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How to Listen When Markets Speak: Risks, Myths, and Investment Opportunities in a Radically Reshaped Economy Hardcover – March 26, 2024

by Lawrence G. McDonald (Author), James Patrick Robinson

4.4 100 ratings

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A New York Times bestselling author and leading expert on market risk argues that seismic shifts in the global economy will trigger a multi-trillion-dollar migration of wealth, outlining new rules of investing for the forward-thinking.

“I can’t tell you how much I learned from How to Listen When Markets Speak. The historical perspectives and insights are something every investor needs to know. Buy this book.”—Mark Cuban

From Wall Street to the White House, the fantasy of an eventual “return to normal” is still alive and well, nurtured by dangerously outdated theories. But the economic world as we know it—and the rules that govern it—are over. In the coming decade, we’ll witness sustained inflation, a series of sovereign and corporate debt crises, and a thundering of capital out of financial assets into hard assets.

Few are prepared.

Lawrence G. McDonald, founder of the economic research platform The Bear Traps Report, got a real-world education in market risk when, as a Lehman Brothers VP, he watched the firm ignore flashing warning signs before its collapse. His analysis led him to identify twenty-one indicators for gauging the health of an economy and detecting early signals of opportunity and danger.

In How to Listen When Markets Speak, McDonald unveils his unique predictive models, connecting surprising dots between past, present, and future and outlining actionable trading ideas for staying a beat ahead of the markets. Readers will learn:

• How disastrous Fed policy will collide with an increasingly fragmented geopolitical landscape to keep U.S. inflation near 3-5% for the next decade
• How growing demand for oil and gas, underinvestment in urgently needed energy infrastructure, and cozy Russia–Saudi Arabia relations will lift the base price of energy to historic levels
• Why hard assets and rare minerals like lithium and cobalt will outperform growth stocks, U.S. treasuries, and overcrowded passive investment strategies—and how to detect bearish and bullish trends in advance
• How passive investing and the vehicles intended to democratize finance have fueled bubbles and ideological skew by large market participants, leaving millions of 401(k)s and IRAs at risk
• Why America will likely lose its position as a global superpower and holder of the world’s premier reserve currency, and may be forced to slash Social Security, Medicare, and military spending

Rather than merely doomsaying, How to Listen When Markets Speak equips readers to make sense of our current moment, resist reactionary narratives and baseless analysis, and preserve their wealth in turbulent times. When markets speak, it pays to listen.

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From the Publisher

The economic world as we know it- and the rules that govern it- are over.

Editorial Reviews

Review

“I can’t tell you how much I learned from How to Listen When Markets Speak. The historical perspectives and insights are something every investor needs to know. Buy this book.”—Mark Cuban, founder of Cost Plus Drugs and longtime Shark Tank investor

“Larry McDonald’s deep knowledge, experience, and insights have been invaluable in shaping my investment strategies, and How to Listen When Markets Speak is no different. It will sit on the edge of my desk, ready to refer back to frequently. I highly recommend it to anyone keen to protect their wealth in tumultuous times.”—Raoul Pal, CEO and co-founder of Real Vision

“As a journalist who is paid to be skeptical, I have been tracking Larry McDonald’s views on markets for many years. His provocative, passionate, and sometimes prophetic insights are always worth pondering, even (or especially) when you disagree—and reading his analysis has often helped me to see the situation more clearly. I don’t always sit in the same camp, but I appreciate his consistent focus on value investing. His latest book offers strong riposte to the tech hype, bull-market euphoria, and wishful thinking about a soft landing—it is thought-provoking work, particularly at a time when the global zeitgeist and order are changing in profound ways.”—Gillian Tett, columnist and editorial board at Financial Times, Provost at King’s College, Cambridge, and author of Anthro-Visio

“As soon as I finished How to Listen When Markets Speak, I took a long, hard look at my portfolio. Any investor with skin in the game needs to buy this book.”—Niall Ferguson, Stanford historian and author of The Ascent of Money and Doom

“Smart people listen carefully, and they use what they hear to continually question their assumptions. When it comes to markets and their impact on our lives, things change—even the big things. Larry McDonald's, How to Listen When Markets Speak is a consistently compelling contribution to today's debate on the future of financial markets and a challenge to assumptions that have outlived their value.”—Ian Bremmer, political scientist and president of the Eurasia Group

About the Author

Lawrence McDonald is risk consultant to hedge funds, family offices, asset managers and investors across twenty-three countries. One of Wall Street’s most respected financial experts, McDonald has made more than 1,400 media appearances. Previously, he was a vice president of distressed debt and convertible securities trading at Lehman Brothers.

