The Trump administration is currently implementing "financial repression," keeping interest rates below the inflation rate.

Compiled by: Xu Chao, The Wall Street Journal

According to Larry McDonald, a former Lehman Brothers trader and founder of Bear Traps Report, the Trump administration is deliberately triggering an economic recession to address (alleviate) the $36 trillion debt problem in the United States.

In an interview released on March 3, Larry McDonald stated that if interest rates remain at current levels, the debt interest in the U.S. will reach $1.2 trillion to $1.3 trillion next year. This is significantly more than defense spending. Therefore, Trump needs to lower interest rates; if they can reduce rates by 1%, they could save nearly $400 billion in interest next year.

No inflation cycle with a rate above 6% can end without the unemployment rate reaching 5%, 6%, or even 8%. The U.S. government cannot suppress inflation through massive fiscal spending, and the Trump team knows this. They need to trigger an economic recession; only then can they lower interest rates and extend the debt maturity.

Larry McDonald warns that the U.S. is now in a period where even if a recession occurs, interest rates will remain high, which is a very typical stagflation period. This is similar to the situation from 1968 to 1981 when the market was essentially flat. However, commodities, hard assets, and companies with underground assets are the things that can withstand inflation.

Here are the key points from the interview:

Currently, the top 10% of consumers in the U.S. account for 60% of consumption, as the bottom 0% of consumers have been heavily impacted.

Since the top 10% of consumers account for 60% of consumption, it is nearly impossible to lower interest rates and inflation without depressing asset prices. The Trump team is essentially trying to raise interest rates and lower asset prices.

Regarding U.S. debt interest, if interest rates remain at current levels, the debt interest next year will reach $1.2 trillion to $1.3 trillion, which is significantly more than defense spending.

Therefore, Trump needs to lower interest rates, and they are very urgent, even somewhat panicked. If they can reduce rates by 1%, they could save nearly $400 billion in interest next year.

The reason the U.S. Treasury has not yet started to extend the debt maturity, converting short-term bonds into 10-year or 20-year bonds, is that they want to lower interest rates first. They need to reduce rates by 100 basis points so they can extend the debt maturity and then save about $400 billion in interest.

No inflation cycle with a rate above 6% can end without the unemployment rate reaching 5%, 6%, or even 8%. You cannot suppress inflation through massive fiscal spending, and the Trump team knows this. They need to trigger an economic recession; only then can they lower interest rates and extend the debt maturity.

After Trump's election, the U.S. bond market priced in a lot of growth expectations, and the yield curve (government bond yield curve) became steep. The market is currently trying to digest (recession expectations), transitioning from a steep yield curve to a sharply flattening yield curve.

When Bill Ackman comes out and says that U.S. economic growth may only be 1%, it indicates that he is shorting; he is essentially betting on a recession.

The U.S. stock market is also signaling a recession; in the past 3-4 weeks, consumer staples stocks (which are recession-resistant) have significantly outperformed non-essential consumer goods stocks.

Copper is currently experiencing a "capitulation sell-off." Whenever there is an economic slowdown, copper prices tend to drop significantly. However, the current situation is that copper is facing severe supply issues, and demand from data centers and post-war reconstruction may lead to a significant supply-demand gap. Investing in copper stocks may currently be very cost-effective.

Post-war reconstruction in Ukraine and Russia will lead to inflation, and the global supply chain restructuring will also push up inflation. Therefore, the U.S. is now in a period where even if a recession occurs, interest rates will remain high, which is a very typical stagflation period. This is similar to the situation from 1968 to 1981 when the market was essentially flat. However, commodities, hard assets, and companies with underground assets are the things that can withstand inflation.

The real reason for the strength of the U.S. economy and American exceptionalism is the 7% fiscal deficit spending rate in the U.S., while other developed countries only have 3%.

In the past two weeks, the messages released by Musk and Trump have essentially been that they want to cut $1 trillion in spending. However, to avoid triggering a very severe economic recession, they are trying to gradually accomplish this over 5 to 10 years.

