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Yahoo
02-06-2025
- Business
- Yahoo
Have Trump tariffs guaranteed a stock walloping recession?
You can catch Opening Bid on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts. Nothing lasts forever. And that old adage apparently applies to the once untouchable US credit rating. The US has lost its last triple-A credit rating, thanks to Moody's. Moody's downgraded the US credit rating, blaming large fiscal deficits and rising interest costs. To longtime watchers of the country's fiscal position, the move by Moody's comes as no surprise. Deficits have ballooned amid decades of government overspending. The issue stands to worsen in coming years as baby boomers retire and put pressure on entitlement programs such as Social Security and Medicare. While somewhat symbolic at this point, the action of Moody's could have negative consequences for the US Treasury market as it calls into question the ability of the country to repay its debts at some point in the future. Yahoo Finance Executive Editor Brian Sozzi welcomes to the Opening Bid mic Brookings Institute vice president and director of economic studies Ben Harris. Harris is one of those aforementioned longtime watchers of the US government debt position. He was also a central player in the presidency of Joe Biden in terms of crafting detailed economic plans for the country. What does Harris think about the Trump administration's handling of the economy? Sozzi and Harris discuss! Welcome to a new episode of the Opening bid podcast. I'm Yahoo Finance executive editor Brian Sai. Like I always say, this is the podcast that will make you a smarter investor, period. And of course, opening bids sponsored by our friends at Vanguard, a great featured guest for this episode, psyched to talk to Ben Harris, uh, vice president and director of Economic studies at the Brookings Ben, so great to see you here, and I should know before we get this going here, uh, the New York Times in 2020 dubbed you quote, the quiet architect of Biden's plan to rescue the economy. So you're coming in here hot, there's a lot to talk about, but before we get into, you know, your thoughts on the economy, what are yourYou know, there's a lot going on with uh the current administration, Trump administration, with tariffs, um, uh, various other trade policies, tax bill, level set from your perspective. What's your sense? Let's start on the tariff front. What's your perspective on what the administration is doing in terms of trade here? So I think what the administration is doing in terms of trade is experimenting. It's seeing how far it can push the US economy. It's seeing how far it can push US consumers and it's seeing how far it can push our trading partners. I don't think it really came in with a hard and fast plan, and this was true in the first Trump administration as well, although the path it has taken is very different. The second time know, when I sort of want to scope the magnitude of the various tariffs, I think the right way to do it is to think about the average tariff charged on US imports. For most of the past 20 years or so, it was around 1.5%. The first Trump administration came in, bumped it up to around 3% through those targeted trade initiatives in the name of national security. And then so it came in with the average tariff rate around 3% because the Biden administration preserved that. And then it went up into like the high 20s. And that was an never seen this before in the history of our country. And then I think I realized it went too far, and then backed off all the tariffs other than China and then eventually backed off the tar, the China tariff somewhat. So right now, I think it's basically experimenting with how far it can go on tariffs. But the experiment hasn't been working well. There's a lot of concerns around inflation. There's a lot of concerns around retaliation. There's a lot of concerns around corporate investment in the US. We can, we can unpack this if you like, but it's clear the Trump administration realized it went too far. Now, as someone that was in the trenches, uh with with President former President Biden, crafting various economic policies, how different is this administration's approach on trade compared to what your teams are working on? Oh, it couldn't have been more different. I mean, the Biden administration on trade effectively adopted the first Trump administration's approach on trade. It maintained a lot of the tariffs that were put in place, um, and didn't change many. Now in terms of things like, um,sanctions policy and uh what's known as economic statecraft. So basically trying to achieve foreign policy aims through economic measures. I think the Biden administration was more aggressive, but in terms of broad-based tariffs, I mean that was not something that the Biden administration wanted to do, know, I think that this the Trump administration has beenFairly aggressive in terms of its authority and right now you're seeing questions of whether or not it can actually levy broad-based tariffs like it has done working its way through the courts. We still don't know if it's legal or not. So it's not just a question of economic policy, but also legal policy. I just don't think the Biden administration was willing, was willing to push on those legal constraints as much as this Trump administration has. So night and day in terms of tariffpolicy. You mentioned at the top and the Trump administration is experimenting here on trade. Do you think it will be an experiment?That will go bad. And I bring this up, well really for a lot of different reasons, but I'm thinking about what Jamie Dimon, of course, JP Morgan's CEOs just said. He said, quote, the recent tariff of impact has yet to been been felt. What, what will the impact be? Oh, this experiment is gonna end very poorly.I mean, or, or the economics profession just should just pack its bags and go home. Because, I mean, we have spent, we economists have spent