NEW YORK, NY – June 22, 2021
Legendary investor Michael Burry, known for running Scion Asset Management, being a subject of Michael Lewis’ book, The Big Short, and profiting against the U.S. Housing Bubble in 2008, made headlines recently by calling the current market situation, the “Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude.” A recent Wall Street Journal article titled, “Tesla and Other Bubble Stocks Have Deflated Just Like 2000” draws similarities between now and 2000, such as “fear of missing out” driving trading behavior, IPO madness, and even the time of year. The current fashionable sectors peaked in February and March just as the dot-com bubble reached its high on March 10, 2000. However, another one of Burry’s fears, is inflation. He tweeted in February that the government was inviting inflation with the combined effects of trillions in stimulus, re-opening demand, and higher employee and supply chain costs. For the month of May, the Producer Price index (PPI) was 6.6% higher year-over-year, while the Consumer Price Index (CPI) was 5% higher year-over-year. Meanwhile, the Fed signaled they expect to raise interest rates sooner than anticipated in 2023 but will slow down bond purchases until goals of maximum employment and 2% inflation are reached. Chairman Jerome Powell, in response to the recent high inflation numbers, expects these readings to abate. Should inflation not abate, Powell says, “We wouldn’t hesitate to use our tools to address that.”
Midas Fund The Fund’s holding of Sandstorm Gold Ltd., a gold royalty company with a portfolio of 220 royalties on mines around the world, performed well in the last month. Shares of Anglogold Ashanti Ltd., a South African gold mining company with operations across several continents, have underperformed in the last month.
The Fund seeks primarily capital appreciation and protection against inflation and, secondarily, current income through investments primarily in precious metals mining and other natural resource companies, as well as gold, silver, and platinum bullion. Using a disciplined approach, the Fund seeks to emphasize gold and other natural resource companies offering financial strength, expanding production profiles, strong free cash flow, and promising exploration potential. The Fund currently is invested in a global portfolio of primarily large and medium gold and diversified mining companies, precious metals royalty companies, and ETFs holding gold and silver bullion.
Midas Magic The Fund’s position in in Alphabet Inc., a holding company that, through its subsidiaries, provides web based, advertisements, software applications, and other products, performed well in the last month. The Fund’s holding of AMERCO, a truck and trailer rental company, and provider of storage space, hindered the Fund’s performance in the past month. Each of Mastercard Inc. Class A and Alphabet Inc. Class A currently comprise more than 10% of the Fund’s net assets.
The Fund seeks capital appreciation. Relative to the S&P 500, the Fund’s portfolio currently is more weighted in cyclical companies, such as financial services, and is underweight in economically sensitive and defensive industries. The Fund generally focuses on companies that appear to have strong operations showing superior returns on equity and assets with reasonable valuations.
How to and Why Invest in Gold?
Gold investors have, essentially, three basic alternatives: (1) bullion; (2) individual equities; or (3) funds that invest in gold and gold-related equities (e.g., gold mutual funds, exchange traded funds, etc.) Equities of gold mining companies may offer greater upside than direct ownership of the metal itself due to operating leverage. Operating leverage arises when the percentage gain in a gold mining company’s earnings is greater than a percentage gain in the price of gold — a result of operating costs declining as a percentage of revenue per ounce of gold mined.
Potential benefits of an investment in gold and gold-related equities may include, among others, portfolio diversification, low correlation with the overall U.S. equity markets, serving as a hedge against other financial assets, and potential price appreciation fueled by demand from the jewelry industry, industrial markets, and central banks.
We believe that a reasonable allocation to a gold mutual fund in a conservative, diversified portfolio would be limited to 3%, or up to 10% for aggressive investors.