2008-Style Crisis Signals Flashing Warns Ex-Lehman VP | Lawrence McDonald

But I think what's happening today, we're in the early stages of a real credit crime since it's

coming out of private credit. Looking now at the current situation, any similarities you can

draw between right now, 2026 and maybe 2007. And so, those things are markets ignoring a

potentially catastrophic credit event that is brewing and going unnoticed. That's what we're

here to find out with the next guest, Lawrence Mcdonald, founder of the Bear Trap's report.

Lawrence was formerly at Lehman Brothers as VP of Distress debt and convertible securities

trading from 2004 to September 2008, during which his division made $75 million betting against

the subprime mortgage market and essentially betting against Lehman itself. Let's find out what

Lawrence sees in terms of risks for 2026. Also, I'm launching a second channel this week. It's

going to be a clips channel. I'll extract highlights from my long form interviews and post them

as shorter sub-minute clips because I know how busy we all are and sometimes we just want to

watch a segment on a topic where asset class that we're currently monitoring instead of watching an

entire 30-minute conversation that covers multiple topics and asset classes. The link to the channel

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teams, events, elections and more in all 50 states including California and Texas and over 140

countries. Lawrence, welcome to the show. Good to see you. Thanks for being here. Thank you,

David. Thanks for having me. So Lawrence, the WTI oil price went to above $100 for the first

time since 2022. It briefly touched $119 before coming back down to about $92 right now as we're

speaking intraday, March 9th on Monday. And as we're speaking, the S&P 500 is down about 40

basis points of NASDAQ. It's flat, so mixed bag for the equity markets today. Gold is down. Bitcoin

is up almost 3%. And importantly, the VIX is spiky up to now 27. It's now at the highest level

since middle of 2025. So what is causing this volatility besides the Iran conflict, which we know

about and we'll talk about more detail, but besides tensions and an open war in the middle east,

what else may be causing market volatility? What other risks are markets responding to right now

that some investors may not be paying attention to. Lawrence. Well, the intraday reversal is

pretty short term bullish because it's very rare that you have this kind of intraday

reversal so that's something to always know. But net net, the financials are lagging. If you look

at the semis and some of the technologies sector that's there up on the day or up one or two percent,

the financials are still lagging and I think at the end of the day everyone's focused on

the middle east. But as we talk about in our food first book, the colossal failure common sense,

the Lehman inside story, has been published in 12 languages. It's a New York Times bestseller

and it's all about credit risk contagion in the way the truth bleeds out one drop at a time.

The investment banks on Wall Street, they want to keep everyone invested. They want everyone

fully invested. They're not going to really tell you their truth and it's very clear if you

listen between the lines of the last six months with private credit. They've lectured us and

lectured us and lectured us again in October. And remember that private credit risks were

idiosyncrank. They were isolated to say, tri-color and first brands. But since then we've had

maybe almost over a dozen different examples of either defaults or bonds that were marked at

par and then marked at zero in a very short period of time, credit, the word credit comes from

the Greek word credit, like you just need that trust. Once the trust is broken,

if once the trust is broken, then there's a rush to the banks. And I think what's happening today

is that they promised all these financial advisers, all these financial advisers, quarterly liquidity

on an asset class that is the most illiquid in the world. And that is where the early stages of

a real credit crisis is coming out of private credit. Let me draw your attention to this article

from the FT. This is exactly what you're talking about. BlackRock limits redemption at private credit

fund as outflows swell. BlackRock is limited with draws from one of its flagship private credit funds

following a surge in redemption as investors retreat, investors retreat from the asset class.

And questions about credit quality intensify. The asset manages 26 billion dollars HPS corporate

lending fund, which is acquired as part of its $12 billion takeover of private credit,

especially as HPS investment partners last year, approved 54% of redemption requests in the

first quarter according to a letter sent to investors in the vehicle. Is this normal behavior?

Lawrence? No, it's not. And it's we've had a number of these where they promised people

quarterly liquidity 5% of quarter, but the requests are coming in much greater than that.

And that's because trust was broken last year. And high net worth individuals are calling

their financial advisor demanding exit liquidity. And what happens is when you have,

when I sat down in our book, I'll listen with market speak, I sat down with Charlie Munger in

Omaha. And he always said, he goes Larry, beware of the three Ls and the three amps. And I said,

well, Charlie, and this is more and buff is right hand man for years. I was in Omaha. We sat down

and I said, Charlie, what are the three Ls? And he said, liquor, ladies and leverage,

right? That leverage in the system that is much greater than people that meets the eye.

