TwoCitiesCapital

I don't quite see the point. People also disagree about stocks, the intrinsic value, and the best strategic direction for that company and yet both can own the stock. Take Google for instance, one person could think it would be worth dramatically more broken up into 5 separate companies while another could take the opinion the scale/synergies of keeping it all together is more valuable and both could own the stock and have different end state valuations while both still being bullish. I view Bitcoin as a superior payment network that has the potential to eat digital payments globally. Others believe it is a store of value. We might disagree on its use case and its terminal value, but can both be long BTC and could potentially both be right (the outcomes AREN'T mutually exclusive).

Yea - I mean a discount to NAV "makes sense" - particularly once we get a BTC ETF in the U.S. But historically it's traded at fairly significant double-digit premiums despite the discount "making sense" and I don't quite yet understand what's changed unless if this is just a temporary dip in sentiment and we can expect a return to double-digit premium in the near future. I know Canada just launched a BTC ETF, but I don't imagine most investors in the U.S. having a broker that allows them to trade Canadian equities, so I don't think was what did it. But it is somewhat concerning to me because institutional investors buy physical BTC, sell to Greyscale for GBTC, and get to sell GBTC for a hefty premium and roll that back into more physical BTC sales to do it all over again. The loss of the premium COULD impact near term demand if not offset by a matching increase in retail demand like you'd expect to see from a new BTC ETF in the U.S. This is my main concern - the reduction in institutional roll demand with no offsetting increase elsewhere.

Part of me wants to load up in my IRA since I've been swing trading the premium in GBTC for the last 18-24 months and -6% is CHEAP compared to the +40% we saw in December. The other part of me recognizes that the premium plays an important role in short, and intermediate, term demand for physical BTC and the discount to NAV might mean that physical BTC will have less support and provide better entry points even if at higher premiums to NAV. Anyone with more experience on flows/technicals have thoughts on this other me?

Gold has historically been very closely invert correlated with REAL 10 year yields. Take a look at the chart in this video at 6:05. At least for the last couple years. /\/\ This is true. I'd add it's not a perfect system though. 2011 was instructive - gold topped and then declined substantially even while real yields didn't bottom until late 2012 and didn't turn positive until mid-2013. So gold topped a whole year before real yields bottomed and a whole 2-years prior to real yields turned positive. I'm wondering if the same thing might be happening again given the recent weakness since August/September even though real yields remained deeply negative and didn't even start "spiking" until ~10 days ago. https://fred.stlouisfed.org/series/DFII10

It's weird we'll pretend USD is supported by tax payers when that isn't supported by history, while also pretending BTC isn't supported by it's superiority for large payment processing and potentially as a store of value. Could a tulip pay my bathroom contractor 20k in less than 10 minutes in a secure manner? No. It couldn't. And neither can the USD - even with large fees paid for the expedited request.

More succinctly put than anything I posted. Thank you! I feel like I'm going crazy here so maybe I should just take a break and move on.

It's not a contradiction. The USD is dramatically lower than it was 50 years ago despite a dramatically higher tax base and nominal tax demand. Thus it's clear the tax base provides little meaningful support to the value of the USD at any time or over any period of time. Tax demand is one input, out of thousands, and what matters is the net effect of all those thousands of inputs. An effect that you ignore by simply parroting the same line over and over and over and then criticizing people when they call you on your BS. It's like arguing with a child.... Nobody is screeching about anything. I used real world examples where tax payer demand didn't support the currency and it still went to oblivion. Nobody in this recent conversation said buy Bitcoin because the US is Weimar. I simply pointed out that Weimar's currency wasn't supported in any meaningful way by taxpayers. The USD is no different. The "support" is there, until it isn't, and that's not support at all - as we've witnessed over the decades. You're whole argument is the USD is "supported" by this 1 item that gives it an advantage - but that one item is 1 of thousands and in the scheme of things any one of those items is irrelevant. All that matters is the net effect - it won't matter that it's "supported" by the taxpayers if we lose reserve status, or the reliance on the dollar in global trade. If BTC becomes the new global trade currency or the new reserve, the dollar tanks. I'm not saying that it will happen, just pointing out the USD tanks despite "tax payer support" in that scenario and all that matters is that the USD tanked and BTC sky rocketed and nobody gives a f*ck that the USD was "supported by tax payers "

Ultimately the argument boils down to "the USD is supported by its use cases". That's exactly the same as crypto - it's supported by demand for its use cases. Neither have fundamental tangible backing. Neither have a floor to their value. They both are only as valuable as the confidence in them and the demand for them.

