Larry McDonald: “The Cobra Effect”

Published on
August 24th, 2020
50 minutes

Larry McDonald: “The Cobra Effect”

The Interview ·
Featuring Larry McDonald

Published on: August 24th, 2020 • Duration: 50 minutes

What happens when the monetary and fiscal engines run too hot? This is the question that Larry McDonald, New York Times bestselling author and founder of the Bear Traps Report, explores with Real Vision CEO, Raoul Pal. McDonald and Pal start by analyzing the valuations of high-flying tech stocks and discuss whether they will continue to soar or make an early landing. The pair then examine in detail the remarkable price action seen over the past few months in commodities such as precious metals, lumber, and natural gas. McDonald compiles this appreciation as evidence to explore his thesis that excessive stimulus could serve as a "cobra effect" to augur a hyperinflationary economic collapse. Filmed on August 18, 2020. For more of Larry McDonald's charts, click here: Find more information about Larry McDonald's work at



  • MR
    Michael R.
    1 October 2020 @ 04:02
    I liked this interview enough to buy Larry's book. "A Colossal Failure" is a fun, inspirational read about people dedicated to the mission. But what really struck me was Lehman's debt ratios, and relating that era to the stories today about growing central bank balance sheets. Thank you to everyone involved in Real Vision for bringing balanced perspectives to the investing world that are not available in the mainstream media.
  • DB
    Daniel B.
    27 August 2020 @ 11:17
    I mean come on Larry... There was literally no other ticket combo for Democrats that screams anti-populism more than Biden‐Harris.
    • vf
      victor f.
      16 September 2020 @ 22:36
      TTtUtuUUtuUuTyu7yyXz de Hugo Espírito Santo de Yeap yY é uma yZ
  • GB
    Griffin B.
    11 September 2020 @ 18:06
    Great talk! Kamala Harris is not a far-left candidate, she is certainly more moderate.
  • DZ
    Dan Z.
    24 August 2020 @ 14:02
    Good interview Raoul One issue im having and i can't wrap my head around is this green deal spending spree you keep talking about. I understand that there is a major push towards renewables but there is no evidence that moving to renewables has any positive impacts on social or the environment. On the contrary what i am seeing is the inflation of prices of energy in nations that are moving towards renewables, energy densities in manufacturing are dropping exponentially which lead to blackouts in times of demand, and unreliability due to the over-all nature of the systems. There is probably more to the green deal then just renewables. Can you lay out some of your thoughts on this topic?
    • LS
      Lemony S.
      24 August 2020 @ 17:25
      Yes, the depopulation agenda.
    • GH
      Gregory H.
      24 August 2020 @ 21:52
      Solar + Battery Storage system breakevens are very competitive in 2020 for utilities on pure economics and all utilities are government mandated to grow renewables as part of their total production mix going forward... also, another point not usually associated with solar + battery storage systems is that for the US is it provides a viable, scaleable alternative to fossil fuels for vehicle gas consumption in the 2020s... positive for US energy independence and national security...
    • JB
      James B.
      31 August 2020 @ 14:08
      Hes not saying that its good economically, its just what the dems will (probably) do regardless
  • AW
    Aron W.
    25 August 2020 @ 19:35
    If you buy a 260/200 put spread in the Q's, and that spread is 1:1, you are not short vol. Your long leg (260) has more delta, gamma, and vega than your short leg. Being long that put spread is being long vol, even if only slightly. If you're wrong about the trade from a directional standpoint, and you buy in the lower strike, you're taking off your winning leg (short puts) to leave your losing leg (long puts) to remain and continue to lose money on time decay, and possibly on delta if you continue to be wrong. Am I missing something in that recommendation?
    • MS
      Mark S.
      29 August 2020 @ 10:50
      You‘re not missing anything
  • GH
    Guy H.
    24 August 2020 @ 11:14
    Nice interview Raoul, but I continue to wonder why you repeat and never challenge the tired old tropes of left v right. Under Obama the deficit narrowed over time. Under Trump it's done nothing but widen. Under Bush senior taxes went up. Under Clinton the US government ran fiscal surplus. None of these scenarios neatly fit left v right because no presidents were solely responsible for any of this. Left v right might be a handy tool for the political extremes to pigeon-hole and divide, but is there really much difference between center left and center right? The trope I find most perplexing is climate. Acceptance of climate science isn't left v right - it's just science. Although the converse likely holds - rejection of climate science frames the issue as left v right for many people and perhaps that's a tell? But if emissions remain on the current path and result in global climate related economic and physical destruction, describing climate in 2020 as left v right will look very unenlightened and quite off-brand for RV. Part of the RV value proposition for me is the steely focus on big, big picture fundamentals whilst recognising markets and valuations are a day-by-day proposition. Retirement, gold, crypto - all massive long term themes. Climate is the monster theme of them all, unless of course one doesn't accept the science or perhaps believes current science will evolve materially. Some very credible scientists see emissions related climate change as either here now or most certainly here by the 30s. Climate should be a major economic theme at RV.