And then I said, well, what are the three amps? He said, mark to market,

mark to model and mark to myth. And that's what's going on with private credit where you've got a

lot of these securities that were marked really at a fake level. But because they promise quarterly

liquidity, now the mark to myth, it becomes a reality because what happens is the funds have to

raise capital, they have to sell securities. And now the sudden we know where the the

parties are very we know where the security is trading. And so if there wasn't this kind of run

on the bank, we wouldn't even know where these securities should be trading. But because they promise

quarterly liquidity to lots of investors right now in the last month, we're starting to see this

online. And it's becoming very public for the first time that the books have been massively

marked. What additional credit risks do the volatility events from Iran present? In other words,

will the Iran conflict, I guess, worse in credit conditions in corporate America?

Well, if inflation normalizes at a higher level, which it is, all of a sudden we don't get those

global yields down enough. There's just hundreds and hundreds of billions of dollars of security

that need rates to come down, whether it be commercial real estate, whether it be private credit,

there's a lot of securities that are really was sold to investors in the previous regime,

that low interest rate regime. So if oil and this crisis in the Middle East,

and because of that, obviously that big movement oil prices, if that forces global rates to stay

up here and prevents rate cuts, you look at the Bank of England today. All of a sudden,

rate hikes are starting to come back into the picture because of this big movement,

LNG and gas and oil. So inflation expectations are rising. But if you look at it in the UK,

we've never seen the central bank, the Bank of England cut high rates with unemployment

this high. So that's where you're seeing this oil, this stagnationary world, which we talk

about in the book. It's like this world where geopolitical risks,

multiple world creates financial stress through higher bond yields and energy prices,

and that keeps rates higher, creates a stagnationary world, and that should push a lot of

capital from financial assets, which are bonds and tech stocks, over towards hard assets.

How high does inflation have to be to qualify for stagnation, by the way? Currently, the CPI

has been trending lower in the last couple of months. So I'm wondering if you think this is

going to pick up significantly. Right. So if you listen to the Fed, they constantly have been in

denial of stagnation. Powell said, I don't see the stag or the flation. They're really joking

about it. They're very arrogant. There's a lot of humorous. I would say on a scale of 1 to 10,

a 1970s stagflation would be 10% unemployment and 7% interest rates. That's like the crazy

stagflation level from like 1981. That's not the case. But if you think of where we were in the

last 10, 15 years with rate zero and unemployment rates at low levels, we're not going to go back

to the 1970s stagflation. But yeah, we're going to go 20, 30, 40%, maybe 50% of the way back. Yes.

And that's a big, big game changer for a lot of investors watching us right now.

You currently track 21 Lehman systemic risk indicators for the bear trap report, or I guess,

even aerosystemic indicators. Can you just tell us what the methodology is and how many of these

indicators are currently flashing red? Well, we look for credit default swaps on the major financial

institutions. We look at the high yield market versus say the loan market. And so there's a lot

of credit indicators that I'm kind of deteriorating over the last couple of months where the loan market,

like if you look at triple C's versus say high yield bonds in the loan market, the performance

of these loans, these are bank loans, is pretty crazy relative to other cycles. So our 21 Lehman

systemic risk indicators are not at 2008 levels. But they've gone from very low level to to a very

like intermediate high level and very short period of time. I guess the biggest point is

look at the BKLN or the bank loan index or any kind of portfolio of leverage loans,

which are a lot of them are tied to software. And what's happened at the end of the day,

David, is that we've had trillions of dollars from Silicon Valley come into capital expenditures

on artificial intelligence, right? And what that's done is it's created all this disruptive capital,

which is wiping out a lot of software companies. And if you look at like Jack Dorsey with block,

he wiped up 40% of his labor force two Fridays ago. And so there's all of this disruptive

energy that's coming from artificial intelligence. And it's creating the credit crisis. It's almost

like all the capex, all that trillions of dollars of capex, the rate of change of the capex is

actually accelerating the credit crisis. Well, is there anything that they can do to ease

credit conditions this year? Well, if they cut rates, they're going to get a much weaker dollar,

right? And that's going to give a bounce to inflation. So if they cut rates with energy prices

