You Cannot Print Your Way to Prosperity | Ask the Expert With Guest Larry Lepard
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On this episode of Ask The Expert, Craig Hemke sits down with Larry Lepard to discuss the current state of the economy, central bank policies, and their impact on precious metals. Lepard emphasizes the brokenness of the financial system, the inevitability of monetary debasement, and the need to protect wealth by holding hard assets like gold and silver. He anticipates a significant financial event that will expose the illusion of control held by central banks, leading to a surge in gold and silver prices.
Watch or listen below.
Announcer: You're listening to "Ask the Expert," on Sprott Money News.
Craig: Well, hello again from Sprott Money News, sprottmoney.com. It is you"Ask the Expert" segment. I'm your host, Craig Hemke. I got a new guest for you this month, someone you're gonna wanna get to know. His name is Larry Lepard. Larry is a money manager and a, someone you should probably follow on Twitter and get to know, and so it'll be fun to visit with him over the next few minutes. Larry, thank you for taking some time to join me.
Larry: Hey, Craig. It's great to be with you. I think there was a long time ago, but it's been a while, so it's nice to see you again.
Craig: Uh, yeah. The old guy starts to [crosstalk 00:00:44]. Good to have you back. Hey, and before we get started, like I said, it's the 21st of August. The Sprott Money Summer Sale continues for just a few more days. So, you should be sure to visit Sprott Money, and check out the deals they have on all types of metal, bullion, gold, silver, even some platinum. But even after the sale's off, great deals will continue. Sprott Money is a company you should always check any time you're in, looking for some physical precious metal to add to your stack. sprottmoney.com, or call them at 888-861-0775. Also, before we start, Larry, tell everybody a little bit about what you do for a living, and again, where they can find you on Twitter.
Larry: Yeah, sure. Just quickly, I manage a fund that focuses on sound money, mainly gold and silver, gold and silver miners. I'm on Twitter a lot. I, we were joking earlier. I'm "old man yells at central bank," just like Craig. So, you can just, under my name on Twitter. And then my website ema2.com. Free quarterly updates on how our fund is doing and what we see going on. Also commentary on different companies and so forth. It's all free. Join our mailing list. We won't spam you. So, yeah. That's me. I've been doing this since, well, I've been managing money my entire career. As I said to Craig before the camera started, I was radicalized for sound money in 2008. So, basically, when they bailed out the banks, and printed, you know, trillions of dollars, I realized that what I had earned wasn't gonna hold its value, and I had to address that. And so I pivoted, and became all sound money, all the time, from both of, you know, arguing about it financially, and the world trying to make, you know, push us back to a sound money standard, and also the fund. So...
Craig: And you have 100,000-some-odd Twitter followers.
Larry: Oh, I don't know. Yeah, I mean, a lot of them are probably bots. I got a lot of...
Craig: Yeah, that's true.
Larry I got a lot of cute Asian girls that DM me all the time.
Craig: Yeah. Yeah, with... Yeah. Interesting web addresses you're supposed to click, and that sort of thing?
Larry: Yeah. Exactly. Yeah.
Craig: I see those show up in my followers.
Larry: They ask how my trade is going, and, you know, lots of things like that. Yeah.
Craig: Yes. Well that does not detract from the quality of information you put on your Twitter account [crosstalk 00:02:58]
Larry: Oh, you're being kind [crosstalk 00:02:59]
Craig: So, I encourage everybody to give you a follow. Larry, I got a couple things I think we should talk about here, as we move into the latter part of August and the end of summer. We're kind of wrapping up the dog days. You know, American traders are trying to squeeze in one last vacation, maybe, before school starts, and European traders are all on holiday, you know, in the South of France, doing what they do. It's gonna start getting interesting, though, as we get toward the end of this month and into the back third of the year. As we make our way through the dog days, though, I'm sure there are a few things that have caught your eye that are on your radar, whether it's Japanese bonds, or liquidity issues and bankruptcies in China, rates, the highest they've been in 15 years here in the U.S. What's on your radar, Larry? What are you watching?