James Patrick Robinson, a dedicated craftsman of narrative born into a family of writers in England, truly embraced storytelling at the University of East Anglia. Influenced by literary greats, he pursued history of art, European literature, and creative writing. Transitioning to screenwriting post-graduation, James initially adapted his father’s techno-thrillers before honing his skills in realistic dialogue and structure at The New York Film Academy. He notably adapted the bestselling Lone Survivor into a screenplay in 2007 and contributed to the research and structure of the 2009 New York Times bestseller A Colossal Failure of Common Sense. 2022 marked his debut in book writing with How To Listen When Markets Speak, co-authored for Larry McDonald. Now residing in the U.S. and managing the Robinson Speakers Bureau, James is penning his first novel in the traditional manner—longhand with navy ink on white paper, a testament to his deep-rooted passion for storytelling.

Excerpt. © Reprinted by permission. All rights reserved.

1

The End of an Era

It was the afternoon of March 8, 1983. A tropical breeze swept across endless acres of citrus orchards and into Orlando, fluttering the flags on the limousine pulling up in front of the Sheraton Twin Towers. Immaculate as ever, in a navy suit offset by a white linen pocket square, President Ronald W. Reagan was led to a podium where he delivered a speech that would be remembered for decades. In it, he called the USSR an “evil empire” and took steps to shore up NATO’s nuclear deterrent to counteract the Soviet Union’s.

The United States and the Soviet Union were already in an arms race that would peak three years after Reagan stepped up to that podium. The Cold War had started in 1947. By 1975, a red line had been carved right down the northern hemisphere, dividing East from West, with the East protected by a Soviet military of 5.5 million men and about twenty thousand nuclear missiles. In the next ten years the number of missiles would double. It was nothing short of a standoff, a display of muscle flexing on the grandest scale, neither camp daring to open a line of communication.

Despite that muscular display, the Soviet Union’s economy was in tough shape. The nation spanned fifteen republics, eleven time zones, and a swath of land 6,200 miles wide—from Kaliningrad in the west all the way to a desperately cold spit of land on the Chukchi Sea known as Uelen. But landmass rarely equals wealth, happiness, or opportunity. For the Soviets, it didn’t even promise a hot meal. Corruption, the absence of a free market, and a costly proxy war in the Hindu Kush, where the mujahideen were covertly supported by the Pentagon and the Saudis, severely hampered the economy. Images of breadlines and empty supermarket shelves were often seen in Western newspapers.

Reagan’s “rhetorical rearmament” achieved its intended effect of rattling his adversary. By 1985, the Soviets had amassed a total of 39,000 nuclear missiles, with close to 6,000 aimed directly at the United States. America met this threat by stockpiling over 21,000 warheads. The world was one technical fault away from total annihilation.

The big man in the White House knew that the USSR could easily buckle under a disillusioned military and an educated populace living in near squalor, with little chance of a better life. Then came the 1986 nuclear accident at Chernobyl and the Politburo’s decision to stall the public announcement for two days. Even then, its twenty-second televised statement was vague, assuring listeners that authorities were handling the situation. The surge of radiation poisoning, of course, was not under control. And while the Politburo avoided addressing this new public health crisis, Mikhail Gorbachev, the new general secretary of the Soviet Communist Party and de facto leader of the country, pored over the reports of death, injury, and ruination: across great tracts of land, lives, homes, and even entire towns were torn apart. He wrote afterward that his conscience could no longer be involved with nuclear arms.

Later that same year, a black motorcade snaked through the middle of Reykjavik, Iceland, stopping at a whitewashed building known as Hofdi House. It was a blustery, sodden morning, the skies platinum above the bank of photographers in waiting. Gorbachev, in a knee-length cashmere overcoat, trotted up the steps to be greeted by President Reagan.

Reagan looked at Gorbachev for a beat, at a man born and raised in Soviet Russia under the most hard-line communist rulers: men like Josef Stalin, Nikita Khrushchev, and Leonid Brezhnev (whose eighteen-year reign was defined by economic stagnation). And here was Gorbachev, an educated man standing before the president of the United States, against every possible communist belief. He may have been only five feet nine inches tall, but history would remember him as a giant of democracy. Gorbachev was there to discuss a nuclear arms reduction, for which he would later be given a Nobel Peace Prize. Reagan smiled at him in that classic cowboy way, and the two men shook hands as if they were already friends, the whole world watching. For the USSR, this was a giant step toward dissolution.

The concept of hope has been one of the most potent forces in the history of mankind.

