TwoCitiesCapital

What makes you say savings and credit is good when savings are falling and revolving credit balances are rising? Also, why focus on inflation and jobs which are lagging indicators while ignoring leading indicators which are cratering for many months in a row now?

It possible. They will book a $700-800 million loss on the sale of securities to cover current liquidity needs which was announced today. Will definitely impact capital levels as will the new debt issue they also announced. Maybe they don't survive. But if they do, they're probably worth quite a bit more than $300 million/$12 share. They earned $1.28/share in the Q3 alone and we're growing fairly dramatically despite the crypto drawdown over the last 12-months and did so without incurring major credit losses despite Voyager, BlockFi, Celsius, Three Arrows, etc all being points of contagion pre-FTX. Seems like their underwriting and collateral procedures were fairly robust if not for the current run on the insured deposits which only occurred post-FTX since they had a relationship there in processing payments for FTX. I expect there will be some strategic partner that might step in to stabilize. They'll take a pound of flesh and my calls will likely be money good, but of course it could all go to shit. Hence the OTM calls which risk WAY less capital on the front end.

Hard to say. But seeing as they're a traditional bank with traditional risk controls/regulations/auditors/etc., I'd be willing to bet that they're not culpable and any fraud at FTX/Alameda was FTX/Alameda alone and that they didn't aid or abet it.

That's why I'm using options - and OTM ones at that. The run is largely based on fear - deposits are FDIC insured. So far, credit losses have been minimal. Run seems predicated largely on concern over continued fall-out from FTX dragging other firms down (which hasn't resulted in credit losses according to the firm) and if they played role in the fraud that occurred at FTX (which I think unlikely, but possible). In either case, deposits are safe so I'd think eventually they'll return. Taking a hard hit now to manage liquidity, but there's no reason currently that deposits should be leaving at the rate they are and I imagine will begin to return once things have calmed.

1/2024 $15 calls on Silvergate Bank Haven't really followed the name, but they're experiencing a bank run post-FTX collapse despite being a traditional bank where deposits are FDIC insured. Down 40% today alone. Much more over the last several months. Betting that it's a knee-jerk reaction, that they'll survive, and will be well positioned in the future. Also recognizing that a takeout either from another bank OR billionaire crypto investor Brendan Blumer (who controls ~17% of shares) might be on the table.

I'm not sure it actually impact behavior a ton - EVERY time it happens all I hear from people is why this time is different or why it should be ignored because it can take up to 18-24 months Even on this board we have a ton of people willing to look past contracting PMIs, falling home prices, cratering leading indicators, inverted yield curves, and etc to continue to be fully invested in equities. I think the real impact of the inverted yield curve is it kills credit creation. Banks aren't in the business of paying higher rates on deposits than they receive on loans. Credit creation slowly grinds to a halt when curves are inverted and money in circulation shrinks. That has a real impact on real business activity.

Moved from NYC back to the Midwest myself. Still can't understand why anyone would live in Florida

2015: ~(20) 2016: 24.7 2017: 25.9 2018: (14.1) 2019: 25.5 2020: (4.80) 2021: 18.8 2022: (19.66) Equity portfolio did reasonably well given largest positions were Fairfax, Exor, Altius, and Eurobank - all of which did reasonably well in comparison to major indices. Also had a lot of successful swing trading around commodity names like Stelco and Whitecap Resources. Had quite a bit in short and intermediate term fixed income throughout the year which dramatically outperformed the S&P, but was still a drag on absolute performance. Hedges in shorting apple never really worked out for me. Switching to buying puts on Rivian worked, but had massively scaled back the short by that time so impact to aggregate performance was negligible. Biggest detractors which killed my annual return was the large exposure to crypto (~20% of portfolio at the beginning of the year) and heavy allocations to international equity funds while the USD appreciated dramatically.

You tell me. The thought frightens me too. But Japan and Europe have higher inflation, higher debt, lower growth, worse demographics, and no reserve currency status and still have lower rates then us. I need a more compelling reason why rates are headed higher here and why the last 18 months is a game changer when we're ignoring decades before that

Europe and Japan have higher debt loads, aren't the reserve currency, and have lower rates. Revisit your thesis.

You're going to tell me 40 years is a blip in economic history while focusing you're entire thesis on the last 18 months.... Give me a f*cking break.... And $30T in debt is deflationary, bud! At 5% rates, were talking over 1.5T a year just in interest. That's nearly 40% of government tax receipts not considering we're still running massive deficits even before we've gotten there. The government will eventually inflate it away, but that doesn't mean interest rates will rise to reflect that. The Fed/govt will collude to have negative real rates like they always have historically and rates will never approach or exceed inflation until it's been whittled down. inflation will run hitter than the last decade, but we're talking like 3-4% per year instead of 1-2% and you're not going to see interest rates above those levels for prolonged periods of time because the government literally can't afford it. We're not going back to 10-15% rates. 30 trillion of debt doesn't allow for it. Your high water mark this cycle is very likely to be 4.25% on the 10-year. The only thing that will result in a rate move similar to that of the 70s is the USD imminently losing reserve status. I believe that eventually happens - but not in the near term.

