#420 Larry McDonald: The Market Has Already Crashed. The Index Just Hasn’t Noticed

SPEAKER_1 (0:01)

When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs.

Julia La Roche (0:31)

Hey everyone, welcome back to another episode of The Julia La Roche Show, where we are joined in studio with friend of the show, Larry McDonald, founder of The Bear Traps Report, a New York Times bestselling author and author of the newest book, How to Listen When Markets Speak. In this episode, we look at what's happening in the tertiary parts of the market and the risk signals that are flashing there. We also talk about what's going on in the broader market and why he thinks that we've already experienced a 1987 style crash when you look at the internals of the stock market. And if Larry were to bet, he thinks we would see three rate cuts before we'd see three rate hikes. And there's a whole group of assets that would benefit if that were to happen. I really enjoyed having Larry back in the studio. I always learn from him. I know you all do too. So I hope you all enjoy this one as much as I did.

Hey, everyone. Welcome back to another special in-studio episode of The Julia La Roche Show where we are joined by friend of this show. We have Larry McDonald, founder of The Bear Traps Report, New York Times bestselling author, author of multiple books. Your latest also a bestseller, How to Listen When Markets Speak. We have a copy right behind you. Great to see you, Larry.

It's nicely framed up in the shot, but great to see you. It's been a while. Well, it hasn't been that long, but I feel like a lot happened since I last saw you. You've been on the road again. You've been meeting with clients having conversations about where we are in the world as relates to the markets and the economy.

When you think about those discussions, what is top of mind right now? What is that big picture view that everyone's talking about? Where do they see us today? And where are things headed?

Larry McDonald (2:29)

Well, remember, Julia, when you talk to Larry McDonald, I'm a hardworking guy. I think the best thing I've done in my career is build great mentors.

And the books, we've done 140 speeches in 16 countries, and each time we built great relationships. And so for people watching us, that's where the value comes from. It comes from that network. I find that when you do the ideas dinners, and then we run a Bloomberg chat with hedge funds, mutual funds and pension funds, and then we do the cage matches, which are absolutely hilarious. People call me the Dana White of finance, because we get a bull and a bear in a Zoom room, and they fight to the death.

Julia La Roche (3:14)

And you're the referee, I take it?

Larry McDonald (3:15)

Yeah, and no, but it's, but sell-side research at the banks is like some guy or gal, maybe on their second or third divorce, they have to stay in a cabal, right? And they also have to stay within the guidelines of what the bank is trying to sell. That's why they call sell-side. So the conflicts of interest, what we try to do is just sit down with great mentors. And when we see two or three or four really talented portfolio managers, that don't know each other, and they're all kind of shifting toward a new trend thought or new investment thesis, that's what gets us excited. And I think the biggest one from the last week or two is the tertiary elements of data center financing is starting to break down.

And typically in a bullish cycle, in a strong bull, the tertiary areas are actually well bid and very strong. So think of like IPOs. There have been two IPOs on data centers, on REITs that have been canceled in the last week.

My favorite line from our first book is the last saloon, and that's the convertible bond market. And what's happening is the high yield bond market has basically shut down for data center, not for the hyperscalers, right, but for the neo clouds. And so think of like neo clouds. They, if they can't finance themselves in the high yield market, because the market says no mas, we've had enough, they go to the convertible market because people can short the stock and go buy the bonds.