IN THIS ISSUE

The Fed has finally started to cut

01 rates, but the economy is
rebounding, and this caused a

Sunday, bear steepener and will prompt a

rotation out of defensives.

September 22, 02 Passive buys and sells. Data

show massive drawdowns in
August, but quarter-end
2024 rebalancing is +125Bl to buy in
global equities.

03
Trade Alert Buy VIXY Near
$11.80. Volatility seasonality is
still strong and hedges coming off
The Bear Traps Report post the Fed = opportunity to get
long for a trade.
With Larry McDonald Technicals: Nasdaq breadth,
04 PYPL, MSTR, NKE, UNP, Staples
and ITB.

GOOGL 40% undervalued and

05 much cheaper than prosaic Coca
Cola.

QCOM interested in INTC.

"The $1.6T CBO deficit estimate is now UP to $2.0T in Potential obstacles to a deal and
06
reality, in the last 4-5 months, they just hit the QCOM is most likely interested in
INTC chip-design business rather
accelerator on fiscal deficits again, the 2nd time in 2 than the whole thing.
years (the first was after SIVB), then Powell cuts 50bps!
They are torturing Rosie (David Rosenberg) and Lacy Palladium leads PGMs higher as
(Hunt) (pounding the table bond bulls last 24 07 Impala Platinum makes a bull
break.
months)" PM NJ.
Uranium and Hyperscalers. MSFT
pushes CEG to reopen Three Mile
08 Island to power its Data Centers
with nuclear. Utilities, bitcoin
miners and SMRs all in play.

Coming out of HIGH capitulation.

09 Mobileye MBLY, the Bull Case.
Good evening from Munich. We’ll be out with a recap of our Friday “Ideas Lunch” tomorrow, but we
must lay out one of our core takeaways in this Turning Point.

We must never forget the Fed’s dovish shift last December. They were celebrating inflation’s
demise and Jay Powell took a victory lap. The US 10-year bond yield was 420bps heading into the
meeting, a few weeks later she touched 378bps. Inflation expectations bottomed on December 13th
at 205bps as measured by 5-year breakevens, but by April they surged to 260bps, the largest move
higher in a year. Keep in mind the 2015-2020 mean is near 123bps. The important point is ---
easy financial conditions juiced inflation then and the latest move by the Fed (cutting rates
50bps with Atlanta Fed GDP at 3%) will have the same result. But this time we will likely get
the inflation bounce into a slowing economy. We believe the next round of stagflation will be the
most powerful hard asset driver since the 1980s. This is Powell’s Arthur Burns moment.

Shifting gears. Always remember, investors group think and obsess about different catalysts
throughout the year. The Fed’s first-rate cut has been in the driver’s seat, next we’ll have the U.S.
Presidential election on everyone’s mind. What’s coming at us down the road ahead? The next
debt ceiling crisis date is January 1, 2025. This is because the Fiscal Responsibility Act of 2023
suspended the debt ceiling until then. If Kamala Harris wins the White House without the Dems
taking the Senate, it’s nearly certain that post-election sour grapes will deliver a large fiscal cliff. In
Q1 2024, the CBO said this year’s deficit would be near $1.6T, now they say $2.0T. Team Biden
was able to juice spending by $400B into the election and somehow get a 50bps rate cut out
of Jay Powell and company. Mind blowing. If they cut spending by $500B next year into a sticky
inflation bounce, trillions of dollars will move into hard assets and value plays.

