TwoCitiesCapital

Mostly because you can't actually trust the Fed. 3 weeks ago the Fed said it was too early to be penciling in rate cuts. Now they're predicting 3 themselves. Long duration treasuries absolutely killed it over that period. In 2021, the Fed said inflation would be minimal and transitory. 6 months later it was 7-9% per annum and has taken 2 whole calendar years to get anywhere close to where it was when they made those comments. In 2007, Bernanke said subprime was contained. It wasn't. Can you really trust the Fed? Best to form your own opinions as the Fed pivots 180⁰ all of the time.

I listened to an interesting episode of "What Bitcoin Did" podcast recently where they interviewed a miner about this exactly One of the interesting data points he'd dropped was that the "fee" component of each block has roughly averaged .335 BTC, once converted to BTC, through both bull/bear markets all the way back to genesis block. Because the .335 has largely been relatively constant, the % of revenue that is due to fees is growing because the .335 was true when the subsidy was 50 BTC per block and remains true now that it is 6.25 BTC per block. If this trend remains, you'd expect the fees to continue to grow into a more and more relevant source of revenue for miners. And I don't know if the .335 will continue - I expect it might actually grow - as energy costs more, as difficulty adjustments go higher, as the industry consolidates a little, and as demand for scarce blockspace grows.

Why do you believe mining stops when the subsidy/BTC issuance ends? There is still the fee component that has every potential to grow and take the subsidy's place

I mean, I'm not saying it's a good bet for a buy/hold for the next 30-years, but TLT has had very strong inflows this year (~20 billion as of early November). Plenty of people were clamoring for 20-30 year type bonds @ 4-5%.

Exactly. Many countries' have drawn down strategic and commercial reserves. And that was while demand form China was muted. That's largely why I believe $70s is going to be the lower end of the range we trade in going forward. Perhaps a brief blip beneath that if we get a recession, but $70s have basically been the low even while we've flooded the market with production AND drawn down reserves and those reserves aren't there going forward and WILL be rebuilt in some fashion going forward.

The latter is what I'm focused on. Oil demand is only going to grow while the stability of supply is only going to weaken (potential for weaponization by Russia, I stability in the Middle East, constant exploration/renewal of shale wells required to keep production flat, etc etc etc). This should result in a premium being reflected in prices relative to prior history. The industry is further consolidating making it more rational in capital allocation and production decision making. Short term outlook may be challenged, but current valuations seems to reflect that with longer term outlook being very attractive relative to current prices. Using the weakness to re-establish all of the positions that I've sold at higher prices in 2022 and will likely make them an even bigger part of the portfolio going forward.

Just like everyone thinks Republicans are better for the stock market, but markets have outperformed under Democrats relative to Republicans my entire life* Some people don't let facts get in the way of opinions. *My official opinion is that it doesn't matter which party is in office and equity returns are largely unrelated to political party affiliation

About 2/3 of the way through the book. For the most part, I can't really speak to the details. What is described is NOT my experience at the firm, but I also wasn't on close to any of the people it's discussing to know how it might've changed given proximity to them. I can see some of the stuff happening, some of the stuff being exaggerated, and some of the stuff being fabrication/fiction from upset ex-employees. Hard to know which is which though. That being said, some of the research seems laughable. The author talks about Bridgewater managing $130B but not moving markets, nobody observing its trading, and many suspecting it was a Ponzi. This seems to simply show a total lack of understanding of instruments like swaps/futures/derivatives that give you massive notional exposure for minimal cash outlay and don't have to be reported to agencies - especially in the period prior to central clearing for swaps where everything was bespoke. Bridgewater didn't move markets because they didn't go out and buy $2B of SPY. They'd go to Barclays, Goldman, Deutsche, etc and perhaps open bespoke total return swaps of $100-500 million apiece. Those banks act as prime broker to many other hedge funds/traders - many of whom are on the other side of the trade - leaving minimal amounts to actually have to hedge in shares for the bank. Suddenly, Bridgewater has $2 billion of exposure for only $200 million in cash and even fewer shares traded on the market to offset. Similar things can be said for interest rate swaps. And then there's futures markets. And options. And credit default swaps. With the leveraged positioning, Bridgewater doesn't need to invest the $150B - rather just $15-20 billion in leveraged/derivative instruments with the rest remaining in liquid cash, t-bills, and treasuries to manage collateral. By investing in dozens of liquid markets like treasuries and currencies and futures and commodities, those trades don't get reported, have plenty of counterparties trading in size, and reduce the impact of $15-20B when spread across 20-50 markets. It's really not a difficult concept and seems wholly ignored by the writer suggesting nobody on the street knows how Bridgewater trades $130B secretly without moving markets. It also suggests Bridgewater doesn't actively obfuscate the trading to avoid competitors being able to back into their trading patterns - something I'm pretty sure many algorithmic and quant funds do. Something this basic seemingly being misrepresented makes me wonder how much more stuff is being misrepresented