Larry: Well, it's all the things you've mentioned, actually. I mean, the 10-year is pushing up against this high from last year. You know, the 1-year is close to making new highs, and this is in the U.S. U.S. stock market, some of the leaders have gotten shot. You know, Apple is off its high. The, you know, the special seven aren't doing quite as well as they were doing. Obviously, yeah, trouble in China. The Japanese announcing they're gonna loosen the peg on their yield curve control, and of course, the Yen-Dollar rate, you know, the yen losing value against the dollar. All of that threatens to mess up the current, you know, the yen carry trade. Somebody on Twitter had a great line. They said, "The JPY is the ATM in the lobby of the casino."
Craig: Yeah. Yeah.
Larry: People going borrowing Yen because it was free. And so, you know, a lot of things to watch, Craig. I mean, obviously, the prices of the two, you know, sound-money assets, gold, silver, and Bitcoin, or three sound-money assets, gold, silver, and Bitcoin, I watch all of those very carefully. You know, and I think Jay Powell is, he's flying himself into a box canyon here. He doesn't realize it yet. You know, I talked about this pre-show. You know, he's riding high. He's had a bunch of tailwinds, and the lag effect hasn't kicked in yet, and so he's thinking that...he's probably thinking he's pulled this one off. And I would kind of say, "Not so fast." I think we got trouble coming, and it's probably not very far away, based on the signs I'm seeing.
Craig: What would be the ramifications of some of this in the weeks ahead? You know, the Chinese, like, Evergrande, you know, and you read this stuff about Chinese real estate and the lack of liquidity there, or the Dollar-Yen depreciate to the point where the Bank of Japan has to intervene. What would be some of the...how would that ripple around the globe, if there are issues?
Larry: Well, it's hard to say exactly, because there's just so many moving pieces. But fundamental issue here, in my view, is that you cannot...they cannot continue to keep this system going without a return to some sort of monetary accommodation or printing. And so, that is inevitably going to have to happen, or they're going to have a deflationary collapse. And all one needs to do to come to that conclusion is to go and look at the chart of the U.S. federal interest expense, and look at the curve of that chart and how it's going straight up. And what Powell is gonna realize is that the way he's tried to address inflation by raising interest rates, that doesn't really solve the problem. The problem is more supply-related than it is cost of money-related. And as a result of that, he's making, he's like a pilot in a dive, or in a, you know, he's lost control, and he's pulling back on the stick, and he's making the spin tighter, because every time he raises interest rates, federal interest expense goes up. Federal interest expense goes up, deficits get larger. Deficits gets larger, they gotta sell more bonds. We're already seeing there's no demand for the bonds. Since 2014, foreigners have been net sellers. The Japanese are gonna sell bonds to defend their currency. The Chinese are gonna sell bonds to defend their economy.
And so, we're gonna have continually higher interest rates. You know, I think the big mistake the market is making in general, I mean, I'm just shocked when I see no term premium in the longer treasuries, and also when I see the five-year-out Treasury inflation swap rates in the mid twos, I mean, the world clearly thinks we're going back to a world of 2.5% inflation. I don't think we're going there. I think inflation is cooked in. And I think the deflationary impulse that we've had was enormously helped by, you know, the Powell, or, I mean the, you know, the Biden drawing down the Strategic Petroleum Reserve. Without all that excess oil, oil would be $120 right now, and we would never have gotten the pull-back in inflation that we got. Well, you can only do that once. The reserve is drawn down. And as we all know, shale oil is peaking, if not rolling over in most of the large shale fields. And so, I think inflation is here to stay.
