Episode 412: The U.S. Dollar Will Fail in the Next 10 Years
On this week's Stansberry Investor Hour, Dan and Corey welcome Larry Lepard to the show. Larry – who boasts more than four decades of investing experience – is the co-founder and managing partner of Equity Management Associates. He's also the author of the recently released book The Big Print: What Happened to America and How Sound Money Will Fix It.
Larry kicks off the show by diving deep into gold – why its price has been soaring recently, where its price could go next, and why a return to the gold standard after "50 years of mismanagement" would be a long-term positive. This leads to a conversation about President Donald Trump's tariffs and their potential unintended consequences, Elon Musk's disappointing Department of Government Efficiency, Trump's run-in with the bond vigilantes, and what could break Federal Reserve Chair Jerome Powell's stubbornness to lower rates...
[Powell] and Trump are locked in this death match. And Powell doesn't want his reputation to be that he's Arthur Burns. He wants to be Paul Volcker... When the bond market goes down another 20% and the stock market goes down another 20% and unemployment starts to go up, suddenly mandate one won't be so important: inflation. Employment will become very important. And then he's going to pivot and print like crazy.
Next, Larry talks about the psychological difficulty of bottom-fishing in the stock market and how fixing the monetary system could solve many societal problems that disproportionately affect the poor. He explains how exactly the U.S.'s fiat currency has "torn up the social fabric" and favors those who are already wealthy. Plus, Larry gives a multistep solution for how the system can be fixed so it's more fair, and he debunks the popular myth told by certain economists that a return to the gold standard wouldn't work...
That's the Keynesian lie... It's a protection racket. They're all protecting their own little turf. Can you believe the Federal Reserve has like 40,000 employees? What the hell do they all do? Seriously. They've got like a thousand economists, and they still can't get it right. When you have a big centralized government, the government's mission doesn't become to do what's best for the people... The government's mission becomes to perpetuate itself. And therein lies the problem.
Finally, Larry predicts currency failure within the next 10 years that will lead the U.S. to return to sound money. In the meantime, he advises investors to put their money in assets that the government can't print – gold, silver, bitcoin, and real estate. He says that bondholders are "the suckers at the table" thanks to inflation. And Larry closes things out by discussing the importance of studying history and longer-term cycles, the opportunity today in gold-mining stocks, and why he believes all investors should hold some bitcoin...
Bitcoin is actually a technological invention that's really important. And it's, I think, the most asymmetric asset in the world right now. I say to my older clients, "Look, you don't have to own a lot of bitcoin, but owning zero bitcoin is not right." You've got to own 1%, 5%, 10%, 15%, because this is something that can and probably will go up 10X to 20X in the next 10 years.
Click here or on the image below to watch the video interview with Larry right now. For the full audio episode, click here.
(Additional past episodes are located here.)
This Week's Guest
Larry Lepard has more than four decades of investing experience. He co-founded the independent investment management firm Equity Management Associates in 2006 and has served as managing partner ever since. He's also an advisory partner at the Bitcoin Opportunity Fund and serves on the board of directors at Rise Gold, Amarillo Gold, Cabral Gold, and Lavras Gold. Prior to co-founding Equity Management, Larry spent 25 years as a professional investor and venture capitalist. He was a managing partner at venture-capital firm Geocapital Partners, a general partner at investment firm Summit Partners, and a financial analyst at Citigroup Global Markets.
Larry got his bachelor's degree in economics from Colgate University and his Master of Business Administration from Harvard Business School.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we talk with Larry Lepard, author of The Big Print.
Dan Ferris: Larry is a classic hard money guy. He manages money from a hard money perspective, which is amazing in itself, but he has a lot of great ideas about what's happening in the world right now and why gold and silver and bitcoin and other things are really great assets to understand and own these days, so let's talk with Larry Lepard. Let's do it right now.
Corey McLaughlin: For the last 25 years, Dan Ferris has predicted nearly every financial and political crisis in America, including the collapse of Lehman Brothers in 2008 and the peak of the Nasdaq in 2021. Now, he has a new major announcement about a crisis that could soon threaten the U.S. economy and can soon bankrupt millions of citizens. As he puts it, there is something happening in this country, something much bigger than you may yet realize, and millions are about to be blindsided unless they take the right steps now.
Find out what's coming and how to protect your portfolio by going to www.americandarkday.com and sign up for his free report. The last time the U.S. economy looked like this, stocks didn't move for 16 years, and many investors lost 80% of their wealth. Learn the steps you can take right away to protect and potentially grow your holdings many times over at www.americandarkday.com.
Dan Ferris: Larry, welcome to the show. Good to see you.
Larry Lepard: Nice to be with you guys. Looking forward to this.
Dan Ferris: Yeah. This is an excellent time, so it seems, to understand one of your passions in life, which is sound money, and just before we hit the record button, you were about to tell us what you believe gold is signaling to us right now, and as we speak, as we record, gold has recently surged above $3,500 an ounce to a new high.
Larry Lepard: Yeah.
Dan Ferris: Why is it doing this?
Larry Lepard: Yeah, well, it's many reasons, but the underlying cause, I'm sure you guys know, and I agree, is the monetary system's under a lot of stress, and it's kind of broken, and as I said, there are a lot of reasons, but I think probably the best is that gold is very good at sniffing out monetary debasement, which is to say, money-printing. As the book I recently wrote talks about, money-printing is almost a certainty, mathematically, given what's going on in the economy and the world right now. The government deficits are large and getting larger. The bond market is getting fed up with being asked to hold long duration bonds that are going to pay less than inflation, and they're going to print the money to keep the system going, and that means that inflation's going to become a persistent problem, and gold's really good at sniffing that out. It knows what's going on.
It also becomes kind of a safety bit in a world where things are getting rougher, the stock market, the bond market, and the economy – people turn to gold as kind of a safe haven, and the economy, in my view, is really in deep trouble. These tariffs, even if they were to say right now, "We were only kidding," they kind of threw a wrench into the works and people are pretty – you can't unspill that milk. I think the economy's going to have a rough ride here for the next year or so.
Dan Ferris: So, it's interesting to me that gold is surging during... People were really disappointed, actually, with gold's performance while [consumer price index ("CPI")] inflation was rising and rather high, and now those numbers have come down, and gold is surging to new highs at a completely different, apparently –
Larry Lepard: Yeah.
Dan Ferris: – apparently different set of issues. It took something else, rather than mere CPI inflation for gold to really get rocking and soaring to new highs. I find that interesting.
Larry Lepard: Yeah. I think that's right. Yeah, it looks around the corners. The book I wrote is called The Big Print. We've had two big prints.
One was in '08, and one was in 2020, and the 2020 big print kind of took gold from $1,365 to $2,070, and then it sat there, even though inflation was quite hot, but I anticipated that inflation, and it traded at $270 – $2,070 until it broke out last March, and I think it's now anticipating the next round of inflation, even though inflation has, in theory, been coming down. In reality, it's probably not, so yeah. It looks around corners. It's a leading indicator of trouble is kind of the way I look at it.
Dan Ferris: Larry, I find it also very interesting that our treasury secretary, Mr. Bessent has –
Larry Lepard: Yeah.
Dan Ferris: – made it clear that gold is his largest position, and he was telling us this last year.
Larry Lepard: Yeah, I thought that was fascinating as well. Also, that he said last summer the monetary system is not working correctly, and there's a good possibility that we're going to have to do something to alter that, something on the scale of the Bretton Woods agreements in 1944, and if that occurs, I want to be at the table. So, there's an argument that says that in the back of his mind, he's very aware of this Triffin dilemma problem that we all face, and then of course this weekend, I thought it was interesting that Trump tweeted that the U.S., the gold makes the rules, and I thought, "That's interesting."
So, you can't help but wonder if in the back of their minds, the administration is thinking, "At some point, we've got to return to the gold standard here." It sounds a little farfetched, but I don't think it's impossible, and maybe that's why they're bringing all the gold back from overseas.
Dan Ferris: Yeah.
Larry Lepard: Maybe they're trying to refill Fort Knox, since they probably raided it in the '60s.
Dan Ferris: Right, yeah. That's what I was just going to say and add to that list recently Bessent saying – I think it was like a month ago now, but about the gold imports into the U.S. That's why that Atlanta Fed GDP number was negative –
Larry Lepard: It was so weak, right.
Dan Ferris: – which all of a sudden, we have a gold-adjusted GDP projection, which raises eyebrows.
