TwoCitiesCapital

Have resulted in rising rates *from the local lows*. The path for rates has still been lower. Lower highs and lower lows since the peak was out in late-2023 - before rate cuts started. The rates just keep reversing trend right after the cuts take place. I think it's partly 1) buy the rumor/sell the news that's occurring 2) that all most rate hikes this cycle have clustered in Q4 which is traditionally weak for treasuries in the well documented September effect, AND 3) because there are massive fund managers like PIMCO and Double Line that don't want to get caught holding these things for 10-years and prefer to trade duration in temporary interest rates swaps and futures as a result. Only the last one will be meaningful long term.

Yes and no. The real problem is that it opens you up to other risks because you can't take the land with you. I'd argue higher inflation INCREASES the risk of things like additional taxes to fund local governments and etc - particularly if things get really bad. It's not a bad piece of a multi-pronged inflation resistance, but would be warry to have it be a primary form of it.

Maybe is just my conservative nature with these sorts of things, but I don't think Watsa overlooked reinvestment/compounding. My guess is that is what gives him the confidence that they can hit $4-5B per year and not necessarily that he's expecting every year to be a 2024-plus some. Especially with interest and dividends largely being capped/slow decline at this point which was the largest component of earnings.

If this was purely cash in the bank, I'd agree with you. But having liabilities against it that have a certain inflation/growth premium inherent within them means that default positioning isn't zero rate exposure but matching your liabilities'. They were intentionally well under their liability duration for years and shareholders carried those implicit and explicit costs for years. It ended up working out for them... because macro conditions forced the fastest rate hiking cycle in 50-years six whole years after they made the bet. Had it not been for that 2021 explosion in inflation expectations, they'd still be far behind the ball having under earned for most of the last 10-years. This further supports it was a macro bet since it took a macro event for it to work. It seems that simple, and yet people were calling for an extended hard market long before rates blew up so maybe they/Fairfax just got lucky? I was skeptical until year 2-3 of it and still don't have any confidence in my ability to predict the turn. I'd have expected all sorts of capital abundance pouring in from insurance linked notes/securities at this point with how much money is flowing to everything else on the planet....and yet pricing is still strong and projected to remain so...

Yes, but with an average maturity of 3ish years, we shouldn't assume dramatic reductions in the next 12-18 months. Particularly with additions to float growing the portfolio even as rates move modestly lower. I'm less certain about this. I don't understand what drives the insurance cycle TBH. I was skeptical when people were projecting a multi-year hard market when the world was awash in liquidity - but a few cats and the fastest rate hikes in 50-years blew capital holes in insurer balance sheets and forced prices to rise as policies competed for balance sheet capacity. There's nothing to say something similar can't happen again in the next 2-3 years if there is another recession, more stimulus, and exploding inflation expectations again with rates once again rising to new local highs. I tend to think any environment of low rates will also probably provide opportunities in equity and credit. But as we've seen, these opportunities can take years to play out. Not sure how to handicap that into an earnings number other than to say equities will be lumpy and we will NOT see equity returns as consistently as we have in the last 3-years going forward. Fixed income may be able to remain at a similar run rate today in $ terms as the pile grows and as Fairfax adds credit exposure when spreads are more attractive. +1 Not sure how this plays out, but am looking forward to watching it. TL;DR Fairfax is probably over earnings today, but I don't think it's by a large margin and is at a very reasonable multiple to those earnings that I don't expect much downside even if earnings contract. Any downside that does occur is an opportunity for further SharePoint reduction at reasonable prices.

+1 these are my thoughts as well. While they may not short again, they're still willing to take large macro bets as demonstrated by the bond portfolio from 2016 to 2023. I like it. I own it. I sold in 2018/2019 on prospects of little foreseeable improvements to earnings and repurchased at nearly half those prices in 2021 when it was clear EVERYTHING would be improving and they were unearthing hidden gems left and right. But it's the same company with the same approach and I envision there will be more lean periods in the future.

Anybody have any reckoning for why Bitcoin mining stocks are up so much in the last two weeks? Crazy to me to see 40-50% rallies in names like Cleanspark and Marathon while crypto prices languish. They've traded like crap all year despite BTCs ATHs and then suddenly pop 50% on no news?

We'll see. Threw some beer money at SMLR $40 calls for December expiry.

Why the large disconnect in share reaction? Surely shareholders will accept a 100% premium to the lookthru BTC to gain shares in another BTC Treasury co?

This has been a recent thought of mine - stocks may have moved from being a leading indicator to a lagging one. If most incremental flows are passive, and valuation agnostic, the new flows just hit the bid ever two weeks and bump up the market with every new crop of bi-weekly 401k contributions. What stops that? Well flows will be reduced when some hit financial hardship - like one or one's partner being laid-off/furloughed/hours reduced as contributions stop or are reduced. Once that starts happening, the retail audience who pays more attention to markets may see the drop starting, the bad news, etc and follow suit. But that means it all hinges on employment (lagging indicator) and not on any foresight of earnings growth.

10-year yields started Wednesday at ~4% and are now 4.13%. Hardly a noteworthy move other than it happening with one rate cut occurring and two more projected. Seems like we're mirroring the last cut and the yield curve is steepening. Nobody wants to own longer then debt - what happens in the next recession?

I'd be more concerned about pricing power if it happened multiple years in a row. The trend is higher though. 1980s saw a single category 4 hurricane make landfall. The 1990s saw a single cat 5 hurricane make landfall. The 2000s saw a single cat 4 hurricane make landfall (Katrina has been downgraded to a cat 3 right before making land). The 2010s? two Cat 4s and a Cat 5. The 2020s? Only half done and already four Cat 4s have made landfall. A single f Good year isnr going to do anything for pricing when the decades long trend looks like that with the number of Cat 4s and Cat 5a accelerating dramatically.

