We're "On The Cusp" Of Another Inflationary Breakout
Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week.
Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week. Larry is one of my favorite market analysts to follow and he gets little coverage in the mainstream financial media, so I’m happy to bring you his thoughts.
Larry was kind enough to allow me to share his thoughts heading into Q1 2025. The letter has been edited ever-so-slightly for formatting, grammar and visuals.
This is Part 1 of his letter, part two will be published later this week.
QUARTERLY OVERVIEW
The fourth quarter was a disappointing quarter for the Fund. While October was strong, the November 5th election of Donald Trump was a big positive for the stock market and therefore a big negative for gold stocks. Recall that gold stocks compete with all other stocks for investment dollars. Trump’s election led investors to believe that his business-friendly policies would solve the Federal Government’s problems and it sparked one month rallies of 6.7% in the S&P 500 and 10.7% in the NASDAQ 100. Concurrently, the gold stock indexes got hit hard.
Specifically, Trump announced a plan to form a new governmental department called The Department of Government Efficiency (DOGE) headed by Elon Musk and Vivek Ramaswamy, tasked with the job of cutting government waste and balancing the budget. Musk made some outrageous claims about how they could solve the budget deficit and generate $2 Trillion in savings. If deficits and inflation are going to abate who needs gold and gold stocks?
Our reaction is: not so fast. We will dig deeper into this in a minute, but DOGE cannot come anywhere near achieving what Musk is promising.
There are several other interesting take aways from the Quarter and Year.
Gold and silver bullion outperformed regular stocks and gold stocks. This is a rare occurrence and a clue to what is happening.
Bitcoin, a good barometer of monetary debasement and inflation had a stellar Q4 and Year, up 47% and 121%, respectively. (Note the Fund’s publicly marked Bitcoin investments now equal 15% of total fund value, and private Bitcoin investments represent an additional 6% weight).
10-year UST note and the dollar index (DXY). The U.S. 10-year bond yield jumped 21% to a yield of 4.57% and the dollar index was up 7.6% to 108.5. Both of these moves are highly unusual in an environment where the Fed is cutting rates. This suggests to us that the bond market investors are worried about future monetary debasement. We consider it to be a very good sign that the gold price has hung in near its recent high despite these interest rates rising.
FISCAL DOMINANCE
The biggest story of the quarter and the year was the way in which the Federal Government spending continued to grow at a break-neck pace. This led to a stronger than expected economy with GDP growth of 3.0% and record highs in the US Stock market, which were achieved in early December.
In our last quarterly report, we presented the following chart which we have updated to show September, October and November.