 2018 to 2021, the belief of certain deflation was universal. The good thing is today from 2021 to now everyone kind of knows not to trust risk parity.
(27:13) Do you know risk parity like the 60/40 portfolio is unchanged since 2021? Look at that ETF or clawback. It's unchanged since 2021. And so a lot of people know that duration carries risks today. And so a lot of people have stayed away from it. So a lot of the banks have done their best to manage it. So it's not as much of a surprise, but if we do get a breakout, that's something that I don't think people are expecting.
(27:43) But I will say with all of that negativity on duration, for the first time I'm seeing some people in the chat and at the dinners starting to just start to buy duration. And I'll tell you why. I know it might sound like a contradiction. Is that if we get this move in energy, the economy is slightly weakening.
(28:08) The bottom 70% of consumers are decimated with higher interest rates, higher inflation. And so you could get a situation where interest rates go up and it brings forward recession risk. And you can buy some of these bonds like the TLT or IVOL, these bond ETFs that pay good dividends and that have really been destroyed.
(28:33) Or like these bond funds have been absolutely destroyed. And the expectation is like right now nobody wants to own duration because the bear case is so well known. >> Interesting. So it's a bit of a more contrarian play then. >> Yes, because remember a lot of times in the '80s and '90s economic activity was like a supernova.
(28:55) So the economy gets really hot and inflation comes back and all of a sudden the long end of the curve, interest rates are going up every day, right? And then bond prices come down and everyone's getting, all the bond portfolios get destroyed, right? And so but that activity and that kind of chemistry could really accelerate recession risk and if we go into a recession with some of these long duration bonds, like that Google bond, right? It's a sterling bond but it pays in
(29:36) in sterling. But if the 30-year were to go back to say 3 and 1/2% or 3% something like that. That bond would go from 88 to maybe 120 or 130. So that's the big, to me that's the biggest threat to the stock market is right now there's an Oracle bond that's paying 8%. So bonds are starting to, if you get one more punch to the bond market where interest rates go up some more and bond prices come down and say that Google bond goes to 85.
(30:11) It pays 6 and an 8th coupon, right? And if you go into recession, those long duration bonds that are trading in the '80s could go back to 105 to 110. If we went to recession with lower bond yields. And so the convexity of the situation is very, it's like a rubber band that's pulled. >> This is fascinating. When you look at the bond market right now, what do you think that it is signaling? What are the signals that you're gleaning from it? >> Well, first, the amount of bears versus bulls is at record territory. So,
(30:48) there's a lot of people that have given up on duration bonds, and the bearishness is just through the roof. The global yields are breaking out. So it's not just the United States, it's the French elections with the socialist candidate potential, it's the UK elections with Labour running the show.
(31:10) So it's that, is the DSA rising in the United States to some degree. So there's all this political risk on bonds, but it's so well known. We're coming out of the worst four years for duration and bonds in probably at least 40 years, right? So the bad news is well priced in.
(31:32) I think it could go a little bit worse, but I think that you want to start at least thinking about buying long-term bonds. The TLT ETF, just pull up a chart. I mean, it's had its. I mean, the emerging market, the EMLC bonds fund, right, which is like literally local currency emerging market bonds, is absolutely destroying the TLT, which is backed by Treasuries.
(32:05) I mean, it's like a, if it was a fight, they would stop. I mean, the emerging market local currency bond fund, EMLC, is returning like 15% a year the last three four years, and the TLT is losing money. And risk parity 60/40, that risk parity ETF is unchanged since 2021. >> Help me understand here.
(32:28) You're saying like the bad news has already been priced in. >> Right. Right. In other words, I would say 80 to 90% priced in because the sentiment on bonds and positioning if you look at CFTC data, if you look at any kind of survey, bulls versus bears, it is, I'm just blown away. Compared to say 2020, everyone was max long bonds.
(32:57) Like the TLT was one of the most popular ETFs from 2017 to 2021. It was just a very crowded trade. Now it's the complete opposite. The bearish sentiment on bonds is in extreme places and you got to be very careful being a bond bear with that kind of sentiment being that negative because everyone knows the bear case.
(33:23) Nobody's thinking about the bull case. And that's what great investors do. And once again, this is not Larry McDonald. I'm getting this from multiple guys that don't know each other that are really strong in fixed income. And they're starting to look at the duration because of what I talked about, that supernova effect.
(33:40) And I'm going to repeat that. In the '80s, what would happen is you'd have economies going really strong and then it creates inflation. Inflation wounds the consumer. And then all of a sudden, you go from a supernova sun to really a burnout and a recession comes in fast because of hot inflation, because of higher interest rates.