That simple emotion has been responsible for more victories against the odds than any machine or weapon. It’s how the Greeks, desperately outnumbered, defeated ten thousand Persian soldiers in 490 b.c. on the plain of Marathon. It’s how Winston Churchill rallied Great Britain and its allies to fight the tyranny of Nazi Germany. And it’s how, in the last year of the 1980s, half a million citizens of East Germany staged a mass protest along the perimeter of the Berlin Wall, turning their backs on the bankrupt state. On the night of November 9, 1989, the concrete divider separating East and West Germany was finally torn down.

The Soviet Union was in free fall by late 1991. Despite Gorbachev’s hopes for radical liberalization, piecemeal reforms couldn’t save an economic system founded on centralized control. On Christmas Day, the bright red flag flying above the Kremlin, with its yellow hammer and sickle representing the solidarity between industrial proletarians and farmworkers, was lowered for the last time. Gorbachev abolished the Communist Party of the Soviet Union and then resigned as president of the USSR.

The collapse of the Soviet Union became the great representation of global peace that settled like a blanket on international trade and free markets throughout the world. The bitter tensions that had plagued geopolitics since the start of the Cold War had finally been extinguished.

But what does the fall of the Soviet Union in the 1990s have to do with your portfolio in the 2020s?

Everything!

Because the collapse of the USSR helped shift the world from a multipolar to a unipolar order, one that revolved around a single dominant player. Backed by an outrageously robust economy and an overwhelming military force, the United States could crush challengers like ants. Under this new world order, a massive, interconnected system of global trade and security blossomed. Countries that took advantage of it prospered. Global trade went from less than $5 trillion in 1990 to $28 trillion in 2022, contributing to an increase in global GDP from $20.7 trillion to $96.5 trillion.

The unipolar world order entailed many different things across many domains—for instance, reducing the urgency of maintaining large standing armies—but for investors, its most crucial effect was its unprecedented disinflationary power. The surging supply of everything from raw materials (sourced from Russia) to finished goods and cheap labor (sourced from Asia, and especially China) stamped out inflation in Europe and the United States until 2021. Inflation went from 7 percent in the 1970s to 3 percent in the 1990s to 1.7 percent in the 2010s.

This allowed the Treasury yield, also known as the risk-free rate—the fixed rate of return on government Treasuries, which are considered to be zero risk because they are backed by the U.S. taxpayer—to decline from 15 percent in 1981 to less than 1 percent in the 2010s. Declining Treasury yields make fixed-income investments like government bonds less attractive and push investors toward riskier asset classes in search of higher returns. Price-to-earnings (PE) multiples—a measure of how much investors are willing to pay per dollar of company earnings, reflecting general market sentiment—expand when the risk-free rate goes down. Sure enough, the S&P 500’s PE ratio went from 7x in the early 1980s to 30x in the late 1990s and in 2021.

This disinflation was one of the most important contributors to the epic bull market in risk assets. Profit margins exploded as financial assets—growth stocks and bonds—took off. Investors love a stable, low-inflation environment. It lowers the cost of capital for businesses to invest in and for investors to borrow. The S&P 500 went from 323 in 1990 to 4,800 in 2021, an increase of 1,300 percent. If you’d put $1,000 in the S&P on the day World War II ended, you would have had $23,000 by 1990—but by the end of 2021, that amount would have grown to $343,000. In other words, those three decades of disinflation enabled a radically new approach to portfolio construction.

Product details

Publisher ‏ : ‎ Crown Currency (March 26, 2024)
Language ‏ : ‎ English
Hardcover ‏ : ‎ 272 pages
ISBN-10 ‏ : ‎ 0593727495
ISBN-13 ‏ : ‎ 978-0593727492
Item Weight ‏ : ‎ 1.25 pounds
Dimensions ‏ : ‎ 6.48 x 0.94 x 9.6 inches

Best Sellers Rank: #11,325 in Books (See Top 100 in Books)
- #9 in Economic Conditions (Books)
- #10 in Money & Monetary Policy (Books)
- #20 in Wealth Management (Books)