Larry Lepard: Yeah. Yeah. There's a lot of stuff going on, and it's very hard to know exactly what's driving all of it and exactly what it means, but people have woken up. A good example is the tell. Maybe three to six months ago, almost every gold analyst in the world was saying, "Well, that's $2,500, or $2,300, or $2,100," whatever it was.
Dan Ferris: Yep.
Larry Lepard: And it was just, "This is the top, and we're going back to $2,070. Don't build your models around this," and then the other day, of course, this got me worried that we're probably near an interim peak. Goldman Sachs came out and said, "Well, we've got a $4,500 target."
Dan Ferris: Yep.
Larry Lepard: Wow, that's different.
Dan Ferris: That's the peak, yep.
Corey McLaughlin: Yeah.
Larry Lepard: That's a real change in psychology, guys, from –
Dan Ferris: Yeah.
Corey McLaughlin: Yeah, what I was thinking too.
Larry Lepard: – "We're at $2,500 going back to $2,000," and suddenly we're projecting $4,500. Now don't get me wrong, I think we'll get to $4,500, but look. It's way up on a spike right now, and so, for people who think it's going to continue at this rate, that's probably unrealistic.
Dan Ferris: Yeah.
Larry Lepard: But what I do think it has done is it's woken people up to the fact that there is an issue here, and we are in a bull market for gold, so – and those things are good for those of us who have invested in this area.
Dan Ferris: Yeah. I know people who hold gold that are sound money advocates, and every now and then, one will say, "I don't know if I want to live in the world where gold goes to $25,000 now." So, I don't – [laughs]
Larry Lepard: Well, there is that, yeah. There definitely is that. It's, "Be careful what you wish for," right?
Dan Ferris: Yeah.
Larry Lepard: It would be, but look, as investors, our job is just to protect our capital, and in my case, protect my investors' capital, and –
Dan Ferris: Yeah.
Larry Lepard: Even if we do have that kind of a world, I think – and my book talks about this. As bad as this transition is likely to be, and it will be bad, there will be some serious inflation here. The right answer, Dan and Corey, is to reset the whole thing to the gold standard or standard based in gold bitcoin, and then at that point in time, inflation will be solved. The history of inflations is that when you return to sound money, they stop, and so while the process of getting to that may be quite painful, I think most people would maybe accept that pain if they thought that there was an end point at which the pain would stop and things would be fair again. And so, if we go back to our gold standard at some point in the future, I think things will improve on that standard.
Dan Ferris: Yeah. Trump has tried to tell as well, there will be near-term pain. Every now and then, there's a mention of that.
Larry Lepard: Yeah.
Dan Ferris: You can say it, and people can hear it, and people can say, "I appreciate that. OK. I understand," but it's sort of like saying, "I'm going to stab you right now, and it's going to hurt a lot."
And you're saying, "Yeah, I know. You're going to stab me. It's going to hurt." If somebody stabs you, then you go, "Oh, my god. Why did you stab me?"
Larry Lepard: Right.
Dan Ferris: It's visceral. In other words, the reaction becomes emotional and visceral and you get that part.
Larry Lepard: I think that's –
Dan Ferris: Yeah.
Larry Lepard: Yeah, I think that's exactly right, and the right comparison. I think the Bessent and Trump maybe don't really even understand how hard this is going to be and how much pain it is going to cause.
Dan Ferris: Yeah.
Larry Lepard: Fifty years of mismanagement, which is what we've had since we went off the gold standard, you can't solve that in a day or maybe even in one presidential term.
Dan Ferris: Right.
Larry Lepard: So –
Dan Ferris: And you can't do this idea of basically putting – having a protectionist U.S. economy, right?
Larry Lepard: Yeah.
Dan Ferris: Putting up trade barriers around the U.S. economy and bringing manufacturing back, reshoring, however you want to talk about this, this doesn't happen overnight either, right?
Larry Lepard: No. Yeah, and we're not going to be assembling iPhones here in California.
Dan Ferris: Yeah, so –
Larry Lepard: Yeah.
Dan Ferris: – that interim pain, it's one thing to say, "OK, well, we need to go through this pain to return to sound money." Let's use that example, but it's another entirely –
Larry Lepard: Sure.
Dan Ferris: – to say, "We need to risk one of the worst recessions, depressions in the history of our country so we can make stuff here instead of buying it from there," because once you get into that –
Larry Lepard: Yeah.
Dan Ferris: – to stay on track towards that goal becomes really, really difficult, right? In other words, the unintended consequences can easily overwhelm this long-term goal that Trump seems to have, and then –
Larry Lepard: I fear that.
Dan Ferris: Yeah.
Larry Lepard: I fear that you're right, and that the social unrest and so forth could really become quite extreme.
Dan Ferris: Right.
Larry Lepard: But, I've thought about it a lot. You can't make an omelet without breaking eggs, but whether or not –
Dan Ferris: That's why you're here. That's why we're talking to you.
Larry Lepard: Right.
Dan Ferris: We want to know.
Larry Lepard: Yeah. Yeah, well, he is breaking the right eggs in the right way? I don't know. I think there are probably more enlightened ways to go about doing what we're doing, but he's a disruptor and he's got his own style, and so he's doing it this way and it had to be done, in my view. Going the direction we're going had to be done. Now, whether the dial's out to be set the way we've set them, and I thought the Navarro tariffs were a lot like and the Miran tariffs were pretty kind of nutso, the way they immediately closed these things, right, with these enormous tariffs.
It was like, "What?" You know what I mean? It strikes me that we don't necessarily have to declare where on the world, on the business world and on China, and if you're going to enter into a trade war, you want to ask yourself, am I coming into this thing with a glass chin or not? Because I think the glass chin is that we've got this incredibly unbalanced economy with these huge deficits, both the fiscal deficit and the trade deficit, and the stock market is at a record high. The bond market's held in there, but you disrupt it this much, and both of those things could change a lot.
Dan Ferris: Yep.
Larry Lepard: And then, as you say, there's so many unintended consequences. You just don't know, right?
Dan Ferris: Yeah.
Larry Lepard: So, sadly, I too –
Corey McLaughlin: Yeah.
Larry Lepard: – like you guys, are like, like you were hinting at, Dan. I fear what might happen here.
Dan Ferris: Yep.
Larry Lepard: And even if they're smart enough in 90 days to say, "We were just kidding. We're not really going to do these tariffs," that, to me, that would be the best-case scenario.
Dan Ferris: Yep.
Larry Lepard: Yeah, there's chance that a lot of damage has been done, and even then, we're still going to have a rough, rough patch, so –
Corey McLaughlin: Yeah. I so badly want this to go up, like this –
Dan Ferris: Oh, absolutely. Yeah.
Corey McLaughlin: – this is one of the best chances that we've had to find some sound money, I think, in a long time.
Larry Lepard: There's no question.
Corey McLaughlin: They're not attacking the fiscal deficit, really, at all.
Larry Lepard: Yeah. The DOGE thing was extremely disappointing. For Elon to come and say, "We'll take $2 trillion out." He hadn't done any of his homework, and –
Dan Ferris: Oh.
Larry Lepard: – to hold the position, he had to make that statement, which just – it kind of makes you wonder, who's running the show here, and how thoughtful are they? Look, we've got a very integrated, very complicated problem here, and it's going to take – in my opinion, it would take masterful political and economic and intelligent leadership to navigate through it. I'm not sure God could do it, but sadly, I think either side would fall short. I prefer this side versus the other, because I think the blue team would've just said, "Let's keep partying on, printing money." It would've been a horror show, so this, attempting to go in the direction we're going, I think that's the correct choice. Whether or not we're doing it in the correct way, I guess I could criticize some of the steps they've taken.
Dan Ferris: Yeah. I think we could all find problems with how it's been done, but I noticed that, to me, there was a key moment, April 8 and 9, when the –
Larry Lepard: Yes.
Dan Ferris: – bond market freaked out on the 8th. Trump noticed it that night, and he put the pause on – the 90-day pause on the next day, and this was – I had written, just within the past couple of months, about Clinton-era and Obama-era run-ins with bond vigilantes, and that was –
Larry Lepard: Yeah.
Dan Ferris: This was Trump's bond vigilante moment, so now it's like –
Larry Lepard: Yeah, [unintelligible] The ghost of James Carville rose up and said –
Dan Ferris: That's right. He's still alive, but is he really? I don't know.
Larry Lepard: I know.
Dan Ferris: So, here we are, and it's like, vigilantes 1, Trump 0, and where does it go from here, because I think – do we all agree that Trump is like the stubborn, "I win, I get my way," type, right?
Larry Lepard: Absolutely, and bombastic, and tries to grab the whole field, and of course, then concedes whatever he has to concede to keep going forward.
