TwoCitiesCapital

At the maturity of the contract, they'd have that option. As long as the counterparty had other ways of hedging the exposure I can't see why they would. They're collecting the financing and the spread - as long as they priced it sufficiently and hedged sufficiently, Fairfax should be able to continue to roll it.

Because it's financed at a floating rate. The moment the floating rate is higher than the forward expected return of Fairfax, it becomes a book value drag. Before then, it can be a liquidity drag in any quarter that the stock doesn't go up by at least 1-2+% because you're paying the financing rate AND any negative returns in cash. As pointed out, they've made over $1B on this investment. That is $1B that has been paid to Fairfax in cash over preceding quarters that has been used to repurchase subs and shares for positive economic benefit in addition to the $1B return. But that also means we can reverse and Fairfax could owe that $1B back if shares return to prior levels. Unlikely, but any given time, some of the prior returns are at risk until Fairfax closes the contract.

You guys are right. I wasn't subtracting out the capital used to buy the shares and messed up the math. My bad

Yes. 100% of the intrinsic value will accrue to it in that 1 second that some nameless face calls it a currency - and not a penny before!

This whole conversation is pointless. I made the comment that it was like any other commodity in terms of it's pricing being set via supply/demand a yesterday. He was dismissive of that suggesting that other commodities have industrial uses and BTC doesn't. Now, he's right back to acknowledging it's like other commodities, but continues to dismiss it because there's no cash flows so any price above $0 is "speculation" which we know is a cardinal sin among value investors still hasn't addressed your, or my, points that there is plenty of valuable use cases as a payments and wealth storage/transportation mechanism. The goal post keeps moving, there's nothing intellectually interesting about the lazy dismissal of BTC, and there hasn't been any arguments made that don't fall apart when applied to any other commodity that have non-zero prices.

Plenty of people value a portable, fast, secure, censorship resistant form of wealth preservation. Plenty of people value immediate access to online payments without requiring traditional financial intermediaries. Who are you to tell them that those needs and wants are invalid, or rebrand them as speculation, simply because you don't value them?

Same. I pitched the idea to a friend who was an analyst at a very value oriented org and he basically said they could just never get comfortable with Prem and how the money was managed and just wrote it off entirely. This was back in late 2021/early 2022. Even pitched Fairfax India to him too simply for the discount to NAV, but no dice on either.

It is exactly like any other commodity PoS can lower energy intensity and potentially decrease costs of transactions while increasing throughput. It does so by giving up security and censorship resistance which are probably not worthwhile sacrifices I don't see why this has to be any different then other monetary systems - most transactions will take place on layer 2 type solutions and side-chains. But having the optionality of layer 1 is still valuable

I've never called BTC a stable currency. But I'm not making the mistake calling the US dollar one either. I've explicitly said in the past that I don't think BTC is necessarily here to replace the USD (at least not any time soon), but rather here to replace the payment processors like Visa (which I still believe). BTC has several hurdles to get through before becoming a useful currency. The first of which is a store of value. We've been proving that out since it's inception . Basically 100% of people with a 3-4 year time horizon have outpaced inflation with BTC. If a store of value is all BTC ever becomes, it'll still be incredibly valuable. If it masters that and then masters being a transactional currency via layer 2 systems, then we can discuss it being a unit of account and a reserve/stable currency. I have mixed feelings on whether or not increased/transaction throughput will stabilize it's price or if it'll always display the characteristics of something perfectly inelastic (and therefore volatile AF). Time will tell - but it has many characteristics of a stable currency that the USD has lacked since severing ties with gold.

https://www.wsj.com/finance/investing/charlie-munger-will-take-your-questions-now-3e842ab7 The price of bitcoin has been rocketing higher again. Is that something that concerns you? A: Of course it concerns me. I have a lot of very simple fundamental ideas that I think every educated person ought to have. Those ideas include what Adam Smith taught everybody…. You’ve got a huge increase in what I would call civilization per capita. And it happened automatically just because people take better care of their own property than they take care of somebody else’s property…. In order to get the Smithian results, you need a currency to facilitate exchanges. And to make the currency respected widely, the trick we’ve used is the sovereign issues it. The only way to get from hunter-gathering to civilization that we know of that’s ever worked is to have a strong currency. It can be seashells, it can be corn kernels, it can be a lot of things. It can be gold coins, it can be promises in banking systems like we have in the United States and England and so on. When you start creating an artificial currency…you’re throwing your stink ball into a recipe that’s been around for a long time, that’s worked very well for a lot of people. --------------- He gets SOOOOO close, and then takes the exit right before the crypto conclusion. A stable currency doesn't lose 80% of its value in 50 years. A stable currency isn't linked to gold redemption one day and then simply the "full faith and credit of the US government" the next. A stable currency isn't one that gets weaponized when you do something daddy-government doesn't like. I guess he's at an age where it doesn't matter if he veers from the system that's been so good to him or not. He, and his few generations, are gonna be well off no matter what.

