TwoCitiesCapital

It's always a little stunning to me that people believe negative real interest rates that imply the erosion/destruction of the capital and savings of a country is a bullish metric...

I generally agree that your time is best spent other ways, but I've been 6/6 with Southwest with flights being cancelled day of or being delayed multiple hours in the last 4 months. And in some cases, I missed flights and had to overnight places because I had been bumped from a direct to a flight with a layover and the connecting flight was delayed - but of course it was due to "weather" so no compensation or refund for having paid for the premium direct option. Whatever the airlines in general are doing right now is totally unacceptable and heads should roll at this point as they've had two whole years to figure this ish out. I highly encourage you to make a stink. I emailed Southwest 10 days ago regarding all of my issues (with confirmation numbers so they could verify) and still haven't heard anything back which is also terrible customer support.

+1 It's not pretty, but it gets the job done. Largely, I'm a happy customer. Only time I have issues is when I have to call in for help, but that is rare.

I think "stupid cheap" may not necessarily apply any longer, but still probably one of the cheapest things I own despite the relative performance. The book value and earnings potential are both growing at a healthy clip so the 20% rise in share price can be somewhat attributable to that. I'll consider small trims once we exceed $600 USD/share, but otherwise am content to watch this play out and hope that I'm wrong on their fixed income philosophy.

As mentioned before, it's not about right or wrong. Of course Hitler was evil. So is the Saudi regime that we so happily supply weapons to and buy oil from. But US foreign policy isn't based on right or wrong - it's based on "what can you do for me." If you're a heinous, evil dictator, we might even put you in power and keep you there if provide us with some strategic advantage and we'll use propoganda to keep the American populace complacent. And the moment they stop being useful is the moment we use moral/ethical arguments to remove them. While Western Europe, Canada, and the US may believe the world is a better place for all of our meddling, I imagine there's a large portion of global population in non-white countries that are all tired of their democracies and economies being undermined to force subjugation to US and its policy directives

'heroic emergency efforts' is a funny way to spell 'invaded Ukraine'. Must be Russian propoganda

The TRS aren't looking too bad after today either. Gonna have another cool $50-60 million in cash delivered this quarter if prices stay right around here for another few days.

Stocks typically rally during hiking cycles. There is an initial sell-off and a recovery and they continue to rise until the Fed breaks something. This doesn't seem that abnormal to me if we're just looking at this like a typical hiking cycle. The standouts that make this somewhat atypical are 1) inflation is 7% and it seems I'm in the minority in believing that rate is not sustainable and 2) the yield curve is already pricing in rate cuts within the next 18 months and we're only 1 hike in. I think the second two are probably worth ignoring for now with the recognition that this whole cycle will be abbreviated suggesting the Fed will break something sooner rather than later. I still like bonds here - particularly 2-3 year bonds that I intend to swap to intermediates the moment it looks like the Fed is going to pause.

Buying these back. Added SLV call spreads to my precious metals exposure now that the bottom should be in IMO.

Social Security Trustee estimate: https://www.ssa.gov/oact/TR/2021/VI_F_infinite.html Medicare Trustee estimate: https://sgp.fas.org/crs/misc/R43122.pdf (p.10) Haven't checked the methodology, but I'd generally assume that the trustees over each trust are informed well enough to make such estimates. These estimates also generally align with those I've seen from Debt Clock folks and other headlines using differing methodologies.

Central Banks can only be so independent since their heads are appointed president/Congress who are not. You might get less repression than you'd otherwise expect from a captured entity - but we will still get repression IMO. Gold is good on repressionary environments. It's only one month of data so far, but existing home sales fell 7% MoM in February and are -2.4% YoY. Mortgage rates are still climbing, as are home prices due to commodity/labor shortages, so I expect the trend will continue in the short term until rates crater again. Probably the reason no one mentions it is because it's only true if we're also not consistently running deficits or have large future liabilities that are unfunded. So sure, you might be cutting 5% real off the $30 trillion nominal debt load outstanding. But the US has an estimated $60 trillion and $103 trillion (present value) of unfunded obligations for social security and Medicare - spending that will have to increase by 7ish% to meet inflation. . So -1.5 trillion in 5% real reduction to current debt and +11.5 trillion in future spending increases. Seems like 1 step forward and 5 steps back. And we haven't discussed the impact to current deficits and how they'll grow in response to higher costs and higher interest expense.

I think it was the structure and the duration it was held. I've been concerned/anxious/bearish about markets for about as long as Fairfax - but still generally have positive returns because I chose my spots, had periods of time where I closed shorts (like shortly after Trump was elected) when it became clear there were threats to the downside thesis like tax reform. The way they structured the shorts, and picked their longs, the shorts lost more money than the longs made and because they were TRS it was a regular drain on holdco liquidity. At any point they could've closed the swaps and bought put options, or purchased CDX protection, or swaptions instead of swaps, etc. It was the sizing, the stubbornness, and the vehicle that were problematic - not so much the concern on valuations and deflationary concerns IMO.

Always reverted before despite the macro calls and hedges - and the equity hedges are gone now. Just a matter of sentiment changing. The catalyst for that? I thought the improvement to it's profitability outlook and massive repurchases would've done it. I guess not - more time to accumulate (and for Fairfax to repurchase shares at low prices) while waiting for whatever the trigger ends up being.

