It was July 2007. On a whim, I sent an email to Aaron Krowne, founder of the website ML-IMPLODE.com. I learned that he was a grad student at Emory University (and I believe working in the library of all places), which was literally a few miles down the road from where I lived. On his website, ML-IMPLODE.com, he was documenting the banks and mortgage companies that were going belly up. In that email I asked him to lunch, and to my surprise, he was agreeable.
“Andy, it is all going down. Basically, the entire banking system is insolvent. My project, ML-IMPLODE.com was started to document what I saw as the problem. It has turned out so much more than that. The entire “F***ing system is going to go down. I now have whistle blowers in some of the biggest banks send me tips. This is the top of the market.” All of this turned out to be true. I called up a good friend of mine, a bond trader who worked for one of the largest bond trading firms in the world. “Andy we are one of the biggest buyers of these mortgage backed securities. I follow ML-IMPLODE.com every hour of every day to see what the next shoe is to drop.”
They say they don’t ring the bell at the top (or at the bottom), but it certainly sounded like a bell ringing to me. I called My partner in my hedge fund, Dennis Leontyev up. We had gone to mostly gold, cash (short term bonds as a matter of fact), and a few of our favorite mining and energy stocks. That was it.
Fast forward to a day in October, 2008 (I don’t remember the exact date, but I will never forget the day). I was sitting outside a Barnes and Noble with our biggest client (who seeded us with tens of millions of dollars for our fund), and the market was in a free fall. We were actually relatively safe (and in fact, we were up because of our position in T-bills); but that didn’t really matter. The entire system was breaking. Thank God our money wasn’t in Bear Sterns (we were aware of the rumors and believed them to be true). This was about survival, and what things would look like on the other side of all of this.
In the beginning of the New Year, we wrote a letter to our investors and a plan. Our fund was commodity based, with a significant of the fund in gold and T-Bills (we weren’t particularly bullish in treasuries at the beginning of the fund, but were aware of the inverted yield curve and would park money at the short end. Not only to earn interest but saw this trade as fantastic in that the curve would eventually flatten out). Our plan was to seek value. And in the spring of 2008, there was an incredible amount of value. Like once in a generation of value. So, in January and February of 2008, we mustered all of the courage we had, and started buying stocks that we loved (mostly natural resource stocks). We averaged in over the weeks and months and yes, we were VERY greedy.
“History doesn’t repeat itself, but it often rhymes.” Mark Twain
We are going to try to thread the need of rhyme of history yet the differences. So without much further ado, this is what we expect in 2025 and our portfolio in our fund will be positioned accordingly.
Inflation will continue to be sticky with a world awash in liquidity.
This first point sets up our entire investment thesis for 2025. Barring an economic meltdown (which is certainly possible, but not probable in our view), we do not expect the Fed to be aggressive in slashing rates. In fact, they have indicated that they WILL NOT be aggressive in cutting rates, and it is our argument that they do not need to. The liquidity will come from two other places: the new administration tax cuts and most (if not all) of the rest of the world’s central banks cutting rates and stimulating their economies.
See Interview here with John Williams
The market will correct, but not crash
We will like to add a caveat to the above statement as “more than likely”, correct but not crash. We are aware of all/most of the bearish indicators: the market is way overbought, market breadth, the inversion of the yield curve (which has flattened in Fall of 2024), and sentimental indicators (like the VIX). All of this leads to the high probability of a correction. But don’t mistake this for a crash, which in our view is not likely to happen
Money will flow to US equities, and back to the dollar
Why? It’s all about interest rates and liquidity. The US will continue to have the most liquid and stable currency and assets. Watch all of the money from overseas continue to flow back to the US. This will lead to a floor or support in equities and in the dollar.
See interview here with Tom Luongo
Gold will continue be the most stable store of value in the world and the US general public will finally start to notice
Most investment institutions and central banks are aware that gold has outperformed the S&P since 2000. The general public is usually the last to know of such trends. We thing that this is the year they find out. And why does the general public finally become aware in 2025? Simple law of averages. When compounding twenty four years of outperformance with media coverage (and yes, social media coverage. Not only of gold, but all things business cycle and economics), the public will become aware. In fact, they are already aware. This year, the general public will finally start to participate in the move.
See interview here with Marc Faber
Silver will go next and when it goes, it will go even higher than gold.
Silver will be the best investment no one has heard about.
See interview with Rick Rule
And Michael Oliver
Value investing is sexy again
The next year will see the return to value investing. The reasons? Typically, value stocks perform much better during a time of higher interest rates, because they are more stable and don’t need to borrow to grow. Compare this to a tech start up (or a start up in general. Borrowing is significant relative to a value company.). Second, the law of averages. Everything returns to the mean – AI stocks, tech stocks, and even value stocks. And this leads us to what we feel will be the two best trades of all
The best value in the space with the best Alpha will be mining stocks and energy stocks.
See interview with Rick Rule on Gold and Silver Stocks:
The best portfolio in a world full of liquidity
So it is our view that the best portfolio will be a combination of gold (and silver), short term T-Bills, and value stocks that are overweight mining and energy stocks.
See my video with Rick Rule on building a gold and gold stock portfolio:
Stay tuned, Dennis and I will discuss our expectations for 2025 in a YouTube video and podcast interview.