Dan Ferris: Yep.
Larry Lepard: Yeah. I think those two days were absolutely critical, Dan, and that level that they hit intraday. The S&P was down to like 4,700, and I'm watching that level carefully, because when that gets taken out again, then we're really in the soup.
Dan Ferris: Yeah.
Larry Lepard: But I think what happened there is Bessent went to him and said, "Sir, you've got to reverse this or we're going to lose the bond market right here, right now." And he did, which was the right move. At least he's listening to Bessent, but yes. He will keep pushing every boundary in. Look, to some degree, being bold and aggressive is not a bad trade, but there needs to be a certain amount of thoughtfulness put around it as well, so...
Dan Ferris: Yeah, and it's really hard. It's not just politically hard. It's what, how do we –
Larry Lepard: Oh, yeah.
Dan Ferris: Technically hard. It's close to a $30 trillion economy now, $28 million, $29 million, something like that last time I saw the –
Larry Lepard: [Unintelligible], yeah.
Dan Ferris: Yeah.
Corey McLaughlin: Yeah.
Dan Ferris: That's a complicated entity, and the government has already got its tendrils too deep into it, so who knows –
Larry Lepard: Absolutely.
Dan Ferris: – how it all works out when they try to do the things they do and protect this or that industry, or all of them, yeah. I can understand Scott Bessent owning lots of gold. I can understand Warren Buffett owning lots of T-bills. It's your safe haven of choice.
Larry Lepard: Yeah, right.
Dan Ferris: Yeah. There's another way that I think April 8 and 9 were important, and I know you noticed this, Larry. So, we get April 8, and that was – the market surged downward, and everyone went, "Oh, boy. Here we go."
Larry Lepard: Yes.
Dan Ferris: And then April 9 happens, and everyone says, "Wait, wait, wait 90 days," and markets pop back up. Since the 9th, stocks are down, bitcoin is up. Now, I saw –
Larry Lepard: Correct.
Dan Ferris: – bitcoin in the past few years, and I like the fundamentals of it, but I saw it just sort of trading like a speculative tech stock, but it's not doing that since April 9.
Larry Lepard: Right.
Dan Ferris: It's behaving.
Larry Lepard: That's correct.
Dan Ferris: Yeah.
Larry Lepard: Yeah, the separation's starting to take place. It's not perfect.
Dan Ferris: No, but –
Larry Lepard: It's still a liquidity widget. It's driven by excess liquidity, but it is starting to behave differently, and I think that will be the most notable change in this particular cycle. I think the stocks and the economy are going to trend down, and I think gold and bitcoin are going to trend up, and bitcoin, which by many people have been treated just as a proxy for the QQQ, they're going to come to realize that, no, a big piece of what's driving bitcoin is the fact that they're only $21 million, and it's slowly becoming digital gold.
It's the digital version of gold because of its limited supply, so yeah. That's important, and by the way, I think this isn't nearly over. If you look at it on a chart, it's kind of a big, bold flag that projects up to... I've long held the view that we'll see $140,000 bitcoin before the end of this calendar year, so...
Dan Ferris: Wow.
Larry Lepard: And that's without a big print. If the big print comes, it could be much bigger than that number, but we don't know when the big print's going to come. We don't know how long it's going to take –
Dan Ferris: Right.
Larry Lepard: – for Powell to say "uncle." Right now, he and Trump are locked in this death match, and Powell doesn't want this reputation to be that he's off the burns. He wants to be Paul Volcker.
Dan Ferris: Right.
Larry Lepard: And Trump wants cheap money, and my sense is what's going on there is that Bessent is actually forcing policy and – but it sounds like, well, "Sir, don't worry about it." You can rail at him all you want, and he can say he's not going to do anything all he wants, but I'll tell you what he will do. When the bond market goes down another 20% and the stock market goes down another 20% and unemployment starts to go up, suddenly mandate one won't be so important, inflation, but employment will become very important.
Dan Ferris: Yep.
Larry Lepard: And then he's going to pivot and print like crazy. He's going to make the last print look small, and I think – look, Trump and Bessent aren't stupid. When they did this, they knew that what this program would do is it would hit the stock market, but they did the calculus, and they said, "Well, top 10% of the country owns 84% of the stocks."
And so, the people who voted for us aren't necessarily the top 10% of the country. They're not going to care if stocks go down 10%, that Main Street doesn't care as much as Wall Street about stocks, and that's all fine and well, except that what does happen is Main Street or Wall Street – well, the top 10%, as you saw – this statistic blew my mind when I saw it last year again. The top 10% accounts for 50% of the spending in the United States.
Dan Ferris: Yeah.
Larry Lepard: So, take the top 10% and tell them their retirement accounts are now 40% smaller than they used to be, and they don't buy the marginal car. They don't renovate the house. They don't buy the new drapes. They don't take the vacation, etc., etc., etc., and so at the margin, the bottom 50%, jobs start getting shed because Ford doesn't need to build as many cars. They furlough people, so there may be a delay between the top and the bottom, but if the economy really rolls over hard, which I think it might, the bottom is going to hurt as well.
Dan Ferris: Ouch. That's all I have to say.
Larry Lepard: Yeah. It is an ouch. It's unfortunate, but as von Mises said, the way to prevent these big downturns is to not let the bubbles form in the first place.
Dan Ferris: Yeah.
Larry Lepard: I mean –
Dan Ferris: Yeah, right.
Larry Lepard: – they should've thought about that when they printed $5 trillion and took interest rates to zero.
Dan Ferris: Yeah.
Larry Lepard: You know?
Dan Ferris: Yeah.
Larry Lepard: Because if you want to know why we're suffering now, it's because of what they did back then, and the book lays that out, too.
Dan Ferris: Yeah, somebody needs to point at the Treasury building and say, "Stop that awful racket." I think that was the von Mises line, when he was telling them how to fix the problem.
Larry Lepard: Oh, really? Yeah.
Dan Ferris: He pointed to the money-printing.
Larry Lepard: Yeah.
Dan Ferris: And said, "Stop that awful noise."
Larry Lepard: Yeah.
Dan Ferris: Of course, now the noise is just a keystroke, but it's the same thing.
Larry Lepard: Yeah, so a lot of keystrokes, but clicking, yeah.
Dan Ferris: So, the other thing with Powell is that now we're getting all this rumbling about getting rid of him and replacing him with somebody who's apparently more accommodative.
Larry Lepard: Douglas.
Dan Ferris: Right.
Larry Lepard: Yeah. See, I think Powell's going to stand his ground, and even though Trump has asked for a Supreme Court ruling on that, I don't think the Supreme Court's going to go in his favor.
Dan Ferris: Yeah.
Larry Lepard: I think we're in a Mexican standoff between Powell and Trump right now. Powell may ultimately come down a little bit if he gets some help on the inflation numbers and things start to look better on the employment front.
Dan Ferris: Yeah.
Larry Lepard: But he needs cover.
Dan Ferris: Yep.
Larry Lepard: He needs real cover, but we also know he changes on a dime, and inflation was transitory until it wasn't, and then we're raising forever until we didn't, and now we've been thinking about thinking about, what?
Dan Ferris: Yeah.
Larry Lepard: And what'll happen is, you watch, there is a power play. He denied it in the last conference, but there is one, and he will. When the market's down 40%, and the bond market's going up, and the reverse repo thing is drained, and etc., etc. They've already done some things that didn't –
Dan Ferris: Right.
Larry Lepard: But they've talked about relaxing the SLR, the Supplementary Leverage Ratio. That will allow the banks to buy bonds, which is [quantitative easing ("QE")] infinity, and they've talked about putting swap lines out to all the hedge funds that are involved in the basis trade. There's a Brookings Institute paper on that, and so swap line to a hedge fund is nothing more than printing money for that hedge fund, so – and they'll have other programs and acronyms and ways that they'll print the money, but trust me, they'll do it, because at the end of the day, they would – they realize the risk of an inflation is lower than the – some inflation is better than a system collapse, and so I think Bessent is pushing Powell into a corner where he's going to have to do it.
Dan Ferris: Yeah. Yeah. The history of this is pretty clear from way, way back, right?
Larry Lepard: Oh, yeah.
Dan Ferris: The currency on one side, and the banks and the bond markets on the other side, and we always know they save this one. They sacrifice this one, and they save this one. They sacrifice the currency and save the others, so we know that moment is inevitable in between.
Larry Lepard: Right.
Dan Ferris: In between who knows what happens, and it can be quite volatile.
Larry Lepard: Correct.