Recent Trading Alerts

Trade Ticker Description Closing P/L Date Sector Recap
Sell All AEM Agnico Eagle 60% September 19th Equities
Sell 1/3 VIXY VIX short term fut. ETF 29% September 6th Equities
Sell 1/4 NVDS 1.5x Short NVDA ETF 17% September 3rd Equities With the recent market
chop, we have taken profits
Sell all ZROZ PIMCO Zero Coupon ETF 12% August 26th Fixed income on our short positions and
Sell 1/3 GNRC Generac 15% August 21st Equities long volatility trades while
Sell 1/3 NEM Newmont Mining 48% August 21st Commodities maintaining core positions.
Sell 1/3 XBI Biotech ETF 45% August 21st Equities
Sell 1/3 VIXY Proshares VIX Futures ETF 62% August 5th Equities
Buy 1/3 VIXY Proshares VIX Futures ETF - September 20th Equities
Buy 1/33 MBLY Mobileye September 16th Equities
Buy 1/3 VLO Valero - September 12th Equities We used the August 5
Buy 1/3 SRUUF Sprott Physical Uranium ETF - September 12th Equities irrational sell off to add to
Buy 1/3 XOP S&P Oil Exlporation ETF - September 12th Equities our positions in gold & silver
Buy 1/3 CLF Cleveland Cliffs - September 11th Equities and we have used the recent
Buy 1/3 MU Micron - September 10th Equities weakness in oil to increase
Buy 1/3 SLB Schlumberger - September 10th Equities our exposure to the energy
Buy 1/3 AR Antero Resources - September 5th Equities sector.
Buy 1/2 PALL Physical Palladium ETF - September 4th Commodities
Buy 1/3 USO U.S. Oil Fund - September 4th Commodities
Now What? Economic Data Picking Up
Date Economic Data Actual Cons. Prior
The Fed cut interest rates by 50 bp this week, a move that 16-Sep Empire Manufacturing (Sep) 11.5 -4 -4.7
was not really expected by economists. 90% thought the 17-Sep Retail sales (Aug) 0.10% -0.20% 1.10%
Fed would reduce the funds rate by only 25bp. Market Core retail sales (Aug) 0.30% 0.30% 0.40%
participants also did not fully price in the double cut, with Industrial prod. (Aug) 0.80% 0.20% -0.90%
50bp probabilities, priced into the Fed Fund futures, Capacity utilization (Aug) 78.00% 77.90% 77.40%
hovering around 60%. The irony is that the Fed has waited Manufacturing prod. (Aug) 0.90% 0.20% -0.70%
so long with this move that economic data have started to Business inventories (Aug) 0.40% 0.30% 0.30%
improve already. If the Fed would have cut in July, it would NAHB Housing Index (Sep) 41 41 39
18-Sep MBA Mortgage Apps (Sep) 14.2% 1.4%
have done so in an economy that was weakening. But now
Housing starts 000 (Aug) 1365 1318 1237
they are fueling a recovery that was already in the making,
19-Sep Philly Fed Outlook (Sep) 1.7 0.0 -7.0
which explains why the curve steepener turned from bull to
Initial claims 000 (Sep 14) 219 230 231
bear steepening in recent days.
Economic data this week came in better than expected
From Bull to Bear Steepening across the board. Comments from some executives also
point towards a pickup in consumer spending in
September although several sectors, such as transport,
are dealing with more secular headwinds.

The Week Ahead

- Monday morning: September Flash PMIs for Europe and

the US. The Fed's Goolsbee and Bostic speak in the
morning.

- Tuesday morning: RBA rate decision (no change

expected) and AZO earnings.

- Wednesday: Riksbank decision (cut expected) in the

morning and MU earning at night.

- Thursday: SNB decision (cut expected) in the morning as

A bull steepener is when yields at the front of the curve go
well as JBL and KMX earnings. Powell will be speaking at
down faster than at the back of the curve because the
9:20am. Tokyo CPI for September comes in that night.
market prices in aggressive Fed cutting in a weakening
After the close COST reports.
economy. A bear steepener is when yields at the back of
the curve go up faster than in the front because the market
- Friday: CPIs from France and Spain and the US PCE for
is pricing in a medium-term impetus on growth/inflation
Aug. Japan’s LDP will hold its leadership election on
from monetary or fiscal stimulus.
Friday. The winner will become the next PM.
The belated rate cuts by the Fed, while the economy is
- In terms of coupon-paying issuance, Treasury will auction
showing a tentative rebound from a moribund summer, is
2yr paper on Tuesday and 2yr FRN and 5yr bonds on
prompting a rush out of defensives, such as staples and
Wednesday. On Thursday they will try to sell 7yr notes.
real estate, back into growth and into value as well. We will
discuss this later in the report.
Passive Buying and Selling

Lipper Analytics reported that August was the worst month

in terms of equity-fund flows since the end of 2022, as retail
investors pulled $55bl out of equity funds that month. The
August 5 mini-meltdown due to sudden carry trade reversal

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
could have spooked a lot of retail investors into pulling Leveraged and Inverse ETFs Daily Impact
money out of the market. The coming weeks may see
some improvement, because month-end and quarter-end Assets in Leveraged and Inverse ETFs have ballooned in
imbalances from multi-asset investors and sovereign recent years. JP Morgan discusses how these ETFs, which
wealth funds could lead to $125bl of global equities buying. are now $140bl in size, could have outsized impact on daily
trading, especially in cases where the market is up or down
Big money Flows Out of Equities in August big.

From JP Morgan's Quant Guru:

"The AUM of leveraged and inverse equity ETFs increased

sharply over the past decade, from around $40bn in 2015
to around $140bn currently. Around four-fifths represent
leveraged ETFs with long equity exposure and only one-
fifth represents Inverse leveraged ETFs.

[W]e calculate that each percentage point change in equity

indices generates around $6bn of rebalancing flow by
leveraged ETFs globally. This flow seems modest but
becomes more significant if one takes into account that this
flow typically reverberates during the last 30 minutes of
each trading session. This $6bn rebalancing flow
corresponds to one percentage point change in underlying
equity indices"
Lipper Analytics reported that monthly equity-fund flows
were an outflow of -$55bn globally. This makes August In other words, on a day like Thursday, when the indices
2024 the worst month for equity fund flows since the end are up over 2%, the leveraged ETF buying in the last 30
of 2022. minutes could be as much as $12bl (for context, the
average daily value traded for US stocks is ~$500bl).
The Quarter-End Buy Imbalance
Quarter End Rebalance The Yen: Driven by US-Japan Yield Differential
Funds AuM Buying
Risk parity funds $3.6Tr $35bl
US pensions $9Tr $35bl
Norges Bank 1.7Tr $23bl
SNB (Swiss) $1Tr $10bl
GPIF (Japan) $1.8Tr $22bl
Total quarter end equity buying $125bl
JP Morgan calculates that multi-asset investors
rebalancing flows will be +$125bl by quarter end. These
are flows from risk parity funds, sovereign wealth funds,
and US pension funds and are based on the performance
of bonds and equities in Q3. One could assume that the
gains in recent days may reduce that amount of buying
pressure a bit. The calculations were made on Sep 13th
and S&P is up about 2% since then.
The spread between US and Japanese rates is what
ultimately drives the value of the yen vs. the dollar,
Risk parity funds are funds that need to maintain a 60/40
although the two diverged from May until July. While the
equity/fixed income ratio.
yen has strengthened considerably since mid-July, the

