October 2025 Letter

This government shutdown standoff reflects long-running disagreements about the role, size, and cost of government. One side emphasizes immediate fiscal discipline and the need to manage our current deficits in order to avoid greater long-term consequences and financial crisis. The other stresses the near-term costs of shrinking safety-net programs can create larger problems and larger costs for the nation over the long term. My job is to keep your plan aligned with the world as it is. Rather than weigh in on politics, I will focus on how the markets are being priced and what that means for your plan.

My background in finance, accounting, and economics helps me frame the fiscal risks and opportunities that matter for long-term investors. Over the last decade I have spent thousands of hours pressure-testing the areas where a traditional 60/40 portfolio can fall short and strategies for strengthening it for today’s changing environment. Several of those ideas have greater relevance now than ever before, and I will attempt to address those thoughts comprehensively.

Please keep this information in mind as we schedule year-end meetings for planning and portfolio review.

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October 10th and The Return of Tariff & Supply Chain Fears

President Trump’s recent social media post shared rare earth elements and minerals are growing in importance, and that they now form the central part of China trade negotiations. China today controls over 85% of the refinement of the 20 most important rare earth minerals.  Frankly, it is a bit shocking the U.S. and other developed countries have allowed this centralization to happen given the technological and defense implications.  I read this weekend that an F-35 fighter jet has over 400 kilograms of rare earth minerals via permanent magnets, radar systems, and stealth coatings. For decades, the world has allowed China to corner the market on these rare earths' processing and much of the mining, often through its “Belt and Road initiatives” that secure resources abroad and funnel them back home for refining. Processing these elements is a pollutive endeavor, and China has certainly paid its environmental dues to achieve dominance. According to the University of Chicago’s Air Quality Life Index, 99.9% of China’s 1.4 billion people live in areas where average air pollution levels exceed World Health Organization guidelines. That market cornering, once a strategic win for low-cost global supply chains and pollution outsourcing, could now prove an economic noose for western democracies.

President Trump's tariffs and President Biden’s chip export bans have triggered Beijing’s counter-moves, inducing the recent rare earth export controls. This escalated dramatically in Spring 2025, when the trade war intensified and China withheld specific types of magnets from all Western countries, bringing automotive plants worldwide within weeks of a forced shutdown.

The U.S. response is ramping up aggressively, with tariffs on China set to hit 100% in November, alongside billions in new U.S. defense funding appropriations. To expedite redevelopment of these supply chains, the Economic Emergency Powers Act has been invoked, enabling the U.S. Department of Defense to make direct equity investments in key companies and set a price floor for domestic rare earth producers.

U.S. firms like MP Materials and Trilogy Metals are now partially owned by the U.S. government and are racing to rebuild a supply chain that America dismantled in the 1980s.  Uranium mills are being reborn as rare-earth refineries.  As a staunch free-market advocate, I squirm with unease over any public ownership in private enterprise. Yet Secretary of the Interior Doug Burgum has made a compelling case in many interviews lately that allowing Chinese obstruction isn't just bad economics; it's a direct national security threat. Burgum recently highlighted that over the last few decades if a U.S. (or any western) rare earth mineral company became profitable, China would subsidize their domestic producer and “dump” that particular mineral onto the market thus depressing prices and driving the U.S. company out of business. A price floor set by the U.S. department of defense helps avoid this manipulation.

One may notice that the U.S. response is the very playbook China has used to gain control of strategic industries worldwide by subsidizing its companies through losses long enough to beat foreign competitors. Time will tell whether tariffs and targeted government equity in these firms represent the right path to securing U.S. supply chains, but I admit the alternative of inaction feels untenable.

The truly worrying aspect is that the U.S. may now confront the fallout from four decades of economic strategy gone awry. I am a close follower of Luke Groman of FFTT.com and he aptly summarizes America's approach of the last 40 years as “long U.S. dollars and service jobs and short commodities, factories, and gold.” Groman argues (and it's hard to disagree) that China has spent those same decades taking the opposite side of that trade, methodically building dominance in the very areas we've offshored. Time will tell if this was a “pennywise and pound-foolish” strategy that has left us perilously dependent on China for both economic vitality and defense production. Compounding the challenge, reshoring so much of our industrial base won't come cheap: it demands massive new investment and debt that would likely spike inflation.