Unfortunately, when U.S. fiscal spending is at such a high level, and Musk is rapidly reversing this trend, it can trigger a very vicious cyclical shift, which could be very unfavorable for the market.

From a portfolio perspective, referencing the high interest rates and high inflation period from 1968 to 1981, a 60/40 stock-bond strategy may no longer be suitable, and investors need to have a higher allocation to commodities.

The Trump administration is currently implementing "financial repression," keeping interest rates below the inflation rate. He will talk to America's allies, asking them to buy more U.S. debt at lower interest rates. They will also request banking regulators to force U.S. banks to purchase more U.S. Treasury bonds.

This is the only way to escape the $36 trillion to $37 trillion debt dilemma; there is no other way except for a debt default.

Here is the full interview

Host: Larry McDonald, founder of The Bear Traps Report and author of your latest book, "How to Listen to the Market's Voice: Risks and Investment Opportunities Reshaped by Volatility." Of course, you are also a longtime friend of our program; it has been a long time since we last spoke.

Since we haven't invited you since your new book was published last year, I thought, wow, Larry, now is the perfect time. It's great to see you.

Given everything happening in the current economy and market, I can't think of a more suitable guest than you. It's great to see you; it's really fantastic.

Larry McDonald:

Thank you for having me. It has been an incredible year. Some of the points in the book are starting to manifest, such as persistent high inflation and the shift towards value investing and hard assets, with gold outperforming the Nasdaq index. I feel gratified to see these points validated.

Host: Yes, the timing is just right. As I mentioned, I can't think of a more suitable guest than you. We haven't invited you for a while, and since then, our program has also developed significantly. Some viewers may be hearing you speak for the first time, and I look forward to them getting to know you through this opportunity.

But let's take a step back and look at the big picture. What is our current situation? Perhaps you can elaborate on your outlook. Larry, you know, you can take your time to lay the groundwork for us, and then we can delve deeper into some of the topics and clues that have emerged.

Larry McDonald:

Okay. What we discuss in "How to Listen to the Market's Voice" is about the fiscal and monetary responses to the Lehman Brothers event (about $4 trillion), as well as responses to the COVID-19 pandemic, the 2023 regional banking crisis, and the elections. During the election period, a significant amount of fiscal funds were injected, and last year, a $1.9 trillion stimulus plan was launched.

Then in the first quarter of this year, the Biden administration spent another $800 billion before leaving office, which is deficit spending, not spending supported by corresponding funds.

So, if you add these up, there has been $1.9 trillion in deficit spending over the past five quarters, plus another $800 billion. They did this because, in an election year, they tried to avoid a severe economic recession.

They created a lot of persistent inflationary pressure, and now it can be said that these pressures are starting to show their ugly side. Now Trump is forced to try to reduce inflation through various means we call "financial oppression." We can delve into this issue.

But ultimately, the rich are doing well because interest rates have risen, and they have made a lot of money through savings. There is an incredible situation here.

This is the most important situation of the week. Now, the top 10% of consumers account for 60% of consumption. So the top 10% of consumers now account for 60% of consumption because the bottom 0% of consumers have been heavily impacted.

You can see this in many different companies, with a lot of evidence supporting this. So the rich are doing well because they can earn 300 basis points more on money market funds. Their asset prices have risen significantly, and their wealth has increased dramatically.

But Greenspan mentioned the "wealth effect" in the 1990s.

This is why we need to discuss the "wealth effect" this week because what is actually happening is that since the top 10% of consumers account for 60% of consumption, it is nearly impossible to lower interest rates and inflation without depressing asset prices. So ultimately, I believe what the Trump team is trying to do through interest rate hikes and other means is that they are actually trying to raise interest rates, which would depress asset prices.

Host: Okay. This sets a great framework for our discussion. I didn't know this before, and I overlooked the fact that the top 10% of consumers account for 60% of consumption.

Wow, this shows me how distorted the economic situation is. You know, when you talk about those who truly benefit from these policies and those who do not. So when we talk about the economy, some people might say the economy is fine, but when you start to look closely at what constitutes the economy, perhaps the situation is not as optimistic as you think.