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
spread between US and Japanese rates has started to months)" PM NJ
widen again, in part due to a seasonal pickup in US growth.
This is causing renewed weakness in the yen. "The recent 50 basis point rate cut by the Fed is an
acknowledgment that monetary policy has been too tight
Speculators Positioning in Yen for too long. While the rate cut may delay the recession, it
won't prevent it entirely. The Fed is still behind the curve,
and the effects of the previous tightening are still impacting
the economy. " Rosie (David Rosenberg).

"As a macro guy for thirty years. I realize more and more
people overthink the macro, Bonds don't offer a lot of
protection unless one thinks the Fed needs to go easy.
Were short duration. Still have some forward curve,
Think MBS does well. Move / implied rate vol should
decrease" CIO NY

US 2-Year Yield vs. Fed Funds Rate

Speculators have not been this long the yen in at least

three years. This could trigger a wave of selling if US and
Japanese rates continue to diverge.

30-Year Yield Fades Trend Line

Fed Funds vs. 2s still at a near-record of 139bps! The

inversion at this part of the curve signals that market
participants expect a lot more rate cuts in the coming
months (as they expect yields 2 years from now to be a lot
lower than the current Fed Funds rate).

The 30-year yield increased but pulled in a touch after

touching a downtrend line.

"The $1.6T CBO deficit estimate is now UP to $2.0T in

reality, in the last 4-5 months, they just hit the
accelerator on fiscal deficits again, the 2nd time in 2
years (the first was after SIVB), then Powell cuts 50bps!
They are torturing Rosie (David Rosenberg) and Lacy
(Hunt) (pounding the table bond bulls last 24

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
The New Regime Has Started Mortgage Rates

We are in a whole new world of far higher interest rates "How much equity is in the American home piggy bank for
and sustained inflation drivers. By cutting 50bps now refinancings, when rates come down? I shouldn't say
they will just re-juice inflation higher. The Fed is cutting when, the home equity ATM is kicking in already. This is
50bps with super core inflation surging (375bps in October inflation supportive next 6-months." -- PM LA
of last year to 446bps in August).
Refinancing Trends
"Larry, when we think about starting a rate-cutting cycle
with 50bps. The last time was September 2007, when
stocks lost 16% by March 2008 (Bear Stearns). In
December 2000, they kicked off the cycle with 50bps, and
stocks lost 30% shortly thereafter. They are cutting 50bps
for one of two reasons. a) they have to get front-end rates
lower as interest expenses are eating up the federal
budget and they are throwing in the inflation fight towel. b)
They see something in commercial real estate or
consumer credit delinquencies (see the ALLY public
statements) they do NOT like. " CIO NYC.

50bps Cut and Loose Financial Conditions

We see a 24% surge in the refinance index, which is +65%

since July.

"Through FedSpeak, the Fed has ALREADY cut rates

100bps in reality, the refi index is screaming that fact." --
PM LA

"Around 60% of mortgages are around 4% and 25% of

houses are mortgage free, homes are ATMs again,
inflation re-accelerates from here thanks to the Fed already
easing, MBS rates 100bps off the highs." -- PM CT

FCIs vs. Fed Funds, rare territory!

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
Trade Alert Buy VIXY Near $11.80 Defensives vs Growth

We exited at $21.05 on Aug 5th and $14.25 on Sept 6, Since mid-July defensives (XLP, XLV, XLU, IYR) saw a
buying those shares back, equity vol seasonals are still massive inflow of capital coming out of growth (QQQ) and
strong and hedges coming off post the Fed = opportunity value (KRE/KBE, XME, XLE) as the market suddenly
to get long for a trade. became obsessed with a "growth scare". This week's high-
frequency economic data and the actions of the Fed should
VIX Curve Backwardation put those fears to the side for now, which is causing money
to rotate out of defensives back into growth and value.

Nasdaq Daily Change

When was the last time the curve was inverted -- Although Thursday was a big up day for indices, especially
backwardation into a Fed meeting? the Nasdaq, it's only the fourth biggest in terms of % gain
on the day for the year.

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
Nasdaq Composite Members 52-Week Highs & Lows "passive" index.”

