The Increasing Importance of Politics in Investing

Published on
February 26th, 2019
64 minutes

The Increasing Importance of Politics in Investing

The Interview ·
Featuring Larry McDonald

Published on: February 26th, 2019 • Duration: 64 minutes

Through the lens of his background in distressed debt and high yield, Larry McDonald, best-selling author on the Lehman collapse and founder of the Bear Traps Report, sees plenty of macro investment opportunities, many of them driven by government and central bank policy. He tells Raoul Pal why he is bullish on Brazil yet bearish on Europe, where he believes creditors will face a "debt jubilee." He also explains why, as an investment around climate change, we should forget about Tesla and look instead at lithium, nuclear, and natural gas. Filmed in Grand Cayman on February 21, 2019. Find more information at


  • YW
    Yowshi W.
    13 April 2019 @ 00:53
    Thank you for this
  • GG
    Gary G.
    4 March 2019 @ 01:13
    Great interview!!
  • CH
    Chris H.
    3 March 2019 @ 23:20
    That sure was a great Charlie Munger story.
  • DS
    David S.
    27 February 2019 @ 00:02
    For me central banks are not and should not be considered as independent from the government they serve any more in relation to investing and FX trading. It is reasonable for me to believe that a major piece of the overall puzzle in trading Japanese Yen would be looking at the Japanese Government’s B/S and Bank of Japan’s B/S as one entity, especially in assigning risk. This would cancel out the amounts owed to and borrowed from each other as discussed in this presentation. Many, including me, are worried about how the huge sovereign debt crisis will evolve. How can I protect myself? If the above has any merit or not in sovereign debt resolution - way above my pay grade - I would like to have FX experts discussed different ways to protect oneself. This may be different for a Japanese, European, or US investor. Thanks. DLS
    • DL
      Darryn L.
      1 March 2019 @ 04:35
      Just like to help with balance sheet picture. Remember the central bank balance sheet has two sides. The government debt they own is the asset and the money they printed is the liability. For now the printed money is in the banking/financial system in bank reserves. If the govt debt and CB assets were netted off the CB would be left with the liability and no way to remove the excess reserves from the system. So this might actually appear ok for a while but once the reserves come into the economy and no way to suck them out you will get massive inflation.
    • DS
      David S.
      1 March 2019 @ 07:52
      Darryn L. - Thanks for your comment. I am sure you are correct. I am not suggesting an actual integration – way above my understanding. I am would like to know how a topnotch FX trader would look at the possibility. Moreover, I would like to know how to protect myself beside buying gold. As you suggest it might generate hyperinflation. This means my security blanket of dollars would go down the drain. I do not know if RVTV can make any headway on the topic, but I would like to see smart people discussing it. DLS
    • DS
      David S.
      1 March 2019 @ 07:54
      Edit. I would like to know... Sorry.
    • DL
      Darryn L.
      1 March 2019 @ 08:58
      Probably no easy answer but I suggest looking at the Richard Koo interview on RVTV and if that inspires you he has a great book on QE and the balance sheet trap.
    • DS
      David S.
      2 March 2019 @ 07:38
      Darryn L. - Thanks, I will tomorrow. Just back from the local micro-brewery. DLS
    • DS
      David S.
      2 March 2019 @ 19:35
      Darryn L. - Great interview with Mr. Koo on RVTV. I also found this presentation by Mr. Koo on YouTube 2016. The key is use of capital for nonprofits motives. In recent cases buying back a large amount of stock to increase the wealth of executives. DLS
  • KS
    Kathleen S.
    1 March 2019 @ 14:17