Larry McDonald:

Yes, if you look at companies like Dollar General that cater to the bottom 60% of consumers, almost every such company is in quite a difficult situation. And what about companies targeting high-end consumers, especially airlines?

Airlines have been very profitable this year, and any company catering to high-end customers like American Express has been doing well. I think the current situation is that regarding debt interest, if interest rates remain at current levels, the debt interest next year will reach $1.2 trillion to $1.3 trillion. This is significantly more than defense spending.

So they need to lower interest rates; they are very urgent, even somewhat panicked. And to do this, if they can reduce rates by 1%, they could save nearly $400 billion in interest next year.

Larry McDonald:

Janet Yellen, when she was Treasury Secretary last year during the election year, did not want to see significant fluctuations in the bond market. So she issued a quantity of Treasury bonds that was two standard deviations more than short-term bonds. When you issue Treasury bonds, their prices do not fluctuate much.

Imagine if you and I had to borrow $5 trillion. If you issued $5 trillion in Treasury bonds, they would hardly fluctuate, right? Because they mature within a year. But if you issued $5 trillion in long-term bonds, their prices would fluctuate like this, right? This goes back to the interest rate issue.

The Trump administration and some of his close associates criticized Yellen for issuing so many Treasury bonds during the recession. Over the past few years, the amount of Treasury bonds issued has actually been two standard deviations more than normal.

So we currently have a lot of short-term debt. This is something emerging market countries would do, right? So they have been criticizing Yellen.

But guess what? So far, they haven't started extending the debt maturity, converting short-term bonds into 10-year or 20-year bonds. But guess what? They want to lower interest rates before doing that.

They want to lower interest rates. That's why they are trying to suppress the market with these tariff measures. Every time the market goes up, Trump intervenes.

It's as if he has more means to take more severe measures, right? That's what is happening. They need to lower interest rates by 100 basis points so they can extend the debt maturity and save about $400 billion in interest.

Host: That's very interesting. Okay, let's talk about tariffs as a means to achieve this goal. I want to hear more about this aspect. Yes, let's start discussing tariffs as a means to lower interest rates.

Larry McDonald:

Yes, tariffs do have their inflationary factors, but in the short term, they will also lead to a massive economic contraction because they bring about various uncertainties.

And it's not just about tariffs. The enforcement actions by ICE (Immigration and Customs Enforcement) have also made the labor market very unstable. Imagine if you are a company and you employ immigrant labor, and now ICE's enforcement actions are intensified.

So ICE's enforcement actions will drive away immigrants to some extent, causing labor to flow out of the economic system, which is inflationary, but from another perspective, it will also lead to economic contraction because companies cannot operate as efficiently as before. Then regarding tariffs, when you impose tariffs on other countries, it slows down economic growth because CFOs cannot make decisions.

You know, in the face of uncertainty regarding tariffs, no CFO can really make decisions. So they have to start cutting labor and reducing hiring. That's why you see the number of initial jobless claims increased by 20,000 this week, one of the largest increases in years.

Host: So do you think we are on a path that could lead to some kind of negative growth surprise? Do you think we might head towards a recession? What are your further thoughts on the economic outlook?

Larry McDonald:

Yes. If they can slow down economic growth, remember Stan Druckenmiller, one of my favorite investors, his view is that no inflation cycle with a rate above 6% can end without the unemployment rate reaching 5%, 6%, or even 8%.

You cannot suppress inflation through massive fiscal spending; you just can't do it, and that's exactly what the Biden team is trying to do. This will only hurt ordinary people because the bottom consumers are being suffocated by inflation.

So the Trump team knows this. They need to trigger an economic recession; only then can they lower interest rates and extend the debt maturity.

And this would actually make the competitive environment fairer because if inflation decreases, it would actually be better for the bottom 60% of consumers, right? So they want to lower inflation; that's what they are trying to do.

They are basically trying to slowly walk towards an economic recession. That's why the market has behaved so strangely this week because everyone is digesting this situation.

Host: You're right; the market has indeed behaved strangely this week. What do you think the market is signaling? I mean, you could even consider the significant drop in Bitcoin. What is the market trying to express?

