Fed Nightmare Setup: Oil Up, Jobs Weak, Credit Cracking | Larry McDonald

The International Energy Agency (IEA) has officially identified this as the largest supply disruption in the history of the global oil market. As the Federal Reserve begins its two-day policy meeting today, it faces a "nightmare setup": energy prices are soaring just as the U.S. labor market begins to soften.

In this interview, Larry McDonald, founder of The Bear Traps Report and author of How to Listen to Market Speak, reveals why this isn't just a macro scare—it is the "exhaustion of the paper-credit system itself". From the 70% collapse of subprime lenders like Goeasy to Morgan Stanley’s 8% default warning for private credit, the "truth bleed" has begun.

In this episode, we break down:
-The "Grocery Bill" Shock: Why the 8-million-barrel drop and the spike in urea fertilizer (up 28%) are hitting the real economy during planting season.
-The Fed’s Dual-Mandate Trap: Why Powell is caught between an energy-driven inflation spike and a 2008-style credit crisis.
-The AI Credit Disruption: How the "CapEx lunacy" in Silicon Valley is triggering a wave of defaults in software-heavy portfolios.
-The Hard-Asset Manual: Larry's tactical picks in Uranium, Coal, and Volatility, and why gold miners could face a 30% drawdown before the real rally.

Follow Jeremy Szafron on X: @JeremySzafron (https://twitter.com/JeremySzafron) 
Follow Kitco News on X: @KitcoNewsNOW (https://twitter.com/kitconewsnow) 
Follow Larry McDonald on Twitter: @Convertbond (https://twitter.com/Convertbond)

Video Timestamps

00:00 Energy Shock Opens 
01:22 Fertilizer & Food Inflation 
03:19 Gold Miners Cost Squeeze 
06:17 Refining Bottlenecks 
08:45 Housing & Rates Pressure 
10:17 Private Credit Inferno 
11:42 Fed & Financial Repression 
14:16 Hard Assets Power Plays 
17:29 AI Disruption & Credit Contagion 
26:07 Rotation Into Energy 
30:32 How to Trade Drawdowns 
32:08 Midterms & Volatility Hedge 
35:29 Closing Takeaways 

Visit Kitco.com for live gold, silver, and crypto prices, the latest mining news, and macroeconomic insights.

#gold  #LarryMcDonald #OilShock #FedMeeting #PrivateCredit #Uranium #KitcoNews #Inflation #Nvidia #Copper #EnergyCrisis
__________________________________________________________________
FOLLOW US:  
X: https://x.com/kitconewsnow  
Instagram: https://www.instagram.com/kitconews  
Facebook: https://www.facebook.com/KitcoNews  
LinkedIn: https://www.linkedin.com/company/kitconews
Learn more about Kitco News: https://www.kitco.com/news/about/ 

For more information on advertising, sponsorship and marketing promotions – please visit our online media kit at: https://www.kitco.com/advertising  

Disclaimer:  
The videos are not intended to provide trading advice, and the views expressed do not necessarily reflect those of Kitco Metals Inc. Kitco News, its anchors, producers, and reporters are not responsible in any way for the performance or actions of any sponsor, advertiser or affiliate of Kitco News. In no event will Kitco and its employees be held liable for any indirect, special, incidental, or consequential damages arising out of the use of the content in this video.

Disclaimer:  
The videos are not intended to provide trading advice, and the views expressed do not necessarily reflect those of Kitco Metals Inc. Kitco News, its anchors, producers, and reporters are not responsible in any way for the performance or actions of any sponsor, advertiser or affiliate of Kitco News. In no event will Kitco and its employees be held liable for any indirect, special, incidental, or consequential damages arising out of the use of the content in this video.

Transcript

SPEAKER_01 0:00

Kitco News in Focus with Jeremy Safrin.

SPEAKER_02 0:04

Welcome back. I'm Jeremy Staffrin. The International Energy Agency says this is now the largest supply disruption in the history of the global oil market. Traffic through the Strait of Hormuz has plunged. Gulf producers have cut output sharply, and the shock is reaching far beyond crude into the diesel and the fertilizers to power the real economy. And at the same time, credit is showing fresh signs of stress, with subprime lenders like GoEasy falling 70% in three days. And Morgan Stanley just today now warning that defaults in private credit could hit 8% as AI disrupts the software industry. I appreciate making the time.