decades warning against this. We saw this in the 1930s with Smoot Hawley when there was another experiment and it led to a much worse recession than we needed in the the 1920s and 1930s than was necessary. But you've already seen it go badly. I mean, for a bunch of different reasons. So start talking about the negative effects of you get this price boost in inflation. The rule of thumb is, uh, every 1% point increase in the average tariff rate, you get a 0.1% increase in core PC inflation. So right now when we saw the average tariff rate go from around 3% up to uh around uh 16%, you're talking about a 1.3% this point increase in consumers will be paying more. That's a big problem. Second, uh, and we saw this with China, you get these retaliatory tariffs. And in the case of China, it wasn't just retaliatory tariffs, but also lessen access to critical minerals, which is just decimating for certain US industries. And so export market shrink, that's bad for US businesses is also weighed really heavily on consumer sentiment. Right now, surveys of consumer sentiment show we'reAround sort of this recession era like view on the economy, um, it's definitely caused a lot of concern among, among households and spending. um and you lead to this sort of general sense of uncertainty. I think business leaders, I spent a lot of time talking to business leaders, but it also shows up in surveys are basically just standing still in the face of this fantastic uncertainty. So as you see things likeM&A activity is way down. Corporate investment outside the front ring of tariffs is way down. And so overall, this is just a really harmful experiment and it's just unnecessary. It's a little unclear what the end goal is. Is the end goal to push manufacturing back in the United States? If that's the case, there areA lot less problematic ways to do it. You could kind of double down on the Biden administration approach where they use carrots and not sticks, you know, all these subsidies, particularly in the energy sector. But the end goal is kind of unclear. And so that makes it difficult to assess this tariff policy because we don't really know why it's being put in place in the first place. I knew I was talking to you, uh, and a week ago I was talking to the CFO of a Fortune 500 company, didn't want to be named, and I get it, but they said if tariffs go China, go back to 145%, this country will be seeing close to uh in a range of about 20% to 30% inflation. And I made a note because at the time, like, holy cow, I mean, I've never seen anything like that, but from an economist standpoint, is that what we would be looking at here? Because there's no guarantee these 30% tariffs on China stay in place and they don't go back up. Yeah, so it's really different if we're gonna have these high tariffs on one country, even if it's a country that's a massive trading power like China, then if we have them across the board on all countries. And the reason why you saw markets freak out on liberation Day was because there was no release valve. And so for coming in with 30% China, like we have right now. A lot of that impact gets dissipated through what some people call a bank shot. So basically China taking its goods, shipping it to countries like Vietnam, Cambodia, Laos, a lot in Southeast Asia. You know, those countries might slap.I don't know, a new logo on the good, just these really incremental changes, and then it can can come into the US at much lower tariff rates. If you're gonna have 50% tariffs on Vietnam and similar tariffs on Cambodia and Laos, there's no release so what we have now is in spirit, but not in scope, a very similar approach to what we saw in the first Trump administration, which are China focused tariffs. And there is this release valve, so the economic impact won't be quite as strong as as we saw in Liberation Day. If we go back to Liberation Day tariffs, a recession is virtually that's why you saw the S&P and other metrics just fall so so quickly. Um, but if we're just focused on China, it means a higher tax rate for consumers, it means, you know, less opportunities for exporting for consumers, um, sorry, less opities for exporting for US uh US businesses, but it isn't nearly as harmful as we saw in in inApril. Is there, if tariffs stay at the levels they are now, is that recession still guaranteed? I mean, uh, you, you're gonna see slower economic activity. Consumers will have less money. There's been a lot of different estimates of the, you know, per household cost of the tariffs. It's probably around a few $1000 for a middle class family that will slow consumption that will push us closer towards stagflation because not only are you getting this slowdown in consumption, but you're also getting the higher prices that are attributed to tariffs, I don't think it's a guaranteed recession, and you see this with the forecasters. A lot of the forecasters were saying post liberation Day, 50%, 60, 70% chance of recession. I think that's receded to around 30 to 40% now, so still precarious but not a guaranteed recession. What is that? What is that first real economic reportban whereYou say, wow, tariffs are really starting to hurt the economy, because right now they, you know, you get a weak consumer sentiment report, it hasn't really shown up in CPI. I would guess agree with Jamie Dimon, investors are perhaps being a little complacent on what's going on here with tariffs. Like, what's the one or two reports that you're, you're gonna be like, wow, OK, inflation is here, and I guess I should have taken this seriously a couple weeks ago. Yeah, that's, that's a great question. So the standard answer would have been, well, we're going to look at the unemployment report, uh, we're gonna see if this starts showing up in labor markets. Our company is laying off workers, you know, then the household would go ahead and start spending less, um, and then we'd also watch consumption closely. This time around, I'm watching business investment much more closely