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Lawrence G. McDonald
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Lawrence G. McDonald has written a best selling book on the fall of Lehman Brothers, with Patrick Robinson, the #1 New York Times best selling author of Lone Survivor.
Global Lecture Tour
Mr. McDonald is on the lecture tour, recently speaking at Universities, Banks, Investment Firms, Law Firms and Insurance companies. His speaking engagements have been all over the United States, Europe and Asia. He has been a Keynote Speaker at over 40 venues since his book was published.
"A Colossal Failure of Common Sense - the Inside Story of the Collapse of Lehman Brothers," was published by Random House 7/21/09, and hit the New York Times bestseller list in its first week. It is now one of the bestselling business books in the world, translated into 12 different languages. Mr. McDonald is President of the McDonald Advisory Group based in New York City.
Mr. McDonald has been a guest and or contributor on CNBC, MSNBC, the New York Times, Fortune, CNN, CCTV China, France 24, BBC World, BBC America, Barron's, Channel 4 News London, Bloomberg TV, Fox TV, Fox Radio, CBS, PBS Frontline and NewsHour with Jim Lehrer, CBC News Canada, Business Week, The Economist, Die Zeit Germany, Tokyo TV, the Financial Times, Time Magazine, NPR, and the New York Post.
At Lehman Brothers
From July 2004 through September 2008, Mr. McDonald was a Vice President of Distressed Debt and Convertible Securities Trading at Lehman Brothers. He ran an extremely successful joint venture between the firm's fixed income and equity divisions. He was the most profitable trader on the convertible securities department 2006 and 2007.
The Subprime Implosion
In early 2006, Mr. McDonald was part of a faction that called the subprime crisis, then he made over $46 million for the firm during its implosion. Mr. McDonald was highly regarded as one of the most consistently profitable traders at Lehman with over $83 million in trading profits during his time with the firm.
More interestingly, Mr. McDonald was an integral part of a faction within Lehman Brothers that passionately tried in vain to stop the firm from heading down the road to destruction. Likewise, he also worked closely with Lehman's credit derivatives team and saw first-hand the design and construction of what Warren Buffett termed as "Wall Street's financial weapons of mass destruction."
Before Lehman Brothers
Mr. McDonald was Co-Founder of Convertbond.com, a website coined by Forbes Magazine as "Best of the Web" from 2000-2003, and was noted as the world wide web's premier source for convertible securities information, valuation and news.
In October 1999, before the dot-com crash, the site was successfully sold to Morgan Stanley and remains the property of the firm.
Mr. McDonald also spent over five years as a successful retail financial adviser, helping individual investors build wealth, starting with Merrill Lynch in 1990 and working with firms like CitiGroup's Smith Barney Division.
Mr. McDonald has over 15,000 followers on Facebook, Twitter and LinkedIn, see below.
Contact
email - lgmcdonald@yahoo.com
http://twitter.com/Convertbond
http://www.facebook.com/newlehmanbook
http://www.linkedin.com/in/newlehmanbook
http://www.lawrencegmcdonald.com
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James Patrick Robinson
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James Patrick Robinson comes from a world where writing was the family trade. As a young boy in England he was always fascinated by the ebb and flow of narrative, but it wasn’t until he entered the University of East Anglia, a place where John Fowles and Donna Tartt gave guest lectures in writing, that he took the craft of storytelling more seriously.
After graduating in history of art, European literature and creative writing, James dove headlong into screenwriting. Initially he adapted his father’s techno thrillers into screenplays. A few years later at The New York Film Academy he learned the art of structure, pace, realistic dialogue and the terse language designed to keep a reader turning pages.
In 2007, he adapted the #1 bestselling war story, “Lone Survivor” and wrote the first draft of the screenplay. In 2009 he not only structured the book like a feature film, he worked as a financial crash researcher for the New York Times bestseller, “A Colossal Failure of Common Sense, The Inside Story on The Collapse of Lehman Brothers.” But it wasn’t until 2022, when Larry McDonald wanted a second book written, that James wrote his first book. Throughout the autumn and winter of 2022, James co-wrote the manuscript, “How To Listen When Markets Speak.”
He resides in the United States, runs the Robinson Speakers Bureau, and can often be seen with a notebook and a fountain pen. He is currently working on his first novel, writing longhand, with navy ink on white paper.
See more on the author's page

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S.R.

Something is going on

Reviewed in the United States on May 5, 2024

Verified Purchase

Good book that explains what you see everyday and don’t know it. There is an abundant amount of well rounded information in this book that goes beyond investing. I recommend you read it. I personally don’t have the knowledge to deem its information to be 100% correct as far as the predictions go, but from what I’m seeing I do believe there is plenty of truths in it.

The book explains much of what is going on in the realm of geopolitical conditions of the world and then ties it into how it applies to the United States and your investment dollar. Beyond strictly using this book as an investment strategy guide, it actually provides more useful information as to the real state of our country.

Hopefully, you can see something a little different going on in our country and in the stock market. This book explains what you are seeing and why. So much of the information that is put out on investing and what is shaping the market is pure garbage. It is written by people who do not have a clue, but strive to produce information in order to seem relevant. It is frustrating to a layman like myself.