SPEAKER_03 1:05

Jeremy, thanks and appreciate you guys thinking of us. You know, our book has been in the top 10 all year on Amazon. It's a multipolar world. It is a multipolar world.

SPEAKER_02 1:22

Okay, well, this is good to hear. I want to get into that. It's kind of a hook for the audience. They're going to have to wait for a few picks. But economically, I mean, let's just talk about this immediate timeline here because I mean, Larry, the the IEA confirmed global output fell by about 8 million barrels a day in March. Beyond the crude price, your real fertilizer prices have gone about 28% higher, diesels over$5 a gallon, just as American farmers enter, you know, planting and seeding season. Does does the the real inflation shock move from the gas station to the grocery bill here? And if this persists into planting season, what breaks first? Is it the food margins? Is it food prices? Is it political tolerance?

SPEAKER_03 2:04

Well, you know, we we host an institutional conversation with hedge funds, mutual funds, and pension funds in more than 20 countries on the Bloomberg Terminal. And the conversation this week is looking at phosphates, fertilizers, refining capacity, all of these things, because Iran has attacked Bahrain, UAE, Kuwait, all of the partners in the Middle East have been really attacked in one way or another. So that level of trust across the supply chain is going to be lost for a good 60, 90 days. And that means your phosphates, your fertilizers, you're coming into that planting season. We're seeing clients get long wheat and wheat and corn here. The DBA ETF will share that chart. The DBA is starting to dramatically outperform the NASDAQ. And so you want to be in that kind of that hard asset portfolio, moving from gold silver over toward obviously the gas names and the coal names, and over then over toward the agricultural names. And that's that's where we're seeing clients reposition their portfolios.

SPEAKER_02 3:20

Yeah, that's interesting. Uh you brought up a couple of points. One I want to make on the refinery capacity, but before we do, I mean, you kind of mentioned you know that that trade kind of getting out of that gold-silver play. I mean, if gold kind of stays elevated, but diesel labor, you know, financing costs stay high. I mean, who's gets squeezed first to inside mining? Is it, you know, the the juniors, the high-cost producers, or the developers that still need capital?

SPEAKER_03 3:44

Right. And that's the thing about the gold miners is a lot of tourists came in. You know, picture the heavy set guy with the glasses and the Hawaiian shirt getting off the bus. And they were piling into the gold miners in the fourth quarter, piling in in January. And in our trade alerts, we actually reduced GDX and GDXJ to zero in January. And we're looking to buy because that diesel component, if you look at the earnings calls across the different gold mining companies, whether it be the Barracks or the New Monts or the Agneco Eagles, that diesel cost is 20-30% of your operating margin. And so in some cases, typically 8 to 12, depends on how efficiently the company is run. But yeah, that's creating a big drawdown in the gold miners. You know, we're we're looking to buy that 50-day moving average, that 100-day moving average. We're looking to get back in. And we think we can get a 10. Well, I think we can get a 20 to 30% drawdown in the gold miners from the highs because of those diesel costs, which are up 70% off the December lows, a diesel, big, big component of gold mining. And that creates an opportunity on the buy side.

SPEAKER_02 5:02

Yeah, that's interesting. So you're going in and buying the dip, finding the value. Are you also saying, you know, investors are a little too quick to assume higher gold automatically means higher mining margins when diesel inflation can kind of eat that leverage away?

SPEAKER_03 5:14

Right, exactly. So, in other words, the tourists came in, yeah, everyone's looking at gold price at 50, 51, 5200, up from 30, 600 a year and a half ago. So companies were a lot more profitable, but people all of a sudden are like hit upside the head here with the diesel costs up 70% since December.

SPEAKER_02 5:38

So do you do you kind of you know own the senior producers in royalty companies instead of reducing miners broadly here? Is it more about being selective than bearish in that space?