A practical application of Deep South's arguments: 1988 - Loaf of bread - $2 ZBD. Deep South says taxpayer demand support the value of the currency 1994 - Loaf of bread - $20 ZBD. Deep South says taxpayer demand support the value of the currency 2000 - Loaf of Bread - $2000 ZBD. Deep South says taxpayer demand support the value of the currency 2008 - Loaf of Bread - $2,000,000,000,000 ZBD. Deep South says taxpayer demand support the value of the currency *ZBD is a fictional characterization of the Zimbabwean dollar While the argument is "technically" true that the ZBD would have been worth less at any given time without the demand of taxpayers, it's matters naught because it was still worthless at the end. When someone points this out - Deep South's response was "I was right and you have worms in your brain for not understanding that taxpayers support the value of a currency"

I guess. You keep your dollars. I'll keep my BTC. The winner will have the satisfaction of knowing they were right. BTC is my largest position. I guess there's more than one way to skin a cat/come up with a bullish thesis on BTC. Then what is your point?!?!?! Series of events: 1) SD said USD isn't backed by anything - just like crypto 2) You took offense to that and pointed out that it's "backed" by the economy and demand by tax payers 3) I pointed out that has been the case for EVERY currency that has ever collapsed and doesn't seem to provide much support 4) You started personal attacks and questioning people's intelligence for not "getting" your argument and then admitted you own crypto anyways So what is your point? You haven't addressed any of the counterexamples other than to say "well they printed money" - we're doing that too BTW. Seems to me you have no substance to your posts and must just enjoy being rude and a troll Every individual source of demand "supports" the dollar. But there are also many countervailing forces that work against it. No one disagrees the USD would be worth less if it had no demand. I think we all understand it would be 0. So every use case supports the dollar value being somewhat above 0. But the USD still rises and falls in values and on a long-term scale has been only falling despite us having many more taxpayers today than in prior decades. So no - tax payer demand didn't provide support to the USD as it still has dramatically depreciated in value over the past 4 decades despite having more tax payers. Would it be lower without taxpayers? Sure. But that's not what any here has debated - we're not debating the incremental impact to every source of demand just to point out there are source of demand. We're talking about the overall value of it and that the overall value hasn't been backed by anything physical or well supported in absolute value terms. Now f*ck off.

I guess. You keep your dollars. I'll keep my BTC. The winner will have the satisfaction of knowing they were right.

No, there's no capital loss on a bond you hold to maturity (since the change a few years back, there's now a bit of mark-to-market noise, but who cares about that anyway). The question boils down to whether it's a good idea to lock-in a 0.80% return by investing a portion of the bond port into 5-yr treasuries, or whether you bite the bullet and stay short and earn 0.05 or 0.10 for another six months or a year. If you hold the view that the economy is going to take off and that there will be a relatively rapid, parallel increase in the curve, you are probably better off to stay short for another year. If you hold the view that short term rates will remain in the toilet for another few years, but that the curve will steepen relatively rapidly, you are still better to stay short and wait to increase your duration. But, if you think that rates will muddle along around their current levels for a few years, then the shift of some money into 5-yr is a clear winner. In terms of dollars-and-cents, a large shift for FFH would be to pile perhaps $10 billion into 5-yr treasuries, which would provide the princely sum of $80m annually in interest....or you keep the $10 billion short and only get $5-10m in interest. It costs maybe $75m per year, pre-tax, to sit and wait for a favourable move in the curve. The opportunity cost is pretty small. SJ How much further do rates have to rise for buying the 10-year to be worse than holdings 0.1% paper? At 2% on the 10-year, rates have to rise 0.22% this year, 0.28% the next year, and 0.36% the year following for 0.1% to outperform over 3-years. (very rough math in my head using a 9ish year duration starting duration and not considering the benefit of rolldown over 3 years) Do we believe rates will be sustainably higher than 3% on the 10-year after just 3-years? For reference, please recall we were at 3.25% in 2018 with record employment, trillion dollar deficit/spending and tax cut stimulus, and 9 years removed from the last recession. Seems like 3+% would be a tall order today unless if you actually believe they've been successful in creating the inflation they've failed to over the last 10-years. So if we're not going be sustainably above 3% in the next 3 years, buying 10-year at 2% is a no brainer. And if buying at 2% is a no brainer, than beginning to accumulate at 1.5% probably isn't the worst thing you could do. I would hope they consider small incremental buys if duration from here on out