1) it performed just fine in the hiking cycle of 2015 - 2018. So it killed it during one hiking cycle and sucked air this hiking cycle. Hard to really discern a trend in response to Fed policy so far. 2) "if interest rates stay high" is an incredibly big assumption seeing as they've failed to do so for the last 15 years straight and have been in a downtrend for the better part of 40-years. You're predicting the change of a multi-decade trend to declare the end of BTC and it is not yet clear if that trend is over or not. As we're seeing now with the current global economic weakness, falling corporate earnings, contractionary PMIs, inverted yield curve, and low long-term rates - EVERYTHING is screaming that rates can't stay here. Maybe they do, but I highly doubt it so you probably need a plan B to hate on BTC going forward. 3) I'm not cherry picking time lines. My time line includes the current 80% drop. It includes both rising and falling rate cycles for the 5-year period and two complete rate cycles for the 10-year numbers. It's not like I'm saying "it's performance would have been this if not for the drop". I'm saying even with the drop, it's performance has been admirable. You're the only one cherry picking data from a half-cycle by ignoring the last 10 years of returns and only focusing on the a single hiking cycle of the last 18 or so months. You also seem to ignore that this isn't the first time BTC has dropped by 80-90% - all of which is captured in my time frames....yet somehow I'm cherry picking to fit a narrative?

TIPS didn't do well either. Guess they're a total failure as an inflation hedge too! Either that, or you have to consider other risk factors within the investment instrument and/or zoom out from 18 months to 5-10 years to see the efficacy of the inflation hedging. You keep harping on BTC being down 70-80%. I keep pointing out that over just about any 5-year period, and 10-year period, it's the best performing asset class - even after the 80% drop. And that's generally been true EVERY time it's dropped like this. Really the only month that isn't true for is if you bought during December 2017 - and even then it's likely true unless if you bought in the last week or two of December when it had it's last blow off top and went from 7k to 20k in a month. So as long as your time horizon is 18 months and that's how you "invest" for "intrinsic value", fine! BTC is a terribly risky investment over any 18 month period. But so are stocks and bonds as they've just proven because 18 months is still the popularity contest and not the weighing machine. If you extend that time horizon, BTC looks a hell of a lot better even measuring from the bottom of its current drop.

There's also leading indicators to be considered - which are currently cratering at a rate indicative of -4 or -5% GDP growth YoY PMIs are massively contractionary. Historically, bonds have dramatically outperformed stocks when PMIs were contracting. And we know that monetary policy acts with a lag, so we're not even seeing the impacts of the bulk of the rate hikes yet and the Fed is still hiking.... I think it gets worse before it gets better. The next 6 months will basically be a continuation, and potential acceleration, of the trends of 2022.

RIVN was down 75% from it's peak in October. It's down another 40% from then. Tesla is still dropping. Just examples of their still being plenty of speculative excess going around even just 4-8 weeks ago when people were convinced the bottom was in. People have been waiting for the Fed to pivot and save the day and the markets reflect that expectation. I think once people realize how bad the earnings picture is going to get, and that the Fed is intentionally engineering a recession and will not save the day, that the panic will be palpable and you'll see it spreading to blue chip names and not just the COVID plays getting hit hard. That's when you'll want to start buying.

The best estimates I've seen have been arrived at by Cane Island Digital based on expected growth adoption curves and metcalfe's law for network value. Obviously values that fluctuate on users vary from day-to-day based on observed users and expectations of future growth, but his current fair values range between $16-25k based on normalized users at the current time - with expectations that the network will keep growing in the future.

"Fail" is an odd choice of words for the best performing asset class of a decade that has dramatically more uses cases, adoption, and believers today than a handful of years ago. What does it take to "succeed" with that bar being so high?

If something is considered an inflation hedge, it is by definition a store of value. There can be other aspects to it - like growth - but most investors would assert that a broad basket of equities is a "store of a value" because preservation of value is a prerequisite to growing it - I e. "Making money". And the VAST bulk of active participants on this board seemed to be under the delusion that equities were the asset class to own in inflation, regardless of price, i.e. an inflation hedge. So to answer your question, I'd say 'most investors' believe equities are a store of value. As far you valuing BTC's characteristics - here's the thing - I don't care if YOU value those things. It's not "Bitcoin for Sweet". It's Bitcoin. Those characteristics have value to plenty of people. The value of Bitcoin to a refugee from Afghanistan or someone receiving remittances in El Salvador is probably many multiples of its value to me as the network exists today. The difference is I recognize that the value exists, even if it's utilized by others and not myself, and that the value and use cases are only increasing. It's an incredibly self-centered view of the world for you to assume it has no value at all simply because it has no value to you.

Yes - given that the asset is down ~80%, anyone who has purchased in the last 18 months is likely down on the investment - similar to anyone who purchased just about any risk asset with the exception of a handful of equities and other assets. People often think of stocks as "long term stores of value" or "inflation hedges", and yet many equities are down 10-80% this year. Bitcoin is certainly more volatile, but I don't view that volatility as an argument against it's longer term characteristics that lend themselves to that store of value narrative. But as mentioned above, intermediate term movements are likely dominated by the secular growth trend and speculation. The value of ANY asset is subjective - hence why we have markets. For every buyer who thinks they're getting a good deal is a seller thinking they're getting a good deal. What I can tell you is there is REAL value to have a decentralized monetary system, there is REAL value to be having a stable money supply. There is REAL value to a global payments network that is native to the Internet. We can debate those values - but they have value and I believe that value to be many, many multiples of today's price at the full realization of those benefits.