I think we reached peak deflation sometime in 2020, the beginning of the COVID crisis. I think we've now entered an inflationary era, and I think most investors are making the classic mistake of investing in the rearview mirror and recency bias. And, you know, I understand it, because we've had 40 years of deflationary world. And, you know, technology is extremely deflationary. The China labor pool coming into the world market was extremely deflationary. But technology's gonna continue. The China labor pool is starting to get disgruntled, and they want more earnings. And so, in my opinion, all of these things are gonna collide, and we are going to have another financial crack-up that's gonna make 2008 look tame. Which is hard to believe, but I think that's what's coming. And as you and I discussed pre-show, I mean, I think the next print, Powell is gonna have to reverse, and, you know, in order to quell the next crisis, it's gonna take $10 trillion instead of $8 trillion or $9 trillion, or $15 trillion. Fed balance sheet's going to a higher number. And what we're seeing here, Craig, in my opinion, is the death of fiat currency, and the end...you know, it's basically a sovereign debt crisis. And they'd like us to think they have it all under control, but they do not have it under control.
Craig: Right, right.
Larry: They're pretending like they do, but they don't. And of course, it's very difficult for all of us, those of us who invest in precious metals, and the precious metals stocks in particular, because it's just been hammered. And I know why, because the costs of all these mining companies are going up, consistently, because there really is real inflation in all their inputs. And, you know, the five-year-out projections, I've got Wall Street average five-year-out projections for gold, are lower than it is today. And, you know, the odds, in my opinion, the odds of gold being lower in five years than it is today are, they're, like, zero. I mean, gold is gonna take out $2100, and it's gonna squirt to $3000 so fast, people's heads are gonna spin. And ultimately, it needs to go to $4000, $5000, $10,000 to balance all the additional money that's been printed. It is as cheap as it was in '71. It is cheap as it was in 2020. You know, Rozencwajg and Goehring just had a great report, which is free on the internet, and they talk about this. And, you know, in both of those cases, in '71 it went up 22X, and in 2000, it went up 7X. So, you know, I fully expect that this time, it's, from where it is today, $2000 an ounce, well below it today, obviously, below $1900, actually, you know, I fully expect it's gonna go up, you know, 3X, 4X, 5X, 6X in the next five years, and that's gonna have an enormous impact on all of our stuff.
Craig: Yeah. Well, and as you said, Larry, Powell has been able to kind of skate by, especially in the last six months. And it seems as if, whether it's the media or everybody in the market, wants to let him, because everybody has their own self-important, you know, needs that they want. "Well, I want the market to keep going up, so I'm gonna live in this fairy tale land of making it seem like everything's okay." It'll be interesting to see what now happens these next couple weeks, and that's the next thing I wanted to ask you about. We've got Powell and all the other central banking heads from around the world are gonna be in Jackson Hole, Wyoming later on this week. Powells' gonna speak on the 25th, give his big keynote address. You know every word's gonna be parsed. Would what would you... I mean, do you, is it wise to even have expectations about what he might say, or is it more...
Larry: Well, as far as [crosstalk 00:11:01] I mean, I think it's gonna be more of the same. And then the other that's going on, it's got this BRICs conference, and they may come out with some kind of a, I think, I don't think they've got it ready yet, but I think they're gonna imply that they're moving toward perhaps a BRIC currency, backed by a precious metal, you know, underlying precious metal. And I, you know, look, I think that we will be able to read between the lines on what Powell says. But I think, in general, they are under the illusion that they have this under control, and therefore they will not, you know, we won't see the radical change we need for our stuff to work until that illusion is shattered. And I'm extremely confident that that illusion is going to be shattered. I'll tell you what I'm not confident about is I'm not confident about the timeframe. I mean, it should and could kind of happen now, and it kind of feels like it might happen now.
I mean, let me draw a comparison. I thought it was happening when Silicon Valley Bank, you know, went tits up. And then, of course, they papered it over with the BTFP, but I thought that was it. This, I was very much alive and very much invested in 2007 and '08. And I was actually personally short, and, not my fund, but I was personally short Bear Stearns when it failed in March of 2008, and I thought that was it. I thought it was all over. But it wasn't. That was, you know, the beginning of what led to the GFC, you know, six to nine months later. And, to me, Silicon Valley Bank is the same kind of thing. They've taken rates, they've taken real rates incredibly high, you know, up to 5.5%. Well, they've taken the nominal up to 5.5%, which is a huge move on a real basis too. And as a result of that, you know, there's a lag, and that's gonna come, and that's gonna hit. And so, my gut is it probably hits this fall, but it could be next spring. My partner thinks it could be a year, year-and-a-half, and it could be. I mean, who the hell knows? But it's clearly coming, you know, in terms of what I would call "financial distress."