There have been plenty of reserve currencies before us. There will be others after us. Being the reserve currency and being able to "print" your own money doesn't just mean there are no consequences to doing so and everything is fine just printing money out of thin air to buy things that took actual labor/productivity/time/capital to produce. And there is plenty big of a difference in the risk/reward of 3-month treasuries/cash vs 30-year bonds to the holders of those debts. Just ask First Republic - they wouldn't have had any issues if they had owned cash instead of mortgage bonds and long duration treasuries. +1 Still waiting for the courts to have the govt pay me for the theft of Fannie/Freddie. The courts will allow for repression if its needed. Just like they allowed for the US gov't to make private gold transactions illegal, bid to buy up all of the gold at ridiculously low prices when you made all competition for the gold illegal, and then immediately default against your obligations denominated in gold by changing the exchange rate favorably AFTER you forced everyone to sell to you at a lower rate...which is exactly what happened after the Great Depression.

That is the most probable course of action unless if you get a hung Congress. Given that 'Trump was sent to destroy the "Establishment"', I don't view the latter at 0% probability. But the point doesn't have to be if it WILL default. The point would be that enough people assume that it's a high enough probability to warrant wanting the extra protection of an additional payee on the bond. Right now mortgages trade exceptionally wide of treasuries, but I can envision a future where they trade at a slight negative spread of confidence is wanting in the Federal government. Show me the last time Congress cut spending I think that's probably a less likely outcome than a hung Congress. Especially since I we have a President who rules by decree. Why not just decree all bonds coming due to be due in 20-years instead? "It's not a "real" default! You'll get your money!" Sure. Nobody is saying buy mortgages. Just that I envision a non-zero probability that they'll be less risky than treasuries at some point in the future.

Any IPO proceeds are inconsequential to the US budget/deficit in any given year. Particularly if they're only IPO'ing a small percentage at a time which is the only plan currently floated publicly.

I expect at some point that may be true of US treasuries vs similar tenor mortgages in the US if they don't get spending under control.

+1 Bonds are trading sardines now. I wouldn't want to own for 10-years, and expect higher yields than 5% following the next 'crisis', but lower yields until then IMO. Jobs and housing both deflationary - much more so than tariff pressures.

No, that's exactly the opposite point. Making more violins would be a BAD thing for the price. It's is precisely scarcity that allows it to continue to appreciate at a clip better than inflation. As long as the population/monetary growth exceeds that of something of value that is scarce, that something of value will appreciate more quickly than inflation. It's true of rare/collectible cars (where every special edition Ferrari ever released has outperformed the S&P 500 from that time forward), to rare whiskeys/wines, certain real estate, Bitcoin, rare violins, etc. Something that is both desirable AND rare is the winning combination.

Charlie Kirk was shot today in Utah.

Sure. Gold outperforms equities for the last 20-25 years and equities outperformed gold the 20-25 years before then. I think the point isn't to suggest gold is necessarily superior, but that it has the ability to outperform over exceptionally long periods of time - particularly when equities are purchased at excessive valuations while gold was left to languish (a la 2000 and again in the early 2020s). In a value investor forum where people regularly lambast investments without cash flow as "speculation" and "bubbles" - I think it's a particularly important insight.

At least in price return. Haven't done the math to know if it still holds true after dividends and reinvestment, but price return has been true for a bit. The fact the S&P dropped so much in 2022 while gold was flat to up was a good catch-up for it and shows it's diversification benefits in achieving similar returns through a very different path.

https://cointelegraph.com/news/lessons-learned-university-bitcoin-class Not that a college course, unto itself, means anything. But for the naysayers, and out of genuine curiosity for myself, has there ever been any other bubble that launched its own university-level courses? There could always be a first, but I think it's a testament to longevity/staying power of Bitcoin and this is a demonstration of further shifting narratives and long-term adoption.

The longer it takes them, the less competition we all, and Fairfax, has for shares. Hopefully they take their time to approve and close on the deal so the gift can keep on giving.

Savers are who provide the accumulated capital for the system. There is nothing wrong with a system that rewards people doing work and saving it for investment in a brighter future. Debts would naturally be lower in an economy where you didn't have to borrow to keep up and where prices are naturally falling over time. Interest rates would be lower too. Interest itself might even largely be unnecessary as the return of principal is return enough when the principal is appreciating in purchasing power. Yes. An asset bubble blown by monetary authorities printing money and manipulating interest rates. And interesting defense for why they should be allowed to do more of that. This is a joke. It took the government making private transactions illegal and pegging the price at an artificial level after the Great Depression to move the American public on from it. And even then, the government still continued to use to settle international balances until the point where it bounced those checks against all gold it stole from it citizens because it still couldn't manage to contain its spending. The only reason we're on fiat now is because governments and their officials can't maintain a budget - not because the public demanded that 2% of their accumulated purchasing power be destroyed each year Savers provide the capital for investment in the future that drives the technological advancement and innovation that pushes us forward. What's good for them is good for the economy. It's not enough to only have savers, or to only reward saving, but consumption doesn't do anything for the future - accumulated savings does.

I don't necessarily think "trying to an element of the periodic table" is necessarily the argument. But removing the money supply decision making from authorities who have proven time and time again their only ability is to abuse it IS a good move. Particularly paired with fair system with transparency around issuance where that issuance/supply requires WORK and isn't just handed out to a favored few. If that so happens to be a periodic element, Bitcoin, or some combination of the two, then I believe that will be better. We have enough history to conclude the flexibility given to authorities is far worse as medicine than the ailments it supposedly cures.