than I usually would if businesses are just failing to invest, that also means they're not gonna want to hire. Uh, that means they'll be very reluctant to raise wages. And so this could be kind of a unique recession that is kicked off by lack of business investment that leads to less consumption, not the other way around. So I'm watching the the investment numbers really closely in the last GDP report when the economy contracted by 0.3%.Um, you did see some evidence of front running on business investment. So businesses want to get ahead of the, the tariffs, so they're purchasing equipment and other things that might get tariffs in advance. I'm really curious to see the next GDP report to see if we're going to see that depressed business investment, because for me that's kind of the thing that kicks off this recession if one's going to happen. And Ben, you know, I, I would love to get your thoughts on this. What has raised, I guess, alarm bells for know, I talked to Walmart CFO right after their earnings, uh, a couple of days ago. So, Brian, we're gonna raise prices, and in some cases might be up double digits. Uh, and now this all might happen starting at the end of May. Uh, what is the impact, I guess, to the low income consumer if the world's largest retailers hiking prices double digits because of tariffs? Yeah, so someone might think I might say, oh, higher prices are the worst outcome and and that that's far from the worst outcome. The worst outcome for the consumer are shortages. And so we've got this economist at Brookings named uh Marta Wasinta, and she does a lot of work on the pharmaceutical industry and what she has pointed out is if we're talking about branded drugs, you might see these price increases, but there's a high enough uh profit margin built in there where there wouldn't be the real concern for tariffs on pharmaceuticals, and this is just one example, are that for the generics, the margins are so low that you might start seeing shortages in in in medicine. I mean, that is, that's a worst case scenario as you can get, uh, and every consumer, um, you know, also either has a worker in their household or, you know, maybe depends on on a worker in some way or so if these tariffs start leading to layoffs, uh, we've been very fortunate in the past 5 or 6 years. We've had very low unemployment coming out of the recession or maybe the past 3 or 4 years. Um, you know, if you see this sort of bleeding into the labor market, that's awful news for consumers as well. All right, hanging with us, uh, Ben, we're gonna go off for a quick break. We'll be back, we'll be right back on opening right. Welcome back to Opening bid sponsored by our friends over at Vanguard, having a great chat here with Ben Harris, VP and director of Economic studies at the Brookings Institution. And Ben, I know I'm gonna get these comments out there on social media, so I'll put this to you now. Is there anything that you like that the Trump administration is doing on the economy? To be fair, I mean, they are moving very quick, uh, a lot of folks don't agree with what they're doing on tariffs. I mean, you're painting a scenario where the economy could get really hit, but is there something in there, you said, OK, you know what, maybe that's all right. Yeah, so let me give you 3 things, because I don't want to come off like a partisan hack here. And uh the first thing that I think that they're doing right, and it manifested in a really ugly way was that they're taking a hard look at government is a lot of inefficiency in the federal government. Now, the right way to go about it would have been to lean into the auditing function. We've got a massive government accountability office. There are there are inspector generals that virtually every agency, uh, Congress should have played a big role in deciding what spending was efficient and what wasn't. So I'm a fan of the Doge effort. They just leaned itto billionaire Alma. They they leaned it to Elon. Let Elon do it. He's fine. He donated a lot of money. Yeah, I mean, like Elon, Elon probably understands the automotive market. He does not understand government service. And so while I think that Doge was a tragedy, I think that the Trump administration rightly identified government waste is something which we should take second thing that I think it's done well is, and we haven't even started talking about the reconciliation bill yet, which is going to be massive going forward for the rest of the year, was that it did put in place a bunch of incentives in the reconciliation package for the corporate sector to start investing now. And it needs that to offset the negative impacts of its uh tariff policies. So the fact that you can now write off investment and investment in uh in structures faster than you could before is good news for the US economy. So I guess cheers for the Trump administration for putting those provisions in. Also on trade policy, I thought that in the first Trump administration, they did a good job of identifying a general strategy for addressing some of the problems in the trading relationship we have with other countries, namely these agency level investigations that take place either atCommerce or US Trade Representative's office that looks at possible trade violations by other countries and then puts in place a reasonable reaction to that trade, uh, you know, misdeed by our partners. And so it took the right approach, the first administration, I think eventually it's going to get back to that because it's going to realize how problematic the tariffs were, but it's going to take a long time to get there. So that was more sort of complimenting the first Trump but you know, there's, there's a lot of problematic things that are going on, including a particular reconciliation bill. I'm happy to talk about that if you like. Well, I want to get to the tax bill or the big beautiful tax bill, as President Trump calls it. I look at some numbers that the Joint Committee on Taxation put out. This, the, the extending the tax cuts alone could cost or cost 3.7%.