Dan Ferris: We can get periods of like, extreme dollar strength in between. It's really tough to call it from –
Larry Lepard: Absolutely, and this gold price could correct significantly. I think the longer-term trend is strongly up, but you may have seen it. There's a great chart that was out on Twitter, done by Dan Oliver at Myrmikan, that showed the volatility at the Deutsche Mark during the 1921 hyperinflation that was really, incredibly volatile. These currency events lead to volatility, so it's tough. These trades are tough.
Dan Ferris: Yeah. Yeah. If you think you're going to time things, you're not. You're going to get killed. You have to have a sense that there's a lot of risk and uncertainty, and that you can hold your gold rather indefinitely, and you can hold some cash that I think is great to have, especially for people who buy stocks, but it's...
It's not easy. This is the classic sort of investor foible, right? Things go up. You think you need to buy them. Things fall, you think you need to sell them, and when that is constantly ratcheting back and forth, it is exhausting. It is emotionally exhausting, and some people get fed up.
Larry Lepard: It really is, and Warren Buffett used to talk about this, how it's the one area of the world where people don't think opposite. If you think about it – I have used the example, you go to the supermarket and steak is $20 a pound. You don't think, "Oh, my god. Give me more steak. It's $20 a pound now."
Dan Ferris: Yeah.
Larry Lepard: No. It's so goddamn expensive. I'm not eating steak tonight.
Dan Ferris: Yeah.
Larry Lepard: And you go in with steaks, but six months later, it's $10 a pound, you're like, "Oh, that's good. I'm loading up on steak," but when it comes to stocks, it's the other way around, right?
Corey McLaughlin: Yeah.
Larry Lepard: The stocks are cheap. You're like, "Oh, nobody likes this. I don't want it. I'm not buying that thing, and it's expensive, and they all want to trade for it."
Corey McLaughlin: It's the only thing people don't want to buy when it gets cheap, right?
Larry Lepard: Exactly.
Corey McLaughlin: I told my wife this the other day. I was explaining what was going on with the stock market.
Larry Lepard: Yeah.
Corey McLaughlin: And I was like, "If I want to buy some things here, maybe, but nobody else wants to..."
Larry Lepard: Well, and I think that's important why – as Buffett and Munger used to say, it's a weighing machine. You've got to know what things are really worth. You've got to know why you hold it. I hold gold, and I hold bitcoin because they represent forms of money. One's a form of money. The other's an emerging form of money that can't be printed by the government, and I feel like we're in a system where, as you say, Dan, it goes back and forth.
You don't know the zigzags, but we do know that the long-term trend – take a couple hundred years of American history. This goes back to the – I talk about it in my book – the war of 1812. They suspended specie payment to pay for that war. They've been doing this for a long time, and so – and gold has just held its value, and so – and it will continue to do so.
Dan Ferris: Yeah. I forget the anecdote in This Time is Different by Reinhart and Rogoff.
Larry Lepard: Exactly.
Dan Ferris: I think it was –
Larry Lepard: I love that book.
Dan Ferris: Oh, yeah. I think it was Darius II in ancient Greece, decided that there's just going to be twice as much money just at the snap of his fingers, and of course, you know what happened next.
Corey McLaughlin: Yeah.
Dan Ferris: Well, history actually doesn't record what happened next, but it couldn't have been good.
Larry Lepard: You kind of know what happened next.
Dan Ferris: Yeah.
Larry Lepard: Yeah.
Dan Ferris: That's right. Prices went up more than double.
Corey McLaughlin: When I first came across this like, years ago, it blew my mind. The 13th century Yuan dynasty in China –
Dan Ferris: Yeah.
Larry Lepard: Yeah.
Corey McLaughlin: – when they went off, I think it was like, silk and whatever. It's a real fiat currency.
Larry Lepard: Oh, yeah.
Corey McLaughlin: That was like, we've been screwed ever since then, is what I determined.
Larry Lepard: Yeah.
Corey McLaughlin: Like, that's –
Larry Lepard: No, absolutely.
Corey McLaughlin: That was it.
Larry Lepard: They were one of the first to do it, yeah.
Corey McLaughlin: I know you write about this in the book too. I would encourage everybody to buy or listen to the book. Like, fixing the monetary system, you said, will amazingly fix a lot of what is wrong with society or will inevitably fix what is wrong with society –
Larry Lepard: I really believe that's true.
Dan Ferris: – I think essentially is what you said.
Larry Lepard: The book has a lot of examples of it, but I think that fiat currency, and – the currency is something. Everybody interacts with money. It's how we all exchange value, and that's how we measure a lot of things, and if you have a form of money that's broken, that kind of is always inflating and you can't really use as a measuring stick. It's a base layer that affects everything.
It affects all kinds of relationships, and there's a lot of evidence that countries that have had very high rates of inflation, the social fabric tears, and it breaks down, and it's very unfair. One of the charts in the book that I like, or I don't like but I think is an important chart, is early on in the book, it shows how the top 1% of Americans now control 92% of the wealth. And that to me is just a stunning statistic. And part of the reason I wrote the book was just the whole notion that the system is really, really unfair for average citizens because the people at the top of the food chain, the financiers, the Wall Street people, the hedge funds, government people who are connected, they're all able to borrow money at very cheap rates, but everyone else has to pay credit-card companies 25%.
Dan Ferris: Right.
Larry Lepard: If you can borrow money cheaply and invest it in assets that are earning a good rate of return, well, guess what? It's kind of a one-way ticket to big wealth, and so –
Dan Ferris: Yeah, like 25% loans, right?
Larry Lepard: Yeah, exactly, and so that's kind of torn up the social fabric, and it's caused suffering and drug and alcohol addictions and problems. It's just really, really sad how unfair the system is to so many people. It comes down to the core or the monetary system. There are lots of instances in the book. We let China into the WTO.
They said they'd trade fairly with us. They didn't, and suddenly our entire manufacturing base in the Midwest gets exported to China, and now all those people that used to have decent jobs don't have anything to do and they get addicted on fentanyl and all the other opioids that were going around at the time, and it's just a bad deal. Fiat money is a very bad deal, and we've been around long enough to see a lot of examples of how empires fail. Rome failed because of the dilution of the denarius. The French Revolution came right after they spent – they printed a ton of money [inaudible], and they spent a lot of money to help us win the Revolutionary War.
Dan Ferris: Yep.
Larry Lepard: And then 1789 comes along, and you have a French Revolution, so it's kind of like one thing after another of plenty of examples of fiat causing just enormous pain.
Dan Ferris: Yeah. Yeah. Nobody likes – well, actually there, lots of people like it. Lots of people love it, but the –
Larry Lepard: Well, some people really benefit from it.
Dan Ferris: Yeah.
Larry Lepard: And those who benefit from it, end it. The Keynesians benefit from it, and the Cantillonaires benefit from it, and –
Dan Ferris: Yeah.
Larry Lepard: – Warren Buffett benefits from it. And that's why he hates bitcoin so much, because it's a form of money that can't be diluted.
Dan Ferris: Right, so he – yeah and I want listeners to know, Larry just said, "Cantillonaires." Google the Cantillon Effect. People who are close to money printing benefit from it first, is basically the idea.
Larry Lepard: Exactly.
Dan Ferris: Yeah.
Larry Lepard: It's what I described earlier. If you can borrow money at zero percent or 1% and invest it in other assets –
Dan Ferris: Yeah.
Larry Lepard: – you get really, really rich fast, and there are some real examples in that. One of the stories in the book was told by Matt Taibbi from the Rolling Stone, in the GFC, and this is kind of amazing. The article was called, "The Real Housewives of Wall Street." In the GFC, the wife of one of the big investment banks was able to borrow $220 million dollars, nonrecourse, from the Federal Reserve at a very low rate of interest.
So, think about this. The wife of a CEO of an investment bank borrowed $220 million. Where does she have the money? She didn't have the credibility to borrow $220 million – and invested it in assets that would earn more than the 1% or whatever it was she was paying, and if for some reason that didn't work out, that debt was secured.
The Federal Reserve, it was nonrecourse, so she could just walk away from it and say, "Oh, well. It didn't work. You guys eat that $220 million dollar loss." And if that $220 million dollars grew into some big number, which it did, she got to keep the gains. It's just blatant, blatant corruption, you know what I mean?
Dan Ferris: Yep.
Larry Lepard: And that deal wasn't available to any of the three of us, I can assure you of that.
Dan Ferris: That's right. Yeah. The best we can do is buy a house when rates are low, and if we haven't done that, then [inaudible].
Larry Lepard: Well, that's right.
