Lawrence McDonald spent years inside Lehman Brothers before watching it collapse from the inside. Now, as founder of The Bear Traps Report, he's raising alarms that much of Wall Street would rather not hear - that the current market, as of early 2026, is tracing a familiar and dangerous path.
Key Takeaways
A former Lehman Brothers VP warns 2026 credit markets mirror the early warning signs of 2008
The $1.8 trillion private credit market is flashing stress signals, with major firms restricting redemptions
A massive capital rotation out of Big Tech into energy, commodities, and hard assets is predicted
Goldman Sachs echoes the concern: equity risk premiums are at levels last seen before the 2008 crash
McDonald’s central warning is straightforward: credit risk is being ignored. Not misunderstood, not underestimated – ignored. That, he argues, is precisely what happened in 2007 before the subprime mortgage market imploded and took the global financial system with it.
The mechanism he’s focused on this time isn’t mortgage-backed securities. It’s private credit – a $1.8 trillion market that has expanded rapidly with limited transparency and, increasingly, limited liquidity. McDonald points to redemption restrictions recently imposed by major firms including BlackRock and Blackstone as early warning signals. He’s called these moves a “script from 2008,” referring to the period when structured credit vehicles began quietly seizing up before the broader public registered any danger.
His core systemic concern is what he describes as “correlation to one” – the phenomenon where, in a genuine credit shock, asset classes that normally move independently begin crashing in unison. Diversification disappears. It happened in 2008. McDonald believes the conditions for a repeat are forming.
He’s not alone in that concern. Goldman Sachs strategist Peter Oppenheimer has noted that equity risk premia are currently sitting at levels not seen since the run-up to the 2008 crisis – a data point that is difficult to dismiss as fringe commentary. PIMCO and Fitch have separately raised flags about an impending default cycle in direct lending, warning that stress in private credit could spill into the broader economy.
The Trade McDonald Is Making
Whether or not one accepts the crash scenario, McDonald’s investment positioning is clear and deliberate. He’s calling 2026 the “Year of Value Stocks” and predicting what he describes as a “colossal shift” in capital – out of overcrowded technology names like Nvidia and Broadcom, and into sectors that have been structurally neglected for years.
His argument rests on a valuation gap that is, by any measure, striking. The Nasdaq 100 currently carries a market capitalization approaching $34 trillion. The entire US energy sector sits at roughly $2.8 trillion. McDonald’s thesis is that even a modest reallocation from one to the other would send energy and commodity stocks sharply higher.
Energy infrastructure is his highest-conviction area. He holds positions in Occidental Petroleum and Schlumberger, viewing oil and gas as deeply under-owned. More unusually, he’s bullish on coal – specifically naming companies like Core Natural Resources as what he calls “silent AI trades.” The logic: data centers require enormous and continuous power, and coal remains a significant part of that supply chain regardless of the longer-term energy transition narrative. Nuclear and natural gas, in his view, are similarly non-negotiable for the power demands of high-performance computing.
On metals, McDonald favors silver over gold in the near term, citing its industrial applications in renewables and data center infrastructure. Copper, essential for the physical buildout of AI systems and robotics, is another high-conviction holding. He remains constructive on lithium miners, including Albemarle, as the resource transition continues.
Outside of raw materials, he’s turned to defensive consumer brands trading at what he sees as unjustifiable discounts. Diageo – the company behind Johnnie Walker and Guinness – is among his top value picks. He’s also flagged Target, Chipotle, LyondellBasell, and Old Dominion as names where neglect has created opportunity.
The underlying thesis across all of these positions is the same: the era of cheap money and disinflation that powered growth stocks for over a decade is over. Stubborn inflation and elevated interest rates, McDonald argues, structurally favor companies that control physical assets. Unlike much of the technology sector, commodity and resource companies have spent years cutting costs and maintaining capital discipline, resulting in low debt levels and free cash flow yields that in some cases reach 15%.
The Counterargument
Not everyone is preparing for a reckoning. Morgan Stanley and J.P. Morgan both maintain a constructive outlook for 2026, forecasting double-digit equity gains powered by continued AI-driven earnings growth and a gradual Federal Reserve rate-cutting cycle. Their base case is that the AI bull market has further to run and that the macroeconomic backdrop, while complicated, does not presage a systemic credit event.
McDonald’s response to that view, implicit in his positioning, is that it resembles the consensus of early 2008 – confident, data-supported, and ultimately overtaken by what the data wasn’t capturing.
Whether his warnings prove prescient or premature, the structural argument underlying his rotation trade doesn’t require a crash to be valid. The valuation gap between technology and hard assets is real. The stress in private credit is documented. And the power demands of AI infrastructure aren’t going away.
The question is whether the market adjusts gradually, or all at once.
