TwoCitiesCapital

I disagree. The worst case is they continue as is. 100% of the benefits flow to the Treasury, 100% of the risk is borne by tax payers, and current shareholders continue on in limbo with no claims on anything and securities of uncertain value. I'm no legal expert, but the environment of Treasury continuing to take all economic value is an effective nationalization and was just upheld by the SCOTUS which matters. Maybe other court cases say differently? Who cares? They'll get appealed to the same neutered SCOTUS as handed down this bullshit ruling.

Chicago PMI came in today. Dropped to 66.1 vs expectations of 70 and a 75.2 from the prior month. The sharp drop is primarily caused by decreases in new orders and a reduction/slowing in order back logs. Reduction in supply constraints. Lower consumption. Disinflation.

Why does no one describe money market funds like this? Not a single person has an issue with money market funds doing reverse repos, or owning corporate paper and highly-rated short-term debt instruments. But when Tether does it serves as evidence of fraud and lack of backing? I don't like Tether. I don't use Tether. I think Tether's backing strategy is questionable and would benefit from greater transparency and regulation like our money market system does. But I do not allege fraud because no evidence of fraud has yet been released and those that latch onto this asset statement as evidence simply demonstrate their misunderstanding of "cash equivalents" in the current fiat backed financial system. Also, this paper alleges the fraud will be found out in the "deflationary" environment that is about to be unleashed and then highlights 2018 and early 2020 as deflationary environments. Why wasn't the fraud uncovered in either of those episodes? Are 75+% drawdowns peak to trough insufficient to uncover a ponzi scheme? Why would the next one be any different?

I think that comment about not acquiring anything was in relation to future insurance company purchases. Acquisitions for strategic and investment purposes are still on.

I've run 50% invested since the middle of 2019. The other 50% remains in short- and intermediate- bond funds. I also work in finance and my bonuses are heavily dependent on market levels, so I'm probably a bit more cautious than most since my compensation is dramatically impacted by sustained drawdowns. My target to begin adding substantially to my equity position was 2300. I set this in early 2020 before the bulk of the crash occurred. We hit that for a single day and I invested 3-4% of my portfolio, but since we immediately raced higher again I only made a few small incremental adds after that. Recently have been trimming to remain 50% invested. I don't see any reason to be willing to pay a higher prices, on average, today than I was willing to pay in 2020. Earnings power is lower, share counts have increased, and indebtedness is through the roof. So I would want to see a drawdown back closer to 2300 before considering any substantial increase in my net equity exposure. Either that, or become convinced that any improvement in fundamentals is sustainable outside of an environment of trillions in stimulus. Asset allocation for the 50% invested? Largely emerging market value, some international value, and real asset producers. This is what was cheap from 2015-2020 and what I've spent years accumulating. I also have call spreads in GLD, SLV, and TLT to play the negative real rates theme along with puts spreads on Apple and Tesla just in case. Idiosyncratic bets like Fannie Mae/Freddie Mac have also captured my interest. Outside of my traditional portfolio, I've been adding heavily in crypto - both in stable-coins and in token ownership/staking. I would love to be comfortable investing in the U.S. equities again but it all just seems like it's a house of cards. Aggregate earnings growth has been predicated on share count reduction and increases in leverage as opposed to revenue growth for years. A one time tax-cut seemed to extend the inevitable and now trillions in stimulus appear to be attempting to do that same thing. I don't know where it ends, but cannot get comfortable playing Russian Roulette with the bulk of my savings so am being cautious. Particularly since everyone tells me this is all justified by lower rates, but those same people often believe we're on the cusp of a massive inflationary event...

Multiples are highest when inflation is between 2-4%. That may correspond well with rates being 3-6%, but it's inflation/real rates that matter and not the absolute level of nominal rates. I echo the same concerns with the interest arguments as Cigarbutt and IceCreamMan - Japan and Europe have had lower interest rates than the US (and lower inflation), but the adjusted enterprise values and multiples aren't significantly higher or relative to their own histories. Also, a low discount rate implies low growth and it is primarily earnings growth that justifies a premium multiple so low rates/low growth CAN'T justify a premium multiple. The U.S. has delivered on earnings growth in an environment of low growth/low inflation due to innovation in the internet/technology/social media space while the others haven't. This is why our multiples are elevated relative to history and to other countries. The tax cuts pushed that even further and persistently low inflation has allowed the persistently high multiples to continue to exist. But as soon as earnings growth disappoints OR inflation falls out of the 2-4% range the drop will be quick. Just like it was in December 2018 and again in March 2020. A 30% correction is simply moving from above average to average with 0 consideration given to any incremental impact of higher discount rates or downward earnings pressure. The market will turn on a dime once these "inputs" have changed which is why I'm reluctant to jump on the "multiples are justified" train. They are until they aren't and the correction will be swift.