    • JM
      John M.
      24 August 2020 @ 13:38
      Well said
    • LS
      Lemony S.
      24 August 2020 @ 17:28
      Which credible scientists? The models, just like with the covid propaganda, have all been wrong. Drastically wrong. The global warming trope didn't work so they went to the invisible fearmongering, of microbes.
    • SW
      Stephen W.
      24 August 2020 @ 18:29
      The only people who seem to speak out about climate change are scientists who are at the end of their careers and already have their pensions (Richard Lindzen et al) - usually they face ad hominem attacks - does make me wonder. Climate change has become highly politicised, those who critique it usually don't get their research grant renewed. The work of Bjorn Lomborg is worth a read.
    • jG
      james G.
      24 August 2020 @ 21:27
      The science of climate change is the new religion . To question it is to risk excommunitcation . To deny it is a heresy that warrants being burned at the stake.
    • JC
      Jason C.
      24 August 2020 @ 22:35
      I agree with the spirit of this post, but I also want to acknowledge the corruption in the field that Stephen W points out. It would be a great topic for RV to explore, and it is a vital long-term theme for investors because if it plays out the impacts will be huge. It would be a touchy topic for many, but I'd love to hear the experts - especially dissenting views that would never be covered by the NYT.
    • GH
      Guy H.
      25 August 2020 @ 09:23
      Credible scientists like NASA for example. A Dec 2019 study of 17 major climate models over the past 30 years found "While some models showed too much warming and a few showed too little, most models examined showed warming consistent with observations, particularly when mismatches between projected and observationally informed estimates of forcing were taken into account. We find no evidence that the climate models evaluated in this paper have systematically overestimated or underestimated warming over their projection period." Effectively the study concluded where errors existed they were mostly a result of the models underestimating the grotesque path of emissions. Dr James Hansen has spoken out about climate for most of his 40+ year career. Lomborg broadly accepts climate science but believes the models overestimate its impact and adaption rather than emissions reduction is the appropriate solution. "Pensions" is the loaded language of fossil industry propagandists who bizarrely argue that self interest in this debate lies with a bunch of scientists being paid $150k pa and not oil company execs who stand to lose 100x+ that when the science finally overwhelms the propaganda. As said, turning the argument political is surely the tell.
    • AT
      Arnaud T.
      29 August 2020 @ 01:22
      It’s not just scientists who talk about Climate change but people with half a brain and a pair of eyes. But in this post-truth society the last drunken idiot’s screams have an echo and an influence on politics. What a waste of human intelligence and survival skills... Thanks for this comment, RV do really need take the Climate into account in their long term view and to get way more fact-based and not just opinion-based (although to be fair, most investors think like them so even if what they say is not true, it’s kind of self-fulfilling prophecy anyway).
  • SS
    Stephen S.
    24 August 2020 @ 15:46
    I hear a lot of mention on stuff “call spreads” and “puts” but don’t know how to do these trades? Not sure my broker even offers this stuff. Is there a place to learn how to do these?
    • NC
      N C.
      24 August 2020 @ 16:24
    • WG
      Wade G.
      24 August 2020 @ 16:51
      Look into Patrick's gig (sidekick on Marcro Voices and partner on Market Huddle).
    • jG
      james G.
      24 August 2020 @ 21:13
      TD Ameritrade has a whole free course on them.-- with tests. it will take 4 or 5 days. it is very good. I am not sure you even have to be a customer.
    • AT
      Arnaud T.
      29 August 2020 @ 01:08
      Three best option trading teachers out there : Tom Sosnoff and his team at Tastrade, Tony Zhang and his platform Options Play and Sasha Evdakov at Tradersfly. There is a toooon of videos of those three on Youtube too. That’s learning for free ;-) Enjoy!
  • JO
    JOHN O.
    28 August 2020 @ 13:59
    Excellent interview, as usual. Good insights Larry.
  • NA
    N A.
    27 August 2020 @ 05:42
    Rates cant stay negative for long, ok but why has that worked everywhere else? No answer.
  • AF
    Anoop F.