SPEAKER_03 5:49

Yeah, I think it's a mix. I mean, you want to own some wheat and wheat and precious metals, the royalty companies, the streamers are you know have less jurisdictional risk than the big gold miners, of course. Yeah, but uh I think that the gold mining companies themselves should have larger drawdowns. And so when you get that 20, 30% drawdown because of the cost of diesel, you want to look to buy your barracks and your new mods on weakness.

SPEAKER_02 6:17

Yeah, okay, interesting. I mean, we're seeing a little bit of that happening today, it looks like. Hopefully, people picking up the dip. Uh, on the refining capacity, I mean, you know, Larry, obviously Asian refiners are now kind of scouring the world for replacement crude, but a lot of those barrels are the wrong quality for the refineries that normally run that heavy sour from the Gulf. I mean, is this becoming less of an oil price story and more of a refinery configuration story that keeps product inflation sticky even if crude supply suddenly shows up?

SPEAKER_03 6:47

Right. In other words, the White House is going to pull out the fire truck, right? Bring out the fire hose, just like they did last April with the trade war. The White House has a tendency to create disruptions. Um obviously trying to negotiate on the trade deals last year. They created all these disruptions in the bond market. And our bond trading partners globally backed away. And then Bascent was on the Sunday talk shows the entire month of April, the entire month of May, pulled out the fire hose, put out the fire, right? In a pretty, pretty reasonable way. This time, it's it's very different because they're going to try the same act that they started over the weekend, especially yesterday with Trump. They're bringing out the fire hose, they're trying to calm this thing down, the midterms. They don't want, when you talk to people, I would, you know, I was in the White House maybe seven weeks ago. When you talk to people in the White House, you know, they want by May things stabilized. But the misjudgment here, or I guess the bad judgment was around they misjudged how aggressive Iran would be attacking all of our partners in the Middle East and in Asia and or in different ways through the supply chains. And that's gonna cause, I think, six to eight to twelve to maybe even 18 weeks of all kinds of supply disruptions to the to the ecosystem. And that's what's gonna create this big bounce in inflation, very similar to 2022. That multipolar world with the Ukraine war caused this big move in CPI and put the Fed on hold, got the Fed actually in hiking. That's what we're looking for for this year. We're gonna go from three cut uh three cuts expected to zero and maybe even hikes coming in later in the year as inflation really bounces.

SPEAKER_02 8:47

Interesting. Interesting. Okay, well then before we get into the Fed, this kind of plays into that topic. I mean, we recently saw pending home sales improve when mortgage rates dipped. But if higher oil prices now drive rates back up, I mean, does does this conflict kind of choke off the housing rebound before it even started?

SPEAKER_03 9:08

Well, that's one thing. When we were in our meetings with the White House, they are as nervous as a long-tailed cat in a room full of rocking chairs on housing. This is the housing inequality is off the charts. And, you know, they have this big plan around housing affordability. I think you want to start looking at RKT equity rocket mortgage. You want to look at Fannie and Freddie. The White House is going to be pretty desperate come that second quarter around getting housing affordability uh back in order. And um inflation's gonna prevent rate cuts to some degree, but there's a lot of things they could do. So, yeah, you want to look at housing equities. They've been hammered here because of the backup in rates. And um rocket mortgage, we're seeing some institutional clients start by into some of these wounded housing plays.

SPEAKER_02 10:03

Interesting. Okay, so then I mean, are you saying the market is kind of trapped between two completely different macro scenarios? It feels like one that screams three cots because growth is rolling over, and another that says energy and logistics shock can still force a hawkish reset.

SPEAKER_03 10:20

Right. And then the the biggest one of all is that this time around, Trump's gonna pull out the fire hose with percent. They're gonna try to calm this down, but now you have a real private credit inferno that's picking up steam, right? And so there's a credit crisis. If you look at, we'll share the chart. High yield is now on May 2025 level. So the widest, the highest in yield. Um the the the the the BKLN, which is the bank loan index, there's a lot of pain in loans. We think we're gonna see a big dis uh big default spike in in high yield, especially in loans, and that's gonna create a lot of pressure on the Fed to ease, even though we have sticky inflation. That's where you get into that 1968 to 1981 portfolio where you've got sticky inflation, but recession risk rising because of financial conditions coming from a whole bunch of different places. And then when a credit crisis starts to brew, that that creates a really weird dynamic where the Fed is is trying to like ease but into sticky inflation. And that's a real wonderful backdrop for hard assets and commodity equities.

