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TwoCitiesCapital

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Everything posted by TwoCitiesCapital

  1. I've been a slow accumulator given the discount to NAV, but mostly was looking elsewhere on materials/energy etc for forward opportunity as I have already purchased a significant slug of FIH AND FFH over the last 3-years. I do periodically make small additions to the it when it's trading low in it's recent -history range.
  2. It's misleading though because the base is changing for every peak/through. The 57% drop in the GFC looks small relative to the rise from 2002 -2007 preceding it (a 100% rise), but what it actually meant was you gave ALL of that prior rally back and then some despite the prior rally looking significantly bigger. On a price basis, you were basically flat on the S&P 500 from 2002 - 2013. Would've done significantly better in treasuries but this graphic doesn't pain that picture. Makes 2002 - 2013 look pretty good despite actually experiencing negative real returns over the course of a decade.
  3. He's been higher for longer than I expected, but there is absolutely a limit to his ability to do that. I expect, like history, they'll follow the 2-year yield - but maybe with a larger lag than historically. The 2-year is significantly off it's May lows, but still a good ways off it's March highs as well which is what is giving them the flexibility to pause. If it craters again, I expect you'll see rate cuts much sooner than the Fed is currently anticipating just like the dot plot changed dramatically on 2021/2022 as inflation accelerated to 6-9%. +1 It's not always the case, but I'd generally have a lot more faith in the bond market. It's a larger market with traditionally more sophisticated players who buy to hold to maturity so are forced to take the long view.
  4. Why are you comparing to treasuries instead of products with credit spread? You can get 6-7% in agency/government guaranteed mortgages? You can get 6-7% in investment grade corporates. You can get 7-9% in diversified emerging markets debt. You can get 8-10% in diversified high yield debt. Comparing the returns of equities, which are the lowest in the capital structure, to treasuries which are essentially the highest is a little asinine. Takes a long time of 5-10% growth for that 4% earnings yield to catch up to 7-8% diversified yields. And in the meantime you're far more exposed to risk in equities. The comparison to spread products makes high multiple equities WAY less compelling. .
  5. I disagree. We've had similar rallies or similar strength previously, though it IS getting on the far end of that spectrum. I'd say if we don't make new highs and go back down to prior lows, we're still in the same bear market regardless of it took an extra 6-12 months to play out than I expected. The Dow Jones ended 1968 @ 903. It ended 1980 at 891. There were a few times it had surpassed that 903 level like 1972 and 1973 and again in 1976. Lots of up/down volatility. Some people consider that two separate bear markets. Some people consider it a lost decade with insanely negative real returns (i.e. a single bear market). I don't care what you call it, even in hindsight. You did better buying and holding T-bills and notes during that decade than buying/holding stocks. If you picked your spots in equities and didn't marry positions - trimmed on the way up and added on the way down - you probably did ok-ish. That's my game plan for this decade regardless of it's one or separate bear market. Sell the rips, buy the dips, and a healthy allocation to short and intermediate dates bonds when spreads/rates compensate.
  6. https://www.benzinga.com/markets/cryptocurrency/23/06/32820723/binance-us-on-life-support-market-makers-abandon-sinking-ship-as-coinbase-steals-the-crypt "Binance.US’s market share paints a telling picture of its woes. In April, the exchange boasted a 20% market share, which has now dwindled to just 4.8%. In contrast, Coinbase's market share has experienced a remarkable ascension, climbing from 46% to 64% within the past week."
  7. Further supporting this argument, is the case Coinbase has made. Who approved Coinbase's IPO in 2018? The SEC. Did the SEC not do their due diligence? Or did they not think Coinbase was offering the purchase/sale of unregistered securities and acting as an unlicensed broker/exchange at that time? If the SECs job is to protect investors, why would you allow this security to IPO and be sold to investors when you knew they were brazenly breaking the law? Why is the SEC going after Coinbase, which received tacit approval of its business model @ IPO, instead of the actual token issuers who are minting and profiting off the sale of unregistered "securities" and the action they're used for? The whole things is a regulatory farce. Either the SEC is simply incompetent at its job or this is all political and has absolutely nothing to do with the fundamentals of whether these are securities or not
  8. I'm not quite ready for them to close it out yet. 5-6% is still cheap financing if they're buying mortgages at 10% and taking out the shares that own those mortgages below book value. The bigger deal to me is the cash drag for when shares fall - it makes their liquidity very pro-cyclical to have to deliver hundreds of millions on cash as the share price is falling at the same time all other stocks are falling (or as catastrophes hit). Fairfax bucked the trend over the last two years of weak equity markets so am willing to give a little grace here, but I do think it would be prudent to begin reducing the position if there is another 10-15% pump in the stock.