    26 August 2020 @ 20:51
    "Now, we've got the flooding in China, we've got this Three Gorges Dam, that's a whole another thing. You guys have done a great job at Real Vision on that." - Has RV covered this? Any idea which interview?
    • NA
      N A.
      27 August 2020 @ 05:40
      Lol oh yeah the latest theory that will take down China. These are getting better and better.
  • TV
    Tyrell V.
    26 August 2020 @ 19:09
    really interesting! I was wondering what an overly aggressive increase in inflation as Powell is talking about, would do to the re-valuing and understanding of the premium currently put on 'debt free tech stocks' versus a more safer standard deviation premium. The Cobra analogy is a good one to explain this. This coupled with the fact that in a deflationary environment. do people want to pay a premium for an amazon prime account or buy a brand new apple iphone versus second hand etc... As for tesla; who knows... I do not understand that.
  • RY
    Roy Y.
    26 August 2020 @ 16:39
  • EM
    Emerson M.
    26 August 2020 @ 13:14
    Excellent, excellent interview. I have watched it several time now. Many thanks.
  • AP
    Adam P.
    26 August 2020 @ 08:18
    How many times did this guy plug his book?
  • SB
    Simon B.
    26 August 2020 @ 08:11
    How does this stagflation thesis impact gold price? Higher rates negative for gold?
  • JH
    Joseph H.
    25 August 2020 @ 11:53
    The great political unifier is making money. Presidential election results don't matter if you chasing momentum
  • MC
    Michael C.
    25 August 2020 @ 05:31
    So how do we get this inflation again Larry? Not saying you are wrong but I just can't make sense of your response to Raoul's question at the end of page 4 of the transcript. Perhaps you could elaborate?
    • MC
      Michael C.
      25 August 2020 @ 10:34
      Highly Recommend watching Mike Green's interview with ReSolve Asset Management. At about the 1 hr mark he starts talking about inflation and gives a very different perspective on the 1970s inflation and how its not the same situation today.
  • GH
    Galen H.
    24 August 2020 @ 13:56
    Does Buffet still make the decision to buy things in that portfolio that bought Barrick?
    • DS
      David S.
      24 August 2020 @ 20:55
      I think Mr. Buffett is in charge. Mr. Buffett likes big cash flow companies. (I have trouble with the double t also.) DLS
    • GH
      Galen H.
      25 August 2020 @ 07:58
      ha ha ha ... *Buffett. - Sorry.
  • GF
    Gordon F.
    24 August 2020 @ 20:00
    For Buffet, investing $536 million in Barrick is not a big bet. Berkshire is sitting on more than $100 billion in cash equivalents, so this is less than half a percent of their investable cash.
    • NI
      Nate I.
      25 August 2020 @ 05:25
      That's all we have seen reported so far. He may have more shares by now or shares in other miners. We'll need to see what's on his next 13F to have a better picture.
  • DS
    David S.
    24 August 2020 @ 20:06
    Buffet is not buying the precious metal gold. He is buying Barrick Gold Corporation stock, a company with positive cash flow for now and even more if gold goes up. Barrick should be profitable even at current or anywhere near current levels. DLS
    • NI
      Nate I.
      25 August 2020 @ 05:24
      When you buy a gold miner, 95% of what you are buying their gold in the ground. The rest is machinery and people. Buffett's genius is that the price of gold doesn't need to go up for Barrick to be a profitable investment. If it does, then it's just more profitable.
  • MD
    Matt D.
    25 August 2020 @ 03:57
    Great interview Raoul. Always enjoy listening to Larry. Interesting idea of the conundrum - can't have inflation (self - regulatory I think is how you described it). Yet - deflation isn't impossible ? I think Larry was suggesting stagflation.?
  • BP
    Bryce P.
    25 August 2020 @ 02:47
    Still all giddy over your nonsense ejection fraud narratives. Many options for cures already fellas. No need for injection fraud committed on a mass scale on purpose against humanity. Continually a disgusting disappointment from RV on this front.
  • SS
    Stephen S.
    24 August 2020 @ 14:42
    I suspect Kamala is in the pocket of Big Tech. Couldn’t really rise in California politics without that.
    • RM
      Robert M.
      24 August 2020 @ 22:24
      WSJ, in article, stated she received large donations from Tech.
    • PB
      PHILLIP B.
      25 August 2020 @ 01:38
      What's the point?
  • JH
    Jesse H.
    25 August 2020 @ 00:12
    Interesting interview. Think you have time horizon call wrong due to a confluence factors - if we are going to see a bigger market correction, it will come with the increased volume and volatility which are due this Fall (and into the Winter). Sooner than you think.