up at these levels and super core CPI still way above, if you just like a core CPI, we're like

we're like one or two standard deviations greater than the long term meat. So they're at a point

where they really, if they cut, they're just going to go about inflation, that's going to

create more. And remember, David, you know, you and I are too young for this, but like I'm a

little bit old enough to remember in the 80s, recessions were actually caused by inflation stress

on the economy. So in other words, people haven't seen this. Like you get a big move in energy

prices, bounce to inflation, her wounds, the consumer caused the recession. And so that's we

were getting for that kind of world. The right now, we have a situation where like you said,

credit conditions may be worsening. So what is a credit market telling us right now in terms of

maybe the stock market isn't telling us or hasn't even priced it yet? Well, let's look at the bank

equities, like Bank of America down 13% off the highs, be me down 10, 11, 12% on the year. So the

financial equities, the business development companies, the KKRs, we're talking like 30, 40%

draw downs. Like the worst start for the financials since maybe 2008, like to start off a year.

So that's one that's your radar is going to go up, right? But then on the loan side,

the performance of the leveraged loans and the loan indexes, especially the triple C

charges that are exposed to all these software loans. So there's a bifurcation going on

whereas the high yield index, the jump on index, the HYG or whatever we want to look at,

it's not as exposed to software. Whereas the loan market has a lot more software

exposure. So we're starting to see a big credit crisis that's in the loan market. It started

to just pull out spill over to the high yield market, but it hasn't yet. That's where our 21

Lehman systemic risk indicators, if we see that contagion moving really aggressively up to high

yields, then we're going to go to a much higher defcon level. Well, take a look at this screen.

This is from Kowshi. It's a prediction market. Defcon level currently recession risk this year,

31.8% according to traders. What will push this defcon level up even more? Notice how the odds of

a recession according to traders have been declining ever since mid July last year. And just recently,

I'm guessing on the back of a new conflict in the Middle East and rising oil prices,

we have now recession odds shooting up from 21% to 32% in the matter of a week.

So what will push the defcon level up for you? Well, there's three things going on, right?

Whenever Wall Street's narrative started to change, David, Wall Street wants to keep everyone

fully invested. They've been lecturing us and lecturing us and lecturing us again and again

about idiosyncratic risk that is isolated in some spots of private credit. So there's

starting to admit that that's not the case. There's starting to admit that there's a lot more

credit spots that are vulnerable. But then there's Wall Street analysts on the other side of the coin

around jobs. We were lectured last year that AI over the valley would create productivity boom.

So there's two ways to look at AI. This is over the valley, which is the polyannish view.

And that's the Wall Street who's had this view. They've had a view that AI would be

over the valley created a incredible productivity boom, which would be great for this stock market.

But the under the valley is the disruption period first. And that's the job losses that you're

going to see from the Adobe's, the CRM's, I mean Adobe and CRM employ maybe 100,000 people, right?

So we're going to have hundreds, we're going to have hundreds of thousands of job losses that

come from artificial intelligence. And so whenever Wall Street starts to change the narrative

in a short period of time, they've gone from oh, private credit risk is idiosyncratic to all the

sudden, there's all these, we've got two spots, tri-colored first friends to 17 spots. So they're

changing their narrative there. And they're also changing their narrative on the over the valley

versus under the valley. And AI was supposed to be over the valley productivity, boom, good for

the market. Now the sudden more and more and more analysts, more analysts are talking about

this under the valley disruption that's coming from the labor market. I'm hearing some estimates.

We run a Bloomberg chat with hedge funds, mutual funds and pension funds. And the institutional

message we talked to, talk about 200 to 300,000 job losses between now and June, July, August.

Yeah, let's talk about the job market. So last Friday's job numbers weren't great, 94,000

thousand jobs lost. What should be done going ahead if we were to assume that AI will cut jobs?

Like you mentioned, hundreds of thousands of jobs potentially lost because of AI. We're already

seeing that in the tech sector. Jack Dorsey's block, for example, just laid off half his workforce.

Now should the public sector, the government do something to alleviate stress on American workers

if we were to assume that job losses will occur? Should we preempt job losses from AI,

either in the form of more fiscal stimulus or perhaps UBI, some people are calling for that

or monetary policy should be looser. Anything that should be done now or should we just wait

until it happens definitively to make an action then? Well, that's a tough one. When you talk to

people on the hill, we were in Treasury maybe a month and a half ago, two months ago,

the midterms are important to the White House. They're trying to do a lot on home affordability.