So you bought $100K in USD to pay taxes. That is a source of demand for USD. You buying those USD supports the value of USD. If there were no taxes, you wouldn't have bought those dollars to pay those taxes. Therefore tax collection supports/backs USD. It should be embarrassing not to grasp this. It's not that we don't grasp it. It's that none of us believe it supports the value of a currency. What do all of the countries who've had currencies collapsed have in common? They all collected taxes in those currencies. No one gave a shit that Zimbabweans or Germans paid taxes in their currencies - the currencies still went to 0. And this isn't me being hyperbolic and predicting Weimar in the US. Just pointing out that this argument is crap. It seems you can't grasp that there can be two countervailing forces where one is stronger than the other. Taxation supports the dollar. Creating new dollars weakens the dollar. Weimar Germany was creating far more $$$ than they were taxing. I think it's insane to think the dollar would have the same strength if there was no taxation. Literally nobody on has made the argument that it would have the same strength without taxation. Does demand for dollars provide some support for the dollar? Yes. But your initial statement was that it "backs" the dollar i.e. there is fundamental support for the valuation of the dollar due to demand from taxes. All I've done is provided examples of countries who also had the same tax related demand whose currencies collapsed to zero because that "backing" is a very shallow fork of value and support. Stop coming after people because you made a terrible argument.

A lot of crypto is crap of course (as is many stocks), but BTC and ETH will both beat the SP500 by a wide margin over the next 10 years. Given that I can earn 8-12% per annum simply lending audited USD backed stablecoins on DeFi exchanges? Yea - I'm going to go with cyrpto outperforming stocks. Maybe not any just any altcoin but BTC or ETH or any stable coin lent for interest. The fact that people are willing to pay 8-12% for stablecoins on a consistent basis suggest there is a ROIC much higher than that in the altspace. Whiles some will fail - BTC and ETH basically support the entire alt space so I imagine they'll do alright through that.

So you bought $100K in USD to pay taxes. That is a source of demand for USD. You buying those USD supports the value of USD. If there were no taxes, you wouldn't have bought those dollars to pay those taxes. Therefore tax collection supports/backs USD. It should be embarrassing not to grasp this. It's not that we don't grasp it. It's that none of us believe it supports the value of a currency. What do all of the countries who've had currencies collapsed have in common? They all collected taxes in those currencies. No one gave a shit that Zimbabweans or Germans paid taxes in their currencies - the currencies still went to 0. And this isn't me being hyperbolic and predicting Weimar in the US. Just pointing out that this argument is crap.