Larry McDonald:

Well, think about the past four years, right? The market has gone through three different trends. If you look at a month ago's Bank of America survey, the probability of a hard landing was less than 3%, while in 2022, that probability was nearly 40%, and it dropped to less than 5% at the beginning of 2023, around 4% to 5%.

So we are talking about the probability of a hard landing in investors' minds according to the Bank of America survey. Over the past three or four years, this probability has fluctuated back and forth like a tennis ball. So what happened three weeks ago, four weeks ago? Because a market-friendly presidential candidate won the election, the market's expectations for growth and profits were really high.

At that time, the market priced in a lot of growth expectations, and the yield curve (government bond yield curve) became steep. So when you look at the yields on two-year and ten-year Treasury bonds, after Trump's election, the yield curve really became steep, indicating that the market was looking for high growth.

But ultimately, the Trump team behind the scenes knows that there are structural issues in the Treasury bond market.

We must extend the debt maturity, and there are serious inequality issues; inflation is hurting the bottom 60% of consumers. So now the market is trying to digest this shift from massive growth expectations and a steep yield curve to a sharply flattening yield curve.

In the silver market and interest rate futures market, the risk of recession has already been priced in. We are shifting from expectations of 5% to 6% GDP growth to a possible economic contraction.

Bill Ackman said last week that he originally expected GDP growth of 4% to 5%, but now he expects only 1% growth. He is the Chief Investment Officer of Pershing Square Capital Management, a well-known fund manager, and one of the most respected investors of all time. I really like Bill Ackman; he is your friend, and he has performed well on this show.

But you know, when Bill Ackman comes out and says these things, first, it indicates that he thinks the situation is not optimistic. He is one of the greatest investors of the past 30 years, which shows he is shorting; he is essentially betting on a recession.

Host: Yes. Steve Cohen also doesn't speak publicly often. If he could come on our show, I would express that wish to the outside world, but he doesn't often say these things, and he is one of the greatest traders of all time. Okay, you mentioned the yield curve; can you talk about the actual situation? What is the relationship between changes in the yield curve and signals of recession? Is this also a signal of recession?

Larry McDonald:

Yes. We have a model; we have a market sentiment model, and we also have a model to measure the rate of change in the yield curve and oil prices. We also pay attention to transportation stocks.

If you look at the situation over the past three or four weeks, whenever you see transportation stocks lagging significantly, at the same time, consumer staples stocks (which are recession-resistant) are significantly outperforming non-essential consumer goods stocks. Meanwhile, the bond market is experiencing severe volatility, and the yield curve is flattening.

At the same time, oil prices are falling. When these four factors appear simultaneously, if you use our model to measure their rates of change, you will get a very strong signal because the last time we saw this type of signal was in February 2020. We also discussed this issue in the book; the market has a very keen sense.

In late February 2020, the stock market was still rising, but transportation stocks were plummeting, and the bond prices of companies sensitive to the economy were also falling sharply.

Oil prices were falling, while consumer staples stocks, like Procter & Gamble and other necessities for your life, were significantly outperforming the S&P Consumer Staples Select Sector Index (XLP) compared to the S&P Consumer Discretionary Select Sector Index (XLY).

So when these four factors appear simultaneously and change rapidly in the same direction, it tells us about the market's trend; the market communicates something to us every day, and these signals indicate that the likelihood of recession is significantly increasing.

Host: Okay. You mentioned "capitulation," and I would love to hear more about that. Are we preparing for more "capitulation"? Are we starting to see that?

Larry McDonald:

Are we preparing for more situations? Well, in some respects, there has already been quite a serious "capitulation," such as the significant drop in copper-related stock prices.

If you think about it, let me give you an interesting trading example. Copper prices have been suppressed because of cognitive dissonance, right? This means having two opposing beliefs. The market is like a person; over the past 40 years, whenever we experience an economic slowdown, copper prices have dropped significantly, just like when Lehman Brothers collapsed.

So investors watching us now have had that experience; investing in copper during an economic slowdown has been a bad experience.