They've got a big crisis there. I don't think they want to bid the panic button yet. When you talk

to people in the White House, we talk to talk to people in Treasury. They're very cautious because

they don't want to come out even though what you said, David, is a very potentially proactive,

wise move. I don't think they want to hit the panic button. They want to feel this thing out.

April May is the key point to the midterms because they really have to, if you talk to people

that are close to the White House, they want to get all the hard, the difficult things out of the

way in the first quarter, that way they can kind of stabilize things into the midterms.

And also, there's a lot of tax on chips. There's a lot of potential stimulus that can come

from the White House in the second, third quarter of the year as well.

Do you think that the unemployment that will rise as a result of AI will just be structural

and employment that happens for business cycles when things get rough, when new shifts happen,

people lose jobs and they just find another job in maybe the same sector or a different sector.

Or do you think it will be a lot more of a generational shift will be saw in the industrial

revolution in the early 1900s, where the entire labor force of the agriculture sector was

basically wiped out and people had to find jobs in completely different locations.

Yeah, that's the case. In other words, the question is how fast does it happen?

And that's why you want to keep an eye on stocks like Expedia,

stocks like in the transportation, C. A. Robinson. You've had these, you look at IBM, right?

You've had these big elevator shaft moves and certain equities over the last three months.

And if you look at new hides versus new lows within the stock market, we're seeing extreme

divergences, whereas the beast in the market is already starting to really call out the victims.

And so, yeah, there's going to be this disruptive period of winners and losers.

Eventually, we're going to go over the valley and people are going to find other places to work,

and there'll be more productivity. There's certain companies in the medical space that are going

to be using AI to their advantage, and we become a lot more profitable companies. So,

there's a lot of good things happening, but there's that disruptive period that's coming out.

What's your view on how high the oil price will get this year? So, prediction markets are saying

$133 a barrel, more than 55% chance of $130 plus. Right now, it's 92, just came down from

119 overnight. If it were to get to much higher than 100, let's say, what will need to adjust

first? margins, corporate margins for the S&P, inflation, spending patterns, all the above,

none of the above. What's going to happen to the economy? Well, I think if you look at the call

puts queue, or if you look at the amount of speculative buying of calls versus puts,

or futures and the energy market, upside futures versus downside, it's pretty extreme right now.

So, I think that the high for oil is going to be in for at least for a couple of months.

And I could say that with a lot of conviction that we study

capitulation moments scientifically, and the move today is very, very unusual. So,

yeah, I think the highs for the year are probably in. There's a lot of things the White House can do

to put this fire out, they get a lot of help from Saudi Arabia. There's a lot that can release

the SPR, strategic petroleum reserve, treasury can kind of even, treasury can potentially even

sell oil futures. So, I don't see the Trump White House, you know, allowing oil to run rampant

and destroy their midterm chances. I think that they're going to start to throw everything they

can at this in the next couple of weeks. What are we looking at? More fiscal stimulus, price

controls on oil, stimulus checks to Americans for higher gas prices, perhaps lower taxes. What can

they do, Larry? Well, sand could actually sell oil futures, right? They could do on the fiscal

side. That's true. The strategic petroleum reserve, they could release there. They could put a

lot of pressure on the Saudis to increase production. The Saudis have this, you know, kind of

backdoor, phantom supply that they can release. There's a lot of things they can do. They can put more

teams on the ground and Venezuela to try to get up, get production up there. The Iraqi

production and the Iranian productions down a lot, even in Iraq as well. So, yeah, there's millions

of barrels a day that have come offline and they're going to be scrambling over the next couple

of weeks to fill that void. But I hear you want the fiscal and kind of the MMT side of it,

but that's not going to come for a little while. It's where you actually are paying people,

or you're using social programs to alleviate the pain. We're not there yet.