SPEAKER_02 11:38

Yeah, yeah. Not to mention uh, you know, some of the, well, even uranium at this point, which we need to talk about. Uh before we do, you mentioned the Fed. I mean, if they're starting their meeting today, facing that softening labor market, even as oil and tariffs push inflation higher. Is is this the Fed's nightmare setup? I mean, if Powell holds steady to avoid validating inflation, does he does he risk tightening into a weakening labor market? And if he cuts, does he risk telling the market the Fed can no longer defend that 2% market, that that that steady eddy hand that he's been trying to do?

SPEAKER_03 12:10

Right. And and we talk about this in our book, How to Listen Markets Speak. At the end of the day, when you have that$38 trillion debt hole, the only way out of that debt hole is to monetize the debt and kind of push interest rates below the rate of inflation. It's called financial repression. That's what they want ultimately. They just can't admit it. They're like the pilot on the airplane with the fire in the engine. You know, they're ladies and gentlemen, everyone stay in your seats, everything's fine. But beneath the surface, there's a lot going on, especially with this credit crisis coming in private credit. Um, these these private credit vehicles, they promise quarterly liquidity to all of these financial advisors. And now the the demand, or I guess the the request for those, for those, for that liquidity is two to three times the the uh quarterly gain of 5%. And so, yeah, the so the Fed is is faced with a 2008-like credit crisis that's developing at the same time with sticky inflation. Yeah.

SPEAKER_02 13:13

So when you say they want you know financial repression now, uh you're saying that the system is kind of so debt loaded that policymakers need inflation to run above real returns just to keep the whole thing survivable. But I mean, it if it only works if people keep trusting the currency in the bond market. I mean, if that trust breaks, doesn't the whole strategy backfire here?

SPEAKER_03 13:33

Yes, but you know, you the US is always going to be that, you know, I guess that least dirty shirt. There's a lot of problems in the UK. Right. Um, along the same lines, like massive stagflation coming in, a lot of problems in Japan, a lot of problems in Germany. So the the US is the luxury of, you know, I guess those 13 aircraft carriers, and you know, that's your that's that's your dollar backing right there. So the the dollar's not going to lose its its reserve currency status anytime soon. But are we in a weaker dollar regime? Is the Fed gonna have to like ease into sticky inflation? All this is great for that hard asset portfolio, like we talked about in our book, How to Listen a Market Speak.

SPEAKER_02 14:19

Yeah. So I mean, is is gold no longer just a hedge against policy mistakes, but but also a hedge against a policy choice to deliberate deliberately kind of erode these real claims?

SPEAKER_03 14:30

Right, exactly. Gold, silver, platinum, and palladium. Right. Even the especially coal now, the coal names, C and R equity, beautiful free cash flow yield, companies bought back 10, 15% of the equity with that cash flow. But if you look around the world at artificial intelligence, the move into hard asset companies that can that that control hard assets, you want to start looking at the coal names because of that demand for electricity and also that that that bottleneck around natural gas in the Middle East, that 20% of the Asia natural gas at LNG is really locked up in the Straits of Maharmous. And that's that creates a really a lot of them, a lot more demand for coal. So CNR equity, core natural resources, uh that's that's one that we really love uh for the rest of the year.

SPEAKER_02 15:24

And we've talked about it briefly. I mean, if coal's uh one way to kind of own that power scarcity, I mean, is is uranium the cleaner long-duration version of the that same thesis?

SPEAKER_03 15:35

Absolutely. The SRUUF is pulled back quite a bit here. We're seeing institutional investors that we really respect starting to buy forward and trying to get out in front of those utilities. In other words, put together portfolios where they can buy that forward, that incoming spot uh price and that incoming um, because you've got the spread between where the spot is and then where the futures are gonna be. And but there is no futures market with uranium, but there is a future price and a future amount of demand that's gonna come from all these data centers. And um, you know, they're way behind the curve in terms of production uh and enrichment, way behind the curve. And they're gonna have to really ramp up. So, you know, we think we think uranium prices potentially could double over the next two, three years. So that SRUF, ETF that controls the uranium, and then the NUKZ is another portfolio that that we've had we've rec recommended for the last two, three years for our clients.

