Who is Larry McDonald? And why he thinks the stock market will crash in 60 days

Respect risk analyst and former Lehman Brothers Vice President, Larry McDondald has made a major statement on American TV.

He’s revealed his proprietary risk modelling system is pointing to a major stock market crash within 60 days.

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“Our 21 Lehman systemic risk indicators that look at equity and credit point to one of the highest probabilities of a crash in the stock market looking out 60 days,” he told Fox Business.

Asked to confirm that he thinks there will be a crash within 60 days. He response was clear.

“Yes because the withdrawal of capital from the middle class families is so spectacular, for every 1% increase, and we’ve done almost 5% now, every 1% takes $50 billion out of the pockets of middle class families.

“Auto loans right now are approaching 14%, almost 20% of auto loans are $1000 a month and so the middle class families are getting hammered here… The consumer pressures are getting violent.”

Larry McDonald’s comments after Federal Reserve chairman Jerome Powell cautioned that interest rates are likely to continue moving higher.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in the Senate Banking, Housing and Urban Affairs Committee on Tuesday.

While McDonald fears the worst for the U.S. middle class, he said the situation is much better for high net worth individuals.

“On the high end, the wealthy are doing well with excess savings and higher interest rates.”

But he doesn’t expect their capital is going to flow into stock markets.

“$10 million in cash today generates $510,000 a year in one year Treasuries. Think about that – a year ago this was $70,000, we have to do the math here, common sense.

Should you trust what Larry McDonald has to say?

Well, many of the world’s largest hedge funds and sovereign wealth funds do listen to Larry McDonald.

He’s runs The Bear Trap Report, an investment research and consulting service for institutional and professional investors.

Prior to founding The Bear Trap Report, McDonald was most famous for his time at Lehman Brothers, where as Vice President in 2006 he led a team betting against the subprime mortgage market – the move generated over $2 billion for the firm, prior to its demise at the onset of the 2007-08 Financial Crisis.

With first-hand knowledge, in 2009, McDonald wrote A Colossal Failure of Common Sense, The Inside Story of The Collapse of Lehman Brothers – which to date remains one of the best selling books related to the 2007-08 Financial Crisis.

McDonald has not revealed too many details about the system behind his so-called “21 Lehman systemic risk indicators”.

However, in some past interviews he has eluded to moves in the price of copper, oil and interest rates as being critical to his risk modelling.

Related: Housing market crash: U.S. facing “rapidly evolving catastrophe” – how it will end