Lawrence, can we take a look at the precious metals right now? It was a potential inflation

hedge. $5,000 for $1,100 for gold right now. Is it still appropriately valued for someone looking

to hedge against inflation if they haven't bought into precious metals already? Well, yes, if you

look at precious metals as a percentage of U.S. wealth, we're still at like one and a quarter,

1.3 percent. So, there's not a lot of capital that's in precious metals. In the 80s, we're up

near 3 percent. So, we're at the early stages of this, you know, big move into hard assets. And

when I say hard assets, I'm talking oil, gas, platinum, palladium, gold, silver, every kind of

commodity that you can find. But the move so far in gold has been so vicious that it's really

extended the call puts queue on silver reached 8 to 1 at the end of January. That was like

extremely rare. That's highly speculative price action. And so, whatever the speculators come in,

there's a lot of tourists. There's a lot of tourists that have come in to gold and silver.

It's typically that means you're going to have a pullback period where you want to try to take

advantage of that pullback and buy the tip. Well, what is the appropriate time horizon for somebody

who should be thinking about when they come to inflation hedging? When someone wants on says to

you, Lawrence, I want something to protect my wealth. I want something to help me fight

inflation over the next, I don't know, X number of years. What should that X be when you think

about it? Well, it depends on the person's age. So you take your age and that's the percentage

of your assets that should be in short term bonds. So say you're 70 years old, 70% of your assets

should be in short term bonds of cash, 30% stocks. And so out of that money that's in short term bonds

of cash, you've got to have at least, in this day and age, with inflation, you know,

rewrites it, you've got to have at least 10 to 15% in inflation hedges. And that's

hard asset type portfolios, whether it be copper miners, gold miners, silver miners,

oil and gas, you need to have some portion of your wealth that's in companies that own

assets in the ground. That's what gives you the protection against inflation.

Is there anything else that we can use some argue that the S&P 500 itself is the inflation hedge

because businesses need to adjust for prices to keep it margins high. So over time, you're

investing in an inflation hedge and so does that make sense to you? That there's an argument to be

said for that. I just think I'm worried about the amount of the S&P that's in technology now.

And so it's up near 50%. You're much better off and say, real estate, you're much better off

and say a basket of hard asset plays global equities. I think you're much better off and say,

a lot of global equities are value plays that own assets. Look at your BHPs, your Rio Tintos,

your valleys. Okay, let's turn now to investment opportunities. Your newsletter is called the

Bear Traps Report. So how does one identify a bear trap? What does that mean? What's the process

there? Well, bear traps. So say you're in a bull market and you're going to move down and

all of a sudden some of the bears will lean into that, move down and then all of a sudden you get a

big move back up and the bear is trapped, right? So you're in a bull market, you're going to move

down in the market. Some people will sell into that or short that and then you're going to move

up into the bull market and then the bear is trapped. And so the bear trap report is just a name

for the report. But what we're really doing is we work with hedge funds, mutual funds and pension

funds in more than in more than 25 countries and we're democratizing information. We're sharing

that intelligence from the Bloomberg chat out to a broad audience. And that's what we're trying to

give is really, you know, you can get everything in life that you want. If you just help enough

other people get what they want. And to me, it's about democratizing information.

Okay. Can you just give us one or two examples of bear traps that you're following right now

that maybe we haven't discussed already? Well, one would be the semi-contactors. I mean,

there's a lot of people that are bearish on the semis. We made a big move down to the 100-day

moving average. I think the semis are going to break sometime in the next six months because of

this whole artificial intelligence cat-bex over-promising. The memory side of the semis is

extremely expensive and some crazy, crazy valuations. But the biggest bear trap in the market,

at least for the short term, could be the semis where you get this nasty move down and then a

retest to the highs and then you make the new blows. What happens now to the stock market throughout

2026? Maybe just get your outlook on the SAP 500. The 10-year yield has been climbing,

even as economy weakens, anything that the treasury market is signaling that equities investors

can take away from. Well, before this move in oil, we had a very mysterious

weakness in yields, bond yields, strengthen staples. So there's no question, David.

Before this move in oil in the Middle East, the bond market was telling us that disruption

from AI, job losses, and credit risk coming from private credit was starting to overpower

the bond market and starting to lower yields. People, really people buying bonds and anticipation

of a recession. This was all going on in the last month. At the same time, it was mind blowing how

the performance of the consumer staples relative to the discretionary stocks. The consumer staples

are your recession-proof stocks. They've been destroying the market and the consumer discretionary

for this year. That's another ominous side. How do listed markets speak? That's something you

want to pay attention to. When you see bonds, you know, bond yields that have been typically

pretty low and all year long coming down before this week. So there's no question that there's

something under the surface in private credit and in the job market disruption that has kept