SPEAKER_02 16:39

So uh does silver kind of become the catch-up trade later, maybe once the market gets past the first credit shock.

SPEAKER_03 16:47

Yeah, silver and gold, you've got that, you know, the problem the problem with silver is you had that blow-off top, that real speculative tourist money that came in, and the put the call put ratio reached eight to one, eight to one, which is pretty crazy. Um, and so you're coming off of that kind of like really crazy level of of silver, you know, the gold, the gold-silver ratio uh got down you know to the mid-50s, I think, low 50s. And so can it go lower? Yes, but I think you you want to be really careful with silver here because you still have a lot of that speculative froth. And um, you know, we were looking to buy dips on silver, we're just looking for a little bit bigger pullback. Interesting.

SPEAKER_02 17:33

Um, you know, I don't know if you saw this report, but Morgan Stanley today is kind of forecasting uh this default rate in direct lending to hit about 8%, specifically citing AI disruption in software, which which makes up roughly a quarter of many private credit portfolios. We've already seen go easy fall about 70% in three days. Alternative asset managers piled into software for a decade thinking the earnings were predictable. If if AI is now turning those safe software loans into a kind of a 2020-style default wave, who's actually holding the bag? Is this the slow burn that finally breaks the insurance companies?

SPEAKER_03 18:10

Right. So this gets back to 2025, second quarter versus 2026. 2025, Trump, Basent, Sunday talk shows brought out the fire hose, and we're off to the races. Now we're coming into AI disruption and credit that's picking up steam. The truce bleed is picking up steam. Look at the comments from Lloyd Blankfein, for example. Uh, look at the comments from the banks like UBS. When you see an analyst like a UBS turning on the rest of the sell side, it's a sign that the street is way off sides in this trade. Look at the performance of high yield really starting to kind of really break out in terms of yield, like the widest in terms of highest in yield since last May. And so you've got this this credit crisis that's coming in. You got a Fed that's going to try to do something about it, but it's the rate of change of information. The street, whenever, like they were screaming at us, Jeremy. They were screaming these. This was idiosyncratic, idiosyncratic. This is like in last October. They said tricolor and first brands were idiosyncratic. The whole thing, they were just lying through their teeth or completely misinformed. You've got incredible credit investors like Boaz Weinstein, um, all kinds of really talented people, Kieran Goodwin on X, follow Kieran Goodwin on X, and there's a real cabal of very smart credit people that can clearly see this is a contagion trade that's going to definitely impact the insurance companies next. We're seeing a lot of clients short the insurance companies because the insurance companies are really the ultimate bag holder of credit risk.

SPEAKER_02 19:59

Yeah, so I mean the street is finally being forced to admit that the the marks, the liquidity assumptions, and the software exposure were all too optimistic.

SPEAKER_03 20:09

Yes, but it's the it's the other, it's the other unintended consequences, right? So you got this group of maniacs in Silicon Valley, you know, flexing their muscles, all trying to outspend each other on CapEx. This is pure like lunacy whack job, like CapEx spending. And what's the side effect? When you spend that amount in that short period of time on CapEx, it creates faster and faster and faster disruption. That creates faster and faster and faster disruption in the credit markets. Like you said, cash flows from these software companies were like literally considered gold 18 months ago and now garbage because of the rate of change of information. And so it's this, like I said, it's that 2025 versus 2026 fire hose. And then there's the job disruption. Jack Dorsey laying off close to 45% of his labor force at Square, company after company, day after day. Morgan Stanley last week. There's you're gonna see in the next like six, seven, eight weeks, more and more software companies, more and more logistics companies, the expedients of the world and travel are could be massively disrupted. There's thousands of people. We're talking like hundreds of thousands of job losses that are potentially gonna come in between now and say July, August, September, that are coming from this disruption from AI.

