TwoCitiesCapital

Is the US becoming uninvestable?

-3.4% YTD Largest risk-on positions are Fairfax India, Exor, Fairfax Financial, Altius Minerals, Alibaba, Tencent, and Bitcoin. Have a healthy slug of 30-40% to bond funds too which is helping as all of those accounts are still positive YTD. Most of this negative performance actually occurred on Friday when Int'l markets got hit hard too and names like BABA and Fairfax that had been resilient YTD went down 7-10% themselves. I was slightly positive YTD before then.

No, because you don't collect the 5% upfront. That 5% gets added to the par/principal paid at maturity. The price? Should discount that adjustment all the way back to today and the price move would be expected to be significantly smaller. I'd argue that the real-yields expectations is going to be more impactful to the day-to-day trading than the actual inflation adjustments - those only matter over a long-period of time if you're holding the bond to maturity.

Based on generic macro stats on fava beans, the protein/carbs/fat all appear to be for the entire can and not per serving.

I don't think rates rise for one-off inflations. If there's a bird flu and chicken/egg prices rise as a result of a significant reduction in the chicken population, I don't expect that to result in higher yields. It's not a durable or sustained inflation. It's a one off supply hit that gets absorbed via time, substitutions, and higher prices that are temporary. I'd argue the same for tariffs. The price increase happens once, but isn't persistent. Monetary inflations are what your concerned with in bonds/rates. That's always the question. I don't pretend to know where the bottom is at - especially with the untenable fiscal path the US funds itself in. But I don't think 4% is going to be it. As we inch closer to 3%, I'd probably start taking significant portions of the position off though.

TIPS suffer from a similar negative convexity as mortgages, but in the opposite direction. The principal adjustments all adjust the maturity payment - which pulls the duration of the bond outwards towards maturity. So in a rising rate/inflation environment, the duration of the bond is extending AS rates rise, or falls more slowly, where the duration of treasury bonds is falling quite a bit more rapidly. You're underperforming treasuries on the initial rate shock as a result. Now, overtime, the increased coupons payments and principal payments make it back, but you can get really hammered on the initial rise.

Is unlikely that you get a significant acceleration in inflation AND lower rates. And unless if that is the case, TIPS would likely be killed with the rest of the bond market with rates rising in response to the higher inflation a la 2022. But with 10-year real yields at ~1.75%, you could get a boost to performance and outperform treasuries if inflation stays positive, but below 1.75%, and the TIPS re-rate to reflect that in the real yields. Though I think the real bargain for TIPS was back when they were above 2+% real yields and nominal rates were higher as well. Not real sure on the direction of 10-year real yields will be to know if there's enough juice left in that squeeze going forward now that 0.50% has already been wrung out.

Which is pretty normal for an asset with greater than 50+% annual volatility. And also not much worse than the NASDAQ despite crushing the NASDAQ for the preceding 2-years.

I don't think its quite there, but it IS encouraging to see it break the narrative of "leveraged NASDAQ" trade that people seem to believe even when not borne out by long-term correlations. I think the real savior for BTC here is that it never had its blow-off top rally - so it's not terribly valued relative to fundamentals of adoption/growth trends - and interest rates are plummeting with expectations of global liquidity rising. These would be supportive of assets that you expect to be resistant to monetary debasement.

The inflation will be what gives in an economic contraction which is seemingly what is beginning to happen. We might slap a higher sticker price on things for imported goods, but the moment inventory starts to pile up because cash-strapped consumers are making fewer purchases is the moment those prices start getting cut and corporate profits eat it.

I dunno about America, but Trump is certainly making bonds great again. Short and intermediate bonds are now outperforming the S&P 500 on the rolling 12-month basis even before a recession has been announced or rate cuts started in earnest.