Dan Ferris: Yeah.
Larry Lepard: Yeah, they only can tell you three.
Dan Ferris: Yeah.
Larry Lepard: Yeah, 3%. I got a 3% mortgage on a house I bought. I was pretty happy about that, but –
Dan Ferris: Yeah, but that's it. That's pretty much it for us. Yeah, that's right.
Corey McLaughlin: Yes, and then you can't move.
Dan Ferris: You better stay there at this point.
Larry Lepard: Yeah, no. That's right. Now, I'm trapped. I could never sell, because the rates are so high now.
Dan Ferris: Yeah.
Corey McLaughlin: Right, exactly. I'm actually going through that right now.
Larry Lepard: Well, a lot of people are. In fact, that's part of what's hurt them. The new housing market is the people who were in those houses. They should – you're probably having kids. You're ready to trade up to the bigger one, but one, it costs more, and two, the rates are higher, and so you don't want to move.
Dan Ferris: Yeah.
Larry Lepard: Well, that means the guy, the person starting out, your house isn't for sale, because you're not going to move, so they don't have a starter house, right?
Dan Ferris: Right. Just takes the available supply right down. Yeah.
Corey McLaughlin: Yeah. But what I wanted to ask you is – and yeah, I'm not asking you to give away the entirety of the book.
Larry Lepard: Sure.
Corey McLaughlin: But what is the solution here?
Larry Lepard: Oh, absolutely. No, I'm happy to share that, yeah.
Corey McLaughlin: How do we fix this? If you were in the White House, what would you be doing right now?
Larry Lepard: Corey, you're a great straight man, because you buy the book and read chapter 22. It's called "Policy Solutions," and I wrote in that chapter the speech that I think the president should give, and I'll just summarize it briefly for you and the listeners. The president should stand up and say, "Folks, we've been using the wrong model. We've been chasing a Keynesian model of growth in the belief that we needed inflation in order to prevent deflation, and that's caused enormous inflation and a lot of pain. We need sound money for the following reasons, and in order to do that, the first thing we're going to do is we're going to make gold, silver, and bitcoin legal tender, so that means that if you buy gold, or silver, or bitcoin, and it goes up or down in dollar terms, you don't owe taxes on that. It's a form of legal tender. They're not investments.
So, now we have four currencies: silver, gold, the dollar, and bitcoin, and they all compete on a level playing field, and you can use whatever one you want, and any business can use whatever one they want. If they want to say, 'We only accept bitcoin,' fine. So, that's step one. Step two is we're going to eliminate the Federal Reserve.
There will no longer be a backstop for the banks, and that's going to be a big shock to the banks, and if a bank fails, it's going to legitimately fail, and all the depositors are going to get wiped out. And what that's going to lead to is, it's going to lead banks to stop this crazy, high leverage, fractional reserve banking, and only a few banks will remain, and they'll be the people who have 50% reserves against their deposits. And then the final thing we're going to do is we're going to eliminate the FDIC, which is the insurance against all those deposits."
In the Silicon Valley Bank example, there was $17 trillion of deposits that were at risk, which is why they broke the Dodd-Frank law and created an exception for Silicon Valley Bank to bail it out. And the fundamental problem, Corey and Dan, that I've been talking about and the book talks about is that the monetary masters have set up the system in a "heads they win, tails we lose" basis.
Because heads we win, one is capitalism, and everything's going well for them, and then when it blows up, they have a gun to our head, and they say, "Give us the money. Print money or else we're going to – the ATMs aren't going to work, so just print the damn money," and yeah, they can print the money. That's fine, but that printing of the money, you and I, we all pay for that. We pay in the terms of everything we do is more expensive. It's free to them because they made the mistake, and they don't suffer the cost, but it's expensive to us because we go to the grocery store and pay the higher prices.
Dan Ferris: Yeah, private –
Larry Lepard: It's just that simple.
Dan Ferris: Private profit and socialized losses.
Larry Lepard: Yeah.
Dan Ferris: Right.
Larry Lepard: Exactly. We don't have capitalism. A lot of people, you I understand, Bernie and AOC, their anger with capitalism and billionaires. I get it. They're right.
It's not a fair system. Their solution of taxing people, that's not going to solve it. There's not enough tax income to solve it. The solution is to return to sound money.
Dan Ferris: Yeah, try to convince those folks in particular. Those two folks have got –
Corey McLaughlin: Right, I like it.
Larry Lepard: Well, I agree. That's going to be an uphill struggle.
Dan Ferris: Yep.
Corey McLaughlin: So, you're saying gold, silver, bitcoin, not taxable. No capital gains, taxes, nothing like that?
Dan Ferris: Right.
Larry Lepard: Nothing on all of that, and the government eventually – what I think they should do is they should take the dollar and back it with bitcoin or back it with gold, and just say, "A dollar equals this much of that," and at that point in time, the dollar will stop sliding against all foreign currencies and against those other two assets. If they don't do that, that's fine. Eventually, gold and bitcoin will just kind of replace the dollar because everyone will look at it.
This is what we call Gresham's law, right? Everyone just looks at it. People will get dollars. They'll be paid in dollars that holds some value, but nobody would ever want to hold those for long term because they know they're losing value.
Dan Ferris: Right.
Larry Lepard: And so, you would, very much like my friend who was I speaking to who grew up in Argentina, and he said, "We get paid. We immediately buy sh**. We go buy food."
Dan Ferris: Yeah.
Larry Lepard: "Because we knew that a week later it was going to cost more." You figure it out.
Dan Ferris: Right. Yeah. I love that message. I love that letter, that speech, but I've become, at my age, so skeptical that a large government will do anything like –
Larry Lepard: Oh, me too.
Dan Ferris: Like, a large government is just a massive incentive for corruption to occur, and the problems –
Larry Lepard: Sure, and to protect themselves.
Dan Ferris: Yeah, and like, for example, like, do you think that like, black budget items and all this stuff that the intelligence community does when they run around the world, swatting hornets nests and making a fortune doing it, do you think that's easier for them with fiat money or do you think it's easier with sound money? I think it's easier under the fiat system.
Larry Lepard: Yeah.
Dan Ferris: And I think they'll protect that with their lives, literally.
Larry Lepard: I have to completely agree with you that my proposed solution is unrealistic, or it's kind of a dream in the sense that it's unlikely to happen, and how we're pushed to it.
Dan Ferris: Yeah.
Larry Lepard: But let's imagine a scenario, and I don't like to paint this out because it would be an unpleasant scenario, but let's imagine a scenario where fiat really fails fast and hard, and so –
Dan Ferris: Yes. No, you have to say this. Yes, absolutely.
Larry Lepard: Yeah.
Dan Ferris: And don't take me wrong. Your book is great. It must be said. I'm sorry. Go ahead.
Larry Lepard: Yeah, and so the reason for the book is that I'm hoping that when that happens, rather than embrace some socialist solution, enough people have read the book, and people look at it and go, "Gosh, I see what happened here. The money really failed."
Huh? From 1789 to 1946, well, even until '71, we were more or less on a gold standard, and hey, this country did incredibly well during that time frame, but what changed since then? Well, in '71, Nixon abandoned gold.
We did OK for a while, but it's been a long, slow decay, and this isn't the country that you and I grew up in, Dan, you know that. I know that it sucks by comparison, and so I think, hopefully, at that point in time, somebody will say, "There's certain truths that are universal over time, and one of them is sound money works, and if we want to fix this, we've got to go back to sound money."
Dan Ferris: Right.
Larry Lepard: You know?
Dan Ferris: And there is a chorus, a chorus of economists who say, "No, no, no. Gold didn't work."
Larry Lepard: Oh, absolutely. Well, that's the Keynesian lie.
Dan Ferris: Right.
Larry Lepard: And the book debunks that six times from Sunday.
Dan Ferris: Yeah.
Larry Lepard: I really, really debunk that, and it's because the Keynesians – it's a protection racket. They're all protecting their own little turf. And can you believe, the Federal Reserve has like 40,000 employees. What the hell do they all do? Seriously. They've got like 1,000 economists, and they still can't get it right.
Dan Ferris: Yeah.
Larry Lepard: You know what I'm saying?
Dan Ferris: Right.
Larry Lepard: It's like, as you point out, when you have a big, centralized government, the government's mission doesn't become to do what's best for the people. Some people end up trying to do that, but the government's mission begins to perpetuate itself.
Dan Ferris: Yes.
Larry Lepard: And therein lies the problem.
Dan Ferris: Right, and more specifically though, it's the incentive. It's like a massive pool of capital that doesn't really belong to anyone.