And what we know, for sure, you know, it doesn't matter what the Fed says. I mean, they said inflation was transitory. They said they weren't thinking about thinking about raising rates. And then we saw what they did, right? What we also know is, when push comes to shove, I mean, we also know that, you know, Dodd-Frank said that there would never be another bank bailout. That's what, black-letter law, Dodd-Frank, "We are not gonna bail out the banks anymore. The depositors are gonna take a haircut." That's what's gonna happen. Silicon Valley Bank, First Republic, the entire banking system is in trouble, looks like they're all gonna go down, $17 billion that the FDIC can't cover, and guess what? So, you know, you can't... It's, are you gonna believe, you know, your lying eyes, or you gonna believe them? Right?
Larry: And so, what's gonna happen is there is going to be an event, a credit event, probably, in the markets, where the, you know, the bond market, the U.S. bond market or the Japanese bond market, something is gonna get broken, very badly, and there's gonna be contagion as a result of it. And Powell is going to be forced, in order to keep the markets functioning, because, you know, we know that when push comes to shove, they would rather keep the markets functioning than let the system self-correct and go into a 1929-style depression. And when that occurs, gold is gonna take off like a scalded dog. I mean, it's just, it's gonna be unbelievable, and his credibility is gonna be in tatters. As it should be.
Larry: But... But we don't know when that's going to occur. And I...outer, outside window of that is two years, so I'm prepared to wait that long. I mean, those are... My partner reminds me of the great book on Stockdale, who was a prisoner of war over in the Hanoi Hilton. And he always said, you know, "The guys who didn't make it were the guys who were like, 'Oh, we'll be out in a month. We'll be out by Christmas. We'll be out in six months,'" or whatever. So, they didn't make it. They didn't make it because they kept hoping for it and they kept getting disappointed every time. They didn't make it out. And the guys who made it were the guys who said, "I don't know if we're ever gonna get out. I don't care. I'm just gonna figure out how to live here, and just hang on as long as I possibly can." Those guys made it. And all I hope is that I don't time out before it happens.
Craig: Right. Exactly.
Larry: And I don't think I will, because I think the math is such that it's gonna happen probably within two years, and maybe a lot sooner. So, how's that?
Craig: I've never thought of myself as Admiral Stockdale in the Hanoi Hilton, being in the precious metals all these years, but suddenly, that's [crosstalk 00:15:19] metaphor.
Larry: Doesn't it feel...? Think about it, Craig. Doesn't it feel that way? Think about how long... I mean, you and I were talking about this. We've been suffering in this shit since '08, right?
Craig: Right. Right.
Larry: It's been rough. [crosstalk 00:15:27]
Craig: Larry, I, you know, and it's funny. You mentioned the stuff catching them by surprise, whistling past the graveyard, you know, and the media plays along with it. It was on March the 7th of this year, Powell was on Capitol Hill, and it's the semiannual Humphrey Hawkins testimony.
Larry: Right. [crosstalk 00:15:42]
Craig: And he was up there talking about, "Oh, yeah. This March meeting, in two weeks, we might go 50 basis points. Everything's so great." March the 10th, Silicon Valley starts to blow up. So you just never know when something is gonna come out of the woodwork, and said... But I think, I just can't imagine you're not right. They have shown their cards, in the new paradigm, since 2008. They will always choose to save the economy and save the banks, and, you know, Larry, hey, next year's an election year in the U.S. as well. They're gonna get a lot of political pressure too.
