DFCF, LLC
Drulard Family Capital Fund (DFCF, LLC)
April Fools
Drulard Family Capital Fund
Fortnightly Macro View
JD Straight Up:
S&P 500 at 5612 – down 1% from 5666 two weeks ago
VIX at 22 – flat from 22 two weeks ago
10yr Treasury yielding 4.26% (down 1% from 4.29% two weeks ago)
Agg (US Aggregate Bond Index) at 98.92 – up 1% from 98.39 two weeks ago
Gold at 3166 per oz (up 6% from 2994 two weeks ago) - all time high
Crude Oil (WTI) at 72 per barrel (up 6% from 68 two weeks ago)
Bitcoin at 83k (flat from 83k two weeks ago)
JPM shares at 245 (up 5% from 233 two weeks ago)
Deutsche Bank shares at 23.83 (down 1% from 24.05 two weeks ago)
Truist shares at 41.15 (up 1% from 40.71 two weeks ago)
Blackstone shares at 139.78 (down 3% from 143.80 two weeks ago)
Magnificent 7 Index at 288 (down 3% from 296 two weeks ago)
US unemployment: at 224,000 in latest claims – up 2% from 220,000 two weeks ago
EUR at 1.08 USD (down 1% from 1.09 two weeks ago)
GBP at 1.29 USD (down 1% from 1.30 two weeks ago)
Macro Environment
US core inflation running at 2.8% and EU at 2.2%. War between Russia and Ukraine persists with posturing and influence from US and EU being applied to steer towards a negotiated ceasefire. Israel continues a multi-front engagement in Gaza and proximal territories. China executes military drills near Taiwan. US VP visits Greenland. 1Q25 market volatility is up and broader markets down materially. US 30yr mortgage rates remain near 7%. 1Q25 US GDP growth expected to be reported at a mere 0.3%.
Macro View
Tariffs, terminations, deportations. All run the risk of curbing growth and pushing additional inflation. The possibility of stagflation increases. The US consumer is supposed to be the engine driving continued growth. Nearly 50% of US consumption is from only 10% of the US populace. The core middle class of the US can no longer afford to consume and is increasingly missing auto payments and building personal debt. Consumers are carrying more leverage and the government is too (see below debt to gdp). This was fine when the cost of that debt was relatively low. With the 10yr Treasury over 4%, it is not. The risk still exists that the 10yr goes through a soft auction and sees an additional spike. 10yr rates over 5% for prolonged periods will present a challenge to personal, corporate and government solvency.
Relevance
The only things in the market that are consistently going up are volatility and the price of gold. The complaints are about uncertainty, but when clarity does emerge and that clarity is in the US administration being true to its promise of tariffs and spending cuts, the certainty is hardly preferable to the doubt. Clearly, the US Fed is not in an ebullient and confident mood as it is allowing its balance sheet to plateau or creep back up after years of consistent trimming. There has been enormous capital expenditure on building out compute for the AI revolution and questions are circling about whether it is all required, how it will produce a return, and what the unforeseen consequences of this AI power will be on people and economies. Bring together some of these questions and actions and the head scratchers become more profound and pronounced. The only thing certain about 2Q25 is additional uncertainty and likely continued volatility. Anyone that is positive they know what is going to flow from this convergence of pressures is a charlatan or delusional. Beware those April Fools.
Head Scratchers
1 - Why has the Fed stopped QT and shrinking its balance sheet? Is it fearful of removing its support from Treasury auctions? Fearful of cutting rates and support rendered via balance sheet concurrently?
2 - What will happen on Q-Day? when a quantum computer can crack all known existing cryptography and nothing can be locked or secure?
3 - Will we know when the singularity occurs and computer intelligence exceeds that of humans?
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#14 - 31Mar25