    Enjoyed the video - got some great insights. Excellent job as usual Raoul!! Just a few comments - it always makes me laugh when rich financial guys get overly concerned about entitlements - Hey Larry, u do realize that Wall Street and most in the financial arena (your buddy Monger included) would have been crushed without tax payer bail outs - I realize this is not exactly an entitlement and you didn't ask for it, but it is socialism - God knows it aint capitalism (only the middle class has capitalism - my class). So when you worry about things like the masses voting themselves everything -- Guess what? Isn't this exactly what the rich have done. AOC, Bernie and populism are symptoms of problems - the problem is a corrupt banking system that often rewards the most to those with the least moral character. Please don't think I am saying this is you, because I am not. Everyone needs to look inside their own moral character to decide what they want to invest in. I have studied Brazil and followed their politics for the last few years and Bolsonaro reminds me very much of Mussolini - scary fucking guy. Brazil is in for some rough days ahead, feel sorry for the people - there like here you have a corrupt political system that selsl out the people to the Banking and Corporate Oligarchy that rules the world. Right or left they both suck because they have the same master.
  • JD
    John D.
    1 March 2019 @ 05:19
  • PG
    Philippe G.
    28 February 2019 @ 00:40
  • DH
    Daniel H.
    28 February 2019 @ 00:16
    Now they are waxing poetic about the potential of blockchain. This is sad. It is just a slow database, and if something replaces it, that will be substantially different: a fast database. Reinventing the wheel. You can have multi voter trust or you can have speed. Speed will win for scalability. And yes, I know about hashgraphs.
  • DH
    Daniel H.
    28 February 2019 @ 00:01
    So student loans and housing loans are both mortgages, pulling consumption forward. So is this debt jubilee going to pay off my home mortgage? Or is it only for some sort of preferred debt? Asking for a friend.
  • gg
    georgy g.
    27 February 2019 @ 23:36
    Beautiful story personally with Larry. Always about courage to take action
  • KC
    Kenneth C.
    27 February 2019 @ 18:25
    There always seems to be this dismissal of "populist" movements as simply a resentment (as Howard Marks put it) towards the actions of the elite in their governance/ruling of society. I would argue it is a screaming alarm siren that the ship, as it currently sits with an iceberg penetrating its bow, is on the precipice of sinking and the passengers are no longing heeding Kevin Bacon telling them "all is well". We are well past the point where there is some organized way about backtracking our way out of the debt mess and no one feels pain. Given the lack of punishment in the courts (where felonies are now considered a cost of doing business) how would a debt jubilee be any different than 2008? Pull govt oversight out of how debt is issued and backed, all debt is subject to the bankruptcy courts, and allow price discovery back into its arena. There will be a lot of pain. There will be no destruction of wealth (a misnomer as it's always the transfer of wealth with exception to actual physical destruction) and those who acted imprudently or recklessly will bear the brunt of it. Credit will re-establish itself but there will be a phase where it be very hard to come by. Populism is always wagged off. France, Russia, and many other examples show that it is a symptom of a social illness that if left untreated may leave the host in the history books.
  • TS
    Todd S.
    27 February 2019 @ 12:14
    Great interview- if the front door isn’t working try the back door! Well done
  • NI
    Nate I.
    27 February 2019 @ 05:20
    Great interview Raoul. Really enjoyed it. On the topic of a debt jubilee, all I can say is that this isn't Babylonia, we don't have a King, and I have yet to hear anyone explain in practical terms how it would be done. If anyone has a jubilee plan, I would like to hear the nitty, gritty details.
    • RP
      Raoul P. | Founder
      27 February 2019 @ 10:34
      Me too.I have no idea yet how that could look...
  • CR
    Cristian R.
    27 February 2019 @ 04:47
    How many convertible bonds do Australian banks have...
  • JL
    John L.
    27 February 2019 @ 03:35
    Raoul makes an astute observation about the political landscape, where he says there is a explosion on the hard left and an explosion on the hard right, and its happening everywhere. Ben Hunt, who has appeared on RV, calls it the "Widening Gyre", where more and more extreme candidates, full of passionate intensity, strut and fret their hour upon the stage.