Larry: Of course. There's that, and there, you know, as you can see, it's forgiving student loans. I mean, it's, look, it's, all, all roads leave to monetary debasement, which is why all investors need to hold hard assets. Real estate, you know, gold, silver, etc., so...
Craig: And as we wrap up, you know, and we try to look ahead. I mentioned the election coming up in the U.S. next year. That's gonna be hotly contested, and it's gonna get ugly, and, you know, uglier and uglier. But, you know, I wanna get back to the lagging effects of the economy, and how ultimately this does force things out of control, because I think it's too easy. I know it's easy for me, and I would assume it's easy for people that don't necessarily follow the metals on a daily basis, to just think, "Well, you know, the media says it's gonna be okay. My stockbroker says it's gonna be okay. My brother-in-law that I was talking to over barbecue last week, he says everything's great." But the math is the math, Larry.
Larry: Right, right.
Craig: Just, if you could... How are you positioning yourself for that math? Because we know the higher interest rates mean higher interest payments, and more debt, and everything accelerates that more quickly. Do you just, again, continue to take that patient long run?
Larry: Yeah. I just buy...I buy good assets when they're cheap. I mean, in the gold and silver mining space, it's stunning how cheap these stocks are. Absolutely stunning. I mean, our fund is open. You know, we take investors, anyone with $200,000 or more, you can join our fund. I mean, we're buying things at two or three times cash flow, you know, and we're getting inflows in this environment. So, some people, you know, the people who FOMO-chased into our fund are now down substantially, 50%, 60% in some cases. They came in at the peak, in 2020. You know, these junior miners are extremely volatile. But, on the upside, I mean, in '19, in 2019, we went up 97%, and 2020, we went up 120%. So, when they work, they really work, and they're about to really work. So, you know, I just did a private deal in a mining company, and I will continue to do that in this environment, because they're giving this stuff away, and it's being left for dead. And people still think, I mean, sadly, because it takes people a long time to learn things, and they have to get beaten over the head by it, people still, sadly, think that this economy works, and that the system is not broken. And it, you know, okay, well, and they're relieved. You know, COVID's gone. You know, even though they did a lot of criminal stuff, you know, they're gonna stop doing criminal stuff. Well, you know. Hello? Wake up.
You know, I mean, you gotta just wake up to this fact, and, you know, and protect yourself from it. I mean, that's all you can do now. Now, you've also gotta recognize that there are times in this game where, you know, you feel like Tom Brady in Houston, and, you know, Atlanta's winning, you know, 27 to 3, and it's the third quarter, you know? And, I mean, and as a gold stock mining investor, frankly, that's how I feel. We gotta get our ass out of this hole. But we're going to. I mean, it's gonna happen, because...because, at the core of it all, we are fundamentally right. We are. We're just right. You cannot print your way to prosperity, or else Venezuela would be the most prosperous country in the world.
Craig: Yes. Right.
Larry: So would Zimbabwe. So would Weimar Germany. So, would all of these countries. And that's where we're going. The difficulty here is that, with a big nation, that won World War II, and has a lot of power and a lot of momentum, it takes longer. And so, you know, we've gotta be patient. And that goes back to the Stockdale quote. You know? Like, we're just, we're in the right place, we know we're in the right place, it's coming our way, you know. It's just, I mean, we gotta live our lives, and be of good cheer, and recognize that our savings will be worth a ton of money someday, and we will be rewarded for this. And of course, a lot of people saying, "Oh, you guys got lucky." No, we didn't. I was saying to my daughter this morning. I mean, I, you know, "In 10 or 15 years, you and I are gonna have a totally different problem, which is we're gonna have too much money. I hope it doesn't screw us up."
Craig: [crosstalk 00:20:32] Yeah, whether they're dollars or whatever they are then [crosstalk 00:20:34]
Larry: Well, yeah. It'll be, it might be denominated in the new dollar, which'll be gold-backed or something.
Craig: But we'll have a lot of it.