Does it matter? We pay it in shares, dilute shareholders, but retain liquidity to potentially undo dilution pending fill prices on NCIB OR Avoid the dilution and whats-ifs all together and pay in cash with the possibility Fairfax bids in public markets as mentioned above I'm not entirely upset about either, but my preference is absolutely for the certainty of #2 than the hopes of #1. As far as acquiring new companies? India isn't exactly cheap at the moment and the liquidity event Anchorage brings will likely take care of any intermediate term concerns you have there. All in all, I don't view less liquidity in the short term as problematic.

50% premium absolutely seems expensive IMO. Especially when that growth is tenuous a la Apple. Basically is a one product company who is under regulatory fire (see ruling against Android app store) which will hamper app store growth/revenues AND payments isn't working out as well as expected (see Goldman Sachs exiting partnership). Pair that with stagnating revenues from its primary product as the industry cycle matures and people don't upgrade every two years? You start to see what we've been seeing for the last few years - inconsistent revenue and profit growth. Revenues are already down YoY, as is gross profit, and net profit. The only thing supporting this are debt funded buybacks and retail being in it en masse because it's a trade that has worked so well for so long....until it doesn't.

You could make a case for either direction. Honestly, itl don't have a strong opinion one way or the other. 2018 might be instructive where it was expensive given its earnings power potential while interest rates were low. I made the case back then that I saw limited path for it to generate decent returns from $550 USD/share without a significant rise in rates which wasn't in the cards then. Hindsight was that turned out to be right in the short term - the stock suffered massively through covid and then was very slow to recover. But even if you'd bought it in 2018, you did alright - primarily because things like GoDigit worked out extraordinarily well in generating BV returns even while interest rates were low. +1 That's why I've been such an advocate for them locking in and not trying to call the top. Having the foresight of 1+ billion in interest income is going to be huge regardless of what rates do. Unfortunately, it seems the Fed was just jawboning the "higher for longer" mantra - but now that Fairfax has ~3 years to maturity on most of its bonds we can wait out a turn on the credit cycle. Won't make a killing on duration most likely, but will have plenty of interest income to reinvest to make a difference. They missed the prior turn in 2018 and we sat for 3-4 years at basically 0 interest in response (in addition to the (1-2 years we already sat there pre-2018 waiting through the hiking cycle). Just glad we're not going to do that again!

Sentiment All that has that has ever mattered. I guess it takes a pivot by the Fed more than any action Fairfax or partners could've taken.

Look at that!

+1 I've long been an advocate for the Fed to stop fucking with money supply and rates and just go back to being a bank regulator and a lender of last resort. Give us a decade of not dicking around with the business cycle and see where we land. All the Fed really does really does in hindsight is follow the 2-year treasury anyways - we don't need a roundtable of highly paid experts to do what the market does for free. +1 Other central banks aren't as privileged to to have a guaranteed bid on their currency for global trade. The US is somewhat lucky in the regard that we can run massive twin deficits and still gets plenty of demand for the old greenback.

I dunno about a soft landing, but agree the top is probably in for rates. Lower rates ARE stimulative - but we're only seeing lower rates on portion of the curve, it's only a big move from the the recent highs but is pretty in line with where they've been all year, AND it takes time for the stimulative effects to work through. I don't want to get ahead of ourselves here - the picture today isn't dramatically different from the picture in Q1 except the slow and continued deterioration of fundamentals. The Fed has no clue what they're talking about. You're just as likely to find someone here who has a better idea of the future for rates than the Fed. Remember, despite being ones largely in control of the business cycle and literally paid to take the pulse of the economy, the Fed has not yet correctly called a single recession. +1 This is where we disagree. Fed halting hikes was NOT particularly bullish in 2001/2002. It was not bullish in 2006/2007. And it was NOT bullish in 2018/2019. I don't think it's going to be bullish this time around either. The real recession risk starts when the yield curve uninverts and that occurs when the Fed cuts the front end. Sometimes you get a pop in risk markets leading into that uninversion, but then it's quickly unwound. Sure - maintain your exposure so you can sell into that possible rally. But I don't think it makes sense to count on that rally and INCREASE your risk at this time knowing that in most other instances it's been a very bad sign for 1-3 year forward returns. Stimulative? Or reflective of a weaker consumer that is supposedly very strong? I think you'll be right, in about 6-12 months time. Again, cuts typically precede large drawdowns. Only then do you get the stimulative recovery. Will stocks be higher in 3-4 years? Perhaps. But I think the historical precedent is for them to go significantly lower first which is why I'm wary of going 100% long here. Cuts didn't stop the prior drawdowns in 2000, 2007, or even 2018-2020. I don't think we're going to escape the recessionary drawdown this time either.