Larry Lepard: Correct.
Dan Ferris: People are just incentivized to get a piece of it and to be near it. It's another type of Cantillon Effect.
Larry Lepard: That's correct.
Dan Ferris: Before the laws hit, I want to position myself to benefit, you know?
Larry Lepard: Absolutely.
Dan Ferris: Before X, Y, Z happens, I want to be in on it. I want to benefit. I want to have –
Larry Lepard: Absolutely.
Dan Ferris: I want to be appointed to some board of directors after I finish being a senator or whatever.
Larry Lepard: Yeah. Yeah. We can see that in the way the military industrial complex awards these people.
Dan Ferris: Yeah.
Larry Lepard: There's just so much graft and grift. I'm always stunned when I see these people go to Washington, D.C. with not much of a net worth, and you know that the senators and congressmen, their salaries aren't big. They're big by middle-class standards, but you don't get rich on a couple hundred grand a year.
Dan Ferris: No.
Larry Lepard: And yet these people end up with multi, $10 million, $20 million, $30 million, $40 million. How does that happen?
Dan Ferris: Yeah. How indeed.
Larry Lepard: They're not Warren Buffett. They're not that good of investors. It's corruption.
Dan Ferris: No. No.
Larry Lepard: Right?
Dan Ferris: They're certainly not.
Larry Lepard: Yeah.
Dan Ferris: Yep, I think, and we started to sort of say this before, we get to –nothing really changes. We don't really get sound money until we get our Javier Milei moment when all else has very, very obviously failed for years and years and years and years, and we're all fed up with it.
Larry Lepard: I think that's absolutely right, and I think that moment is coming at some time in the next ten years.
Dan Ferris: Ten? That's soon.
Larry Lepard: Maybe even sooner. Oh, yeah. Well, it is, and it's not. My prediction is that it'll get worse in the next four years, and because we're in a fourth turning, the Republicans will lose the next election just because people will be so pissed off –
Dan Ferris: Yep.
Larry Lepard: – at how bad things are. They'll just blame the people in power, and the Democrats will be promising a lot of goodies. UBI and subsidies and –
Dan Ferris: Yep.
Larry Lepard: – stimmy checks, and so people will vote for that, and then Stephanie Kelton will be treasury secretary, and deficits will run wild, and –
Dan Ferris: Yeah, talk about the big print.
Larry Lepard: Yeah, the big print. Gold will go to $50,000, bitcoin will go to $3 million, and the currency will fail.
Dan Ferris: Yep.
Larry Lepard: And everybody will say, "How the hell did this happen?" And at that point in time, we'll have a very serious discussion about returning to sound money because it'll just feel like there's nothing else we can do. Every other thing has been exhausted. It's the only reasonable choice. It's Churchill, right? The Americans will do the right thing after they try everything else, so...
Dan Ferris: Yeah.
Larry Lepard: And that's kind of how I see it playing out, but yeah, even if it doesn't play out exactly like that, I'm quite certain that inflation is a certainty or a very high probability event in the next decade.
Dan Ferris: Right.
Larry Lepard: And therefore, from an investment point of view, I feel very comfortable being invested in things that the government can't print, which would be gold, silver, bitcoin, and real estate, because they all have value, and whatever. At some point in time, we're going to have a new currency, and the new currency – the old currency's not going to compare very well to the new one, but if you own those, they'll all just reprice in the new currency.
Dan Ferris: Right. It's like the old European old money: land, gold, and art.
Larry Lepard: Yeah.
Dan Ferris: Art is portable.
Larry Lepard: Right.
Dan Ferris: Gold is somewhat portable, and if your property rights are maintained after the war is over or whatever, and you go back to it, your land is more valuable or whatever, so –
Larry Lepard: Yeah. That's right.
Dan Ferris: Yeah.
Corey McLaughlin: Yep. I would say even in the meantime, anybody who owns gold or bitcoin in the last year or two overall, you got to be pretty happy, even now.
Larry Lepard: Oh, certainly compared to what used to be the base layer of the financial system, but think about how far the Treasury bond has fallen. There was a time when the U.S. 10-year Treasury bond was the best asset in the world. It couldn't default, paid you a good rate of interest, blah, blah, blah. In Treasury bond, in gold terms, since COVID started, gold's up over two – well, it was when I wrote the book.
It was up over 200%. It's probably 250 % now, and bitcoin's up over 2,000%. The suckers at the table are the people who are hanging on to bonds. Anyone who has any bonds of duration –
Dan Ferris: Right, long term.
Larry Lepard: – not short ones. If you want to get paid 3%, 4%, whatever the two-year, or the one-year, or the six-month, fine, great. You don't have any duration there. You can just wait until it matures and you know the government will pay you back your principle. You know that. They'll print the money to do it, but if you've got duration in a highly inflationary environment, you are really, really putting out a serious ding in your wealth, you know?
Dan Ferris: Yep. Yeah, especially at nominal 4% or 5%. You're getting killed.
Larry Lepard: Well, and that's the other thing. The book talks about this. We all know the inflation numbers aren't honest, right?
Dan Ferris: Yeah, that's right.
Larry Lepard: Yeah. My auto insurance is going up more than 3% a year.
Dan Ferris: Right.
Larry Lepard: I think my grocery bill's going up more than 3% a year. The teams, or the longshoremen, the port guys, they just got a 60%, 10-year deal, or I'm sorry, 60%, six-year deal, so that means that their wages are going up 10% a year for the next 6 years.
Dan Ferris: Yep.
Larry Lepard: That's not 2% or 3%. That'll get passed down through the economy, so –
Dan Ferris: Yep.
Larry Lepard: – inflation is now the problem of our age, which is very hard for people to see though, guys, because the last 40 years, we did have a deflationary trend. The China price, and a lot of things kind of – we had a lot. We fracked all that oil. We had a lot of positive things going on that created a lot of deflation –
Dan Ferris: Right.
Larry Lepard: – and that was good, on a relative basis. The technology stuff helped –
Dan Ferris: Right. Lots of valuable stuff priced in dollars, so the dollars become more valuable. Great, right? But yeah.
Larry Lepard: Right.
Dan Ferris: Yeah. Can't go on forever, and forever seems to be nearly over.
Larry Lepard: The trend has changed and until they figure out a solution to this issue of debt, we're at – people who are in fiat currencies I think are at great risk.
Dan Ferris: Yep, and the other day, I published a piece about the need to understand history because everything every financial adviser on Earth is telling you is – has 1980 and after assumptions, right? It's post-1980 assumptions, and –
Larry Lepard: Correct.
Dan Ferris: – that's not working anymore. That's not going to work. You really need to know history.
Larry Lepard: Yeah. Yeah. What people are missing is the 100-year cycle. The last 100-year cycle was the 1913 to 1930 or so, and here we are 100 years on.
And the same thing is occurring as it occurred back then, sovereign debt problems, and they were either highly depressionary in the U.S. or highly inflationary at other points, and so it's funny. Remember when the great financial crisis, how Bernanke or somebody else said, "Housing prices have never gone down nationwide, so we don't have to worry about a housing bubble." It was a regional –
Dan Ferris: Oh, yeah. Oh, yeah.
Larry Lepard: Remember that, Dan?
Dan Ferris: Oh, yeah.
Larry Lepard: I thought to myself, "That guy is lying." He was right in modern terms, post-World War II.
Dan Ferris: Yeah.
Larry Lepard: But I quickly went and did the research. You know how much housing prices fell between 1929 and 1934?
Dan Ferris: How much?
Larry Lepard: It went down like 67%.
Dan Ferris: Right.
Larry Lepard: I know because my grandfather bought a house during that time frame that he said he bought for a third of what it would've cost in '28 or '29, so people tend to... You tend to look at kind of, in your lifetime, what has happened, and you guys, as you point out, you have to study history and dial out a little bit.
Dan Ferris: Yep.
Larry Lepard: And if you look at these longer-term cycles –
Dan Ferris: Yeah.
Larry Lepard: – you know what you see is that they tend to repeat as well.
Dan Ferris: Yeah. Ray Dalio has studied this stuff. He said he had to go back hundreds of years to really understand the full cycles.
Larry Lepard: Yeah.
Dan Ferris: So, it's –
Larry Lepard: Correct, and the beauty of those books is, he documents in great detail –
Dan Ferris: Oh, yeah.
Larry Lepard: – how the stuff recurs over and over again.
Dan Ferris: They're great.