But this time, the situation is completely different for two reasons. First, compared to the past thirty years, the new mining output from major global copper mines may have decreased by 70%, meaning the number of new copper mines coming online has significantly reduced. So we are facing a severe supply problem because we have severely underinvested in this area.

But that's just part of the reason. Think about the reconstruction of Ukraine; you can search on ChatGPT to see how many buildings and infrastructures Ukraine needs to rebuild, and then think about the situation in places like Los Angeles and Gaza.

You will find that there will be massive reconstruction over the next five years, which will require a lot of copper and other metals. Then look at the spending of the seven major tech giants (MAG Seven, namely Microsoft, Apple, Google, Amazon, Nvidia, Meta, and Tesla) on data centers; it's like a fierce competition.

They are all competing to outdo each other. Microsoft plans to spend $80 billion this year, up from $40 billion last year. Zuckerberg from Meta (formerly Facebook) is also showcasing strength; I think they plan to spend $55 billion this year.

If you calculate it, their spending scale over the next few years will reach about $2 trillion. Think about what the main commodities used in data center construction are? It's copper. So now everyone is frantically investing in AI-related projects; you should also invest in copper-related stocks.

These copper-related stocks, like Teck Resources, Freeport-McMoRan, and the U.S. Copper ETF (COPX), have already dropped by 30% to 40%. You are now in a very advantageous position because global investment in copper has been severely lacking for years, leading to constrained copper supply.

If we look at the capital expenditure in the copper, oil, and gas industries from 2010 to 2014, and compare that period with now, we have an investment gap of about $2 trillion to $3 trillion in this area, meaning we have severely underinvested. This is because all capital expenditures have flowed into the AI sector. Some parts of our U.S. power grid are already 50 years old, and some are 30 years old. So we need to apply all this tech investment to an aging power grid.

The power grid is dilapidated and needs reconstruction; this is a $2 trillion project involving hard assets like copper and aluminum. This is the investment direction for the next five to ten years.

Host: So this is what you are currently optimistic about regarding hard assets. This is also a theme in your book. From our conversation, it feels like a large part of resource allocation in the Western world is irrational right now, perhaps as you mentioned in your book, the world has changed. Many viewers of this program may not be familiar with this concept, but it can be likened to the "Fourth Turning" in the financial realm. Can you elaborate on this perspective?

Larry McDonald:

Yes, well, we have shifted 100,000 jobs from the 5 million jobs in the U.S. to around the world. So we have greatly improved the global standard of living, but at the same time, it has led to the decline of the American Rust Belt. So the situation now is that in the Rust Belt, fathers come home to their children, and they may have had a $150,000 annual salary job in the past, but now they can only work in restaurants, earning $30,000, $40,000, or $50,000 a year.

With such a significant structural change happening in the U.S., we have made life difficult for many working-class people through inflation and job outsourcing.

Today's world is more diversified. For the past 20 years, we have been in a unique global landscape where the U.S. was the most powerful country, and there was almost no war. But now we have two wars going on, which has led to supply chains not operating effectively. Wars bring about significant inflation. I have discussed this with Neil Ferguson, David Tepper, and David Einhorn in my book.

They all told me that wars will continue to trigger inflation for many years because of the reconstruction efforts after the war, such as rebuilding Ukraine's infrastructure. This will lead to inflation remaining high in the coming years.

Moreover, because we have politically neglected the Rust Belt, we need to restore all these jobs and bring them back to the U.S. So we are bringing semiconductor jobs back to America. When you rearrange the supply chain, it will bring more inflation.

So we are now in a period where even if we enter a recession, interest rates will remain high; this is a very typical stagflation period. It resembles the situation from 1968 to 1981 when the market was basically flat. But commodities, hard assets, and companies with underground assets are what can help you withstand inflation.

If you look at the discounted cash flow model (DCF model), we refer to it as cash flow discounting. In an environment with stable deflation expectations and low inflation rates, software companies or tech growth stocks perform well. From 2010 to 2020, that was a typical deflationary period, and it was not just deflation.

During that time, the certainty of deflation was very high. But starting in 2020, we are facing higher inflation expectations and a more certain inflation trend.