SPEAKER_02 21:40

Yeah. I mean, you I feel like you've seen this story before, right? I mean, you know, these companies are now in that capex kind of arms race where management teams feel forced to outspend each other just to defend the narrative. Um what kind of tells you if this capex is kind of, you know, the productive growth versus that late cycle over investment? You know, is it Margins, is it cash flow? Kind of that need to keep telling the story.

SPEAKER_03 22:04

It's so, it's so despicable. Jensen, you know, the CEO of NVIDIA, what a pump master he is. You know, jumping on with Jim Kramer today, you know, doing the presentation. Every time this guy jumps on stage, the amount of call buying on NVIDIA is so stupid and so silly. Uh, the street is way over their skis. A year ago, their price target was$95 for NVIDIA. Now it's up near, you know,$260. They're just falling all over themselves to upgrade the stock. Everyone's in the same stupid trade, you know, NVIDIA and the chips. Nobody's in the energy side, right? Nobody's looking at the unintended consequences of AI capex and the disruption that that's going to cause. And that, in essence, will end up, at the end of the day, the cure for higher prices and capex like that will be slower growth that comes from disruption. And that's where you know stocks like NVIDIA. NVIDIA a year ago, a year for a year from today, probably is down 50% because everyone's in the same crowded, stupid trade, semiconductors, nobody's looking at the unintended consequences of the AI capex.

SPEAKER_02 23:17

Yeah, yeah. I mean, where does it kind of break first? I mean, is it that bad software debt kind of as we're seeing these redemption gates that are starting to kind of come about, those insurer balance sheets, or even the refinancing wall that's about to come into view?

SPEAKER_03 23:32

Yeah, the refin wall, you've got a big refi wall coming. Um, you've got you know a high-yield calendar in terms of issuance that that is now that's what you need to watch. In 2007, News Century went down. We talked about this in our first book. It was a New York Times bestseller about Lehman. But once the securitization machine slows down because of financial conditions that tighten up from private credit that leaks over to high yield, if securitization, if that machine slows down, then all of a sudden there's a lot more credit risk. It's building on the bank balance sheets. Look at the financials this year, Jeremy. Look at the financials. You never see, literally in your career, uh, banks down 18, 19% to start off the year off the highs. It's really, it tells you the uh there's a real credit crisis uh brewing. Morgan Stanley, Bank of America Equity, look at the XLF versus the SP, that's the financials. You know, you're really ugly performance, and it speaks to this credit crisis that's brewing under the surface.

SPEAKER_02 24:40

Yeah. And to your point, I mean, you know, for the for the gold investor, what is the difference between a violent liquidity event that hits everything, including gold, and you know, a true credit unwind that ultimately strengthens the bullion's case?

SPEAKER_03 24:55

Right. So that's where you get into what happened in 2008. If correlation goes to one and there's real systemic risk across the banking system that grows and grows, where people stop trusting the banking system, then gold's gonna get smoked, all the hard assets are gonna get smoked, but then the Fed has gonna have to aggressively ease, dollars gonna weaken, and then you're gonna be back off to the races. Similar to what happened with COVID. You've got, you know, COVID came in really fast, gold got hammered, gold, the GDX hit 13, I think, in March 2020, five years ago, uh, this week. And so you get correlation goes to one in a credit crisis that that is systemic, where it hits the banking system, and then that creates a really great opportunity to buy companies that control the hard assets. But in a normal uh rotation out of you know, out of say the financials into other sectors that's contained and not systemic, that's that's much better for for commodity equities and hard assets because you don't have that correlation going to one that really hits everything.

SPEAKER_02 26:11

And you know, we hear on this AI, you know, all this narrative that we hear as well. I mean, the digital build-out does depend on a commodity stack, right? I mean, copper, uranium, gas, that it's already in a deficit. If the war cools down, does AI power demand in industrial bottlenecks kind of keep that hard asset case alive anyway? I mean, what's the most underpriced right now?