$1 trillion and I think back to Moody's now cutting the US credit rating. I think back to what uh Ray Dalio, Ray Dalio told me earlier in the year on, you know, his concern about the outlook for treasury as we pile on more debt. Like, Ben, where is this day of reckoning, you know, we, you, you and I, I think are around the same edge. We've been hearing it for the past 20 years or so, is this the moment, is this tax bill create that moment, the day of reckoning for treasuries and the economy and trust in our in our credit? Yeah, I, I don't know if we're gonna have a day of reckoning or a decade of reckoning. And so I don't know if it's gonna happen slowly or if it's gonna happen quickly. It seemed, if you're looking back over the past month that there were times when it might happen quickly, you saw these sort of overnight spikes in the tenure, and I think that what we've done.I mean, I could talk for three hours about problems with our debt markets, but what we've done is we've surrendered to a certain extent control over the US economy to foreign central banks and foreign investors. So we've got this $30 trillion debt market for US Treasury, about a third of that, so $10 trillion are held by foreigners, about half of that are held by foreign investors, uh, official foreign investors like central banks. What we're starting to see hints capital flight from the US. Now, mostly that's been happening in government debt markets. It's been happening to a lesser extent in equities, but basically it's not just that foreign consumers are losing a taste for US goods. I'm less concerned about that. What I'm really concerned about is that foreign investors don't want to put money in the US anymore. What that means is that if we have to rely on American investors to service our that means we're going to have to have a higher interest rate. And so if you start seeing that interest rate creep up towards 5% on the 10 year or even 6% or higher, that means we're crowding out all this other productive investment. People are putting money in treasuries instead of putting money in corporate investment instead of putting money in the stock and that's just awful news for the US over time. And so there's this sort of slow drag on the US economy, which is virtually guaranteed if we're going to take on $4 trillion.06 trillion dollars in debt like we're about to do with this reconciliation package. But the real threat, the real threat is that this could spark some sort offiscal crisis and that could happen if we get to a debt ceiling where you start seeing default on Treasury securities that could happen if we lose, if investors lose faith in the independence of the Fed. That could happen if you see really stark shifts from foreign central banks away from treasuries, like some sort of official proclamation that we're not going to buy US Treasuries anymore. And then other investors don't want to hold them because the market for selling those treasuries goes down. So the real concern is thatThis happens in a matter of weeks rather than in a matter of years, and we get this blow up in the, you know, in the financial markets. Ben, you mentioned, uh, default risk real quick. What's the probability that this country defaults on its debt? Is it way less than 25% or is it crept up higher after this Moody's downgrade? I mean, the stock market took all this in stride, but from my perspective, I, when Moody's downgrades your credit rating, even though it's to be expected, uh, that's a red flag. That's a red flag. It'sYou know, the way that I think about it is that there's a lot of risk in investing in treasuries, but default for US Treasury has not been one of those risks. So investors probability default is being zero. If you buy a US Treasury, there might be inflation risks, there might be currency risks. There are other types of risks, but you're going to get paid on that asset. If we go from a 100% chance of getting paid on your treasury to 99.8% chance of getting paid on Treasury, that is a massive shift. This is no longer a risk-free asset. This is a risky asset in terms of default risk. And umYou know, that just, that just makes our whole fiscal outlook that much worse. We have to pay more for our debt, which then kind of exacerbates our, our debt imbalance. Um, so, you know, you're finally starting to see more and more attention getting paid to this. It has implications for credit card rates as implications for mortgage rates. Um, it is, I think, probably the biggest threat to the US economy in terms of actual the only reason we would default is if there was a political misstep. I mean, we are the richest country on earth and there are plenty of assets to pay the coupon payments and the principal on US debt. It would have to be a deliberate decision by policymakers to default on our debt, and I cannot imagine a worse decision than that one. Leslie, Ben, we always ask our guests in the last few minutes of the podcast for their hot take. And my question for you is this on, on this front, you worked on a lot of different things inside the Biden administration on the economy. What was the one thing that surprised you about the US economy as you crafted a lot of plans and talked to a lot of leaders? Well, that's, that's a great question. Uh, it was a, I mean it was a wild time. I, I got sworn in hours after President Biden was sworn in virtually on a screen just like this. Um, in terms of what surprised me, I think that we were all surprised by the persistence of inflation. Now, there's a debate in economics as far as what caused that inflation.I think any sort of credible analysis has to point to the bulk of that rise in inflation being to this like once in a 100 year supply shock where people were literally not leaving their houses, ships weren't on the water, factories were, weren't running, and that run up in inflation wasLargely but not exclusively attributed to supply shocks. But