Larry Lepard: Yeah. It gives you great confidence that we're not just making this up. There's a lot of evidence that does – I've often said, and I say it in the book, I really believe this to be true, that I think great investors are good at pattern recognition. And this is the history doesn't always, exactly, but it rhymes, and so you kind of look for the pattern, and the pattern that's going on right now is we are behaving like an emerging nation with a debt crisis, and something's going on right now that's very unusual.
Stocks are going down. Bonds are going down in price. Yields are going up, and the currency's going down. Typically, when that happens, that's an emerging debt crisis –
Dan Ferris: Yeah.
Larry Lepard: – an emerging currency crisis. That hasn't happened for a world reserve currency, certainly not in my lifetime.
Dan Ferris: No.
Larry Lepard: But we're in the process. That's happening, and it kind of goes to show you that if you pursue emerging market currency behavior, you get emerging market currency results. We've seen this in other countries. We just haven't seen the U.S. do it, and everyone thought, "Well, it's a milkshake [inaudible]." Well, we are until we're not, and we're now at the stage where we're not, so...
Dan Ferris: Yeah. I still think part of that milkshake theory that's right is that the other currencies, and we've seen this in the past few years with the yen and the pound –
Larry Lepard: Absolutely.
Dan Ferris: They go bad, worse, first, than the dollar first, and it's all –
Larry Lepard: Completely agree.
Dan Ferris: And none of this is lockstep, adding yet more of a complication, right?
Larry Lepard: Agree. Correct.
Dan Ferris: These other currencies look great. The euro versus the dollar can look great, but over time –
Larry Lepard: Yeah. Brent's a good friend, and that's a great theory, and he's been right about it in a lot of respects, and as I always said to him, "Yeah, Brent, at the end of the day, all these pieces of paper are going down compared to what we really care about, which are real assets: gold, silver, real estate, and bitcoin. So, if the dollar goes down faster than the yen, the yen goes down. Who cares?"
Dan Ferris: Yeah.
Larry Lepard: It's all going down compared to stuff.
Dan Ferris: Right, and to be fair to him, he's always maintained the milkshake theory is "gold is the last man standing," so –
Larry Lepard: Exactly. No, no.
Dan Ferris: He's got it.
Larry Lepard: I think he did think we'd go on a lot like – he's believed that we can kick this thing forever, and I always said to him, "I don't know, man. I think the end is near," and I think I'm starting to look a little more right, because it appears to me –
Dan Ferris: Yeah.
Larry Lepard: – we're getting closer to the endgame right now.
Dan Ferris: Right.
Larry Lepard: But I have to say, look, to give him his due, I thought it was all over in 2008, and here we are. I'm serious. I thought, "Oh, it could go right to hyperinflation."
Dan Ferris: Yeah, a lot of us did.
Larry Lepard: I'm serious.
Dan Ferris: Yeah, right.
Larry Lepard: Remember how we all thought that? Yeah.
Dan Ferris: Yeah, and we felt like we were right for three years when gold went back to 2011, 2012 –
Dan Ferris: Yeah.
Larry Lepard: So, it just goes to show you how anybody can be wrong at any time, and how these cycles do take longer than you'd expect to play out.
Dan Ferris: Yeah.You can be right for years at a time, and that's the dangerous thing, isn't it? That's the dangerous thing I feel in the S&P 500 right now, because people –
Larry Lepard: Yes.
Dan Ferris: – they buy mindlessly, right? People call it passive investing. I call it mindless investing. No reference to fundamentals whatsoever, and they look back to 1980 or whatever point or the '90s or whatever, and they say, "See, it worked. You can just keep doing it.
It doesn't even matter. We can get a major financial crisis. You just keep buying. Buy every dip," and I'm like –
Larry Lepard: Yeah, if you bought in '09, you did great. If you bought at the bottom of '20, you did great.
Dan Ferris: Yeah.
Larry Lepard: Even though it's –
Dan Ferris: Yeah.
Larry Lepard: So, at some point, the fundamentals get connected, and John Hussman I think does the best work on the fundamentals.
Dan Ferris: Yep.
Larry Lepard: Has a great chart that just goes, the data point we're at today, and how much more overvalued we were than we were in 1929, and from peak to trough in '29, the market went down 82%, so...
Dan Ferris: Yeah.
Larry Lepard: His math suggests that we could go down 65%.
Dan Ferris: Yep.
Larry Lepard: And we would still be only within the range of fair valuation.
Dan Ferris: Right.
Larry Lepard: So –
Dan Ferris: And that nonfinancial market cap to GVA that he has, that's like, that's the one that correlates the best.
Larry Lepard: Yeah. I agree.
Dan Ferris: History of that metric says we are absolutely looking at a serious drawdown of the kind you just mentioned. It's like virtually every time.
Larry Lepard: Exactly. No, exactly. That's exactly right, and yet –
Dan Ferris: Yeah.
Larry Lepard: – the people who would know that, understand that, and are following that model, are quite limited, and a lot of people criticize him because he's managed money, and his fund hasn't done particularly well, but he's actually a brilliant economist.
Dan Ferris: Yeah, I think so.
Larry Lepard: His analytical work is fantastic.
Dan Ferris: Yeah.
Larry Lepard: His money management work has been not quite as good, but –
Dan Ferris: Right, but for me, he's like, a specialist in that one thing of understanding the valuation of the overall stock market, which I maintain is a useless exercise like 90% of the time, right? It's good at the peaks. That's when you had better know it. You know?
Larry Lepard: It informs you of the extremes.
Dan Ferris: Yes.
Larry Lepard: It informs you of when things are incredibly cheap.
Dan Ferris: Yep.
Larry Lepard: And if things are incredibly cheap and you have – you have time on your side. Well, you buy and you wait, and it'll also inform you when things are incredibly expensive, and by the way, they were incredibly expensive three years ago, and being short this last year or two, it'd been no fun at all –
Dan Ferris: Yeah.
Larry Lepard: – because I had some personal accounts I'm shorting.
Dan Ferris: Yep.
Larry Lepard: But like, new things were incredibly expensive, and I thought I would eventually get paid, and now I'm starting to get paid.
Dan Ferris: Yep.
Larry Lepard: So –
Dan Ferris: Yeah. So, what I've done is, instead of being short with too much, too many [inaudible], I've shrunk it down so that it's basically like a tail-risk hedge, and I buy lead puts and just say, "OK. Here's 100 [inaudible] or whatever it is." Lead puts two years out, and forget them, and let them expire, and the exercise of letting them expire and losing has led me to hold through the current problems here, and amortize quite a bit of the previous laws, frankly.
Larry Lepard: Huh.
Dan Ferris: At some point, we're going to get that drawdown, and then hopefully I'll be nice and liquid to buy lots of cheap, good stuff, besides –
Larry Lepard: I think that's the way.
Dan Ferris: I wanted to talk to you, Larry, though about one more thing before we get to our final question.
Larry Lepard: Yeah.
Dan Ferris: Besides buying gold and bitcoin and silver in these things, you buy gold stocks too as well?
Larry Lepard: I do.
Dan Ferris: The equities. I feel like that trade has turned as well. A lot of people are saying this. That trade has turned as well, hasn't it? It was sort of –
Larry Lepard: It has, and so –
Dan Ferris: It used to be the old leverage, your gold trade. Then that wasn't working. Now it's working again, isn't it?
Larry Lepard: It is. It's starting to, and there's a large catch up, because it was – it's way behind.
Dan Ferris: Yep.
Larry Lepard: At these gold prices, the stocks are massively undervalued, and there's a chart that I posted on Twitter a while back that showed how gold's – GDX has just really broken out.
Dan Ferris: Yep.
Larry Lepard: And there's another chart on Twitter going further back that shows the gap between the price of gold and the miners, and the miners really do not accurately reflect the earnings power they now enjoy at these kinds of gold prices.
And that's really because, as I think we spoke about earlier, the analysts were all thinking, "Well, OK. Yeah, gold's at $2500, but it's going back down." And if you think the future price is going down, we know the cost to mine this stuff goes up every year with inflation.
And it's a spread business, so if you think the price of the metal is going down, well, then the profits are going to decrease, but I think what's taking place right now is people are starting to think, "Hey, you know what? There's something different going on here, and the metal maybe isn't going back down. In fact, it's going to go up."
Dan Ferris: Yeah.
Larry Lepard: This is the gold [inaudible] $4,500 number.
Dan Ferris: Right.
Larry Lepard: Oh, my. If that's the case, then I could imagine the earnings of this business are going to be really, really big in the future, and so they start buying these stocks, and by the way, the stocks were pretty cheap. Even if gold doesn't go up, I have a lot of companies in my portfolio that are trading at three to five times cash flow, which as you guys know, that's a very low multiple compared to the market, and those were modeled at $2,500 gold price before this run.