  9. I don't think I mentioned anything about Chanos or Joe Six Pack or blamed any demographics. Quite having imaginary arguments with imagined slights against the 'little guy '. I just said speculative excess still exists and provided a handful of varied examples of speculative valuations. Perhaps CVNA is a short squeeze. It's NOT the only example of unprofitable tech company rising 40-50% this year. Nvidia and Royal Caribbean are absolutely not. So what are you trying to say?
  10. Sure seems like the speculative excess is coming back into the market despite significantly higher discount rates. Carvana up 60% today to $4.5B market cap despite still losing money, still burning cash, and most liquidity improvements coming from running down inventory and not replacing it. Travel/leisure companies like RCL are trading at EV's 20-30% higher than they did in 2019 when they were profitable and discount rates were ~3% while today they're losing money and discount rates are 5.25%. NVDA is trading at 30x sales. Even if AI adds immensely to revenues and profitability, 30x sales is an enormous hurdle for future returns. Amongst other things, it seems to me that speculative excess hasn't been removed from the market. The Fed may have further latitude to continue to raise interest rates in an attempt (misguided IMO) to "fight inflation". Hard for me to imagine that being a positive for equity markets where earnings yields are already significantly below treasuries (and growth has ground to a halt).
  11. Don't get me wrong. I'm not endorsing these altcoins. I DO want regulation in the space. But they're different from existing products and regulatory guidance is needed to account for those differences. The SEC has decided to bury it's head in the sand and regulate via litigation as opposed to actually passing thoughtful regulation and letting the market sort the wheat from the chaff within that regulatory framework. I own Coinbase because I see them as being one of the few trusted intermediaries for buying/selling Bitcoin and Ethereum (amongst other alt coins) and an intermediary of a nascent NFT marketplace where I believe the potential for NFTs (for uses outside of cartoon monkeys) is huge. I also believe that most consumers will opt for an intermediary solution for buying/selling Bitcoin instead of developing the technical chops required to run a node, organize their own marketplace, and buy/sell to anonymous individuals over the web where the transfer being completed by both parties is uncertain. And I believe Coinbase will be one of the few direct beneficiaries of the consolidation of the space as many crypto intermediaries have gone bankrupt. At one point they were making ~$15/share. Even with fee compression, I expect they may be able to get back to that $15/share again in the intermediate term with a more diversified revenue base and that the prices I've been buying at sub-$60 will be a steal at that time. I didn't buy the IPO - I bought the crypto crash.
  12. Some tokens it's true of. Others it is not. I'd argue the people who created Doge did so as a joke and to point out the ridiculousness of the coin craze of 2017/2018. Today? It's its own meme coin with a frenzied following. Definitely something created by the buyers and not the sellers. As far as trading commodities - there are plenty that are created governed by the same rules as base metals. Gasoline. Steel. Uranium. Freight tonnage. Etc. All require some level of processing/refinement/creation and yet are still governed by similar/same contracts and governance as base metals found freely in the ground. The "creation" argument is what doesn't seem to hold water here.
  13. My patience, and hope in court cases, is running thin after 12 years. Just getting exhausting watching these things trade lower every day after being dead money for a decade. Anybody keeping a watch on the progression of any of the cases through the courts? Any encouraging signs?
  14. You can complain about deceptive marketing tactics, but that doesn't make something a security. The profit potential of beanie babies, and the hopes of the masses who purchased them, didn't make them a security. Ownership of the token itself bestows NO ownership of the enterprise, or profits, or assets, or anything. You have to DO something with it. Perhaps the ownership of the token AND staking it is comparable to a security. But then it's the staking that needs to be regulated - not the token itself which bears none of those characteristics. And this is exactly what I, and Coinbase, are asking for. New regulation and clarity around DAOs, tokens, staking, liquidity providing, etc This is a new way of organizing labor/ownership/capital - not unlike the difference of C-corps, partnerships, REITS, etc which all have similarities and differences and different rules. We need different rules for tokens and not some blanket provision that pretends they're the same when they're clearly not. .
  15. +1 It's been an slightly expensive education for me into this field as a staker in some tokens that haven't done well since 2021 But it's absolutely made it clear to me that this space is different from ownership and governance structures that exist today. The SEC is just flat out ignorant when it comes to these products and it's shocking to me as someone who thought Gensler was supposed to have been a crypto advocate and professor when he joined.
  16. Other than BTC and ETH* Of which I assume collectively dominate the bulk of trading activity (though not certain). I generally disagree with the SEC here to the extent that the ownership of these tokens doesn't entitle you to ANYTHING. You have to do something with them to earn a return- staking, participate in governance, provide liquidity, etc. But the ownership of the token itself bestows NOTHING. From that perspective, I agree with Coinbase. We need new regulation and guidance on how to handle these distributed/decentralized business models and revenue generation that more closely resembles self employment/contract work than it does the ownership of a security.