Quoted these above comments b/c they're all relevant to what is happening now as demonstrated by lumber and housing. Substitute donuts w/ "lumber". Lumber is now down 50% from it's 2021 highs just a few months back. It is still up ~100% from the price YoY, but that is a far cry from the 400% YoY rise that was seen in Q1. If these prices persist, the inflationary impact over the next 6 months shrinks dramatically from Q1 and will be a -50% YoY change in price by the time we get to Q1 2022. In addition, Redfin has suggested home buying activity is down 18% from the high point in 2021. Consumers respond to inflation - marginal demand is typically less at higher prices. That is unless if wages keep up. And thus far wages are NOT keeping up with the rise in home prices. I'm not predicting a dramatic drop in home prices - but a flattening from here is disinflationary if that translates to flattening of implied rents. We're probably not quite to the end yet. Many commodities, particularly energy, are holding strong and we might still have an infrastructure bill coming. But I imagine we'll start to see these things flatten out, or roll over, in the next 6-months and everywhere you look will be disinflation.

I don't know what my take away is either. There were multiple times I could have trimmed the position at a significant gain to manage the risk and I only did a slight trim once or twice. Hard part is, when I trim my winners, they continue to win (happened with Google, Zillow, SBSW, CLF, etc) and the lesson I'm supposed to take is "don't pick your flowers and water your weeds" - let your winners run! So I tried to do that here since it never got above 50% of par and there was always optimism for another double in the near term. But of course, if I don't trim my winners, they inevitably become my losers again and the lesson is "should've rebalanced to manage the risk". Maybe this is all my fault. Had I just trimmed at $20, this shit would've gone to the $50 par for the rest of you. I think I just suck at handicapping outcomes - always too pessimistic when I should be optimistic and always too optimistic when I should be pessimistic.

I'm not 100% certain with all of the details behind this scam, but still seems like it would require several things to go right for anyone to lose their funds. 1) they attach the "replacement" into their computer without being skeptical of the replacement (could be quite likely) 2) their antivirus misses any malware installed by the fake ledger which likely tracks keystrokes (can't really judge - not a software security expert) And then one of the following: 3) they type their private keys into the computer at some point which is a big NO-NO and unnecessary to complete transactions anyways (highly unlikely) 4) they copy/paste addresses without checking them when sending coin and the malware simply replaces the pasted address with the scammers address so they receive coin transfers. (Could be quite likely - but is still a big NO-NO). While this is sophisticated, my guess is that it still comes down to someone being careless/lazy and not double checking the accuracy of the receiving address which is how most of these scams culminate. There's nothing wrong with the Ledger itself or having a non-paper hardware wallet. But when you self-custody, you have to be aware that you are the weakest link in your security and take appropriate precautions.

We can dream. I don't think we should hope to rely on the courts any further.

https://finance.yahoo.com/news/africrypt-bitcoin-disappearance-174636634.html This is why Bitcoin maximalists are so up on the "Not your keys, not your coins" mantra and why it's safest to move assets OFF exchange after purchasing if using a CeFi institution. Hopefully, with increased regulation in the space and established/trusted custodians entering, this type of activity will die down. In the meantime, a private hardware wallet is the ONLY option if you want to avoid wild-west type robberies like this.

So what is driving this forward? What is to say these companies don't just continue to exist in quasi-zombie state where shareholders still own them but are entitled to 0 economic value and everything accrues to the gov't for its future benefit? What is the motivating factor that will push the Biden administration to avoid the status quo, which is easiest path forward, and get them to continue along the path to recapitalization that isn't strictly necessary? Democrats don't mind the government being on the hook for Fannie & Freddie as long as they can use them as a policy tool and a piggy bank which seems likely once they reinstate the new head of the FHFA and come to a new agreement as to how to sweep money back to the Treasury.

I think BTC's barrier to entry is apparent by the fact that there are over 2000+ crypto currencies and BTC still takes up 1/2 of the collective market value. Nobody is seriously talking about accepting DOGE as a store of value for instance and only a handful on the fringed are accepting it as payment. Way less than the support/development that BTC is receiving and the rate of adoption it has. No countries are considering it for their reserves or for state-backed mining. There has been 12 years where competitors have come and gone and the only one that has anything close to what BTC has accomplished is Ethereum - which isn't even a direct competitor IMO but rather a compliment to building out decentralized digital infrastructure.

Intrinsic Value: I answered this question in recent weeks and linked to an article. It's value is in its network and thus the value of Bitcoin is no different than the value of a telephone network, and internet network, or a social network and can be estimated accordingly. I linked a white paper that does precisely this. The writer of that paper had estimated BTC's network value to be ~20k/coin at the time that I posted. But, historically BTC has boomed significantly above its network value - for instance, in 2017 when it went to 19k while it's network value was ~3-4k at peak bubble activity. This is why I didn't sell at 65k - 3x network value is a shallow top in a boom AND 3-years later it didn't matter b/c network value is growing so quickly. As far as measuring it in trillions - Apple has a $2 trillion market cap. What is more valuable - a global/permissionless payment network that can also be an investment asset class and a store of wealth or a premium option in a crowded smartphone market? I view BTC's value-add as significantly above Apple's. At $2 trillion, BTC would trade at a minimum of 105k/coin assuming no coins have been lost.