that surprised me. You know, I think that I wouldn't have been surprised by 34, maybe even 5% inflation. But the fact that we're getting up to 7, 8%, sometimes even higher for the CPI, you know, that, that really surprised me. And, and I think we probably would have recommended different things if I knew that was coming. Um, but, you know, certainly don't expect a once in a 100 year spike in inflation. We should note, uh, myself nor Ben had anything to do with egg price inflation. We'll leave it there. How to get that, how to get that in. Ben, how to get it in? Because I'm gonna get it on X. Uh, Ben Harris, uh, VP and director of Economic studies at the Brookings Institution, uh, big fan of your work. Uh, please do. Let's, uh, let's keep in touch right, that's it for the latest episode of Opening bid. Continue to hit us with all of those likes and thumbs up on all the podcast platforms. Wait, the thumbs up on YouTube, thumbs up on YouTube, and of course, uh opening bids sponsored by our friends at Vanguard. Talk to you soon. For full episodes of Opening Bid, listen on your favorite podcast platform or watch on our website. Yahoo Finance's Opening Bid is produced by Langston Sessoms Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-04-2025
- Business
- Yahoo
The bond market is headed for a crisis
You can catch Opening Bid on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts. While a lot of attention has been focused on the volatile stock market, investing pros say it's time to shift more focus to the bond market. Indeed the market is undergoing its own major convulsions amid Trump tariff concerns, which is rattling many investors around the world. Of note is that as stock prices have sold off, bond prices have sold off too. That despite Treasurys often being viewed as a place of safety during stock market turbulence. The moves in the bond market are sending signals that the US may have trouble paying its future debts and could fall into a recession soon. Yahoo Finance Executive Editor Brian Sozzi sits down with bond market expert and founder of The Bear Traps Report Lawrence McDonald to get his thoughts on the high-stakes situation. McDonald says a Lehman Brothers-like moment may be coming to markets. He adds there are other ways to invest in Nvidia (NVDA) besides investing in Nvidia, suggesting metals stocks or the hard assets themselves. For full episodes of Opening Bid, listen on your favorite podcast platform or watch on our website. Yahoo Finance's Opening Bid is produced by Langston Sessoms Welcome to a new episode of Opening bid. I'm Yahoo Finance executive editor Brian Sai. Like I always say, this is the podcast that will make you a smarter investor, period. Let's put up one minute on the clock, our shot clock, uh, stock of the day going Best Buy on this news that President Trump or the Trump administration will exempt smartphones, computers, and certain electronics from those China there was just this massive relief. Suddenly companies like Apple are going to do amazingly in terms of financials, but when you dig beneath the results, the 20% tariff is still in place here. So I want to lock in on Best Buy because when I originally heard this news, I'm like, right, Best Buy is years gonna be saved. This is great, rah rah. Best Buy, no, that's not the case. And here are some numbers here from the folks at the 20% China tariff is still in place. That means a lot of products that Best Buy sells smartphones, electronics, computers will still be hit by that tariff. City estimating Best Buy could see a 15% product cost inflation hit, almost 1000 basis point hit to gross profit margins this year because of that 20% tariff, assuming there's no mitigating factors. To me that spells not a good season for a company like Best Buy and I'm out of time. That's all I got on Best Buy. All right, let's, uh, continue to drill, drill into markets here. Special guest Larry McDonald, author, the bear traps report founder, good to see you in person. I know you're you're traveling the world, so good to see you in Times Square at the NASDAQ. Yeah, it's been a good run. I mean, the book, our book came out and the main thesis of the book How to Listen to Market Speak. Great book this, world that drives a colossal migration of capital and that's what kind of played out last week. You were the, you were thebond guy and holy cow, we have seen some major moves in the bond market. The 10 year up to 4.5%. I thought when stocks sold off you go into treasuries, but that's not working. Why? OK, for the last 40 years, you're right, whenever we go risk off, so down in stocks, bonds have gone it has a lot to do with the flight equality, United States of America and trust, and there's two elements of trust that are broken. Let's Congress broke the back of the trust around the debt, so $37 trillion of debt, but that's up 11 trillion in the last 4 years, right? So and global investors were already a little sick to their stomach of, you know, with the United States and that amount of debt, but then Trump came along with a sledgehammer and said we're gonna change the world order on trade, right?So if you're a European investor for the last like 30 years you've just loved the United States, love the United States most of the time. Now when I spoke last week to European investors, they're losing money on their stocks, they're losing money on their bonds and the foreign exchange. So if you own US stocks uh, in any kind of euro or any kind of currency in Europe, uh, you're losing money on the currency as well, so they're not happy clients now, and so what that's doing is it takes imagine a whitewater river of incoming cash coming into the United States just violently reversing and going the other way. That's what's happening. What'sthe, what's the signal that the bond market is sending you? Uh, just signaling, uh, a lack of trust in the sense that that world order that we've had is, is changing first of all, and what we make the point in the book how to listen