TwoCitiesCapital

Same. My company did a recent presentation for a bunch of financial advisors. One of the advisors asked if we'd be including BTC on our models and the presenters kind of laughed it off, mentioned the risk, and nodded to it's -80% peak-to-trough performance. Not one of the mentioned that it had still outperformed every other asset class on the board over a 3-year and 5-year horizon despite the dip. If these are the people we're letting inform the masses on BTC, the opportunity will be here for awhile. Load up my friend.

See, but that's the problem. Those companies AREN'T growing at the moment. Earnings are down 5% YoY across the S&P 500 companies. The big tech darlings that could do no wrong with secular growth tailwinda? Also contracting. And this is only the beginning IMO seeing as it takes MONTHS for Fed actions to flow through the economy and corporate margins are a historically reverting series. Yes, if you have a 30-year time frame, those companies will likely catch back up and exceed bonds. But over the next 3-5 years? I think short- term bonds will come out ahead as measured from the peak at the end of 2021. Now that intermediate bonds have corrected and provide some value, I'll take them outperforming equities over the next 3-4 years. Cash and short-term bonds are some of the BEST inflation hedges because they have the least duration. That's exactly why these asset classes outperformed in 2022 on a nominal basis. Oil/Gold/TIPS can work on persistent and long-term inflation, but in the short term it's cash and short bonds. That inflationary correction/repricing may not be entirely over, but you can probably start wading out on the risk spectrum now. But wading out on the risk spectrum means buying agency mortgages, short duration corporates, and intermediate treasuries. 4-7% returns without taking equity risk or too much duration. Inflation hasn't YET been slayed, economic indicators are screaming fragility, and equities have rarely been attractive in environments of contracting PMIs/Leading indicators/corporate earnings. Sure, there are pockets of attractiveness in equities. I own Fairfax. I own commodity producers. I own EM and etc. But cheap has gotten cheaper in basically every pull back I've ever witnessed. Fairfax going up last year is one of the few individual exceptions I can think of. But they also cratered in 2020 despite sitting on tons of cash and an opportunity rich environment so there's no guarantees that continues. Having dry, liquid powder in an environment characterized by such fragility is rarely a bad thing. Especially if you aren't sacrificing returns by sitting in 0% return products.

The difference is hundreds of billions of corporate bottom lines, discretionary spending from consumers, and federal spending as more money flows are devoted to, and tied up in, interest payments.

There is some wide consensus that price manipulation occurred in 2013. I think there is suspicion that something similar occurred in 2017 with Tether allegedly printing unbacked Tether to buy BTC and drive up it's price. But no one has ever provided evidence. Separately, Tether survived the 2018 drawdown and the 2021/2022 drawdown all while managing billions and billions of outflows. It doesn't seem they're the market manipulating ponzi everyone said. This guy has a high hill to climb to demonstrate price manipulation and provide actual evidence of it and not that it's just some whale trying to ease into a position without driving the price through the roof.

Wondering if I sell? Or if I hold for the next 11-months of time value I've paid for?

+1 Charlie and Warren regularly make mistakes. Most of the time they're pretty good about admitting it and moving on. Not so with Bitcoin. And they've regularly been committing the sin of omission when it comes to tech related investments by admitting they don't understand them. The dude was best friends with the CEO of Microsoft for decades and never got comfortable owning the stock?!?! Why would we expect BTC, which is akin to venture capital in a new payments network, to be any different?

If you held long duration, zero-coupon bonds and reinvested the proceeds over that same 50-years, you probably did better. Which one is the inflation hedge again?

I think the direction might be right in the short term, but I caution against getting excited for anything longer than a month or two. 2018 also had a very strong January. And then equities were broadly negative at the end of the year. The Nasdaq had double digit returns in both Jan 2000 and Jan 2001 and ended both years significantly negative. People are letting 1-2 months of strong equity returns cloud the perception of the longer term view which has been one of economic deterioration for months now.

Except it isn't. PMIs have outpaced CPI fori that and corporate margins are contracting. It's fine to have a theory that businesses can pass inflation through, but it's a whole other thing to continue believing in that theory when evidence shows it's incorrect. /\/\ this I agree in principal. Now find me any time, any country, where inflation was "stable" once exceeding 4-5%. I don't believe it has EVER happened. Certainly not in the U.S. Realistically speaking, the historic precedent once inflation exceeds 4-5% IS these whipsaws higher and lower.

Yea - market is noticing that they weren't particularly stressing how easy financial conditions have become over the last few months. Markets view that as the start of the pivot as the Fed had basically made no progress tightening financial conditions in months and doesn't seem bothered by that. That being said, bond yields were still bid on the long end substantially today. Bond market is still staying this is a policy mistake. I tend to agree. With key technicals broken (200 DMA as resistance, the downtrend since 11/2021, and the golden cross), we're likely to rally a bit from here, but my intermediate term bearishness is unchanged. The economy can't handle 4-5% rates, the economic picture has been weakening for months, and we haven't given it very long to see the actual effects of these hikes yet. It only gets worse from here regardless of equities do up temporarily. Sell the rip to buy the dip.