Performance of Mag 7 so far in Q3

QTD Value Fwd
Magnificent 7 Price Market Cap Change EV/EBITDA
NVDA US Equity 116 2,845,480 $ (173,668) 23.4
MSFT US Equity 435.27 3,235,378 $ (84,549) 19.0
AAPL US Equity 228.2 3,469,585 $ 289,599 23.1
GOOGL US Equity 163.59 958,474 $ (97,663) 12.2
GOOG US Equity 164.64 919,514 $ (94,147) 12.2
AMZN US Equity 191.6 2,010,951 $ (17,170) 13.7
META US Equity 561.35 1,226,398 $ 138,955 13.7
TSLA US Equity 238.25 761,123 $ 155,279 38.6
Net $ 159,392
This means that the XLK on Friday had to buy $6.8bl AAPL
shares and sell $5.4bl of MSFT and $4.9Bl of NVDA. AAPL
average daily volume over the past 6 months is about 60ml
shares, or $12.3 billion. XLK's expected purchase of Apple,
Impressive breadth in the Nasdaq Composite. This is not though less than 1% of the float, would be about 50% of
the NDX, but an index comprised of 1500 mostly tech the average daily volume. The MSFT sale equals 61-66%
names, including the big guys but also many smaller of its daily volume. NVDA, the world's most traded stock,
stocks. averaged over $41 billion a day, and XLK's sale would be
just 11% of that.
S&P 52-Week Highs & Lows
Still this looming rebalance could explain why AAPL
outperformed so much this quarter and MSFT and NVDA
lagged (see table).

Nasdaq vs AI Story Count

S&P breadth is also very respectable.

XLK Finally Realizes its Own Folly

Remember the ridiculous weighting methodology of the

XLK, where MSFT and NVDA were 20% and AAPL less
than 5% of the ETF. On the 3rd of September S&P
changed rules for its Select Sector indexes to prevent The Nasdaq has followed the AI media hype in lockstep.
massive rebalances. “We believe the new rules will allow As stories on AI increased since the start of 2023, the
the indexes to better represent their sectors, particularly in Nasdaq has been riding that wave.
technology. Capping stocks at 4.5% and drastically
underweighting positions stretched the definition of a

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
Home Builders Extended Consumer Staples vs. 200dma

ITB - home builders are 30% off the July lows, 17% > its XLP rare ground...
200dma, a near record 66% > its 200-week moving
average, weekly RSI is 64.9 vs 76.5 in March (negative XLP was -9% below its 200dma in October, now +11%
divergence). above. Reached +17% in 2000 (November), but was only
greater than 11% for 62 days.
Union Pacific Fails at Supply
NKE Takes Bold Action

Union Pacific Corp fails at supply (orange dashed line) but

holds uptrend line support (yellow line) after setting profit, Bear Traps core portfolio holding NKE announced
buyback goals below expectations. Thursday after the close that Elliott Hill will become
President and CEO, effective October 14, 2024. Hill
previously ran all commercial and marketing operations for
the Nike and Jordan brands before retiring from the
company in 2020. Current CEO Donahoe will step down in
an effort by NKE to turn around the brand and the stock,
and shares spiked 7% Friday. The recent Starbucks CEO
swap may have inspired NKE to do likewise but NKE will
report Q1 earnings on October 1st, and given this sudden
move, those earnings are likely not going to be good.

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
 On the other hand, it faded an obvious horizontal
PYPL Technical Breakout resistance line (orange dashed line). That is bad.
Furthermore, it closed off -294bps from its 1 pm high. That
is bad. This was the most up stock in the +$25B club, and
it was down after lunchtime when theoretically everyone is
fat and happy.

Comments on Tesla's Robotaxi

UBS: "Hype and expectations around Tesla’s Oct. 10

Robotaxi event are building and there seems to be more
interest from tech/growth / AI investors (who lean bullish
into the event) versus auto/industrial (who lean bearish or
begrudgingly bullish).

Topics of Focus: 1) FSD rate of improvement 2) Who runs

the service? 3) Robotaxi economics/total addressable
market 4) AI investment 5) the vehicle 6) Optimus Robots
This was once a $300 stock. We’re not saying it's going Tesla is holding the event in a Warner Bros studio which
back there but the stock has crossed the desert from 2022 means they can’t show their service in the “real world” (like
until now, forming a base of around $60 that took a year if Waymo) because they don't participate in the California
not longer. It recently filled the gap it left when it fell out of Public Utilities Commission (CPUC) AV Passenger
bed once again a little over a year ago. Now it has taken Service pilot program. They don’t have an Autonomous
out the July 2023 highs and popped to a 52-week high this Vehicle Tester Program Manufacturer's Testing Permit
week. This stock has broken out. RSI might be high, but from the California DMV for driverless testing or
the stock is in a longer-term bull trend now. deployment.

"I bought PYPL this week. They are pushing new Analyst Joe Spak believes widescale Tesla robotaxi
advertising campaigns, new partnerships, etc. Forward PE deployment is unlikely within the coming years. Not
15.5. I am no technician, but the chart looks great too." -- because Tesla isn’t making technological progress, but
PM NYC because it needs to show that the tech is ready and safe,
deal with a myriad of local regulations (city by city) and
(potentially) figure out logistics / operations of a
MSTR Fades Horizontal Supply transportation network company.

MicroStrategy was up nine percent Thursday. That is good.