rates much lower than they would be. This type of oil price, you should see bond yields much

higher, but there's something going on under the surface. There have been periods of time when

bond yields have moved positively with the stock market. The correlation has been positive,

and there have been times when the correlation has been negative. So tell us about whether or not

it means anything when the correlation shifts from positive to negative and where you think things

were progressed from here. Well, we talked about this in our first book, a colossal failure common

sense. When Lehman went down, you had about four trillion dollars of loss in the stock market,

but the bond market made back about three trillion dollars. And so even though we had a financial

crash in the stock market from say 2008 to 2010, a lot of money was made in bonds. And that's

what you're talking about is stock prices went down and bond prices went up. And that's the way

the relationship has been from much of the last 15, 20 years. Something's happened since 2022.

It's since 2022 duration, which is long bonds like more than 10 years in maturity. No one's made

any money in longer term bonds. And so even when like say last year when we had that big move down

the stock market in April, stocks were down and bond prices were down and yields were up. So yeah,

I think we're in this new world where from much less 20 years, lower stock prices got you

higher bond prices. And for a whole bunch of different reasons that we talking about in our book,

we're in this new regime where lower stock prices actually come with higher bond yields. And that's

something every investor has to pay attention to. You wrote in your latest book,

how to listen when markets speak that passive index funds now command over 50% market share.

This concentration may slow the market's ability to react to regime changes. You wrote now,

you've argued that passive index funds are like an aircraft carrier that cannot turn fast enough

when the world changes. How does that apply to current situations? Right. It's like everyone is stuck

in the S&P and everyone. There's a point where, see think about 20 years ago, the amount of money

was an active versus passive. Most of the money was an active management. An active management,

that means that people is a portfolio manager that's choosing stocks. Passive management is just

an index of stocks. And so when you go from when passive when passive versus active goes from 51, 52,

53, 54 to maybe like 58%. That's where we are now. The market becomes more and more and more

dysfunctional because there's so many people that are in the passive side. And those shares are

being held by BlackRock state. It's street, right? Vanguard. There's no real active manager that's

picking winners and losers. It's just a large group of people that have their shares held

at BlackRock Vanguard in state street. And nobody's on the conference calls. Nobody's actually doing

the homework. And so the market gets dumber and dumber and dumber. And so we argue in the book that

when active management versus passive starts to get up near 60%, that's when you want to really

take down your exposure to passive investing. Finally, let's talk about, well, lessons at

Lehman Brothers, you've learned that we can apply today. So like I talked about in the beginning,

I mentioned that you were at Lehman Brothers trading desk when 07 08 happened. And then you later

served as a special advisor to the financial crisis inquiry commission. First of all, how did you

identify the crisis, the credit crisis that ensued in 2008? Let's start from there.

Well, there's no eye in team. I was part of a great group of straighters. And there was a group

of revolutionaries within Lehman. They were trying to stop the madness in one by one. They were

kind of silenced. But what we saw in 2007 into 2008 is a lot like what's happening now. Whereas

you have credit risks coming in and people originally downplay it with kind of

hubris type knockoffs. Like they're just not taking it seriously. But then the credit risk

becomes more serious. So that's me. That's the most compelling similarity between today and 2008

where you've got this big credit problem. Like I said, four months ago is idiosyncratic to two

and all of a sudden now we've got 12 different credit events that are tied to private credit and

also tied to artificial intelligence in software weakness. And so yeah, so I think you need to

to monitor the sales pitch coming from Wall Street because Wall Street is like a buffet.

This when the chef comes out of the kitchen, he isn't going to tell you not to eat this or that.

He's going to tell you to eat everything, right? The chef Wall Street strategists are never

going to tell you to take down risk. They want every investor fully invested, right? And this is

a point in history. I think where you want to listen less to Wall Street strategists and more

to independent thinking. From what I've gathered, just reading up in your story in

the corrupt, if I've got the facts wrong here, but your division made about $75 million

shorting subprime while the CEO and executives at Lehman were obviously long these assets. And

ultimately they failed. Just tell us about that process where they tried to hedge with your desk.

Did you did you warn the higher ups about the bigger problem than they should be unloading?

When did they listen to you? Just just give us a sense of what happened originally.

So the fixed income division at a bank has all these different silos.