I don't disagree with you, but this IS how markets work. Debt gets lower returns than equities, and is considered higher quality/safer investment, precisely because of the reliability of coupon payments and maturities versus the uncertainty of earnings/dividends. This is what drives the so called equity-risk premium - it's the risk that returns vary and are unknown. Having an insurance company with more stable year-to-year earnings will typically result in it trading at a premium valuation to another insurance company that is riskier, but earning more. Sure Fairfax got it right this time around and are doing very well because of it, but that ignores that they did very poorly from 2016-2019 as interest income fell dramatically and stayed low for years because they got the last pivot wrong. That's the risk.

The perspective is that they expect defaults to more than double from 2021 in an economy with record employment, record wages and consumers that are coming off a bumper of 2+ trillion in excess savings. That's the perspective. That directionality and magnitude should mean a hell of a lot more than it did in 2019 and I doubt it stops at 3.2% - that's just what they think it will average for the calendar year which means we likely end the year higher than that. Would also add that I was calling for a recession in 2019, too, due to the inverted curve, breaking money markets/repos, and the weakness in manufacturing. I didn't predict covid - I didn't have to. The economy was so fragile that ANYTHING could've sent it over the edge. It was just covid that did it. We're in the same environment now. I don't know what the trigger will be, just the economy is unlikely to have the resiliency to handle it.

Q4 GDP was predominantly positive due to inventory restocking after multi-quarter drawdowns. The consumer that everyone is talking about being strong and resilient? Yea - consumer spending contracted during the quarter. Discover card is expecting write offs to go to 3-3.5% from the current 2.1% (and 1.4% a year ago). Leading indicators have been contracting for like the last 8-10 months. Seems like that coincident indicators are about to turn presently. Then the lagging indicators like inflation and employment will follow.

The more you diversify, the more like the index you become and the more index directionality will matter to your holdings. So valuations and sentiment still matter and adopting a framework of adds/sells may improve outcomes. Secondly, I'd argue that it WASN'T obvious in the cases of GE and Blackberry or they'd have never been bid to such extremes in the market. Maybe it was obvious to you - maybe buy/hold forever works for you - but as demonstrated by the market applying those valuations to those two names it doesn't work for most.

I get it. I'm not sitting 100% in cash. I'm invested. My stocn portfolio actually did exceptionally well last year relative to the big indices with only my exposure to crypto dragging me down. But just like Fairfax went to $250 in 2020, and Exor dropped below the net cash that was expected on its balance sheet, cheap tends to get cheaper in panics. There are cheap things that I own. There are things that I expect will do well earnings wise in those environment. And I also anticipate that it's highly probable their stocks will drop with the broader markets when earnings/multiple expansion turn the opposite direction. So Im keeping a fair amount of dry powder, trimming exceptional rallies, and buying dips until then. There are periods where buy/hold works. 2009-2018 was probably that period. Since the end of 2018 though, investors have been rewarded with enormous opportunities to "trade" their positions based on sentiment, valuation, risk, and alternatives.

Yes, there are exceptions to every rule. Especially when looking at a man/stock that has compounded above everything else for it's existence as the example. There's probably a handful of other examples that work. But for every person that just bought and held Apple or Berkshire or Amazon for 20+ years and it worked out there are people who held Blackberry, and General Electric, and Bank of America where it didn't. unless if you believe you can successfully identify the stocks that will go down, or nowhere, for 20+ year periods of time - valuations matter. And there were plenty of opportunities in ALL or these examples to improve your returns via judicious buys/sells based on valuations and intermediate outlooks.

Entirely dependent WHEN it hits that. But if we're at $1,200 in the next 2 years, I imagine I'd be trimming substantially. My cost basis on my shares is between like $250-450 so I'd take an easy 3-5x over 3-5 years. And if I'm right about equity markers in general, there will be opportunities to deploy that capital into that will likely be more attractive at that point of massive outperformance. But I'm not holding my breathe for $1,200 in 2-3 years. I think $1,000 in 2-3 years is probably a more reasonable bar and even that isn't my base case for re-rating just because I expect markets will remain pessimistic on just about all risk assets for that first half.

Can you explain the purpose/intent behind this requirement to cross shares?

Probably because it's been known for a few weeks now that they would file and they were already working attempting to iron out a plan with creditors before the official filing. #BuyTheRumorSellTheNews It was a few weeks back that there was speculation that DCG would have to liquidate GBTC to settle some of the shortfall at Genesis. That's what took GBTC to a ~50% discount to NAV - though those fears are totally unfounded due to the legal structure of the Trust (AND liquidation would actually be bullish for NAV closure allowing a significant arbitrage). I doubt that the bounce is the start of a new bull market, but the narrative I was seeing everywhere is that the BTC bottom was going to be between $9-12k. They might still be right, but if everyone was positioned for that then we were ripe for a short squeeze and hundreds of millions of short positions have been liquidated thus far. On a related note, the Timothy Peterson guy I follow notes that Bitcoin is sensitive to interest rates if you're looking at the right rates. It's not the Fed funds. It's not the 10-year Treasury. It's the high yield spread. His back testing shows high yield spreads have more predictive power than does the halving schedule for BTC price and direction. Based on that, the run from 15-20k was just catching back up to where BTC should've been based on high yields spreads as the market was overly pessimistic post-FTX.