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
AI or Sugar Water?
Even if we apply a 25% discount to the fair value to account
for all the nuisance lawsuits against GOOGL (one might
argue, if the government is ever successful in breaking up
the company, it’ll free up the parts, which are worth more
than the current Enterprise Value), the stock is worth 40%
more than where it is currently trading.

This market values KO, a company making sugar water for

the last 100 years at a 70% premium to one of the
strongest players in AI with >$100bl FCF every year. For
perspective, KO is expected to have an EPS CAGR of ~6%
in the next 3 years whereas GOOGL is about 20% EPS
growth each year for the next few years.

Let’s examine GOOGL’s sum of parts valuation. GOOGL

has 4 businesses; Youtube, Google search & services,
GOOGL cloud and “other bets” as they call it.

Youtube is bigger than NFLX, as the chart below shows.

So, let’s value Youtube in line with NFLX. GOOGL search
generates enormous cash flows and is best valued with a
DCF, which derives $3.2Tr in Enterprise Value. GOOGL
Cloud is valued in line with the sector at 15x fwd
EV/EBITDA. The “other bets” is harder to value. But
Waymo is in there, and that alone is potentially extremely
valuable. It’s the only viable competitor to TSLA FSD.
When it comes to autonomous driving, it’s all about the
massive amounts of data collected from real time
infrastructure, and only TSLA and GOOGL have all that
data (remember, Waze is from GOOGL).
Where is the beef = ROIC (return on invested
GOOGL sum of parts: cap)? “Today the average EPS growth rate among AI ETF
Youtube $300bl constituents has fallen from 18% to just 5%, below the S&P
GOOGL search $3.2TR 500.” BofA
GOOGL cloud: $31bl
Other bets ? Note to BofA: Get a New Calculator
Net cash: $110bl
Total: $3.7TR
GOOGL current EV: $2TR
Govt discount: 25%
Upside: 40%

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
 30% regulators on the other hand are unlikely to approve that
EPS Growth deal. Recall that INTC walked away from the Tower
Semiconductor deal last August after failing to win Chinese
20%
regulatory approval. European regulators will also have to
review that deal and may also be reluctant to approve it,
10% given QCOM’s dominant market share in mobile combined
with INTCs dominant share in PC.
0%
2025 2026 2027 Bottom Line: if QCOM buys just Intel’s chip design
Indxx Artificial Intel Index S&P operations (or INTC division Altera), investors would
probably welcome such a deal. However, Intel is likely to
The Indxx AI Index, which is available in ETF form with the make an “all or nothing” demand, and this isn’t a
AIQ ETF, holds about 84 companies. The biggest weight combination QCOM shareholders will love (QCOM is
is NOW, followed by ORCL and IBM. The index is performing reasonably well at the moment and investors
expected to book EPS growth of 27% in 2025 and 20% in don’t want to see it inherit all of INTC’s very real problems).
2026, which is well above the estimated ~10% for the S&P Between pushback from regulators and QCOM
500. Everyone knows this. shareholders, along with questions about INTC’s
manufacturing capabilities, it’s hard to see a deal being
QCOM Interested in INTC consummated.

On Friday, less than an hour before the close, WSJ Hard to Make Deal EPS Accretive
reported that QCOM had approached Intel about a
potential takeover. INTC stock shot up, although this news
should not come as a complete surprise. Reuters reported
earlier in September that QCOM was looking at potentially
buying parts of the Intel chip design business.

The question therefore is if QCOM is just looking at the

design business of INTC or does it want, or has to, buy the
whole thing. This includes INTC’s large manufacturing
footprint, but this is where most of INTC current troubles
are as well.

QCOM is more likely to be interested in the chip design

component of the beleaguered chip maker. It could spin off
the manufacturing part after the consummation of a
merger, into something comparable to Global Foundries
(GFS), the fabs that were spun out of AMD. QCOM is a
fabless semiconductor company, and its chips are made INTC P/E is still above that of QCOM, which means
by TSM. The problem is that INTC’s chip design is that it’s hard to make a deal accretive to earnings
financially supporting manufacturing until the latter picks
per share. QCOM will undoubtedly use stock to pay
up more 3rd party customers in the coming years. So, it
might take years before QCOM can spin it off, and QCOM for part of the deal, and because it has a lower P/E,
shareholders are not going to like that. the deal is automatically dilutive unless QCOM
promises big cost cuts. Per Bloomberg, Apollo
Also, any combination of these two companies would likely Global Management has offered to make a
face massive antitrust scrutiny (remember AVGO/QCOM multibillion-dollar investment in Intel. The alternative
some years ago) but QCOM could sell the deal to DC from asset manager has indicated in recent days it would
the standpoint of national security. The pitch would be that be willing to make an equity-like investment of as
an INTC combination would bolster the entire domestic much as $5 billion in Intel.
chip industry, which is what DC cares most about. Chinese

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
QQQ Divided by KWEB Ratio JD.com Rally

QQQ/KWEB Trend Break! The ratio rallied to the "We are having an upside crash. We love JD here. You
underbelly of its former up channel and fell off, confirming rarely see a $46B equity market cap equity sitting on $40B
the old trend is over. of cash." -- PM NY.