For now, a 100% tariff looms alongside profound supply chain uncertainty as the U.S. and China battle it out economically. Markets felt the strain last Friday, October 10^th, with the S&P 500 and NASDAQ declining 2.71% and 3.56%, respectively. Early the week of October 13^th shows a bounce back as President Trump tempers the tone on what November tariffs might be.

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Inflation Likely Isn’t Over

I noted in the previous section that reshoring manufacturing is a capital intensive and inflationary endeavor in the short term.  My previous writings, linked below, delve into U.S. fiscal policy woes, mounting debts, and the histories of how governments manage these debts also being inflationary (if you would like to dive deeper).

• March 2025 Letter – see section “Deficits, Debt & DOGE”
• December 2024 Letter – see “The National Debt: A Double Edged Sword”
• May 2024 Letter – see “Why are Interest Rates Higher Now, But the Economy Has Not Slowed Down” and “Are We Not Allowed to Have a Recession Anymore”
• May 2023 Letter – The entire letter was devoted to federal deficits, the gold standard, and inflation.

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With respect to your time, here's the executive summary:

History shows governments with high debts and with sovereign currency issuance power (like ours) leverage that power to inflate away high government debt burdens. It admittedly works: more money in circulation (monetary inflation) makes the national debt feel lighter relative to the size of the economy. But there is a catch: with extra dollars chasing finite goods and services, prices rise (price inflation).  The debt is no longer so burdensome at the sovereign level, but most unprepared individuals come out in a worse state with more currency in their pockets, but able to afford less goods and services with said money.

We've seen this playbook before. Post-WWII, when debt hit 110% of GDP, the Fed capped interest rates low, letting inflation run hot in the late 1940s to halve the debt burden relative to GDP in six years. Fast-forward to 1971, the Nixon administration severed the dollar's tie to gold, unleashing fiat money creation. Debt exploded and so did inflation of the 1970s.

Since 2020 and the Covid-19 Pandemic, federal spending and the government debt trajectory has shifted tremendously as you can see from the chart below of government expenditures.  It is no real surprise that price inflation picked up in 2022 in response to the additional money floating in the system.

https://fred.stlouisfed.org/graph/?g=1MUI1

One of my favorite visual examples that charts price inflation alongside monetary inflation is the tracking of the price per can of Campbell’s Condensed Tomato.  You can find that atop the next page. One quick note (and previously mentioned) is the United States left the gold standard converting to a pure fiat currency in the early 1970s.

The chart is useful context, but it looks in the rearview mirror. The question is what comes next for debt growth and inflation. My view is that the inflation we have seen in recent years is likely to persist. The chart below shows the annual federal deficit (spending in excess of tax revenue) since 2000.

National Deficit | U.S. Treasury Fiscal Data

For the fiscal year that ended on September 30, 2025, the deficit was about $1.8 trillion, which is not yet reflected in the graphic above. Sustaining deficits of that size without triggering a debt spiral typically requires additional money creation by the Federal Reserve, which tends to keep upward pressure on prices.

The moral of the story: inflation often tracks government spending and national debt growth.  If you are prepared for inflation via your business or portfolio, you fare fine.  If you are unprepared, you do poorly.  So how do you prepare if higher inflation lies ahead of us and is not just behind us?

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The Debasement Trade

The “Debasement Trade” has been a term popping up more in finance circles as of late. What investors mean by the “debasement trade” is simple enough: when governments run persistent deficits and central banks expand the money supply to deal with the mounting debt, money is debased.  More dollars in circulation means each individual dollar unit of account is worth less.  Investors have sought out assets that take value in their scarcity and cannot be created at will. Gold is the classic example and, as of early October 2025, gold trades above $4,000 an ounce for the first time in history.

This shift is not happening in a vacuum. Central banks themselves have been steady net buyers of gold over the last few years, adding to their reserves at near-record paces.