to market speak is this great migration of capital. If there's that much uncertainty in bonds, which for the bedrock, then we should see capital move from financial assets which are financial assets all it means is paper certificates, bonds and stocks. It's we should move over toward hard assets which we just kind of see over the last year. Silver is outperforming the NASDAQ. Gold's outperforming the Nasdaq by like 30, 30%, and that's not the normhere. I mean, investors have been trained the past 10 years. Stocks like Nvidia and Apple go up in a straight line and maybe on like 2% of your portfolio ingold or maybe 1%. Newmont Mining up $15 last week, and this is the stock that Buffett bought years ago, Buffett's uh, yeah, it's not like we're, that's all that's not the only place to be, but companies that own assets in the ground, whether it be natural gas, whether it be, uh, platinum palladium, I mean there's so many, there's so many metals that are strategic for just this whole AI revolution.I mean, I think we're gonna have a copper crisis in 2026-2027 where the amount of copper needed for the Ukraine rebuild, right, for the Gaza rebuild for artificial intelligence, for robotics, supposedly all these robots are gonna replace human all need metal. They all need copper and and strategic metals, and that's where the real moneys can be made. The old portfolio was your 60/40 stock bonds belong a lot of growth stocks. That was like 2010 to 2020 portfolio. That's new portfolio that we line up in the book is a portfolio of kind of harder harder harder hard asset companies. Ifis the bond market suggesting that the bond market losing trust in the US credit worthiness and how big a deal isthat? It's enormous now it's, it can be won back um through deficit reduction and through it's people, people forget all tariffs are is taxes, so a tariff is just a tax on global investors. I just got hit with145%tax. Yeah. Now Americans do pay if you wanna if you wanna buy, buy an iPhone, you're gonna pay a higher tax, right? But a the, the thing about tariffs is global companies and global countries are also sharing that tax so we can to get out of this debt hole we can raise taxes on global companies, global investors, US, US citizens, or we can default. I mean, interest on the debt is $1 trillion a year, right? That's 25% of tax receipts, 20% of tax receipts, and the rest, the rest of the developed world is only the rest of the developed world in terms of interest, annual interest cost versus their tax receipts, the rest of the developed worlds like in the 234 to 6% group. I caught a post from you on X. I don't know where you were, but you were breaking down the stress we're seeing in the bond market and you dropped Lehman and you lived and managed. That's the first time I came in contact with your work, uh, during the, the great financial crisis. Are we headed towards another, another, are we headed towards a crisis in the bond market? Yes, uh, they, they're gonna put some fire hoses into this, right? Um, but in terms of the bond markets, real sustainability as a safe days are are starting to just slowly go away and that means that you're gonna own different types of bonds. You're gonna own bonds of other countries, not just the not, it's just everybody was overdosing on the US, right? And all it means is that your global investors are gonna have more diversified portfolio that they they've been burnt by this lack of trust. It's like there's certain things that we've all been through these horrible experiences when you can't unsee something, right? The global investors have just over the head with this huge amount of debt that the United States has, uh, this kind of lack of trust and spending in Congress and then Trump with the sledgehammer on tariffs trying to raise taxes and they're just like, OK.I'm gonna have a basket of bonds and that's what's gonna break that's what's breaking down the bond market. They're just gonna try to own other things besides just being overdosed on growth stocks and and US Treasury. Right, let me see if I can make this through lines. So China, what the second largest holder of treasuries, uh, and they're getting hit with these large the Trump administration, do you envision them dumping treasuries? If so, do they do so aggressively and what are the ramifications of China doing that to theUS economy? See that that's part of the, the, the scare out there is that China doesn't even have to dump, but if they, if they leak that they might dump, uh, then other people try to get in front of that. um, there's also a lot of banks are in this this whole basis trade that's a big problem that's unwinding a lot of hedge funds really that are in this trade and that that's unwinding so it's like a combination of China and people worrying about China and Japan, um, you know what we're in a trade war with them maybe they're not gonna be there to buy our bonds and so there's that worry and then we have this very complicated basis trade that's blowing up and so those those things are happening the exact same at the end of the day what I talked about on on my video is the last 30 years when whenever there was a crash in the stock market when Lehman went down you made $8 trillion investors made they lost $8 trillion of stock value but they made $3.5 trillion back on bonds and when COVID hit, investors lost $9 trillion but they made $4 trillion back on their bonds. Imagine we've lost $9 trillion the last since February 19th $9 trillion and you basically haven't made anything back on the bond side. If you were sitting with the Treasury secretary instead of Brian Sai this morning, what would you want to know from him? Well, first I would want, I would want to have someone like a Scott Pascent that's running the show instead of one day Lutnick the other day Hawks, these real and they're, they're, they're really, uh, they mean well, but they are crushing on world order they're they're basically what we talked about in the book we're in a