China EV Story Copper to Gold Ratio vs. Rates

This is a great anecdote that shows China's manufacturing

superiority. In this case, in EVs, they gained that
superiority only recently.

"Ford has had a strong presence in China for many years

and in early 2023, CEO Farley and CFO Lawler flew to the
country to experience an electric SUV from Changan
Automobile, a local firm with which Ford has a joint
venture.

“Jim, this is nothing like before,” Lawler reportedly told

Ford’s CEO. “These guys are ahead of us.” It was
apparently impressive enough that Farley told Ford board
member and ex-Goldman Sachs executive John Thornton
that “this is an existential threat,” the WSJ report says."
"The copper to gold ratio has diverged from the US 10-year
This experience was part of what prompted Ford to dial yield because central banks and individuals are worried
back its EV strategy. Ford axed plans for a three-row about U.S. dollar supremacy and possible 4th Turning
electric SUV that was supposed to enter production in effects and so are bid gold." -- NJ PM
2025 and a large electric truck has also been delayed from
2025 to 2027. "I strongly disagree with this. It has to do with China's
growth effect on copper and then their diversifying away
from RMB and into Gold. Notice here how copper/gold has
NOT diverged away from Chinese 5yrs." -- CT PM

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
First Quantum Strength Gold Silver Cross

First Quantum is exiting its CAT5 capitulation. We are bulls Alert - trend break, we see 65 by Q1 2025. We stressed
long 2/3. last week, options on SLV.

Palladium Leads PGM3 Higher

Silver Snaps Downtrend

Palladium is leading its cohorts higher.

On palladium, ACEA data showed hybrids as the only

growth area in EU auto sales - hybrids are more PGM
intensive than even gasoline-only cars - looks like the UK
Silver Spot broke through its downtrend line (yellow line)
government will also extend hybrid sales from 2030 to
today.
2035. XPD momentum indicators starting to point higher,
we still have the powerful MACD Monthly BUY signal in
place. PALL US, IPDM LN & CHN AU all ways to play....as
well as JMAT LN2-- Andrew Hart

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
Impala Bull Break URANIUM Trade Alerts

Impala is well out of its downtrend on this daily chart. On August 5th, in client trade alerts, we added to
URNM. Three Mile Island Plans to Reopen as Demand for
Gasoline October 2024 Contract Trend Break Nuclear Power Grows. Data Center demand: CEG will
restart the undamaged nuclear reactor at Three Mile Island
and sell the output to MSFT to help power AI data centers
according to an announcement Friday.

- CEG will spend $1.6B to restart the reactor by 2028;

MSFT Friday morning signed a 20-year power-purchase
agreement with CEG.

Merchant Utilities Ripped on Friday On CEG News

The gasoline contract has broken a short-term downtrend

line (green dashed line). It appears that a test of a longer-
term downtrend line (solid yellow line) is next.

*MICROSOFT — AI ENERGY DEMAND PROMPTS

THREE MILE ISLAND (NUCLEAR POWER) REVIVAL -
Bloomberg.

Not just CEG, but other merchant utilities such as VST,

NRG, and EXC soared higher on Friday on the news.

Merchant utilities are power suppliers which supply power

to the district with electricity needs that exceed baseload
capacity. So, you have one utility that regularly supplies

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
power to the district (baseload utilities) and on top of that, Alternative energy/Solar
you have merchant utilities which supply power when
fwd EPS
demand exceeds the capacity of the regular utility. The AI Name Symbol Market cap P/E growth
power demand surge is therefore initially most beneficial to ENPHASE ENERGY ENPH US Equity -2.1% $ 15,560 24.7 84%
FIRST SOLAR INC FSLR US Equity -0.1% $ 25,713 11.2 58%
the merchant utilities. GE VERNOVA INC GEV US Equity 0.4% $ 67,453 39.3 40%
CAMECO CORP CCJ US Equity 8.1% $ 19,322 33.5 123%
SMR Bullish NUSCALE POWER CO SMR US Equity 11.3% $ 2,666 -20%
Hypercalers such as META, GOOGL, MSFT and AMZN
have vowed to be 100% renewable for their power demand
for data centers. As a result, they look at solar, wind and
increasingly nuclear to meet their soaring power needs.
Some of the hyperscalers, and also ORCL, have
mentioned to plan on using small scale nuclear reactors to
supply power to data centers. ORCL CEO Larry Ellison
said so in last week’s analyst meeting. Ellison said that
ORCL is building a gigawatt scale data center powered by
three SMRs. Oracle currently has 162 cloud data centers
in operation or under construction globally, the largest of
which has a capacity of 800MW. But ORCL will "soon"
begin the construction of data centers that surpass a
gigawatt of capacity, according to Ellison. In this race to
build the most powerful data centers, SMRs will play an
increasingly large role because it takes minimum five years
High drama around August 5th. This was our busiest for a utility to build a gas-fired powerplant, and more time
trade alert buy week of the year. Some of the speculative to build a nuclear power plant.
plays we like are in bitcoin miners with hyper-scaling
capacity and companies in the nuclear sector. One of the
more attractive small caps there is Nuscale Power, which Nuclear fuel prices surge as west rues shortage of
is developing small scale nuclear reactors (SMR). conversion facilities -FT