Use this book as one block in a personal knowledge growth strategy foundation. If you do not adopt one single investment strategy from this book you will still benefit greatly from its explanation of the national debt, the dollar as a universal currency, bonds, the fed, electric cars, green energy, and where we may be headed.

One person found this helpful

Helpful

ken

Great read.

Reviewed in the United States on April 30, 2024

Verified Purchase

Great read, great current investment environment perspective.

Reviewed in the United States on April 20, 2024

Verified Purchase

Good book. Lots of valuable info.

Helpful

Lindsey P.

Required reading for investors

Reviewed in the United States on April 13, 2024

Verified Purchase

Very well written and researched insight into the turn from a deflationary to an inflationary world and the potential impact on asset classes. Larry mixes enjoyable stories with well researched themes and draws important conclusions regarding what’s ahead.

Helpful

Paul Jenkins

Great Investing Advice

Reviewed in the United States on April 4, 2024

Verified Purchase

This is one of the clearest yet most sophisticated books on markets and investing I have read. It combines an experienced practitioner’s understanding of the microeconomics of how financial markets work, a crystal-clear view of the current economic situation, and an over-arching perspective on broad trends in global geopolitics and international relations. Unlike many investment books, this one doesn’t shy away from making concrete recommendations for asset classes and even individual stocks and ETFs. I feel that I can really put the advice in this book to work now in my own portfolio.

6 people found this helpful

Helpful

Philip Hopkins

Beyond insightful

Reviewed in the United States on May 2, 2024

Verified Purchase

With thoughtful historical perspectives and insights by someone who has been in the financial trenches, the outlook provided by Misters McDonald and Robinson is daunting. However, instead of simply creating a financial horror story with a bad ending, the authors furnish a plan of action and specific ideas to assist in sheltering us and navigating the category 5 storm heading our way.

Reviewed in the United States on April 22, 2024

Verified Purchase

I enjoyed reading this book. At times it felt like it is a promotional book for metals such as gold and copper. But if you ignore that, it is still a worthwhile book to read.

One person found this helpful

Helpful

G. C. Carter

Sobering advice about how and why to change one’s investments to align with new market directions