(34:05) And that actually creates the trigger for the recession. If that's the case, something like the ZROZ, something like the TLT or IVOL. IVOL would do really. I mean, IVOL ETFs are a very very interesting ETF right now because it's been hammered. But if the curve steepens, so if the Fed cuts, if the curve, so here's the two years, the 10 year.
(34:25) If the curve goes like this, the IVOL ETF could be up 15, 20% total return if you get a good steepening like that. >> And so I take it there's a risk of recession out there, too. Like why this might be a place you would want to be in that. >> Well, that's the tricky part of it because to the average person, it looks like there's no risk to recession.
(34:45) The expectations for earnings next year are the highest since 2021. It's crazy how we put our chart on the Bear Traps Report this weekend. The earnings expectation from Wall Street is we're a hot economy. The earnings for next year are going to be phenomenal. And yeah, that's the thing.
(35:04) There's a ton of complacency. But if you were to get a breakout in yields with that higher inflation spike, it's very similar to the end of 2021 when everyone was really bullish for 2022, but then the inflation spike brought forward higher interest rates.
(35:25) It increased recession risk dramatically. And then that's at the end of the day what we actually support. I think we went from like raging hot economy to the probability of recession went to be very high by the end of 2022. And the Nasdaq lost about 35%. >> Okay.
(35:48) So in the event of this, I take it there would need to also be an equity market correction. >> Yes, and that's where the banks, you can buy one year puts on say Bank of America for very cheap. The FAZ ETF is a levered ETF. You got to be careful. But there's a lot of shorts on the financials that are cheap. You can buy like a one year put on the XLF, and you would only want to do this with say you have a million dollars in the market, right? And you're exposed to hard assets, you're exposed to growth stocks, whatever it is.
(36:25) That's my point is it makes some sense to maybe take one to two percentage of maybe three percentage of the portfolio and either raise cash or have some hedges through long-term puts on the financials which would get really hammered in that kind of dynamic.
(36:44) And you're record price to book right now on JP Morgan, on Bank of America. Absolutely record price to book and banks have been priced for, they're, everyone knows the bull case. The Trump Michelle Bowman at the Fed and deregulation. This has been out there for 2 years. So everyone on Wall Street is massively long the financials here.
(37:07) >> Larry, before I let you go here, what worries you is the biggest risk that's not getting enough attention and what is something that is making you more optimistic? >> Well, what's not getting enough attention is probably the French elections and some of the global, like the global bond yields are all like Japan and France.
(37:35) They have a lot of power over our bonds because if global yields go up, it really can be a shocker. And then there's the data center financing thing that you could really have a lot of bad loans up there on the data center financing side because whenever you see people that are falling all over each other to lend to any group, bad, and we saw this with private credit.
(38:06) That's why the defaults started to spike because you just lend money to the point where you're lending to more and more and more bad actors. And so yeah, I think the global impact on data center financing with higher global yields. That's to me the biggest risk right now in the market.
(38:30) That's really not, nobody's really talking about that. >> Anything that you're positive on on the optimistic side? >> Well we've been max long, we're still long and we're long the Schlumberger. I mean, the spin and water [as spoken - garbled; oil-service names] are big holdings. I mean, Schlumberger, the oil service stocks. You're just, you're long, picture the next five years is still phenomenal. The coal names.
(38:52) I'm just looking at the coal names are up and this is our big trade a year ago on the show. Our coal CNR is up 32% over the last year. The copper names up 82% over the last year. So you and the gold miners up over the last year 50%. So yeah, we've been, by no means we've been bearish.
(39:17) It's we've been really just bullish on companies like total hard assets. >> Yeah, the hard assets have done really well. Yeah, the hard assets have done really well. >> Yeah, but you now you want to protect those gains. >> It's always fascinating talking to you Larry. I feel like I learn something every single time.
(39:32) I'm going to have to go back and rewatch the tape as well just because I feel like there's so much in there and this audience is going to be absolutely thrilled to get to hear from you more often and I'm sure they'll have questions for you as well. Any parting thoughts before I let you go? You want to let folks know where they can find and support more of the amazing work that you're doing at The Bear Traps Report? >> Right, so we're on the speaking tour.
(39:54) We do a lot of work with the Money Show. We just did a nice speech in Vegas. So what we do is we do the speeches and you just say you're going to have a nice fee. We give it back to the clients at the ideas dinners and it's all about giving back. So it's info@thebeartrapsreport.com. We're really democratizing information.
(40:15) We're sitting down with the best and brightest in the world and trying to even that playing field for the financial advisor, the small family office, and the high net worth individual. >> Larry McDonald, founder of The Bear Traps Report, author of How to Listen When Markets Speak, and also author of A Colossal Failure of Common Sense.
(40:32) I'm going to link both of those books in the show notes. They're amazing reads, by the way, everybody. So I highly recommend them. Larry, thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. Really appreciate you. >> Thanks, Julia. Appreciate you guys.