Groupthinking has been thinking that the current inflation and interest rates at around the lowest level in decades will stay this low forever. That is still the real risk. It is amazing that folks will sometimes worry about events that have less than 5% probability, but they will ignore the possibility of something having much higher probability, i.e. higher inflation/rates because they feel so convicted that inflation/interest rates will stay this low. They will invent all kinds of complex arguments around money being locked up in the Federal Reserve, even though all Federal Reserve is doing is recording the transactions. This is similar to saying all real estate is locked up inside the County Recorder's office and no real estate can leave the county recorder's office. All you can do is move real estate around within the County Recorder's office, but that doesn't prevent it from being recorded at higher and higher valuations. It seems bifurcated to me. Every year since 2010, I've been told rates can't go any lower and the only rate is up and that Fed printing leads to inflation. None of that happens, but suggests the predominant bias is to rates being higher. But I've also been told 20-25x P/Es on indices is ok because rates are low and will remain so, thus elevated multiples make sense. Which seems to suggest the predominant narrative is that rates are low and will remain so. I imagine you could find many people who would agree with both concepts in separate conversations where it isn't immediately clear they're contradicting themselves. For me? Low rates =\= high multiples, but I do think low rates are here for a little while longer. I deserve the right to change my mind if the Treasury keeps at it though, because then that's a whole new ballgame.

If you are a US citizen or resident and don't pay your federal taxes in USD you go to prison. If you don't understand that this creates an attractive demand characteristic I don't know what to tell you. As a tax-paying BTC holder and DeFi investor, I'm not quite sure what it is you're implying here? Everyone who talks about this being used for criminal activity or avoiding taxes seems to ignore that having a public ledger of every transaction you ever made is fairly ill-suited for that sort of thing. All they have to do is identify the owner of the wallet. Given a public history of every transaction that wallet has ever made opens up numerous possibilities that there will be a weak link in that chain willing to identify who you are to avoid trouble with the authorities... I'm implying that the idea that the USD is backed by nothing but the central bank is insane. It is backed by the US economy as US residents and citizens must use it or face prison time. That doesn't support it's value IMO. The only time a year I need USD to pay taxes, or face prison as you put it, would be in March/April. The rest of the year, I could get by with BTC at any merchant that accepts Square payments following recent developments. That doesn't really sound like much of a "support" to me. Particularly if the globe is also weening themselves off the petro-dollar a la Russia and China. I'm not banking on a dollar collapse, but I certainly don't think that just because the US govt used it for taxes means it sustains value in any way shape or form. If that's the case, why the massive devaluation against real assets over the last 50 years? Are we a less taxed, less productive, smaller economy? Or is it that there are trillions more outstanding of it than there used to be?

Brief history of the Farmers Edge investment: Dec 31/17: 46.1% owned with a Fair Value (FV) of $ 95 million and a Carrying Value (CV) of $88.1 million (the 46.1% interest acquired for $95 million on March 1/17) Dec 31/18: 49.2% owned with a FV of $66.6 million and a CV of $66.9 million Dec 31/19: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Sept 30/20: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Note: All amounts in USD. Bearprowler, thanks for posting. It looks to me like the gain in BV that Fairfax will book on the close could be very large. All while trading at a 20% discount to BV as currently stated

If you are a US citizen or resident and don't pay your federal taxes in USD you go to prison. If you don't understand that this creates an attractive demand characteristic I don't know what to tell you. As a tax-paying BTC holder and DeFi investor, I'm not quite sure what it is you're implying here? Everyone who talks about this being used for criminal activity or avoiding taxes seems to ignore that having a public ledger of every transaction you ever made is fairly ill-suited for that sort of thing. All they have to do is identify the owner of the wallet. Given a public history of every transaction that wallet has ever made opens up numerous possibilities that there will be a weak link in that chain willing to identify who you are to avoid trouble with the authorities...

They can probably stop it. Will just take more than jawboning to do it.

I mean, as long as the Fed reserves the rights to issue unlimited digital dollars, it doesn't seem to erode the competitive advantage much. Just means that the entire USD system is getting a digital upgrade for faster/cheaper transfer and settlements, but doesn't take away from the advantages of BTC being global and scarce. Quite honestly, this might INCREASE adoption as I envision a digital USD would increase on-ramps into DeFi. Right now, it's difficult to get dollars into DeFi. You have to deposit cash on an exchange, buy a digital asset, wait 4 days, transfer to a wallet, convert to the token you need, and then you can get involved. Multiple fees paid in expensive ether along the way. A digital dollar might forego the need for first 3 steps and make it easier to get dollar liquidity into the system. It's more likely that the digital dollar negates the need for stable coins as opposed negating the need for BTC and would actually lower transaction costs as less gas would be wasted exchange between, and supporting, stablecoin transactions.