Argentina devalued the peso by 54% overnight and is targeting a 2% monthly devaluation going forward. Bitcoin welcomes long-term Argentinian savers with open arms

It makes me wonder if it already is beginning to. Job openings are starting to contract bigly and my personal experience suggests that many of the job openings I see are "fictitious" in that the companies don't seem to have any interest in filling them. I've personally applied to dozens over the last 18-24 months and heard nothing - no rejections and no interviews - while many of the roles are still listed suggesting nobody else has had any luck getting responses either. Much of the surprise job gains we've seen in recent months have shown contraction in full time jobs being offset by part time labor and people holding multiple jobs - hardly the sign of a strong labor market. Trade $ are up, but my understanding is gross tonnage is down. This suggests we're mistaking nominal inflation for prosperity. The economy has definitely been more resilient that I expected, but I do think you're starting to see the cracks appear for the next leg down

I generally agree with this. I use it as more of a measure of the tide. I want to be taking less risk with less concentration and have more fixed income when stocks are expensive and the tide looks to be going out. Perhaps even running select shorts/puts when volatility is cheap and fundamentals support it. If the Shiler PE was lower, I'd be taking more risk, more concentration, and would most likely own less fixed income and more equity. I'd probably even be speculating in calls instead of selling covered calls. Maybe it doesn't work, but I believe there's a time to let the wind carry you and a time to row - and in expensive periods o think you need to be rowing and doing everything you can to fight that tide as it rolls out.

Would love to see the chart re: planned supply of you find it. This range is more or less what I suspect as well. I just tend to think the 70s are the low end of that range and oil companies are still relatively profitable at those levels with profits super charged at $90+

I'm no expert, but if we're suggesting that there's no mismatch between supply/demand, then how did nearly every major economy work down oil inventories to extreme low levels over 2021/2022 without cratering the price w/ a ton of new/excess supply? Generally speaking, US and European inventories are significantly below pre-covid levels. Chinas inventories are normalized, but down significantly from the highs in 2020 when they loaded them up. So US, Europe, and China are all having enough demand to work down inventories substantially without cratering the price of oil with all that excess supply? Or does that point to demand outstripping supply and we've used inventories to manage that price impact for the last 2-years,? I'm leaning more towards #2 and #2 won't always be a solution once inventories are at critical levels. This is especially true of an environment where the muted demand out of China during 2021/2022 period probably also has an impact but will be more of a tailwind for prices going forward. I'm not saying prices will go to $150/barrel, but I do think average prices will be higher, not lower, than intermediate history going forward.

Baba. Hong Kong listing.

That may be. I don't know how to fix the liquidity issue until the fund trades back at NAV, or above, where more and more shares could be issued to fund other acquisitions. That being said, while I'm wary to be the minority in a Fairfax venture, I doubt they'll screw over their pension partners so I don't expect a take-under at a massive discount.

The fee is for performance. It makes sense to charge the fee on the performance the management controls - I e. Book value.this is precisely how mutual funds and ETFs charge fees too (on NAV). There is no outcry about that being a conflict of interest - it'd payment for the service. To charge it on anything else is asinine and defeats the purpose of the fee to begin with. The fund has ALWAYS been associated with them. The discount really started and persisted from ~2019 onward. That was long after Fairfax's reputation was in the toilet for the hedges/shorts that they were then closing. So it doesn't seem to be based on Fairfax's reputation, or even the performance, as it's NAV has outperformed most EM funds since AND has been located in the hot spot that is India. It's just the ebbs and flows in sentiment. Just like it has no business trading at a significant NAV premium at its IPO, it has no business trading at a significant discount now. Management is doing the correct thing by buying back shares which is accretive to shareholders. You could ask them to change their fair fee arrangement that was negotiated years prior to their own detriment - but I don't expect companies to act against their own interests to appease anonymous folks on the internet. And a few years back, plenty traded at premiums. This fund included. Again - ebbs and flows.