The price of fuel for nuclear reactors has surged much

Bitcoin Miners with HPC capability faster than that of raw uranium since the start of 2022, in a
fwd EPS sign of the bottlenecks that have built up in the west
following Russia’s invasion of Ukraine.
Name Symbol Market cap P/E growth
CORE SCIENTIFIC CORZ US Equity 3.2% $ 3,094 27.6 -122% Enriched uranium has more than tripled in price to $176
IRIS ENERGY LTD IREN US Equity -3.6% $ 1,422 12.1 1227% per separative work unit — the standard measure of the
TERAWULF INC WULF US Equity 0.9% $ 1,722 47.9 191% effort required to separate isotopes of uranium — since the
start of 2022, according to UxC, a data provider.
BITDEER TECHNOLO BTDR US Equity 4.9% $ 825 13.7 2327%
APPLIED DIGITAL APLD US Equity 8.3% $ 1,291 N/A 16% Demand for uranium has been driven by a revival in atomic
HPC – High Performance Computing - Most bitcoin power. However, Russia plays a significant role in the
miners are far away from urban areas where power is multi-stage process of turning mined uranium into the fuel
cheap. Only with cheap power does bitcoin mining become for a nuclear reactor. This includes converting yellowcake
profitable. Because of that, few bitcoin miners are — uranium concentrate — into uranium hexafluoride gas,
connected to, or even close to, long-haul fiber networks enriching it to increase the concentration of the type of
needed to send the data back to urban demand centers. uranium used for fission, and then turning the enriched
So the list of bitcoin miners with both cheap power access uranium into pellets that go into reactors.
and connection to long-haul fiber is small, and listed in the
table above.

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
Russia Embargo Causes Price Hikes for the Grid Street thinks they will produce $500m of ebitda in
2025.

They Loved Her at $50

In January, 27 Wall Street analysts had an average

$50 price (aqua blue above) target on MBLY stock.
File under things you will NOT hear on CNBC.

“While the Chinese OEMS (Original Equipment

Manufacturers) are doing some in house builds,
Enriched uranium has increased much more than the these are competitive, but not better. The Global
uranium commodity itself due to refining shortages. Auto makers will NOT likely try and develop the
technology on their own. Can you imagine
Mobileye Global – The Bull Case Volkswagen VW or Ford F actually doing this? The
bears ask, can NVDA drive the price down enough
to take meaningful share? With the near-term scaling
of FSD (Full Self Driving) and the clear viability of
Waymo, all the OEMS will be under increasing
pressure to adopt an alternative to FSD. This is what
2025 will be all about in Autos... There is almost zero
goodwill expectation remaining in the stock IMO (in
my opinion) and the capitulation score is very high in
terms of both the speculators and real money puke. I
think this could be an epic tax loss accumulation
candidate.” CIO San Fran

“The worry is, nvda will keep throwing their massive

profits at this and eventually beat mbly. The feeling is it’s
a high conviction rebound then problems ahead.” CIO
MLBY ($11 our entry) was IPO’d In October of 2022 London.
at $21 and sold a secondary offering of shares in
June of 2023 at $42. Mobileye commands a $10.0B “Mobileye has globally over 4m vehicles equipped
market cap, has $1.2B of cash and no debt. The with the technology required to gather REM data (a
highly detailed map updated continuously), but only

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
200,000 in China. The company had known from the
beginning data gathering would be a challenge and
limit the pace of expansion of the service. In
addition, regulatory constraints in China made
processing this data more difficult than anywhere
else in the world. Our understanding is that it has
been a significant limiting factor.” CIO San Fran

*REM (Road Experience Management) is a mapping

and localization technology developed by Mobileye,
an Intel subsidiary.

“The fundamentals of our (bullish) thesis are intact.

Today, Mobileye has a unique positioning:
SuperVision is for OEMs materially cheaper and
easier to implement than Nvidia’s solutions and
competes well with Tesla’s FSD (Full Self Driving). It
means Mobileye is best positioned to help traditional
OEMs keep up with Tesla’s FSD. The transition to
the SuperVision and Chauffeur drives a 4-20x ASP
uplift vs. base drive assist. Playing out over multiple
years, the transition should drive material, long-
lasting growth.” CIO San Fran

We are working with clients on price-discounted bulk

buys of 25 or 50 copies. Please reach out
to valentina@thebeartrapsreport.com.