The other part is everyone who knew it was cheap at $9 also knew it was cheap at $10 and $12 and $14. I bought a few shares at $9, but I didn't go big because it was already one of my largest positions from shares that I had purchased from $10-14. It was very possible if you bought at $9 for it to have dropped to $7 and stayed there which wouldn't have looked too different from my experience in purchases at $12-14 over the last 2-3 years.

It depends - You could buy the low coupon variants where the primary yield is the amortization to par. In that case, you're probably not going to get prepayments because those bonds are people like me with mortgages at 2.75% we're not letting go of. But you're taking more duration risk if you're wrong on rates. If you buy newly issued, higher coupon bonds with more yield coming from the cash flow, the only way they're getting prepared/refinanced is if property values hold up - which they currently are not - because people won't be able to refinance with sub-20% equity. Those bonds will likely be money good for a few years too, with low prepayments. If you're skeptical, buy discount bonds as in the first example. 2020 basically pulled forward nearly all refinance activity for the decade IMO.

I didn't run your specific math, but what I can say is observed periods of inflation that have actually occurred did NOT end like that. In the US, during our inflation of the 70s, stocks went nowhere for a decade and you significant negative real returns. It certainly wasn't profitable in real terms buying stocks in Weimar's hyperinflation - nor Zimbabwe's - nor Venezuela's. Inflation may mean stocks outperform. Or it may mean bonds outperform (like they did in the 1970s with anything less than 10-years to maturity). It depends on how quick, how high, and how persistent it is. But I'd argue those aren't your only two options, nor do you need to commit to owning only one for the whole decade. But anyone who owned cash, short-term bonds, and even intermediate bonds outperformed equities last year fairly significantly despite 7-9% inflation....even while everyone was saying cash/bonds are things NOT to own during inflation. I was definitely saying equities were the last place you'd want to be if inflation was not transitory, and that proved to be true. I don't think we're done with that trend either.

While this argument was made, it NEVER held water. Inflation is precisely why equities fell 20%. Equities never do well in periods of elevated inflation. They may do better than bonds pending how quickly and how prolonged the inflation is, but real returns are almost always negative. The receding of inflation WOULD be bullish for stocks if not for the earnings/economy being the next shoe to drop. I haven't done work on the bottom up earnings myself to come up with aggregate earnings, but I think the hot to earnings will be significant given inflation in the supply/labor chain (and the inability to pass along all of those costs), higher USD crushing foreign earnings, and rolling any debts at higher rates (though this will be minimal for the next 2-3 years). Morgan Stanley's base case is $190 with a bear case of $180. I think that under-estimates it and there one of the more bearish ones on the street. Revenue growth for the last 20 years averaged something like 3.5%. In 2021 it was closer to 12%. That's all stimulus. I think you'll see A LOT of that come back out now that money supply is contracting and we're not stimulating. If revenues fall by 5-10%, doesn't operational leverage suggest the hit to earnings will be quite a bit more than 5-10%?

+1 You can get agency mortgages yielding 6+%. Why take equity risk if you can get equity-like returns in government insured bonds? Blackrock is suggesting investors consider flipping the 60/40 concept to be 60% fixed income. There are individual stocks that I like and will buy. There are individual sectors that may do well. But equities, on average, are likely to have another terrible run because they're still expensive relative to what the real economy is suggesting is coming. 18-20x forward earnings isn't attractive to me and receding tides will lower most boats regardless of fundamentals. As long as that remains the case, I like the guarantee of short- and intermediate bonds and cash.

Have heard some interesting takes on this from BTC personalities 1) Tim Peterson says as long as institutions providing incremental flows treat this as a high beta stock alternative - it'll behave like one. Probably explains why prior periods of zero correlation stopped post 2020 when stimulus and big institutions were getting involved. Also means it's probably too soon to expect the correlation to break (and maybe it doesn't?) 2) Dylan LeClair has said something similar, but from a different perspective. His argument is that you gets these periods of intense correlation of risk assets because everyone is short dollars (i.e. has dollar denominated liabilities) and prices are measured and stated in dollars. As dollars come into demand, you're selling anything and everything else to reduce risk and service debts/pay rolls/mortgages/etc to meet these dollar denominated liabilities. So as USD goes up, nearly everything goes down and that's what is driving the correlation with equities and risk assets. One says it's the USD. The other says it's the institutional manager behavior. Both night be right and viewing the 'problem' from a different perspective. In either instance though, it seems unlikely the correlation will go away while USD remains the asset BTC is predominantly measured against (i.e. while USD is the global reserve currency). As far as lows being in, both seem to acknowledge additional risks and the potential for a lower price, but believe that 15.5k post-FTX was a likely cycle/capitulation low.