Reviewed in the United States on May 3, 2024

Verified Purchase

Sobering advice about how and why to change one’s investments to align with new market directions
The 2024 book entitled: “How to Listen When Markets Speak…” by McDonald and Robinson is worth purchasing and a fascinating and frightening view of how one might want to change their investments from growth stocks to value stocks. As a minor point of confusion, the book reads a bit like the first and likely primary author was joined later by a second author. The authors seem to feel that the non-volatility of the markets is in part due to more individuals investing in index funds. The authors predict more inflation and a need to invest less in mindless index funds and more money in hard assets, like gold and copper and companies that mine such minerals.
In the forward to this book, Ferguson writes: “McDonald [with Robinson] prophesies “a new era of persistent inflation, an escalation in global conflict, a multipolar world teaming up against the United States, the horror of a weakening dollar, a series of sovereign debt crises, and a thundering of capital out of financial assets into hard assets,” not to mention “catastrophic shortages of natural resources.”… The message of his new book is… that the global economy is going through a paradigm shift… fiscal policy… has driven the U.S. federal debt to a height relative to GDP that is unprecedented since World War II… The great migration of capital, moving from growth stocks into value stocks, has only just begun… Inflation is not returning to 2 percent or lower… invest in precious metals, not to mention copper, lithium, cobalt, graphite, and uranium, all of which will be in short supply relative to the ambitious demands of the “energy transition.”… I became a regular reader of The Bear Traps Report. It’s why I recommend [this] book. And it’s why, as soon as I’d finished it, the first thing I did was take a long, hard look at my own portfolio. I predict most readers will do the same.”
The authors write: “the government now owes $ 33 trillion in debt after years of spending wildly beyond its means, the Fed has bought more than $ 8.5 trillion in bonds, and financial assets have cycled through bubble after bubble… In the coming decade, we’ll witness a new era of persistent inflation… Stocks, bonds, real estate, commodities, and other assets are riddled with imbalances, leaving millions of 401( k) s and IRAs at risk… Tens of trillions of dollars have been shoveled into passive investing vehicles like exchange-traded funds (ETFs), with little consideration as to how that might distort valuations and buying behavior… My goal is not to scare you but to prepare you—to light a path through and around the coming upheaval… I founded The Bear Traps Report… to help hedge funds, family offices, asset managers, and investors navigate an increasingly risky world and build crisis-proof portfolios… this book will… trace the origins of our current economic order, replaying the events, decisions, and economic conditions that created a thirty-year bull market…[then] outline new rules of investing in a radically reshaped economic landscape, including strategies for resisting reactionary narratives and detecting bearish and bullish trends a beat ahead of the crowds… Why countries like Russia, China, and Saudi Arabia are taking steps to transition away from using the U.S. dollar as a reserve currency, further hurting our country’s ability to finance its tremendous debts, wreaking havoc on financial markets, and potentially forcing us to slash Social Security, Medicare, and military spending—and how investors can capitalize on the coming era of a weak dollar.”
The authors write: “How passive investing and the vehicles intended to democratize finance have fueled bubbles and ideological skew by large market participants, and how America’s 401( k) and retirement plans have been hijacked by fourteen stocks… Why the classic 60 percent stock/ 40 percent bond portfolio—revered as the foundational guidepost for many investors—is dead, and why the forward thinking should embrace a more commodity-and cash-heavy approach to portfolio construction… We’re about to witness a historic multitrillion-dollar migration of capital—one that ushers in a new class of winners and losers. If you have skin in the market, this story is happening to you… Historians William Strauss and Neil Howe famously argued that modern history moves in cycles, with four distinct phases, or “turnings.” Each typically lasts fifteen to twenty-five years, meaning the whole cycle neatly coincides with the average life span of a human being.”
The authors write: “The End of an Era… The Soviet Union was in free fall by late 1991… But what does the fall of the Soviet Union in the 1990s have to do with your portfolio in the 2020s? Everything!... The surging supply of everything from raw materials (sourced from Russia) to finished goods and cheap labor (sourced from Asia, and especially China) stamped out inflation in Europe and the United States until 2021… This disinflation was one of the most important contributors to the epic bull market in risk assets… If you’d put $ 1,000 in the S& P on the day World War II ended, you would have had… by the end of 2021… $ 343,000. In other words, those three decades of disinflation enabled a radically new approach to portfolio construction… The World We Once Knew Is Gone… America forged a real bond with Saudi Arabia in the 1980s… the Saudis agreed to continue trading their oil in dollars. This was known as the petrodollar agreement… the West’s control over oil markets not only reduced inflation, lowering the cost of production for many goods and keeping transportation affordable, but also… acted as a safety catch on global peace, stabilizing commerce, controlling autocrats… “In a multipolar world, it’s next to impossible to stabilize global markets, especially inflation,” Baker explained… When China became an official member of the World Trade Organization (WTO) in 2001, multinational businesses—determined to offshore their manufacturing to a place without any potential red tape… over the next seventeen years, America would lose 3.7 million manufacturing jobs—and would be left $ 1 trillion in debt—to China… In an inflationary regime, hard assets and value stocks outperform. In a deflationary regime, financial assets and growth stocks outperform… this book lays out… exactly how investors must be positioned for the coming storm…”