Probably assumed United States wasn't a banana republic and respected property rights and not strong-armed gov't confiscations. The U.S. has changed and none of us recognized it.

They were only able to operate without capital because of the govt backstop. The backstop was only needed because govt stole all of the money. Without the backstop they were fine and would have retained/built plenty of capital. With it, the government could steal all of the capital in return. The ruling of the court is basically: "yea, it's pretty clear this sucks and doesn't resemble a conservatorship, but there's nothing we can do about it so the evidence doesn't matter"

What's new here is that it can be done even if they don't fail. Fannie/Freddie never did. In hindsight, they never needed a penny of the bailout. Now, I'm not one of those to argue that the bailouts themselves were illegal or shouldn't have happened. I get it. Times of crisis and all. But having the knowledge that the board was coerced into the decision, the money was never actually needed, and the accounting write-downs that made it look like it was needed were reversed and proceeds swept to the gov't is certainly a very different situation than say Lehman Brothers or AIG. Also, it is no longer necessary to distinguish between conservatorship and receivership despite their differences as recorded in law and the normal procedure to move from one to the other and the rights afforded to shareholders in one or the other. None of that matters if courts can't review and enforce the differences so from now on every conservatorship must be treated as a receivership and shareholders are entitled to 0 of the proceeds.

This news is more positive for the common. This means the preferred shareholders have zero leverage for favorable terms in the restructuring meaning less chance of common being diluted into oblivion. It also reduces the likelihood of a favorable capital raise which is why they're still down, but crushing the leverage of preferreds is a positive for the common when it comes to future restructuring. I have no idea how they're going to sell equity in this thing though...who would be dumb enough to buy it?

I just can't get beyond the ability for Congress to pass laws outside of judicial review and that the courts are just ok with it... Want to make graft and theft legal for Congressman? Pass a law that allows it and then says any action taken while serving in your duties as a Congressman cannot come under judicial review. Want to get that by a president so they won't veto it? Cut them in on the deal and provide them a similar exclusion. Now each of them has 4-7 years to enrich themselves as much as possible before their term ends and there is nothing anyone could do about it.

Seriously. Didn't he borrow a ton to buy those preferred shares? It's been years since I followed him, but I seem to recall him mortgaging like everything to accumulate his position. Hopefully he trimmed some in favorable times

Seems that way. All they have to do is cite a crisis - any crisis - and threaten the board with legal action and/or retaliation if they don't sign the docs. Then they can usurp every single dollar of private capital and private profit those entities generate into perpetuity while in "conservatorship" and we now have a legal precedent that says it's ok and that the courts can't challenge it.... This should be a negative for any SIFI organization here in the United States as they'd be the most obvious targets. Maybe the crisis could be declared retroactively and they take over the banks due to Covid....

Got it. Conservator = Receiver with no legal differentiation and no difference in responsibilities. We just call them different things and define them differently in legal docs to confuse people. What a f*cking joke.

I simply did it myself on a spreadsheet. Compare good prices to CPI data annually. The correlation to gold prices and inflation/CPI in any given year is near zero. Almost as likely to go down as it is up. But if you compare to real rates, it was a very good hedge against real rates being negative which is where most of the strong gains for gold occur.

You're still impacted by the Fed. You'll only do well in gold if the Fed keeps interest rates meaningfully below inflation. That is the bet - so you're probably positioned on alignment with that - but if the Fed fails to meet your expectations gold will do very poorly indeed regardless of inflation. All that matters for gold is real rates. It does well when they're negative. It's not an inflation hedge (has historically done poorly at that). It's a hedge against financial repression.

Eh...I mean, I was aware of it 2012/2013 when it was around $100. I don't really frequent 4-chan and didn't live in a dorm at the time...but I am a nerd and did read a lot and follow its booms/busts. Despite hearing/knowing about it, I still didn't buy in and still thought it was a bubble and that Mt. Gox would be the end of it so I don't know really what value there is to ascribe to "hearing" about it that we would judge it by. But sure, I'll cede that it may not be fair to rewind 12 years to its inception. But the fact is rewinding over any period of time greater than 6-months provides outperformance to the USD and most other currencies in 99% of observations. So while it may not be fair to go a full 12-years back to BTC's inception, it's also no not fair to ignore an entire decade plus of outperformance to make a point that is only true of the most recent 6-month period. Also, China does not OWN 50% of BTC. They do represent a large percentage of the miners. I don't think that is necessarily problematic just like I don't think it's necessarily problematic China represents 80% of a lot of industries. But that IS changing and we are seeing businesses migrate to Western domiciles now that China is continuing to be hostile towards BTC while western governments have made soft commitments to regulation rather than outright bans.