SPEAKER_03 26:32

Right. It's it's all energy that's going to be needed to support AI. Right. If you look at the FCG ETF, Frank, Charlie, George versus the SP, big breakout in the last week and a half, two weeks. These natural gas names are underowned. Last time we were on, we recommended range resources in Entero. Those stocks have done beautifully over the last year. There's a long way to go. There's a long way to go. In energy infrastructure, like inside the FCG, you've got uh a lot of these companies that control the NLPs and the transportation of natural gas. So it's it's really your natural gas trade is on a risk-reward basis relative to the say semiconductors, is light years, light years more attractive. And all of that demand from artificial intelligence and capital expenditures and all these data centers, 820 data centers are supposed to be built in the United States over the next five years. You're gonna need a lot more natural gas, a lot more coal, and that's where your best risk reward is, not in the crowded trade where all the monkeys are hanging out in the same tree in the semiconductors.

SPEAKER_02 27:43

Yeah. I mean, what what kind of tells you that this is a durable hard asset rotation rather than just that temporary panic bid into energy and commodities because of hormous and what have you? I mean, it feels like there's a little bit more of a tailwind here.

SPEAKER_03 27:57

Well, just remember, I mean, this 31 trillion of the Nasdaq 100, there was 34. Yeah. So three trillion is left and gone into hard asset companies. Um, the amount of the SP 500's composition that's in oil and gas is still 3-4%. The whole thing's a joke. So, you know, you it doesn't take much of a rotation out of the NASDAQ, out of technology, into hard assets to create this really second, third, fourth leg of the trade. But then there's the weaker dollar, then there's the credit crisis that forces the Fed to like ease into sticky inflation. If you think of like that 1968-81 portfolio, and 19 in that multipolar world with higher inflation, uh, more global conflicts, that's where at the end of it, by 1981, 49% of the SP 500's composition was in materials, industrials, and energy. 49%. We're right now, maybe 14. We're nowhere near. I are we going back to 49? No. But are we going to 25, 30? Yes. And that's where you know we're still in the early stages of this move and the companies to control hard assets.

SPEAKER_02 29:17

Right. Interesting. So I mean, that 1969 portfolio that you're talking about, I mean, growth's kind of rolling over, inflation's still sticking, investors need to rotate out of the financial assets before full stagflation is obvious. Um, it kind of became a very specific kind of inflation and policy cycle. Uh why is that the right comparison now instead of anything temporary? I'm just wondering, because the audience is always saying, okay, are we too early to the game? You know, is there still a taco trade here? What are your thoughts?

SPEAKER_03 29:46

Well, it's very similar. You had the Great Society coming in in the late 60s, you had the Vietnam War. Wars are incredibly inflationary for at least a decade after, right? Because there's the rebuild of the Ukraine, there's the rebuild of Gaza, there's the rebuild of Iran. We have an LA rebuild, Los Angeles, right? Because of all the fires. So this creates all kinds of demand for copper, uh, all kinds of metals, strategic metals. The United States has to ramp up, just look at national security of what the government's the United States government's saying. We're way behind the China, China, and Russia on critical minerals. So they have to rebuild all these stocks. This is an incredible first, second, third inning of a bull market for hard assets and commodities.

SPEAKER_02 30:36

So, what do you think is is maybe the hard asset trade people are most likely to get wrong here? I mean, what the what not to buy, right? I mean, um, what's the biggest mistake gold investors kind of make in a market like this?

SPEAKER_03 30:50

Well, that, like I said, that moving diesel is gonna could potentially knock the gold miners down 30, 40 percent, because even a lot of tourists that came in off the bus, right? Like I said, the heavy set added Hawaiian shirt. So it's they're not great investors. And so that's what creates high beta plays. That's the same thing with uranium, like uranium equities, gold miners, um, copper miners, there's a lot of tourists that have come in off the bus, and there's they're they're just not great long-term investors. They're just they're coming in to the latest and greatest hot sector. And so that's why you're gonna have you always want to buy that 100-day moving average in that new bull market. And um, you know, we're gonna have those opportunities because these are high beta sectors. They move all that means is they move much more violently than the market. And you've got to be prepared. Just look at the last year. I mean, those uranium names last April were just like down 30, 40 percent. The gold miners last first quarter of last year were down 30%, you know, off of the the off of the highs at the beginning of last year, last December. So, yeah, you you've got to be prepared to take advantage of these drawdowns.