The authors write: “Chapter 2: America Crosses the Rubicon… In this chapter, we’ll revisit the first colossal asset bubbles of the modern era and the role that governments played in inflating them, and in responding when these bubbles finally burst, leaving the economy in shambles… The Fed’s choices will be very different during the next market crash. It can either do nothing, letting it all go to hell, or rescue the markets with another multitrillion-dollar bailout… We now know that this policy, commonly known as quantitative easing (QE), primarily inflates financial assets such as stocks and bonds, while also exacerbating income inequality by keeping asset prices like houses and commodities artificially high… Each country pegged its currency to the U.S. dollar, the global reserve currency… The Birth of Bailout Nation… Meriwether presided over a hedge fund that was the talk of the town… Meriwether’s hedge fund was the legendary LTCM… Its staggering success was built on… leverage. It’s a highly addictive drug … An army of copycat traders all over the place was squeezing it out of its best trades… In 1997, LTCM… started investing vast sums of money in emerging-market debt and foreign currencies… But LTCM itself didn’t know the value of the holdings… There is a valuable lesson here. Success often breeds complacency around risk management… LTCM was… on the edge of bankruptcy… The Fed had concluded that LTCM was too big and could not be allowed to fail… The bailout of LTCM by the Fed sent a clear message to every financial institution… : If you get too big, if you become an out-of-control pile of debt that puts the entire financial system in jeopardy, we won’t let you go down. Uncle Sam will bail you out and support the financial markets no matter what. This act changed the course of financial history...”
The authors write: “Chapter 3: The Dazzling Obamas— and the Dying of the Light… What had caused the demise of the American manufacturing economy?
… When [China] joined the WTO in 2001, there were 17.5 million American manufacturing jobs. By 2007, 3.5 million of those jobs had been axed, and by 2009, only 12.8 million people were still employed in manufacturing. That’s 5 million workers displaced… By May 2009, the U.S. government had bought 72.5 percent of General Motors in a debt-for-equity exchange. That kept 5,700 Canadians out of the soup kitchens that winter. The total rescue cost was about $ 51 billion, plus another $ 17.2 billion to the company’s mortgage bank, GMAC Finance, which had been hammered by the housing crash…”
The authors write: “Chapter 4: The New Washington Consensus… if central banks continually suppress volatility, preventing market corrections by deploying lifelines at the first signs of trouble, the market professionals will figure out one thing real fast… “I think 90 percent of the buyers out there are totally oblivious to the risks. Other forces are at play. Passive funds and quant funds are a monster now… close to 70 percent of daily stock market trades… The Bear Traps Report index of twenty-one Lehman systemic risk indicators is pretty damn good at spotting major risk-off events in advance… Too many equity investors will look at a stock… and not understand that it may be only a small slice of the total picture… No matter the party, this kind of stimulus can be a real boon for investors… All told, 44 percent of all U.S. dollars ever created were turned out in 2020 and 2021. On top of Trump’s $ 7.5 trillion, Biden tacked on another $ 5 trillion to the national debt during his tenure. Together, these two increased the debt by 50 percent in seven years… you’ve got a recipe for one thing above all: rising prices for the long haul. Buckle up!”
The authors write: “Chapter 5: Fossil Fuels Paving the Way to the Green Meadow… Tampering with markets is a dangerous game. They are delicate systems with endless subtleties, great living organisms with millions of finely balanced components, each one interacting with the others, each part like a white-gold cog made by a master watchmaker. Healthy markets are resilient machines, self-healing, with their own innate brand of shock absorbers… With the global population on an upward trajectory, planet Earth will have an unstoppable demand for energy in the coming years… My respect for nature and the natural world is part of my soul, but I’m also an economist who understands what it takes to feed, clothe, transport, and provide living quarters for about 8 billion people… And it cannot be done with wind farms, solar panels, and hydroelectric power. Not even close… knocking out oil with green energy right now is a mathematical impossibility… INVESTORS BEWARE: More Causes of Sticky Inflation… Through Social Security alone, the federal government sent an extra $ 207 billion to retirees to offset the decline in purchasing power in 2022 and 2023. COLA capital oozes through the economy, buying food and clothing off the shelves, and keeps inflation sticky… Heading into the next recession, the United States will be running at least 5 to 7 percent annual budget deficits, with social welfare spending already 20 percent higher than the twenty-year average… For copper, 40 percent of the future demand growth is expected to come from electrical applications in green technologies, such as electric vehicles (EVs), wind turbines, and solar panels… Copper is a key material component of transmission… Lithium is another vital mineral for the green transition… You can get a president who doesn’t like fossil fuels, or you can get a president who… loves them. But… : Fossil fuels aren’t going anywhere. If anything, we’re gonna need more and more as the world demands stable electric grids in every corner of the globe.”