Last I checked the system was still losing fairly significant deposits - just at a slower clip. Until rates drop, or deposits equalize, id expect you're still going to have trouble here. The recent rally is probably just the inversion of the yield curve, but it's still not steep enough for banks to really make profits or offset the negative carry of their book of business from 2020-2022.

I expect bonds and gold w/ still outperform the average equity indices, but the correction in equities does seem to be playing out sideways as opposed to a large drawdown and recovery. Being flat-to-down for ~2.5 years while inflation ranged from 4-8% annually during that period even without another substantial drawdown - especially considering the additional repurchases/retained earnings that accrued over that period. If we manage to avoid the recession, I still expect it to be awhile before we make new highs ATH, but perhaps we avoid another 20+% drawdown.

I also wish the repurchases were bigger, but understand this was intended to be a permanent vehicle and quickly taking it under my be counter productive. But even 2.5% annual rate @ a 35% discount to NAV results in near 4% annual BV growth solely from the repurchases w/o considering the investments so in generally good with a +4% spread of alpha to the underlying investments.

Excellent execution. I'm gonna sleep much easier knowing the interest is flowing for AT LEAST 3 more years with opportunities for gains and swaps into credit if rates come down in a recession. That was definitely the case in the past, but I don't think has been how it's traded in the recent past. I used to be able to see the fantastic results and load up on shares that'd pop 1-3 days later. More recently though it's responded pretty quickly to the earnings releases (like today).

10-year below 4.7% after the October hysteria if it surpassing 5% to the upside.

someone had an axe to grind... We can debate whether or not we agree with their investment approach or his management style, but this journalist is coming out hard against someone who has achieved professional success most people can only dream of...

For all the fanfare surrounding the blowout Q3 GDP, Q4 is expected at 1.2% at the moment Largely due to a much reduced contribution from personal consumption and negative drag of inventories. Perhaps Q3 was just front-loaded demand for a dismal Q4.

Other countries aren't in a better condition so the USD will remain the reserve currency for now. However, gold has been taking the marginal demand from USD as a reserve asset for the last few years. Any cross-border deals to trade oil for yuan, gold, rubles, rupees, etc only leads to further degradation of USD denominated reserves and Treasury demand even if USD remains the reserve currency. There may not be an alternative for the USD as a reserve asset, but there are certainly alternatives to marginal demand for USD which is occurring. This will only serve to make the USD less attractive which will lower the bar for any future alternative to surpass.

Not the guy you asked, but.... At least to the expected duration of their liabilities. That would be neutral positioning. I think it was said else where that was around ~4 years. My preference would be that they overweight it at this point, so call it 5-6 years on average. Whether via ladder or barbell I'd leave up to them and their discretion.

TIPS come to the market via dealers. You're buying secondary after the dealers take it down from the gov't. So the government isn't really impacted by your demand or not - it's the demand of dealers that matters and the government has control over the amount issued. As far as limiting iBonds, I'm not sure why the limit was set @ 10k, but I can understand why they don't allow an unlimited amount seeing as they're the ones committing to pay the floating interest and should have some control over how much they borrow.

Yup. iBonds were attractive in a world of zero-to-low yields given their price insensitivity and their floating-rates. Now that TIPS/bonds have largely repriced and iBonds outperformed significantly over the last 2 years, I expect the reverse will be true going forward: You're going to want the price sensitivity and the additional compensation for that risk.

Agreed. I'd rather own an 6-7% mortgage, but I'm guessing hedging costs back to EUR kill a lot of the excess return

I think what's more incredible is how long that has been able to persist in the past. It's happened before and wasn't just a simple aberration on a day or two. As your chart shows, that was the case for most of 2021 even before the Fed embarked on rate hikes.

-19% in real terms and yet - supposedly an inflation hedge. SMDH This is dragging out much longer than I had anticipated. It's possible that we get to -30 or -40% real returns simply staying flattish for the next year or two while inflation stays near 3-4%. My expectation is still for another dump and recovery, but we'll see. Either way, I'm more comfortable owning bonds.