"God Help Us In The Next Crisis"
Submitted by QTR's Fringe Finance
Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week. He gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.
Larry was kind enough to allow me to share his thoughts heading into Q4 2023. The letter has been edited ever-so-slightly for formatting, grammar and visuals.
This is the most recent investor letter from my good friend Lawrence Lepard, which contains a detailed writeup on the following and will be broken up into two parts:
2023 Year in Review
The FED and Treasury Blink in Q4
Inflation
Gold and Bitcoin Got the Memo
US Fiscal Position Not Improving
Catalysts for a Full Fed Pivot
When The Fed Pivots, We Get Paid
Gold’s Outlook Is Improving
2023 YEAR IN REVIEW
Here are the major developments of 2023:
• No Recession – the rapid rate hikes of 2022 (basically from zero to 4.33% at year-end 2022) did not have the negative impact that we expected on the economy in 2023. “Fiscal Dominance” / “Bidenomics” (fiscal spending of $6.2 Trillion, not far off the COVID high of $7.2 Trillion) more than offset the Fed’s hawkishness as GDP growth was solid (+2.8%) and unemployment remained low (3.7%). There was very little spending restraint this year with continued “can kicking” on budget decisions ongoing until perhaps after the election.
• Stock Market Nears Record High – this one really surprised us. Despite the massive increase in interest rates, the S&P 500 rallied +26 % ending just shy of its January 3, 2022 all-time high. Our view is the US stock market is expensive and at risk of a major decline. Notice in the chart below the current 19.5x PEx with 10 year UST yields at 3.9%. This compares to the October 2007 (just prior to 2008 crash) 15.1x PEx when treasury yields were at 4.7%. Recall that following the 2000 bubble and the 2007 peak, the S& P500 declined 49% and 57%, respectively.
Most of the S&P 500 gains were in the “Magnificent 7” large tech stocks, each of which was up between 48%-239%! It’s reminiscent of the early 1970s and the concentration of market capitalization in “The Nifty Fifty” stocks back then. As the chart below shows, the Nifty Fifty did not...(READ THIS FULL LETTER HERE).