SPEAKER_02 32:06

Yeah, that copper trade's interesting too, Larry. I mean, okay, well, let's see it. I mean, our time hose goes too fast. I mean, let's let's say the the thesis is right and that this is no longer just a market story. I mean, if diesel, fertilizer, freight, uh, food costs stay elevated into the second half of the year and credit uh private credit kind of keeps bleeding into the real economy, does this become a defining economic pressure point going into the midterms? I mean, if Washington tries the usual playbook, SPR releases, fiscal support, softer kind of rhetoric, why doesn't that work this time?

SPEAKER_03 32:38

Right. And Trump's Trump is really going to be frustrated because if you think of what happened during COVID, he got hit over the head with this unintended consequence coming out of COVID, right? And now, you know, he they potentially miscalculated on Iran's response by Iran attacking all of our counterparties, all of our ecosystem there, the Bahrains, the Kuwaits, the UAE, um, Iraq. So by attacking all of our Saudi Arabia, by attacking all of our friends, they create this like six, nine-month period of sticky inflation where, like I said before, distillants, refining, uh, all of these things, um, because the ecosystem and all those jobs uh and the safety of bringing those jobs back into place, it's gonna take a long time. And so that's where you get that sticky inflation that's gonna impact Trump in the midterms, and then you have the unintended consequences of artificial intelligence and this credit crisis that's really coming from the capex. And so, and that's a little bit like COVID in the sense that it's it's unintended consequences, it's potentially big job losses that you come into the midterms. Yeah, and Trump's gonna be potentially very frustrated. And that's why midterm election years typically can be very disruptive, uh, especially in this second, third quarter.

SPEAKER_02 34:06

Yeah, what an interesting time, Larry. Uh we've we've we're clearly covering it, staying on top of it. I mean, if you had to kind of make one best trade for the next 30 days, is it gold? Is it energy? Is it coal? Is it uranium? Or kind of is it's simply you know staying out of crowded financial assets until the private credit truth comes through?

SPEAKER_03 34:26

Well, next 30 days, um Trump's gonna try to bring up the fire hose, but you still have a lot of problems in the Middle East around like normalization. So getting long the VIX, the VIXY, getting long volatility. Um, you've got a really good window here, typically seasonal at seasonality. Vall tends to really go get into suppressed levels in July. But on the I think next 30 days here, yeah, you can buy the VIX, the VIXY um VXY, that's more speculative or levered ETFs. But yeah, you want to be raising cash and getting long volatility, and that'll give you some portfolio protection.

SPEAKER_02 35:09

All right. Larry McDonald, founder of the Bear Traps Report. Uh, and congratulations on that Amazon list, too, man. I mean, the the book's been selling. Good job.

SPEAKER_03 35:18

Thank you. I really appreciate everything. We're really excited. Book's been out two years this week, and uh it's it's been a it's been a great run and looking forward to our next one.

SPEAKER_02 35:28

All right, Larry, great to have you with us. Appreciate your time. Thanks again, mate.

SPEAKER_03 35:32

All the best, my friend.

SPEAKER_02 35:34

Uh, when the IEA identifies the largest supply disruption in history and the Fed is caught between an energy shock and a weakening jobs market, the assumptions of the last decade no longer apply. In a market like this, the story is not just price, it's access, it's trust, and who still believes in paper claims. Now we're tracking the energy crisis, the credit signals, and the move into real assets every single day here. For the data, anchored insights in the mainstream won't touch. Subscribe right here to Kitco News, hit the notification bell. I'm Jeremy Saffron. Stay granted. We'll see you tomorrow.

SPEAKER_01 36:05

Kitco News in Focus with Jeremy Saffron.

SPEAKER_00 36:10

Kitco's new and improved award-winning gold life gives you access to the latest market price quotes, charts, precious metals news, and expert opinions in a familiar but improved and exciting user experience. All the news and information you love in a better, faster, and more intuitive package of our existing app, used by millions of users with an average user rating of 4.5 stars, customizable widgets, and market alert features. Download the official Gold Live app and get all the latest updates so you're always on top of the latest precious metals, finance, stocks, and mining news. Download now on the App Store or get it on Google Play.