If you use the discounted cash flow model and consider inflation factors, the main focus is on interest rates. If both interest rates and inflation rates are high, then global portfolio managers will want to hold stocks of companies like BHP and Rio Tinto; they want to hold gold and want to hold assets.

They want to hold stocks of companies that have resources like oil and copper. In the high inflation, diversified world economic environment from 1968 to 1981, these different types of stocks performed excellently, while the portfolio model from 2010 to 2020 will undergo a transformation.

Host: Okay, it sounds like our inflation may persist. In a stagflation environment, this is the most challenging time for all asset classes, but do you think if we might face a recession, we should allocate hard assets and other things?

Larry McDonald:

Yes, in the first phase, we mainly have inflation issues and inequality issues. They need to lower the inflation rate.

They need to lower the inflation rate. So they need to trigger an economic slowdown, or they are trying to achieve this through tariffs and immigration enforcement measures.

They want to spread the pain as much as possible, and we have a close relationship with the team in Washington. When you talk to those close to Trump or Yellen, they want pain, but they hope that this pain stays as far away from the middle class as possible, right?

They need to lower inflation through pain. But this means that inflation, like a problem hidden under the carpet, will not disappear easily. So this means that in the case of an economic slowdown, inflation will persist, just like the world from 1968 to 1981 when stagflation really began to manifest.

You can see this by looking at the performance of growth stocks versus value stocks. There has been a significant change in the past three weeks, with value stocks significantly outperforming growth stocks. Gold mining companies have outperformed the Nasdaq index. Look at the comparison between Enbridge and Microsoft; last year, Enbridge outperformed Microsoft by 40%, a situation that hasn't happened since the 1980s.

Enbridge's performance last year was 38% better than Microsoft's, which is unprecedented since the 1980s. This is why we are returning to an era that requires a completely different approach to portfolio construction.

Host: Okay. By the way, perhaps this sounds like to address some long-term challenges, we need to endure some pain in the short term.

Larry McDonald:

Absolutely right. This is what Musk and Trump are trying to achieve. I mean, think about what they said this week.

What they said was so crazy that I'm not even sure they really mean it. They basically firmly told us they want to cut $1 trillion in spending. So now our annual spending is $7 trillion, and Musk says we want to bring that down to $6 trillion.

You can't do that in one year. The fiscal deficit we are talking about now is about 7% of GDP, while the average for developed countries is about 3%.

So the core idea of American exceptionalism has basically turned into, oh, we can spend at a 7% fiscal deficit rate while other developed countries only have 3%. This is what has made the U.S. economy strong and the reason for American exceptionalism.

But if you try to cut total spending from $7 trillion to $6 trillion in one year, you will trigger a very severe economic recession. So what they are trying to do should be gradually completed over 5 to 10 years because, unfortunately, when your fiscal spending is at such a high level and you reverse this trend so quickly, it will trigger a very vicious cyclical shift, which could be very detrimental to the market.

Host: Yes, you did mention that we need a different portfolio structure. Can you remind everyone what that structure would look like? It’s no longer a 60% stock and 40% bond mix. From your perspective, what does the new portfolio structure look like?

Larry McDonald:

Well, yes, it might be 40% stocks, 40% bonds, and 20% commodities, or a ratio like 35% and 35%, where we have a higher proportion of commodity allocation models. Just remember, from 1968 to 1981, when we experienced that high-interest, high-inflation diversified world landscape during the Vietnam War.

At the end of that period, 49% of the S&P 500 index components were industrial, oil, gas, and materials stocks. In recent years, that proportion has dropped to 12%. So we don't think it will return to a 49% ratio, but if you look at the charts of industrial stocks compared to the Nasdaq index, industrial stocks have been performing well over the past three or four years, and this performance is accelerating.

So ETFs representing industrial stocks are what you should focus on, as well as oil and gas ETFs (XLE) and materials ETFs (XLB).

So oil and gas, materials, and industrial stocks have accounted for about 12% of the S&P 500 index components in recent years, while all the funds have flowed into tech stocks, right?