Dan Ferris: Right.
Larry Lepard: So at the peak in 2011, Dan, back in the good old days when we thought we were all going to get rich on gold and silver, these companies were trading at 20 times cash flow. These stocks will go up because multiples will expand. Then they will also go up because at $3,500 gold, that cash flow isn't the same as at $2,500 gold. It's bigger, so you kind of got a twofer going on there.
Dan Ferris: Yeah.
Larry Lepard: And I'm extremely bullish and constructive on gold and silver mining stocks for the next year or two.
Dan Ferris: Yeah, $3,000 gold hits those earnings, it's game on, yeah.
Larry Lepard: Well, tomorrow night, Newmont reports, and I think it's going to be a shocker.
Dan Ferris: Yep.
Larry Lepard: Because this quarter has been pretty high pricing all quarter long, and I think they're going to blow the numbers out of the water. My fund is loaded up on Newmont calls, so we'll see. We also own the stock, but I just – well, because I just don't think people really understand how much operating leverage there is. I was looking.
The Newmont [all-in sustaining costs ("AISC")], not that long ago, was like, $1,200 an ounce. Good lord. If you sell, if your average selling price, let's say they're average, and the quarter might've been $2,900 or $3,000. That's $1,800 of profit or $1,900 of profit per ounce. Oh, my god. These are businesses that used to survive on $300 or $400 of profit per ounce, and these are really profitable businesses at these prices, so...
Dan Ferris: All right.
Larry Lepard: It's kind of a "pound the table" moment for me on gold stocks.
Dan Ferris: Yeah, all right. I just wanted to get your take on that before we get to the final question, which is the same for every guest no matter what the topic, even a nonfinancial topic, and if you've already said the answer, by all means, feel free to repeat it, and the question is simply for our listeners. If you could just leave them with one thought today, one takeaway, what would it be?
Larry Lepard: I would say to your listeners that in terms of your investment holdings, you should seriously consider how much – the possibility that we are now in an inflationary environment, not the same environment for stocks that we've had for the past 40 years, and you should ask yourself, "What's my weighting in stocks?" versus "What's my weighting in bonds?" versus "What's my weighting in silver, gold, bitcoin, or real estate?" And the reason being, I just strongly believe that everything is going to be a persistent problem for the next 10 years, and that if you're all in stocks, and you're not in any of the other things I just mentioned, 10 years from now, you're going to experience regret. The stocks will go up for sure, but the other stuff, in my opinion, is going to go up vastly more, and so in the book, I actually recommend that people at least have 25% of their assets in what I consider to be inflation protection assets, but this isn't financial advice.
Everyone's situation is different. You've got to choose your own risk, etc., etc., but I would just say that the final point I would kind of make is, there are a lot of people, particularly gold people and particularly older people who are very skeptical of bitcoin, rightly so. There were a lot of crypto frauds, bad people, Sam Bankman-Fried, all this terrible stuff that happened in that industry, but I would ask that they reconsider that the invention of bitcoin is actually a technological invention that's really important, and it's, I think, the most asymmetric asset in the world right now, and I think that. I say to my older clients, "Look. You don't have to own a lot of bitcoin, but owning zero bitcoin is not right. You've got to own 1%, 5%, 10%, 15%, because this is something that can and probably will go up 10x to 20x in the next 10 years, and if you don't have any of it, you're going to have regret that you don't have any of it."
And if you have concerns or questions about it, once again, I'm trying to sell books here, obviously, but I'm also trying to help people. The Big Print, the first half of the book is why inflation's a problem, how they've done it to us, how the government system is totally messed up. The second half of the book is really the reason why bitcoin is your safest and best bet to protect yourself from inflation. Gold's great, too, but in terms of upside optionality, nothing really beats bitcoin, and I deal with all of the complaints and all the naysaying and the energy, everything.
I take on every single skeptical thud item of bitcoin, and I deal with it, and trust me, I didn't always believe in it either. It's taken me years and a lot of work to come to the conclusions that I've come to, but I really think people owe it to themselves to learn about it. It'd be like saying in 2000 or in 1994 or '95, saying, "Well, the Internet's not going to be important," or when cellphones came out and Michael Douglas was walking around with a brick on the beach in Wall Street saying, "Oh, that's never going to amount to anything. It's $0.40 a minute."
This is a technology that's going to change the world. It's really, and it'd be like – be like saying, "Oh, yeah. Blockbuster will be here forever," and then Netflix comes along, right? It's just a change. It's just a change, and the world is changing. The world's more digital, and this is a hard digital currency. It's digital gold, so please, please, please take the time to learn about it, even if you're skeptical, because I think you'll be rewarded for doing so.
Dan Ferris: All right. Great answer, Larry, and thank you for being here. It's been a wonderful discussion. I've really enjoyed it.
Larry Lepard: Well, thank you, Dan. I've been a longtime reader and admirer of you guys.
Corey McLaughlin: Yeah, thanks so much.
Larry Lepard: And I've never met Porter, but I think I spoke to him once on the phone, so I like Stansberry a lot, and if I can ever help you guys out, let me know.
Dan Ferris: Oh, you bet. Same to you.
Yeah. I feel like we could've talked with Larry for another two hours. I really did.
Corey McLaughlin: Yes. Yes, of course. Yeah. That was great. I'm of the same mind of the belief of – and he lays all this out in the book, what is really the root of the problems that we face in so many different ways.
I came into this kind of a blank slate. And I determined, I think, what makes the most sense to me is the devaluation and the debasement of the dollar over time, and he seems to think the same thing, so yeah. No argument here. Anything he said, really.
Dan Ferris: Yeah. There are some folks like him out there who manage money, and they do it from a really solid, hard-money perspective, and they buy lots of gold stocks and gold and bitcoin and silver and all these things, and that just fascinates me as a business model because obviously, those things are highly cyclical. They can underperform for years at a time, so anybody who lasts in that business is really good. One of the winners that I've had over the past few years is a publicly traded money management firm specializing in precious metals. Actually, I'll mention it because I've mentioned it before, I just realized. It's Sprott, Inc., and it's a triple already, and they did what they did partly because they outlasted the competition, because managing people's money, putting it in mining stocks and gold and stuff is difficult for a long period of time.
Corey McLaughlin: Yeah.
Dan Ferris: So, anybody who's got that kind of – it's like I used to praise Latin American bankers. I was like, "Wow. How are you people still in business? It's amazing," and we bought one of those stocks.
Bladex was the big Latin American bank stock that Americans have bought over the years when it gets good and cheap, and we did real well in it, and it's part of the pitch, is that, look, these guys have seen it all before, and Larry has seen it all before, and he knows the history, obviously. He's talking about all these historical examples, so it's kind of right up our alley. As you say, it is right up our alley. Talking with Larry Lepard is right up our alley. I loved it, loved every minute of it, so –
Corey McLaughlin: Yeah, I kind of want him in the White House, too, to figure it out.
Dan Ferris: Yeah. That'd be great, wouldn't it?
Corey McLaughlin: Whisper in Scott Bessent's ear and get these things going.
Dan Ferris: Yeah. That's right, yeah. All right, so that'll be our next project. We'll get Larry in the White House. All right, so that's another interview, and that's another episode of the Stansberry Investor Hour.
I hope you enjoyed it as much as we obviously very much did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want. Scroll all the way down. Click on the word "Transcript," and enjoy.
If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please, and also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour.
Have a guest you want us to interview? Drop us a note at feedback@investorhour.com or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week. I'm Dan Ferris. Thanks for listening.
Announcer: Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail, feedback@investorhour.com.
This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.
Opinions expressed on this program are solely those of the contributor, and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates. You should not treat any opinion expressed on this program as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Neither Stansberry Research nor its parent company or affiliates warrant the completeness or accuracy of the information expressed on this program, and it should not be relied upon as such. Stansberry Research, its affiliates and subsidiaries, are not under any obligation to update or correct any information provided on the program.
The statements and opinions expressed on this program are subject to change without notice. No part of the contributor's compensation from Stansberry Research is related to the specific opinions they express. Past performance is not indicative of future results. Stansberry Research does not guarantee any specific outcome or profit.
You should be aware of the real risk of loss in following any strategy or investment discussed on this program. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this program may not be suitable for you.
This material does not take into account your particular investment objectives, financial situation, or needs, and is not intended as a recommendation that is appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this program. Before acting on information on the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
[End of Audio]
Join for free. See how over a million people are taking control of their wealth…