Well, the trouble is you have to be right twice. You have to know when to sell AND when to rebuy. I'd say while covid was a wildcard, a recession in 2020 was fairly predictable after everything we saw in 2019. Covid was just the match - the tinder was in place. But I never rebought in a big way. Scooped up some high yield bonds, added to Fairfax, added to Exor, doubled down on my mortgage REITs and etc, but was still sitting on a ton of cash for that to have been the bottom. Seems that way again. Tinder is in place. Match and timing are unknowns. Will probably have a recession and a fairly sizable pullback in equity markets over the next 12-18 months. But will -35% be the bottom? Or will it be 50-60%? Will it be one month pullback or a two year grind? How do you structure the re-entry around these unknowns? Still working through that myself.

It looks like I may have been wrong about their being too much pessimism for the top to have been the top when the thread was started. I can see us popping a bit from these oversold conditions. And sentiment is just through the floor making for a good contrarian entry. But with yield curves inverting and oil spiking, I'm concerned that an economic slowdown will occur faster than a new ATH. Added on the sell-off, but will be pretty quick to take those gains.

I didn't say it was wonderful. I said it was Trump's plan and Biden failed to execute on it. Just like Trump failed to execute on Covid. Evidently political bias also f*cks up your reading comprehension.

People love to think they're so much smarter than "the others" - the others being those on the opposite side of the political spectrum. They also love to disagree with them and will change their underlying principles to do so. Antiwar Democrats under Bush disappeared under Obama. Anti-deficit Republicans disappeared under Trump. People who wanted out of Afghanistan under Trump blame that fiasco on Biden because it was Biden's responsibility to execute on Trump's plan...but those same people will give Trump a pass on abysmal execution during the pandemic. Politics clouds logical thought. The things they claim to believe arent what they believe - they just want to be different than "them" and beat "them" and will say whatever is necessary to do it as demonstrated in all of the hypocritical examples above for both parties. Straddling the middle I think gives you an open mind to both sides. All my Republican family in the Midwest thinks I'm raging liberal. All my raging liberal NYC friends think I'm a Republican. That's what independent thought gets you, I guess.

You're right. It was the last 18 months of the Biden presidency that's the resulting in high commodity prices. Absolutely couldn't have been the lack of investment in the space over the last decade, the supply chain disruptions, and the trillions in stimulus that BOTH Trump and Biden supported. Couldn't have been that commodities were the lowest prices against financial assets they'd been in decades and this is the reckoning that would've occurred regardless of the president or policy. Nope! Biden turned the whole commodity supply chain complex on its head with less than 2-years in office and manufactured inflation where all others failed over the last 12 years. Genius if you ask me!

We'll ignore that piece for now. We'll also ignore that Putin did this shit in Georgia in 2008 while Bush was still President and who was more of a war monger than Bush? The primary thread that 2008, 2014, and 2022 had in common wasn't Democratic presidents, but rather high energy prices. Putin could afford the war. Had oil been $90/barrel in 2017, I imagine Putin would've considered invading then. But it wasn't. It was averaging about $55/barrel that year. He wasn't scared of Trump - he just couldn't afford the fight with Trump.

There's a thread on iBonds here. Is probably worth a read if you haven't seen it. Most likely a better alternative for at least some of the cash as long as you can handle the first 12-months of illiquidity. 7+% rates. Inflation hedged. Govt guaranteed. And liquidity after the first 12 months with no principal risk.

You do get the benefit of higher income - temporarily. You also get the immediate loss of income when the Fed cuts - which they immediately in 2019. Fairfax got 1-2 years of lower income in 2017/2018, 1-2 years of "higher" income in 2018/2019, and then 2-3 years of lower income in 2019 - 2022. They missed out on $1+B of paper losses in 2016/2017. Amazing! They also missed out on over $1B of paper gains in 2019/2020. Sucks! And with all of that, rates are about where they were when they dumped the bonds. Just wish at some point they'd have congratulated themselves on the great call, and moved 30-50% of the portfolio back into intermediate bonds to lock it in. Particularly once yield curves inverted, the Fed was cutting, global PMIs dipped below 50, and was clear we were in a manufacturing recession - all reasons to question their higher inflation/higher rate narrative and all occurred in 2019 long before covid. Also, I agree with your skepticism on markets working via a discount rate. It makes sense in theory, but doesn't seem to hold much water in practice. Particularly comparing relative values across countries or the same country across time.

I would tend to agree if there had ever been an acknowledgement or discussion on their lack of action in 2018 or what they'll do differently next time, but there hasn't been. They've assured us that there will be no more shorting, but haven't assured us at what level of rates they'll start putting cash to work. So I have no reason to believe it'll be any different than in 2018 where we'll need to see at least 3.25% before they consider it.

The only reason for the correlation is b/c people expect higher rates to result in higher income. But that's only true if you invest the cash into higher rates. Fairfax didn't do that last time we went through the cycle and rates were significantly higher than they are today. I don't have a ton of confidence they're gonna put a ton of cash to work with rates even lower than prior opportunities they've passed on. Seems like the market agrees which is why the correlation broke down. We learned from history. If interest rates go to 5%, I'll eat my words. But I'm highly skeptical that the 10-year gets sustainably above 2.5% for more than a 3-6 month period and it's not clear that Fairfax will put it's cash to work until rates get well above the 3.25% that was passed on in 2018. Forward rate curve is already inverted for 2s-10s suggesting potential for another recession within 12-18 months. There's a very real possibility we sit on cash and miss it again.

Wow.

Bitcoin cash solved it with the same concessions Ethereum competition is using - centralization and a lack of security. It was "hacked" multiple times last year with malicious parties achieving over 50% of the hashrate. It may end up being useful for some use-cases, but money/payments won't be one of them IMO. There's a reason all Bitcoin forks have trailed Bitcoin massively.