The authors write: “Chapter 6: The Dark Side of Passive Investing… Market crashes are caused by forced selling. Period… Forced selling is more like an elevator with snapped cables, hurtling straight down at two hundred miles per hour… It’s also how Black Friday happened in 1929… The usual suspects were behind that forced selling: Margin. Leverage… Today, computer-driven trading poses a similar threat to 401( k) s and IRAs. Over the past decade, passive investors have come to dominate Wall Street and are now projected to have $ 36.6 trillion of assets… the twenty largest stocks in the S& P 500 are responsible for more than 40 percent of the average daily value traded in the index… the bulk of the volume is in the big stocks, such as Apple, Microsoft, Amazon, Google, Meta (Facebook), Nvidia, and especially Tesla… Passive investors now control at least 50 percent of all the fund assets in America. This is up from just 25 percent in 2012… We think that $ 10 trillion will move out of stocks and into bonds and hard assets (commodities) over the next decade… When there’s inflation, or the risk of it, the Fed couldn’t dream of bailing out a market crash. That would… send inflation roaring to 20 percent, which would impose an unbearable burden on the American people… David Einhorn… His book Fooling Some of the People All of the Time is an investing classic and one of our all-time favorites… “There’s nothing wrong with passive investing per se,” he continued, “but when you have $ 4 to $ 5 trillion come in over a decade, the BlackRocks and the Vanguards of the world end up with much bigger seats at the table. The sun has largely set on the activist fund manager…”
The authors write: “Chapter 7: The Psychology of Bubbles and the Mania of Crypto… what Freud couldn’t have known [that his work] would one day explain the giant real estate bubble in Japan in the 1980s. It would shed light on the frenzy behind the dot-com bubble of 2000. And in 2022, it would tell us why a secretive digital currency born out of blockchain technology would create an asset bubble exceeding $ 2 trillion—the largest hot-air bubble there has ever been… There’s an adage on Wall Street that is really more of a cliché at this point: “The market can stay irrational longer than you can stay solvent.”… A human being is a creature of two natures: a rational ego, which tends to dominate conscious thought, and a prerational or even irrational so-called id lurking beneath, which controls the subconscious mind… The annals of economic history are littered with asset price bubbles. Some of the most famous are the Dutch tulip bubble of the seventeenth century, the South Sea Company bubble in 1720… The formation of asset price bubbles doesn’t just rely on the irrationality of the subconscious mind; it also depends on the available capital for that mind to direct… When governments use a fire hose to douse financial meltdowns with artificially cheap capital and easy money, it intensifies the extent to which people’s irrational nature can affect and interfere with market economics… Over the past thirty years, when governments have tried to use policy to address disinflation, they have… generally ended up fostering inflation… Reasoning is cast aside, and the merest indications of logic replace full-blown, properly thought-out investment decisions… In the words of the great Robert Shiller, “We are irrationally exuberant beings.” It’s human nature to be optimistic, as beautifully explored in Tali Sharot’s 2011 book, The Optimism Bias … We are currently in a Fourth Turning… [and] This generation will be handed a bill for $ 33 trillion in national debt and almost $ 200 trillion in unfunded entitlements, once the baby boomers are gone… In the long run, the only way out of this mess is a wholesale debasement of the dollar.”
The authors write: “Chapter 8: The Decline of the U.S. Dollar… eighteenth-century Scottish historian Alexander Fraser Tytler says, “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to generous fiscal policy, which is always followed by a dictatorship.”… Tytler is said to have been the originator of a theory about the life cycles of nations and empires… And amid his invasion of Crimea in 2014, Putin shook hands with China on a gigantic thirty-year gas deal worth $ 400 billion known as the Power of Siberia. It connected the gas fields of central Russia via a pipeline, with the capacity to move 61 billion cubic meters a year, to Shanghai and Beijing… Putin was preparing, ultimately, to disconnect Europe from Russian gas, and was hedging against the strong possibility of Western sanctions… America’s finances have entered a precarious chapter through years of reckless overspending and opposing bad actors on the world stage… Biden faces $ 11 trillion of debt maturing between 2023 and 2025, and he’s in a high-interest-rate environment that is doomed to continue for several more years. That… debt must be refinanced at rates near 5 percent… [Presidents] will have to address the post-COVID hangover, the energy crunch, and any crises yet to materialize amid high inflation and high rates. The annual interest payments will be at least $ 1 trillion higher than they were under Obama. That is a big problem… the rosy days of America raising easy money might well be over. [And] the countries that the United States could always rely on to buy its debt—countries like China, Saudi Arabia, Brazil, and India—are all collaborating these days to develop a competing global payment system so that they are no longer dependent on the dollar… INVESTORS BEWARE: When Will Social Security Be Exhausted?... The future is not growth; it’s value. And it’s not just precious metals. It’s not just oil and gas. There will also be a big stampede for cold, hard assets, which brings us to the final chapter in this tale of global finance and investing.”
The authors write: “Chapter 9: Cold, Hard Assets— the Portfolio for the Next Decade.. The [Congo]… is home to more mineral resources than almost anywhere else on earth… Cobalt has the ideal configuration that facilitates the stability of the battery at high-energy densities… But a… humanitarian crisis is taking place... Thousands of local workers, including more than forty thousand children, in addition to women and the elderly, work in these makeshift mines, often for more than twelve hours per day… Although the global mining companies are making a killing, very few in the [Congo] are getting rich off the cobalt trade. The money is ripped out of their land and sold on the global market to the technology giants and makers of electric cars… In the overarching cycles of markets, cycles that last a decade or more, there is a pendulum that swings between growth and value. Timing that pendulum is the key to long-term wealth, and on January 1, 2022, it completed its fourteen-year journey and was at the pinnacle of its arc, in the furthest reaches of the growth phase… never trade or invest out of boredom or a desire to find something to do… The great market pendulum is swinging once more into the value sector and into cold, hard assets… Will your family’s wealth play a role in this and walk into that neglected meadow of value stocks, commodities, and hard assets, or will it fade away with the last decade’s portfolio? The choice is yours.”

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