Rates would have to rise SIGNIFICANTLY for this to be of large impact to Fairfax. We're not starting from 0% like 2021. We're starting from 4-5% which dramatically changes the underlying math. Fairfax earned $630 million in interest and dividend in Q4. What move in rates does it take to offset that? It took a 0.9% rise in rates in Q4 to result in the $730 million loss. So you'd need rates to rise ~0.75-0.90% every quarter for Fairfax to lose enough money on their bonds to offset the interest income made in a year. And if that happens? Then Fairfax is able to reinvest the $2.5 billion of interest and dividends plus any insurance profits at 8-9% rates which is REALLY going to juice future earnings. And as of right now, rates are falling! The 5-year treasury rate peaked in 2023! While rates have re-approached those highs on a handful of occasions since, they haven't taken them out and there's a trend of lower lows in in place each time they've fallen. Now that the bond duration is near that of their liabilities, I would expect the two should move quite a bit more in lock-step. Realistically, what the adoption of the new rule does is essentially dulls the impact of interest rates on stated book value/earnings if you're positioned similarly to your liabilities as both are roughly the same size, impacted by the same rate moves, and moving in opposite directions.

Life is trade offs. While the trade off of BTC is you are responsible for it, the cost of securing it is low. You can buy a hardware wallet for ~$100 that holds tens of millions of value safely as long as you secure your private keys. The cost savings and transportability of wealth are trade offs for there being no rewind if YOU make a mistake with it. There will be people who lose fortunes in BTC. There have been plenty more who have lost fortunes denominated in gold, and dollars, for different reasons

Estimates vary, but most of the research I've seen suggests that there will be a max of 13-14 million BTC in circulation after accounting for lost and intentionally 'burned' coins. These account for known loss cases, wallets assumed to be 'burn accounts', estimates of unknown losses, and satoshi's believed stash. How that evolves going forward is hard to say - especially as more and more become centralized. You'd think someone like a Blackrock would have good security/recovery protocols in place; however, Blackrock losing access to a hard wallet is quite a bit different than an individual losing it. Historical loss trends may now be meaningful in estimating future ones as a result. But, I think the only thing we can say with some certainly is loss rates will SLOW 1) because more people will be taking steps to secure their Bitcoin now that it has recognized value (vs a history when it was trading sub-$100) and 2) because it's harder for any one individual wallet to acquire a significant sum of BTC now that the price has risen to $80k+ from pennies. We see this all the time. Regularly seeing headlines about whale wallets from 7-10 years ago moving for the first time. Doesn't seem to impact the daily price. If wallets believed to be associated with Satoshi moved, it might be different. But the remainder don't seem to be problematic.

+1 It's not like Republicans are a party against mindless consumerism. Their president was a reality TV star It's a cultural change that needs to happen beyond politics if we want a society focused on creating value instead of consuming trash.

Perhaps 95% is correct, but we care about are the minority that buy Teslas. CA is bigger than the next 3-4 states combined for Tesla. Do you think politics and Elon's image are top of mind for buyers in CA? Germany is Teslas largest European market? Do you think the Hitler-salute is something most Germans will just look past when choosing an EV? You're generalizing - and are probably right about the generalization. But what matters are the specifics. Tesla has long catered to left-of-center individuals for their customer base ...and then Elon went full MAGA and is alienating his core customer base. Way more than 5% of Tesla customers care about their image and being associated with a seemingly out-of-touch billionaire/white supremacist. +1 Customer acquisition is hard. You want to keep the ones you have from trying out competing products or you won't get some of them back. Tesla is both alienating existing customers while also giving new customers a reason to stay away. All at a time where they're actually getting competition from higher end EVs for the first time ever ....