The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024
 Short-Term High Conviction Position List (30-60 Days)
Position Ticker Description Sector Thesis
1/3 GNRC Generac Growth
2/3 NKE Nike Inc. Growth After lightening into strength, we have been adding
3/3 MSOS US Cannabis ETF Value back to our gold miner long positions. We also recently
1/3 XBI Biotech ETF Value began to lighten our nat gas names into strength, but
2/3 KWEB China Internet ETF Emerging Markets remain bullish after loading-up into the recent sell-off.
3/3 GOLD Barrick Gold Commodities NKE was recently added to our short-term high
3/3 IMPUY Impala Platinum Commodities conviction list.
2/3 XOP Oil & Gas E&P ETF Oil & Gas
Long-Term High Conviction Position List (12-24 Month View)
Position Ticker Description Sector Thesis
2/3 URNM Uranium Miner ETF Commodities
1/3 CCJ Cameco Corp Commodities
1/3 TECK Teck Resources Commodities
2/3 HL Hecla Mining Commodities
3/3 SIL Silver Miner ETF Commodities
3/3 GDX Gold Miner ETF Commodities Throughout 2021-22, we were overweight both energy
1/3 NEM Newmont Corp Commodities and non-energy commodities. In mid-2022 we began to
2/3 RIO Rio Tinto Commodities lighten significantly on our exposure, into strength -
namely in the energy and industrial metals spaces. We
3/4 CLF Cleveland Cliffs Commodities
then added Antero Resources, Rio Tinto, Newmont, and
3/3 VALE Vale Commodities
Chevron to our high conviction list after the drawdown.
2/3 FQVLF First Quantum Commodities Notably, we are actively hedging our longs positions
2/3 AA Alcoa Commodities with shorts in AAPL, the Nasdaq, the S&P, and long
3/3 PLTM Platinum ETF Commodities volatility.
1/3 PALL Physical Palladium Shares ETF Commodities
3/3 AR Antero Resources Oil & Gas
1/2 ET Energy Transfer Oil & Gas
3/3 SLB Schlumberger Oil & Gas
3/3 CVX Chevron Energy Oil & Gas
1/3 MU Micron Growh
2/3 NKE Nike Inc. Growth With a long-term view we remain bullish value equities
1/3 GLRE Greenlight Capital Value and beaten down growth stocks relative to the market.
3/3 INTC Intel Corp Value
1/3 EWU United Kingdom ETF Non-US Developed
2/3 EWY South Korea ETF Emerging Markets We believe the Fed is about to cause a significant break
2/3 EWZ Brazil ETF Emerging Markets in the economy, fueling a weak USD. A weaker dollar
2/3 BABA Alibaba Group Emerging Markets points to upside in non-US Equities.
3/3 FXI China Large Cap ETF Emerging Markets
High Conviction Portfolio Returns vs. S&P 500 Index
Past Month (vs. S&P 500) High Conviction 1.5% (vs. S&P 500 2.1%)
6 Months (vs. S&P 500) High Conviction 2.5% (vs. S&P 500 11.5%)
High Conviction 12m realized sell alerts +20%
Realized trades
Hedge portfolio 12m realized gains +18%
These are only our HIGH conviction plays. Please see our full portfolio via customer login at www.thebeartrapsreport.com

Bear Traps Report | Asset Class Outlook

Asset Class Recent Change Strength of Conviction Rationale
Underweight Overweight We are bu llish on v alu e equ ities with exposu re to c om m odities.
Equity Positioning:
Howev er, with a a weak-USD ou tlook, we rem ain bu llish n on -U.S.
U.S. Equities equ ities.

Underweight Overweight With c on v ic tion , we believ e global equ ities (n am ely em ergin g m arkets
Global Equities an d Ch in a) will largely ou tperform th e S&P 5 00 ov er th e n ext 12
m on th s.
Defensive High-Risk
On th e c redit spec tru m , we wan t to be h eav ily position ed toward
Credit Quality in v estm en t grade c orporates. High qu ality (Sin gle-A or better) sh ort
term (1-3 y ears) U.S. in v estm en t grade bon ds are preferred.

Low High
We rec en tly added bac k to lon g TLT Treasu ry ETF position . A s th e
Duration m arket sees th e c om in g en d to th e h ikin g c y c le, u pside is lim ited,
espec ially with fallin g in flation .

Underweight Overweight We ligh ten ed ou r c om m odity exposu re th rou gh ou t Q1/Q2 of 2022.

Giv en th e sh arp drawdown in c om m odity -exposed equ ities in Q3, we
Commodities
added bac k to ou r exposu re. We see large prec iou s m etals
ou tperform an c e m ov in g forward.
Risk-on Defensive
We h av e ligh ten ed n u m erou s c apitu lation bu y s in to stren gth in rec en t
Cash Allocation
weeks, n am ely in th e growth equ ity spac e.

U.S. Dollar Global Currencies

We believ e th e dollar h as sign ific an t down side risk with rate h ike
Currencies
expec tation s likely to be pu lled down fu rth er, in ou r v iew.
 Best Regards,

The Bear Traps Report Team

Larry McDonald is the New York Times bestselling author of "A Colossal Failure of
Common Sense," CNBC contributor and Political Risk Expert. He is the Editor of The Bear
Traps Report, a weekly independent investment letter focusing on global political and
systemic risk with actionable trade ideas. Former Head of U.S. Macro Strategy at Société
Générale and former vice president of distress debt and convertible securities at Lehman
Brothers. He is one of the most well-respected risk managers on Wall Street.
Visit the website: www.thebeartrapsreport.com

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The Bear Traps Report with Larry McDonald

Sunday, September 22, 2024