multi-polar world versus a unipolar world a unipolar world with the United States is like the strong empire and it's kind of leadership and globalization is very stable. A multipolar world is something like where we have Navarro and Lutnick out there really threatening our our allies and our trading partners and that kind of driving money out of the United States. So if I was the, I'd want to have him. I'd, I'd want to be taking that wheel away from Navarro and Lutnick, yeah, especially, yeah, they, they really say some, uh, shocking things. Hang with us, uh, Larry. We're gonna go off for a quick break. We're gonna be right back on opening bid talking more on bonds, stock market, and of course the economic outlook. We'll be right right, welcome back to Opening bid here. We're having a great chat here with Larry McDonald, the bear traps, uh, the bear traps report founder, also, uh, author of How to Listen when Markets Speak, encourage everyone to give this one a read, really, really good book. So we were talking about the Treasury Secretary, uh, Scott Besson. He's.I feel like his focus on tariffs is distracting him from some of the bigger things he wants to do, cut the deficit. Is that just not gonna get done in this? So let's go really quick. When Lehman failed, right, the fiscal and monetary response, the fiscal and monetary was $4 trillion when COVID went down in 2020 and then you had the regional bank crisis after that and then the elections or fiscal spending in Washington was crazy into the response was not $4 trillion it was $16 trillion. So think of Lehman 4 versus 16. Now Becent is Treasury secretary. He's gonna sell bonds to the world to finance this huge building bond salesman, chief bond salesman, exactly, and um it's harder to sell bonds and um fortunately what they've tried to they tried to Yellen in the last year and a half, 2 years, former Treasury, yeah, former, former Tre she she issued tons and tons of T- bills so mentioned like borrowing money for like 6 months, 1 year, and she brilliantly placed bond in the election year. She'd actually by doing all because T- Bills mature in 3 months, right? 6 months, so those bonds can't move in price, right? So she pushed all that that bond issuance out into 2025, 2026. So she placed bond volatility brilliantly in the hands of the Republicans. So what happens though? What, what, what's the response? What does he, what's going to happen to the bond market laterthis year? He has to go sell these bonds and, and to a more with Navarro and Lutnick trying to like, you know, they, he's in the worst possible spot. And so, yeah, so he's gonna try to calm things down. And you know, at the end of the day, they're trying to repair 40 years of dysfunction in a very, very short period of time in 4 years, and they're trying to take as much pain away from the mid they wanna take the pain as far away from the midterms as possible, right? I, you have a real global view. I mean, you're constantly on the road and and traveling. What is the, how did your international clients view what is happening in the US, but then by extension how they view what's happening to them. So, so we run a, uh, we run a Bloomberg chat and a private discord room with institutional investors in 30 countries. The bear trap support is the company, but most of our revenue is from a lot, at least 50% is from hedge funds, mutual funds, and pension funds around the world. And yeah, the, the trust that's been broken the last, you know, imagine you're a bond investor and you just watch the US jack up the borrow a lot of money in the front part of the curve which is makes us look a little bit like an emerging market country and then come out with a way to fund it through pounding taxation around the world to other countries. It's, it just creates this like lack of trust. I talked to a guy in Zurich yesterday and he's like runs billions of dollars and he's like Larry, all we had to do the last 30 years is just sit back over allocate to the United States. So you mentioned all these allocators, that's all they've done is over allocate, over allocate into US stocks and bonds and so they're up to here in terms of the allocation and now they just have to take it down back to where we were maybe 10 years ago, but that' at least 1 trillion bucks. What arethey waiting for to put money back into into the US stock market? What do they need to see? And do they have trust? Anything that they want to see might actually happen with this administration. Like he said, he said to me, you know, there's certain things you can't unsee and with these trends around currencies and bonds and stocks, especially currencies and bonds, when those trends go this way, they, they would need to see Congress take total taxation away from the White House and have that guaranteed for at least a year and so the White House means well they're trying to undo 40 years of dysfunction where we've lost we've lost 5 million jobs. Let's not kid ourselves. The reason why Trump was elected twice pretty much is the manufacturing base of the United States has been absolutely hollowed out trying to fix that, but the way they're going about it and the rate of change that they're trying to go about it is very fast and very shocking. And so to your point is what's gonna, what's where's the fire hose that's gonna put this out? I guess if Congress were to take taxation and tariff authority away from the White House and stabilize it and give, give the global investment community a 1 or 2 year certainty of where we would be on would, that would do that would go a long way, but that's just not gonna happen and you mentioned manufacturing and a lot of CEOs that I talked to, they tell me a couple of things. First, I can't build a plant overnight, right? And then two, if I do build that plant opens 5 years from now, it's gonna cost me more to make stuff in the US. And then I look back that Apple CEO Tim Cook has said, he says in 2015, I think he did an interview on CBS calling out uh