+1 This isn't exactly an irrational reaction or Napoleon syndrome. This was a good relationship under basically every prior administration and is becoming a bad one under Trump for no other reason than that he's a bully. You're approaching this as if Republican have a consistent platform that they stand for and believe in anymore. The ONLY platform is BEAT. THE. OTHER. GUY. Is why as a slightly right-of-center independent that I haven't been able to support the party since Trump's first run - was clear all principles had been abandoned. Pending the conversation, the 'other guy' evolves from Democrats, to China, to 'unfair' trade agreements (previous negotiated by Trump), to drugs, to illegals immigrants stealing their jobs, etc. They pick a boogeyman and that is the 'other guy'. There is no consistency- just 'beat the other guy' by an means necessary. Even if that means abandoning everything you previously stood while lying about it it everything. Is why the party of balanced budgets can stand behind the largest non-recessionary deficits of all time. Is why the party of family values can support the individual who has three failed marriages and steps out of his marriage to bang porn stars. Is why the party of 'tough on crime' can elect a criminal. Is why party of 'good for business ' elected a man whose primary 'good business' was lying about being good at business (ghost written books and The Apprentice). Is why the party of the 'religious right' can overlook the commandments of love your neighbor and how Jesus treated the poor to cut services for the poor while transferring payments to billionaires. There's no rationale behind it - just a party that has lost its way and supporters who aren't self-aware enough to realize they've done a 180⁰ on everything they claimed to be believe.

I think the primary protest has been 1) not buying Teslas and 2) defacing of Teslas on the streets. Nobody is gonna march about this - they're just gonna starve Tesla of revenue and give others with less conviction reasons to shop elsewhere

Diluting an AI play with a faltering social network that is down in users, down in engagement, and down in revenues. If I were an xAI shareholder, I'd be looking to sue the board. If I were one of the new investors who purchased $900 million in X at a $44 billion valuation last month, I'd be suing the board. An immediate 30% haircut to implied value of the capital raise But then again, nobody who cares about governance and conflicts of interest is involved here anyways so.... This is Musk bailing out SolarCity all over again - with promised synergies that will never happen nor justify any purchase price.

With him, Tesla may not have earnings again? We'll see. Maybe they gotta head back to pre-revenue days to be cool Everyone knows there is waste in the government. But to allege that a significant portion of government expenditures are outright fraud? It's a very big leap AND would require Republicans to believe that THEY were also part of the fraud seeing as each admin simply builds on the spending of the last.... but they'll never admit that, they'll never find the fraud, but it won't stop them from lying that they did...

Probably doing damage control at Tesla to defend the pay package that is more than the cumulative profits across Tesla's entire history. Shareholders cant' be happy...

They'd get to immediately write up of their Fairfax India and realize a large gain for income statement purposes. Also allows them to consolidate a more complicated structure with potential conflicts of interest to a simpler one. The downside is they'd lose the ongoing fee income.

This is correct. Trading in the same options is questionable and likely would get disallowed by the IRS in an audit. I work for a tax sensitive program that does monthly harvesting of securities. For individual stocks, we buy a similar ETF to retain market beta (so if harvested from a large value strategy, we buy a large value ETF with the harvested proceeds) OR an alternative name (selling Coke, buying Pepsi). If we're harvesting losses on an ETF, we have lots of similar ETFs that are benchmarked to different indices. I believe the rule is that there can be no more than 70% overlap or they're considerer 'substantially similar ' by the IRS. Picking a different benchmark with different weights and a different inclusion mechanism goes a long way to getting you below that 70%.

/\/\ $30 per share in FFH shares would be acceptable to me. My India exposure would be diluted some, but still with reasonably cheap shares, continued exposure the team making the decisions, and the removal of the fee-layer at an immediate 50+% mark-up? I'd take it.

The problem in 2025 is I can't tell when people are being sarcastic/trolling and when they're being serious - because that's exactly how ridiculous some of these political stances have become I shared a chart in a thread that has since been removed that shows that deficit spending historically has exploded under Republicans and tends to fall under Democrats (though never reverting to prior levels). Really ruins the narrative that Republicans are budget conscious and that Democrats are spend-thrifts. Seems the only times Republicans are budget conscious is when they're being obstructions to anything Democrats want to do.