  17. Well, unless if they sold them, they're quickly heading to $0. Probably still sitting on multiples of the initial investment, but unless it they let go at peak panic yesterday when it was down to $47-48, the stock has really only been moving up since then. This options are now only ~0.50 from a few bucks. Glad I added to COIN yesterday at $48ish. This was pretty well telegraphed. Even when COIN sued the SEC a few weeks back, it was widely seen as a pre-emptive move to front run an SEC lawsuit against them. Why the market knew that a lawsuit was coming and still reacted this way when announced is beyond me.
  18. For me it's less fear and more opportunity and attempting to maximize returns. Everything basically says caution is warranted EXCEPT stock prices. Why would I pay 19x falling earnings? Especially when I think those earnings are abnormally high due to elevated margins, elevated leverage, elevated liquidity, and just-in-time inventory systems that are fundamentally evolving? Why pay above average multiples in an unstable inflation environment which is historically where we've seen below average multiples? Why get a 4% and declining earnings yield on equities if I can get 5-7% easily in fixed income markets with little-to-no duration or credit risk? It's not fear that's driving me away from stocks. It's common sense. I'm still buying some - like cyclicals/material companies that ARE priced for a significant slowdown. But crash or no, I expect most fixed income to outperform most equities over the next few years and so fixed income is the market im playing in.
  19. LEI = leading economics indicators Two, I'd say deposit outflow ABSOLUTELY matters. Liquidity constrained banks don't make ad many loans. And the loans they do make are much more rigorous in credit protections to ensure they're money good. That slows down the flow of credit and thus the flow of money through the system. Fewer dollars circulating= fewer dollars spent = fewer dollars of earned income. Also tends to mean people focus on deleveraging instead of investing for future growth/profits moving monies to banks/creditors where it remains static as excess capital versus moving through the economy.
  20. It might be a better credit than other corporates, but it will still be hurt by a widening of spreads which is nearly guaranteed to happen as rates rise and the economy slows. All in all, if they want duration, they can get it in far more liquid and direct ways. If they want credit exposure, I'd want them to wait until corporate spreads are priced attractively to lock in long duration spread. They can always use treasury futures/rates to hedge/manage the duration component at that time.
  21. I tend to agree that I don't want them owning 30-year credit risk at rates less than short term treasuries. I think if they want duration, they can buy long dated treasuries, Treasury futures, or get reasonable spreads on low-coupon agency mortgages which will have extended durations due to lower prepayments and low coupons. Why not lock in something like 6% YTMs for 5-10 years on agency mortgages instead of 5% with credit risk? I hope the only credit risk they're taking is at the front of the curve for the additional 1.5% of spread that won't blow out terribly much in a recession.
  22. Do you have any examples of stocks that traded sideways into their valuation as opposed to down/up? Just curious how often it happens, because I think the way human psychology works is to lend itself to the cyclicality and NOT stability of price. For the last decade what supported tech was the argument of 0% rates and TINA as well as reversion to higher multiples from 2008-2011 type lows. But now there are alternatives and the cost of capital is the highest it's been in 15 years....seems to me that people will try to grasp onto ANY reason to continue to support those valuations because the original thesis is no longer true and we're looking at 30-50% corrections in a lot of these names otherwise. Once people realize there isn't anything left to grasp on to, I expect you get a downdraft.
  23. I'm gonna guess PACW sold what it COULD without taking a capital hit - this the sale of floating rate notes to raise liquidity as opposed to fixed rate notes and taking a capital hit.
  24. I still lean in the recession/bottom isn't in camp. The longer it takes for us to get there, the higher the level of the overall bottom can be due to retained earnings/repurchases/etc. Perhaps if it happens in late 2024 then we can end at similar lows to to what we saw in October and just let out the pressure in real returns and time instead of nominal ones. It's possible (though I'm skeptical). That being said, even with the drawn out nature of this slowdown (longest stretch of leading indicator contraction in history), I'm more comfortable owning bonds. 6-7% YTMs in short and intermediate duration core bonds funds that are predominantly treasuries/mortgages? And a potential double-digit kicker if rates are cut substantially? Versus a 20+ multiple on contracting earnings from stocks that have spent two years absolutely failing to be inflation hedges? All while most economic indicators outside of employment (which lags) are screaming slowdown or already well within recessionary ranges? I think I'll take the 6-7% with little risk than trying to sell to the next greater fool and bag a 15% return. Still have substantial equity exposing I'm trading around, but every month that goes by that we remain in "bull" mode, I'm trimming net exposure and adding bond funds. Maybe I'm wrong about the recession - but at least there are reasonable alternatives this time around to hide out in
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