    • JH
      Jesse H.
      25 August 2020 @ 00:13
      Stay on the sidelines - my humble opinion, anyway. It’s not long to wait (maybe a year to a few more max), and it will be worth the wait if you’re in the metals and BTC. Cheers.
  • CP
    Constantin P.
    24 August 2020 @ 23:15
    Why is he confusing revenue with cash flow?
  • ly
    lena y.
    24 August 2020 @ 22:30
    really like the strategy of how to protect ones profit using put spreads!
    • ly
      lena y.
      24 August 2020 @ 22:32
      looking forward to next week's Festival of learning to learn more!
  • Nv
    Nick v.
    24 August 2020 @ 15:37
    It wasn't Buffett who bought the Barrick Gold. It was Todd Combs, one of his 2 lieutenants
    • RM
      Robert M.
      24 August 2020 @ 22:18
      Many investors like myself believe Buffett was aware of the trade. With Buffett's well known thoughts on gold, Todd would most likely run the logic of the trade past him.
  • RS
    Ruben S.
    24 August 2020 @ 13:00
    if inflation picks up isnt it good for those tech stocks? as they ll be able to increase prices as well
    • TH
      Tom H.
      24 August 2020 @ 17:45
      The potential problem there is that inflation causes the debt in the system to be too much of a burden. This leads to deflation and job losses. Less cash flow to the tech companies as well as non-commercial holders selling their tech stock.
    • GH
      Gregory H.
      24 August 2020 @ 21:55
      but then Big Tech would not trade at 30-40 times earnings and smaller mini tech monopolies (Intuit, Adobe) would not trade at 50-70x earnings... the PE compression would dwarf any potential increase in prices and market growth...
  • DS
    David S.
    24 August 2020 @ 20:48
    The course of the market and the economy are completely dependent on the pandemic! If we get vaccines and better therapeutics to control the pandemic, we will start a long, long climb out. We are in a make-believe economy now from the Fed monetary printing and the government fiscal payments to corporations and individuals. It is not real. It is opaque to logic and history. It will not be quick anywhere. Companies with positive cash flow from revenue will make it through the depression. Even consumer tech companies are also dependent on MMT for their cash flow. Without federal money in consumer’s pockets, how can consumers buy except with unwanted debt. Out best bet to start the climb out of the pandemic recession is to have an instant, cheap COVID test. Companies are close. This is where the government must be spending more money if we want a recovery. DLS
  • SB
    Stewart B.
    24 August 2020 @ 17:25
    Great thoughts. Raoul - one possible explanation for why QE hasn't pushed stocks higher locally in EU and Japan is that more of the new money flows into US assets, than vice versa. Every time a central bank QEs (regular OMO purchases) assets, they reduce the size of the universe of investible assets. And, someone will be left holding cash. Japanese holders of cash may be more willing to buy the SP500 than US investors are to buy Nikkei. Similarly, Europeans are more likely to buy Tesla than US investors are to buy Nestle. Hence QE in one economy may put upward pressure on assets in another country.
  • LH
    Louis-Philippe H.
    24 August 2020 @ 16:59
    Was curious how fast Larry would bring up is best seller book. without fail, every interview. Still, great info. thanks
  • SS
    Stephen S.
    24 August 2020 @ 14:34
    Interesting, big picture stuff!
  • PL
    Pierce L.
    24 August 2020 @ 13:29
    Great interview. Packed so many huge ideas in less than an hour! Larry is extremely thoughtful, with consistently fresh ideas. Has a few valuable theses here. Great questions and what if’s from Raoul. Would have been nice to have a longer time frame for this one IMO as Larry had a lot to unpack.
  • Mt
    Miami t.
    24 August 2020 @ 08:27
    Great interview with a great vibe!
  • DS
    David S.
    24 August 2020 @ 08:26
    The UAE peace agreement with Israel has nothing to do with the Palestinians. The US administration is building an anti-Iran balance in the Middle East by proposing fighter sales to the UAE. The enemy of my enemy is my friend strategy. The administration cannot sell fighter to the UAE until we are allies. Of course this is a Shia vs. Sunni battle line. It may even go back to the Persians vs. the Ottomans. The Middle East is a tough place, especially with the Russian/Syrian connection. It can make major economic changes in oil market and deliveries. It gives Israel a more powerful position for further annexation. It is way too difficult for me to see the results poltically or economically. I do know that it has nothing to do with improving the Palestinian/Israeli conflict. It will work toward, however, changing the balance of power in the Middle East. This will change world markets from oil to FX. DLS