If this situation changes, the proportion of oil and gas, industrial, and materials stocks in the S&P 500 index components could rise from 12% to 14% over the next five years. We believe this proportion will eventually approach 25% to 30% of the S&P 500 index components. This is the new portfolio structure you need.

Host: Yes, sorry. I have always enjoyed inviting you to the show. It has really been a long time since I last invited you, and as I said, it’s great to have you on this week. I know the audience will love this weekend's special program. Before we wrap up.

A few things. Everyone go buy Larry's book. I saw on social media that you are doing a book tour. If you haven't read this book yet, if you haven't read "How to Listen to the Market's Voice," please go buy it and read it.

Let me tell you, I listened to the audiobook, and it was really great because I particularly loved the dialogues you captured in the book. Let everyone know, obviously, to promote this book. Tell me more about the "Bear Market Trap Report." I know you have a great community. Then share some final thoughts. What do you want the audience to think about? Now it's your turn to speak.

Larry McDonald:

Thank you very much. You know, I am proud that I started from the retail finance business. We wrote a book about Lehman Brothers that made it to the New York Times bestseller list and has now been translated into 12 languages.

I realized that doing book tours makes about ten times more money than writing a book because publishers make a lot of money. But the best part is meeting a lot of people. Over the past decade, we have been to London six times, Toronto and Vancouver six times, and also to Boston, New York, and Miami.

We just returned from Geneva. We created a Bloomberg chat group, which is somewhat like gathering information from very smart investors. These investors come from hedge funds, mutual funds, and pension funds. What we do is collect information to provide investors with a perspective on understanding market dialogues.

This means we will focus on what billionaires, professionals, and industry insiders are talking about and paying attention to this week. So every week, we chat with the best people among institutional investors on Bloomberg and summarize this content in the "Bear Market Trap Report." This is not an ordinary newsletter.

This is not something written by someone sitting by Lake Michigan. This is information collected from the best investors in the world. We aim to democratize information and share it with small investors. I want to summarize that I just returned from an event hosted by Whales and Position, which is a great group with many interesting people.

Saul Tannenbaum, Post, Chim, and Bionico were all there. The great thing is that there were many excellent strategists as speakers, along with many renowned fund managers. So this is a mixed gathering of strategists and fundamental analysts, and everyone spoke for 40 minutes. I gathered a lot of information from that meeting and from various idea dinners we hosted. I have held many such dinners around the world, like in Miami and New York. What we do is talk to investors and understand their real views on the current market.

Initially, like in September and October, we knew the Treasury was meeting with various hedge funds. But at that time, the situation was still unclear. Now it is clear what path they are taking, which is the so-called "financial repression."

They hope to manipulate interest rates to be below the inflation rate. By manipulating interest rates, such as talking to our trading partners, like Canada, Mexico, or more so Japan and Germany, they say you must buy more U.S. Treasury bonds at lower interest rates if you want to be our allies. By the way, they will also ask banking regulators to force U.S. banks to buy more U.S. Treasury bonds.

This is "financial repression," trying to push interest rates down below the inflation rate. This is the only way to escape the $36 trillion to $37 trillion debt dilemma, aside from default (what we call debt default). We have discussed many such stories, but this can be traced back to…

Host: Back to what is said in the Bible… or through "financial repression," over time pushing interest rates down below the inflation rate, solving the problem through inflation. I think this is the agenda of the Trump administration's Treasury, and I believe the Federal Reserve has the same idea. Wow.

Host: Thank you very much. Seriously, I feel like I've learned a lot from you in this half hour, and I know the audience must feel the same way.

Host: You are always welcome on our channel, and we are happy to invite you, Larry McDonald, founder of the "Bear Market Trap Report," author of multiple books, including "How to Listen to the Market's Voice" and "The Collapse of Common Sense: The Story of Lehman Brothers" (which is a fantastic book that made it to the New York Times bestseller list, and I learned a lot about you from it). Larry, thank you so much for taking the time; it's always a pleasure to talk to you, and I really appreciate it. Hope you have a great weekend, see you next time, take care.

Larry McDonald:

You have a great weekend too.

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