I don't know if $80 will be the floor. I feel a bit more comfortable saying probably not below $60, but always tough to say on any given day since prices are set at the margin which goes bonkers in recessions. I'm far more comfortable saying any drop in price will quickly recover, the shortage of energy has not and will not be solved quickly, and that oil producers will do just fine over the intermediate term regardless of recession forecasts. In the meantime, if $80 is the new bottom, oil stocks will kill it again in 2023.

Depends on your time horizon IMO - almost all traditional inflation hedges have OTHER risk factors that can dominate their performance in the short amd intermediate term. TIPS have been terrible this year because they've been dominated by their duration risk. BTC has been a terrible inflation hedge this year because it's been dominated by its inelasticity and demand has cratered. Gold has been a terrible inflation hedge this year (but has still performed admirably relative to other assets) due to reduction in negative interest rates making short-term debt instruments more attractive. Oil has been a terrible inflation hedge (but has still performed admirably relative to other assets) due to political risks and the reduction in the SPR. All have underperformed inflation this year. I think you're most direct inflation hedge is things tied directly to the CPI with no other risks (like iBonds). Those are inadequate due to purchase limits. Second to those, I'd say oil given it's overrepresentation in CPI calculations due to its ability to flow through to everything down stream and the inability to be politically manipulated for long (though is still subject to the boom/bust cycle of capital investment in the industry). Long term, gold and TIPS will be fine as inflation hedges. But you need to wait years for the other price moving risks to cancel each other out, or to amortize into maturity, to leave the underlying scarcity, value preservation, and inflation adjustments to principal to be evident. BTC might be similar to gold/TIPS in that regard, but I expect the secular growth trend AND inelasticity will dominate the price action for the foreseeable future while the inflation hedge aspect will be predominantly under the surface until it achieves mass adoption.

The US has had an opportunity to crack down in it for 13 years. So far all they've done is tax it (read 'make legitimate') and a minimal regulatory approach. At this point, I think it's be pretty hard for them to backtrack. Maybe in 2018? But now? With major institutions having backed it, invested in it, supported it? If you believe money influences politics, I think the time for banning has long passed... My general view is that there is a utility to crypto in the form of being sound money. And being digitally native gives it competitive advantages as payment facilitator over the current network. These benefits will grow as the network grows and thus demand for the token will grow while new supply basically is non-existent. What SHOULD it trade for? But should it trade higher in 10-years than it does today when it is the default option for long term wealth storage and a global payments system is operating on top of it? Absolutely. And how valuable is that system? Probably quite a bit more valuable than the $1.2 trillion peak we saw in BTC in 2021 IMO.

@rkbabang already has an excellent response to this, but it can all be summarized by "the network". You could copy the BTC, verbatim, And launch BTC 2.0 tomorrow. And it would largely be worthless because 1) no one is using it, 2) no one is securing it against attack, and 3) you have no incentive to get everyone off of BTC and onto BTC 2.0 that does exactly the same thing. The end result is BTC retains its value and while BTC 2.0 flounders. There have been many hard forks and copies of BTC made (doge coin for instance is a copy of BTC with the removal of the 21 million hard cap). They ALL degraded against BTC which continued growing in adoption, use, and value while the others didn't. It's the network effect. The more people use it, the more valuable it becomes, and makes more people want to be a part of it and use it. The more people use/accept it, the easier it becomes for more people to use/accept. The more used/accepted it becomes, the more valuable the network as a whole is (as measured by the market capitalization of the coins being demanded which is increasing relative to supply). The more valuable it becomes, the more lucrative it is to provide computing power and resources to the network, which furthers the security and reliability, which leads to more adoption and use of the network because confidence in the network grows. The value is in the network. BTC has spent 13 years cultivating that network growth and being uncompromising on the things that matter for its use as money/wealth storage. That's what makes it better and why it can't simply be copied - you can't Ctrl-V the network.

And somehow BTC is worse than cash in this regard? Does cash not also require the monitoring/blacklisting of thousands of people, but with NO way to possibly track? Maybe it's cash that should be illegal? As an aside, that's probably exactly what governments will aim to do once CBDCs are widespread. And we should all be concerned because CBDCs carry few of the benefits of decentralized crypto and a whole host of new negatives - like usurping more of your civil liberties around privacy and autonomy around spending.

+1 I've also been a little slow to adopt some technologies. I didn't use my mobile wallet until the pandemic happened and I didn't want to touch the touchscreens at the store. Never really understood the value prop, but now it's nice to not have to always carry my wallet and all of my credit cards AND the transactions go MUCH faster than the traditional payment given today's chip technology. Also probably why it took my like 7-years to come around on BTC after celebrating every bust from 2013-2018.