This is interesting to me just because my experience with it is so different. Obviously crypto is seeing more headlines now after it's 5x run, but my experience is that the interest in it still isn't close to what it was in 2017. In my own anecdotal experience, my little brother's college friends were trading shit-coins and getting "rich" in 2017. My NYC finance friends were talking about buying lamborghinis with their crypto profits. I couldn't go to a holiday party at Thanksgiving or Christmas or Ned Years in 2017 without cyrpto being a topic of conversation for people there. Now? Not a peep out my bro's college friends last time I checked in with him (a month or so ago around 35-40k), I have one friend in NYC who still owns Ethereum, and nobody really ralks about it in my social circle except for me. So to me it looks like retail interest is still relatively minimal while it seems it truly is institutional demand pushing the price. While I don't think BTC's boom bust cycle is over, I do think we have further to boom before the eventual bust. The pullback from 40k to 30k was a healthy consolidation that lasted 2-3 weeks. My guess is that we'll pull back to 35-40k for another consolidation in the near future. I don't think this run exhausts itself before 100k though (which would still be shallow compared to prior rallies). Consider 2017. Prices start ~$900/coin and rallies to ~7k by early December. And then goes from 7k to 20k in 4-5 weeks. A massive blow off top that accelerated at the end. We've just seen the rally from 10-12k to 57k over the course of 5 months (akin to the 2017 run) , but haven't yet seen the blow off top IMO. I imagine this will be a 30-50% correction/consolidation like January proved to be and that we'll continue to move higher in the near term. My best guess is this exhausts itself somewhere around 120k a coin, but we'll probably have two or three more 30-50% pull backs along the way.

Do we have demographic information on this group? A theory that is worth investigating in my opinion is an aging population that was working longer into their lifetime, who "finally decided to retire" in response to an extreme stimulus (COVID). PIMCO did demographics work while I was there. Ultimately, their opinion at the time was demographics were likely to be a headwind into the mid-2020s and then change to a tailwind after that. Maybe Covid accelerated that a hair since it primarily impacted older generations, but I'd still expecting demographics to be a drag until 2023-2024.

I would think they could begin locking in significantly before year 20. It obviously depends on starting yields/durations and how quickly rates are rising, but in prior bond bear markets you could recoup the principal losses from rising rates with higher income/higher reinvestment income by year ~4. So even if you expect rates to rise, you can buy a 10-year bond today and still be ahead of short-term bonds by years 5-6 even if you're right about rates moving higher. I don't mind Fairfax's move to short term bonds. It's certainly saved them from some pain. But I would hope that they'd start moving incrementally back to 10 year and longer bonds if rates exceeds 1.5 -2.0%. Just in recognition that these things don't move in a straight line, roll down yield becomes more attractive as the curve gets steeper (short term still anchored @ 0%), and any unrealized losses from rising rates will likely be mitigated by year 4-5 of holding the bond anyways. And given my ultimate views that we are NOT in a sustainable inflation environment, I would think this exposes them to potential gains from a disinflationary/deflationary environment that they missed in 2018, and again in 2020, when 10-year yields dropped from 3 25% all the way down to 0.5% over that 2.5-3 year period. This is my view. I'm very heavy into commodity companies - but mostly because they're cheap and not because I'm expecting massive inflation. I think we'll get a pop in 2021 due to the trillions pushed into circulation during 2020, but I do think at some point in 2022 we get back to disinflation as rates can never rise significantly with debt loads/equity markets where they're at.

Didn’t Elon Musk say Tesla price was too high at one point too? Yes. Back in like May 2020 when the price was like 1/5 of what it is today. BTC to the