Larry: [crosstalk 00:20:39] we'll have a lot of it, and we're gonna be fine. So, you know, this, like all seasons, there's a time and a season for everything, you know. So, we just gotta be patient, man. That's all we gotta do.
Craig: Yep. You recognize the math, and you use, like you said, in your daily work, in your money management, you buy when things are on a dip, and you add to your stack, and it doesn't matter how big your stack is, you look at the weakness, and you understand where this headed...
Craig: ...and you protect yourself.
Larry: That's exactly right. And these things, I mean, this, a stack of silver, I mean, it's gonna be stunning what a stack of silver is worth. I mean, look, the silver market's already broken. I mean, you can't buy a coin for anything close to the spot price. Right? I mean, and that tells you something. I mean, the evidence of a broken system is so substantial, and so overwhelming, and so visible everywhere. This is not, you know, you and I are not young guys. I mean, this is not the country we grew up in.
Larry: Right? I mean, we've got, you know, we've got mass poverty, we've got mass unemployment. We, you know, they, I mean, as many people have pointed out, you know, it's easy to say unemployment's low when 40% of the population doesn't work anymore. They're capable of working. They just don't work. We've defined them as not looking for work, therefore they're not unemployed. Well, you know, no. I mean, it's, you know... It's just, the whole damn thing is a lie. What's not a lie is that gold and silver are sound money. And the [crosstalk 00:22:08]
Craig: Right. And you can't build a... The foundation of your financial system can't be built upon lies. That's, you know, you might as well [crosstalk 00:22:14] sandcastle.
Larry: That's exactly right. But it has been, for a long time. You know?
Craig: Right. Right. So, we will continue to do our thing, Larry, and I hope you continue to do your thing, and I hope people continue to visit Sprott Money, and add to your stack, even if it's just, you know, a couple of coins or a tube of Eagles or something like that, the value that physical metal will ultimately provide is...I just can't even describe, you know, because we don't know exactly how crazy things will get, but...
Larry: There's, I'll tell you before we go, there was a great story. It's, I found it just amazing. It's a fellow who was a World War II vet. And he graduated, or he got back home, and he went to work as a machinist in LA, Los Angeles. And so, he was working, you know, aerospace business. And he was a machinist, and he did very well as a machinist, and you can get paid...that's a high blue-collar, high-paid blue-collar job. He took every dollar he made...this was in the '50s and '60s. He took every excess dollar he had and he bought gold coins. You know, $35 a coin. Right? And he put them in ammo boxes that he had stored, that he'd saved from World War II. And he put the ammo boxes in the basement. And he died in the '80s at some time. And his kids, you know, and of course, gold reset from 35 bucks to, you know, I guess... I think he died in the '90s. Whatever. Long story short, turns out the guy had about $10 million worth of gold in his basement.
Craig: Yeah. Yeah.
Larry: Just, on a working salary, buying it at 35 bucks.
Craig: Yep. Yep.
Larry: It protects purchasing power. Good stories.
Craig: Yes. Didn't... His dollar savings...yeah. And that's a, I mean, that's a hard lesson. But, you know, for people to learn, because you have to, it kind of goes outside of what you've always been taught, you know, just keep money in the bank, you know, and that's safe... No. Not really.
Larry: No. Not, not... You did if the system was sound, but the system isn't sound.
Craig: Right. Right. Well, please, everybody, be sure to check out Sprott Money, and thank them for this content by visiting their site, keeping them on your favorites list. Or really, you can just give them a like or a subscribe on whatever channel you've been watching. That helps them cast a wider net, and obviously, thank you, Larry, for spending some time with me, and it's been a fabulous discussion.
Larry: It's always a pleasure. It's always a pleasure, Craig. I love your moniker, Turd Ferguson.
Craig: Even my mother, before she passed, used to call me "turd." I'm stuck with it now. There's nothing I can do about it. But anyway, thank you, Larry.
Larry: Those were funny skits. Thanks.
Craig: Thank you. And thank you, everybody, for watching. We'll have some more content for you before the month of August is out.
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