And the bank has all type of silos. You've got people in emerging markets and all these

different business units. So within the high yield and distress desks, we made about $2 billion

in 2007, 2008 betting against subprime mortgages that we were short new century, we were short

countrywide. But on the senior floors, on the mortgage desk and on the commercial real estate

departments, they were so over-the-top invested and they've made so much money in the previous decade

that the Lehman senior management didn't want to listen to anybody else. They wanted to listen

to that group and that group kept the bank really fully invested in illiquid assets and it got

worse and worse and worse and worse. Did the executives actually consider offloading

when they saw mounting profits take place, but that was too late, I guess?

There's a scene in our book where Mike Gelban went on to found exodus point. One of the most

successful launches of all of it. Mike Gelban, Alex Kirk, there was a group of revolutionaries

that were trying to stop the madness that wanted us out of subprime that were meeting with

senior management and demanding that we take down the risk and they were basically pushed out

of the firm. Why do you think Lehman was sacrificed when a bunch of other banks were failed out,

bailed out? With the tar plan, you needed a big bazooka from Washington and there was a moral hazard

moment where they had just bailed out Fannie and Freddie. They had just bailed out their number

of other essentially bailed out countrywide. They forced Bank of America to buy country money.

So there was this bailout, bailout, bailout, regime and I think they needed a moral hazard moment

where they needed a victim and that, if you look back at what happened, is the first tar plan,

which is the troubled asset relief portfolio program, that bill did not pass in Congress,

but once Lehman failed, that bill passed pretty fast. So they needed a victim to get some of the

big bazooka from Washington into the markets. Did your experiences at Lehman give you any insight

between the differences between managing risk and managing uncertainty? Are they two of the same

words that they're basically used interchangeably in finance? But did you have a different conceptual

approach to risk and managing uncertainty? Yeah, it's after living through that, you

become jaded and you were less trustworthy of bull markets, you're less trustworthy of

all kinds of price action. So you know, sometimes you miss out on opportunities like in 2021,

it got really crazy on the upside and people were buying NFTs and crypto's, you know,

we're more value investors and we just, we'd rather own companies that have beautiful,

free cash flow yields, great valuations, companies buying back stock and that's kind of like

that Lehman experience has forced me to that kind of mindset of buying some of the natural gas

names today are incredible businesses, 10, 14% free cash flow yields, which means they're producing

so much free cash flow. They're buying back a lot of stock underneath the market and you've got

the whole artificial intelligence energy trade behind you with natural gas and coal. To me,

that's where you want to be investing, that's more of a value mindset.

Okay. And finally, looking now at the current situation, any similarities you can draw between

right now, 2026 and maybe 2007. Yes, just like I said before, where the narrative started to change,

look at David Solomon, like if you look at his quotes or if you look at Lloyd Blightbine's quotes

in the last couple of weeks, look at the quotes from media and BS analysts that's in our most recent

report, there's definitely been a violent shift in admission of the credit risk that's coming from

private credit and that's also coming from artificial intelligence impact on the software low

default cycle as well. And so those things are very similar to, it's about the rate of change

of a narrative on Wall Street. And if the narratives are changing slowly, you can have a nice

bold market. When the narrative changed fast, that's when you know something's about to happen.

Thank you very much. I appreciate your insights. Laurence, tell us where we can find your work and

what we can expect to learn from the bear trap report. Thank you David. Yeah, so it's at convert

bond on x info at the beartractionport.com and get our latest reports. And yeah, what we're doing

is really sitting now with institutional investors every day. We do I, last year we did ideas

in Zurich, Geneva, London, LA, New York. And we take that intelligence gathering and we share it

with a more broad audience though to high net worth individuals, family offices, financial advisors,

trying to democratize information. Yeah, absolutely. Well, I appreciate that and we'll

make sure to follow your work there. So we'll put the links down below, follow Larry and his team's work

in the link in the description down below. Appreciate it, Larry. Good to meet you. Thanks for coming

on the show and I look forward to hosting you again. Take care for now. Thank you David. A great job

on the research coming in here. You did an excellent job. Thank you. All right, well, I can't take credit

for that. Like you said, there's no eye in team. So I thank my team for that. Yeah, and so thank you

team and thank you, Larry. Thank you to the audience. Don't forget to like and subscribe. Don't

forget also to use my code Lynn LA and link down below or scan the QR code here. When you sign up

to Kowshi, new users will get $10 deposited to your account when you trade $10 using my code.