Larry McDonald (@convertbond), author of the New York Times bestseller “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers,” and founder of The Bear Traps Report, a weekly independent macro research platform focusing on global political and systemic risk with actionable trade ideas, joined Julia La Roche on episode 59.
In this episode, Larry explains that trillions of dollars are currently misallocated. In other words, a ton of wealth is invested in a world designed for inflation normalization to 2% or less. Larry makes a case that inflation will be stickier, and we’ll see inflation likely normalize at 4% instead of 2%.
Elsewhere, he points out that many on Wall Street have been discussing the “no landing” scenario as a good thing. However, he explains that it’s bad because without it — and without 9 to 10% unemployment — the Fed can’t kill inflation.
0:00 Intro
0:44 “Delivering pizzas” to get a job on Wall Street
4:11 Background
6:13 Democratizing information
9:14 Stickiness of inflation
11:11 Trillions of dollars are misallocated
14:20 $1 million in 6-month T-bills = $51,000 of interest
16:00 Inflation is a threat to growth stocks
18:25 Opportunities in global value stock portfolios
20:41 Next crisis that’s coming is from a government point of view
24:00 We've permanently come into a new higher interest rate regime
24:07 Debt jubilee?
27:43 Why a soft landing or no landing is really a bad thing
30:00 Economic divide, Occupy Wall Street 2.0?
35:06 Question for Fed Chair Jerome Powell
37:02 Only way to kill inflation is with a hard landing
39:19 When you don’t allow the business cycle to function you create more excesses
42:40 Opportunities in the macro environment
46:59 Renaissance in EM bond, equity funds
49:04 Reconfiguring supply chains
53:53 Young investors want to go back to the same playbook
57:02 Parting thoughts