Even some large market participants have flagged the symbolism of this move. Citadel’s Ken Griffin recently called the flight to gold “really concerning,” noting that investors are starting to view gold as a safer harbor than the U.S. dollar. Ken Griffin’s two-minute comments are linked below and worth listening to.

Ken Griffin Calls Flight to Gold 'Really Concerning'

That does not make gold “superior” to cash or treasuries; it does however highlight the environment we are in and why portfolios sometimes need explicit currency debasement hedges.

The chart below shows total returns for gold, U.S. large-cap equities, and developed markets outside the U.S. from 2000 onward, a period that roughly brackets the last time the U.S. government ran a budget surplus. The latest leg higher in gold has meaningfully changed the relative performance picture.

It is important to note that starting in 2000 can make gold look stronger because it begins near a long-term trough in the gold price. Even with that caveat, a 25-year span offers useful context: gold has generally done better during stretches of rising government debt and concerns over currency debasement—conditions that may remain in place over the next several years.

Some of you already hold gold in your portfolio, while others do not. We’ve taken a thoughtful approach to commodity exposure overall, and I’d like to discuss this allocation together during your year-end meetings.

Another debasement asset to consider is Bitcoin which we hold in high-risk tolerant portfolios. The chart from Bitwise below is from Q2 2025 and therefore slightly out of date.  Nevertheless, the performance of gold and Bitcoin has only improved in the 2025 column in that time.

When we do allocate a Bitcoin position for a client, it’s through ETFs that hold Bitcoin. That way, the asset can be held inside a brokerage for reporting, security, and transparency.

We continue to collaborate with our portfolio managers on the risks and benefits to increasing weightings in debasement-resistant assets like gold and Bitcoin.  As with gold, we're not pushing Bitcoin on anyone.  Both assets are part of an opt-in discussion tailored to your risk tolerance, time horizon, and overall plan. If this resonates, let's carve out time this fall to explore whether it deserves a place in your portfolio.

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Why We Remain Positive

Talking about tangled supply chains, persistent inflation, and debt crises can certainly feel like a downer, and, I'll admit, I did not particularly enjoy writing the letter up to this point. These are real challenges that keep us on alert, but they do not overshadow the bigger story: we're optimistic about market returns and improving quality of life.

Market valuations are elevated by historical standards, sure, but not like the speculative frenzy of the late 90s dot-com bubble. Today's premiums are backed by genuine investment and earnings momentum across the board, with artificial general intelligence coming sooner than most of us can comprehend.

Some clients and I follow robotics closely, and most individuals have no idea of the biggest products that will be staples in American homes in the next decade with humanoid robots. Like to cook, but hate to do the dishes? Like to mow the lawn, but hate bagging leaves or pulling weeds? Do you hate laundry? Humanoid robots like Tesla’s Optimus are expected to arrive in the next decade with a price below $30,000 per unit. The market possibilities are endless, and these will greatly improve the daily burdens of pesky chores and allow you more time to recharge and relax with your families. I, for one, cannot wait.

In diagnostic medicine, AI is already revolutionizing how we catch diseases early with algorithms spotting subtle patterns in scans that humans might miss, leading to faster, more accurate treatments and fewer unnecessary worries. The result? Longer, healthier years with loved ones, not just for the wealthy but for all.

AI and related technologies are huge deflationary forces and very possible offsets to the inflationary forces of reshoring supply chains and currency debasement.  Whether it be robots, diagnostic medicine, or sustainable energy breakthroughs, these innovations are setting up to deliver a productivity boom that elevates everyday life. And, as these technologies scale, they may supercharge corporate earnings, driving the kind of broad-based growth that sustains markets.

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Closing

As we enter the fall season, I want to leave you with a simple message. What’s happening in the market often feels unprecedented, but uncertainty in markets is normal. We cannot control headlines, shutdowns, or tariffs, but we can control how we save, what we own, and how we manage risk. That discipline will be the difference between reacting to the market and making decisions that serve your future.

Over the coming weeks, we will review rebalancing and year-end tax opportunities. If you have any questions or life changes that your plan should reflect, we will be in touch shortly. Thank you for your trust and the chance to serve your family. Enjoy the rest of the season, and we look forward to finishing the year strong together.

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Thank you for reading. Please review our disclosures.