a lack of skills in the US to do this. Are we just, do we want a $33,500 iPhone? Is that what we're lookingfor here? That's the problem. It's when you, when you, when you decimate the United States working class for 30, 40 years, you're Republicans, Democrats trying to fix that, it's gonna take a long time, and Trump, they wanna sell us that it's that they can fix this. But yeah, if you're Apple or any company that thing that one thing that makes the most sense is just giving golden visas to the most talented technicians and semiconductors because that's the one area where I think the Trump team is 100% right, national security, artificial intelligence, right? You can't have all theseships made by Taiwan it's absolute insanity. It's literally a recipe for.A massive shock. I mean, bigger than Lehman, right, if, if Taiwan were to be invaded, so what we should be doing is giving golden vis visas immediate access for, you know, thousands of the best technicians in the semiconductor space. Get them over to the United States. But like you said, cost of living here is higher. That's all part of our book. What we talk about is when you you're just gonna raise the cost of everything and we're gonna go into a higher interest rate, um, higher bond yield, higher inflation regime that's gonna last very similar we went from like 1968 to 1981 after the Vietnam War and all of a sudden if, if you're in that higher interest rate, higher inflation regime because of reshoring and because of wars and global conflicts, then you need a whole new portfolio that's why I reach out to us at the bear trap support because that's what we're all about. It's like, OK, we're looking like what is the portfolio for, you know, the next 10 years, not the last 10 years. I think if you look at American investors, there's still, there's still like table max, the 2010, 2020 portfolio. Maybe you seeit, but I, I'm listening to everything you're saying. Uh, I stack it up against the things that I see and hear. I don't see the catalyst to get into markets here. I'm not picking stocks. It's not what I, I the appetite to jump in here and buy Nvidia offize? OK, so within the last week, Nvidia, both Exxon and Chevron were combined. Exxon and Chevron were only 29% of Nvidia's market the entire copper industry, copper, like your free ports and all these just look at the CLPX ETF. If you add up the value of all those companies, it's a fraction of Nvidia. But if you really, really, really listen to Jensen and the Nvidia gods, um, the only way they get to their growth trajectory that's needed to justify that close to a $3 trillion dollar evaluation, the only way you get there is with a lot more copper, you look at the copper names or the oil names, they're down 30%, sometimes 25-30% off the highs and the future looks great for them because the valuation set up is so skewed just Nvidia is up here and the entire copper industry here. Nvidia is here, the entire uranium industry for all the nuclear power they're gonna need to fund to find enough finance to power all this, all these new AI data centers, right? So it's so skewed so you can make a lot of money by investing in the power infrastructure plays, uh, your SMRs, your, there's a lot of ETFs that that are in the space you are and M right where you're investing in a basket of are going to power AI for the next 30years. Uh, I wanna get your hot take. It's what we do, uh, towards the end of the podcast. You mentioned, uh, the portfolio for the next 10 years. What is that portfolio because I imagine the next 210 years are gonna look a lot different because of these tariffs and how unsettling things have been. OK, so let's go back to basics. Last 30 years was 60/40 stocks bonds, and out of that 60, there was a lot of growth stocks in there, right? Your fangs and just big, big growth stocks. We're probably moving to a 30, 30, 40 world, so 30% commodities, 30% bonds, uh, it depends on the age of the investor and say 40% stocks, um, in that world, on the, you wanna have less growth and more why the COW, uh, I think it's COWZ ETF, those types of stocks are outperforming global value, the EWU ETF. Just look at, just look at the holdings of the EWU. It's a group of global companies, your Glencores, you know, your, your BHPs, I'm your Rios, your Rio Tintos, and so your companies that own assets in the ground, your companies that own lots of copper reserves, right? FCX's of the world, you wanna look at the, the COPX, that's the portfolio. So it's you're going from 6040 stocks bonds to 30, 30, 40 and out of that stock port should have more more value and more companies that own hard assets like the COPX like the GDX like the SIL like the URNM, these are all ETFs that own baskets of companies that are in the AI infrastructure that are also in the robotic space in in terms of, um, supporting the, the robotics industry through copper and then the United States rebuild of Los Angeles, the rebuild of the Ukraine, the rebuild of our of our power grid in the United States, that's all copper, right? How much copper are we gonna need to rebuild Los Angeles, the Ukraine, and the US support all that artificial intelligence, it's a ton of copper, and so you wanna belong those copper names and that's where you're gonna get, you're gonna get far better portfolio construction and returns by owning the copper names than owning Nvidia lookingforward. Great insights as always. That's why we always have you on here, Larry McDonald, the bear traps report founder and of course the author of How to Listen when Mark at Speed, give this, uh, book a read. Really good stuff. Larry puts all his you see on camera here right into this book. Good to see you. Thanks, Brian. All right, good to see you, man. Good to see you. All right, that's it for the latest episode of Opening Bid. Continue to hit us with all those stars on all the podcast platforms and thumbs up on YouTube. Love your feedback. Always try to answer your questions. Keep it coming. We'll talk to you soon.