  • ml
    michael l.
    27 February 2019 @ 01:37
    As a former Lehman banker, I assume the 8 people you are talking about at Lehman (the 8 of 25,000) were the real estate guys?
  • MS
    Mark S.
    27 February 2019 @ 01:36
    1) I wanted to hear more about the girl 2) Have you tried to get Niall Ferguson on?
  • JH
    Jesse H.
    26 February 2019 @ 23:45
    Interesting and insightful, and thought Raoul did an excellent job here of guiding the interview and also sharing some of his insights, which were a nice complement / counterpoint.
  • VS
    Victor S. | Contributor
    26 February 2019 @ 21:00
    FYI the “hard right” is in actual terms the -US Constitution ie small minimum govt . More right than that is “no govt “or anarchy. The left is greater govt control ! So communism and Nazi”s are maximum Govt or the far left. The spectrum runs from maximum govt control to no Govt-. just a technical correction but very importantly basic, The Brazil election makes Brazil a buy in my view. Good interview. Thank you.
    • SS
      Shanthi S.
      26 February 2019 @ 21:33
      A lot of Us Libertarians and AnCaps place ourselves to the North of a North-South axis. North being pro-freedom, South being pro-authoritarian. Not that I’m disagreeing with you. The Left-Right axis makes sense too.
    • SS
      Shanthi S.
      26 February 2019 @ 21:34
      Can you edit these comments? Didn’t mean to capitalise the ‘U’ in us!
    • DS
      David S.
      26 February 2019 @ 23:27
      The US Constitution is directly the result of the European and British Enlightenment to eliminate a monarch’s rule. “We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.” The government cannot provide everything for free or allow for the confiscation of wealth – both makes everyone poor. A key word here is posterity. Wealth is easily lost in a couple of generations. That is why even the wealthy need to promote a fair society for the benefit of their descendants. DLS
  • DG
    David G.
    26 February 2019 @ 21:40
    Great interview! Larry always insightful on his twitter feed!
  • JM
    John M.
    26 February 2019 @ 21:17
    I enjoyed listening to the differing perspectives on Nat Gas. I found Raoul's view more persuasive for now.
  • MZ
    Matthew Z.
    26 February 2019 @ 19:45
    Eskimo brothers!
  • MM
    Mike M.
    26 February 2019 @ 19:14 would figure Larry would be political in tone having grown up in New England where politics is the real major league sport despite having the Red Sox, Pats, and Bruins. Good stuff.
  • NZ
    Nicolas Z.
    26 February 2019 @ 18:23
    Those shoes!
  • GO
    Grant O.
    26 February 2019 @ 18:14
    Great interview
  • CC
    Christopher C.
    26 February 2019 @ 13:43
    On Leham being beautiful in the core but rotten at the head. Reminds me of a friend lamenting the breakup with his girlfriend months after the fact. He had never quite recovered. And I was like, "Matt, why the hell are you so worked up over this man?" And he says, "I just miss here so." And I am like, "Matt, she was worse than the NSA in wanting to know where you were and who you called, she keyed your car because she thought you were you out with another woman, when you had just taken your Mom out to lunch for her birthday, and she served you your boyhood dog in stew she made you because she was mad you had to work late for a few weeks!" And Matt said, "Yeah, but she was beautiful at her core."
    • CC
      Christopher C.
      26 February 2019 @ 17:36
      Not a reflection on the 24,992 honest, hard working, prudent folks going about their business as competently as possible. Just an observation that a few outliers can take the whole ship down despite every other person's best efforts. Have we become so inured to keep our head down and not say anything/raise a fuss as to suffer the consequences these miscreants inevitably serve up? What is our responsibility individually in these situations? And who suffers inside and outside the firms (The whole tax paying populace?) when the price of the bad risks taken gets made whole?
  • KS
    Karen S.
    26 February 2019 @ 14:19
    Keep this stuff coming. This guy is great. Roger McNamee......Not so much.
  • IH
    Iain H.
    26 February 2019 @ 13:26
    Really enjoyed that wide ranging and topical. Cheers