Larry McDonald: The Bond Market's Biggest Contrarian Trade

Watch on YouTube ↗ | September 08, 2026 at 14:00 | 40:50 | Julia LaRoche Show

Speakers

Lawrence McDonald — Founder, Bear Traps Report

Julia LaRoche — Journalist & Host, Julia LaRoche Show

Summary

Larry McDonald sees a late-cycle shift: veteran portfolio managers are turning bearish on financials and buying cheap volatility protection while big tech data-center spending is increasingly financed off-balance-sheet by banks. He flags deterioration in investment-grade and private credit markets as a late-2006 rhyme, and expects diesel and commodity inflation to make upcoming CPI prints treacherous. Despite extreme bearishness on bonds, he sees a contrarian long-duration trade as recession risk rises, while remaining long hard assets such as oil services, coal, copper, and gold miners.

Veteran portfolio managers have turned bearish on financials and banks and are hedging gains with cheap volatility and put protection.
Data-center and hyperscaler capex is running through off-balance-sheet bank loans, with banks buying CDS on Mag7 credit exposure.
Investment-grade LQD and private credit, CCC, BDC, and PE-related names are showing late-2006-style credit deterioration.
Diesel and agricultural commodity breakouts may rekindle inflation over the next several CPI and PPI prints.
Bond bearishness is extreme, and McDonald presents a contrarian long-duration trade linked to recession risk and curve steepening.
He remains long hard-asset producers, including oil services, Schlumberger, coal, copper, and gold miners.

Ideas

Lawrence McDonald Founder, Bear Traps Report 3:41

Banks are late-cycle and overvalued.

He reports that investors who had been bullish on financials for two years have turned bearish; banks have style-drifted into speculative off-balance-sheet lending to hyperscalers and private companies, are exposed to duration losses and data-center credit risk, and trade at record price-to-book while Wall Street is massively long. He suggests the sector could get hammered and that cheap hedges or puts on financials make sense.

XLF BAC GS HIGH

Lawrence McDonald Founder, Bear Traps Report 5:08

Cheap volatility insurance is attractive.

Volatility and downside protection are cheap relative to rising risks; smart institutional investors are spending a small slice of gains on insurance via VIX-like ETFs and put options. He specifically says renting VIXY for September-October makes sense and that puts on the S&P 500 and financials are cheap.

Lawrence McDonald Founder, Bear Traps Report 6:08

AI spending makes Big Tech vulnerable.

The data-center and AI financing boom has made Mag7 cash burn aggressive and increasingly off-balance-sheet; return on invested capital is unclear, and banks are buying CDS on Mag7 credit exposure. The Mag7 ETF is only up about 4-5% YTD and badly underperforming hard-asset names.

Lawrence McDonald Founder, Bear Traps Report 12:01

Investment-grade bonds are rolling over.

The investment-grade bond ETF LQD is rolling over hard versus the S&P 500 because it is absorbing enormous data-center and hyperscaler financing; too much supply and duration risk make investment-grade credit vulnerable.

Lawrence McDonald Founder, Bear Traps Report 12:13

Private credit and CCC deteriorating.

Triple C spreads are blowing out, the loan market is acting poorly, and private-credit/private-equity names such as Blue Owl and KKR are showing concerning divergences; he sees real credit deterioration, rhyming with late 2006.

Lawrence McDonald Founder, Bear Traps Report 17:36

Diesel and commodities will rekindle inflation.

Diesel and agricultural commodities are breaking out, and diesel is a critical global input; the move should hit CPI and PPI over the next several prints and rekindle inflation, similar to 2021-22.

Lawrence McDonald Founder, Bear Traps Report 24:59

Google bond offers convex rebound.

A specific long-duration Google bond issued this year has fallen from par to about 88; if recession or lower long-end rates push yields down, its price could rebound toward 120-130, offering convex bond upside.

Lawrence McDonald Founder, Bear Traps Report 27:46

Long bonds contrarian recession hedge.

Bond bearishness is at record extremes after the worst duration market in decades; the bear case is well known and mostly priced in. If energy-driven inflation spikes yields and tips the economy into recession, long-duration bonds should rally as the Fed eventually cuts and the curve steepens. He names TLT, ZROZ, and IVOL as vehicles.

Lawrence McDonald Founder, Bear Traps Report 38:34

Hard-asset producers still outperform.

He remains max long companies that control hard assets: oil services including Schlumberger, coal, copper, and gold miners. These groups have massively outperformed Big Tech over the past year, and the oil-service five-year picture remains strong.

Up Next

Markets Bracing for PPI, CPI Reports This Week

Bloomberg Markets · Sep 08

Foreigners bought Samjeon-Nix, but why did the market fall at the end? The 'supply and demand calculation' hidden in the '2 o'clock fear' plunge | Myung Min-jun, Seo Su-jin, Lee Ji-hwan CEO [Stock Beginner Rescue Team]

3PRO TV (삼프로TV) · Sep 08

Mistral AI Raises €3 Billion With Samsung Leading the Round

Bloomberg Markets · Sep 08

Yen's Fundamentals 'Different This Time Around,' Natixis Says

Bloomberg Markets · Sep 08

CPI Can Give Fed ‘Easy Out’ on a Rate Hike, BMO’s Davis Says

Bloomberg Markets · Sep 08

This Julia LaRoche Show video, published September 08, 2026, features Lawrence McDonald discussing XLF, BAC, GS, VIXY, S&P 500 put options, XLF put options, Bank of America put options, MAGS, LQD, KKR, OWL, CCC bonds, DIESEL, CORN, WEAT, DBA, Google 6.125% long-term bond, TLT, ZROZ, IVOL, SLB, GDX, OIH, KOL, COPX. 9 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Lawrence McDonald · Tickers: XLF, BAC, GS, VIXY, S&P 500 put options, XLF put options, Bank of America put options, MAGS, LQD, KKR, OWL, CCC bonds, DIESEL, CORN, WEAT, DBA, Google 6.125% long-term bond, TLT, ZROZ, IVOL, SLB, GDX, OIH, KOL, COPX