TwoCitiesCapital

I was in NYC for Sandy. Everything South of 14th Street was a disaster for weeks. The financial district ran off emergency generators on 18-wheelers for months after the storm. The subways flooded and was months to 1-2 years before certain lines where back to normal schedules (like the NJ Path). A real hurricane would mess up the area bigly....

I bought into the ETH story as I watched it unfold from crypto-kitties to DeFi and figured it'd continue. Ultimately, I think there is a lot of potential to DeFi, but the regulatory framework is going to have to change and they're going to have to find better ways to scale it. It was tiresome paying $7-10 everytime I wanted to do something and often times was more as some things require multiple actions (like staking). It's also a pain in the ass to track regular transactions, gains/losses on gas fees, capitalization of gas fees into the basis of new positions, and etc for tax purposes and paid services didn't do this function particularly well either. I started off with ~20k within the DeFi universe and eventually migrated much of that to CeFi counterparties like BlockFi, Celsius, and Ledn because they could better scale the transaction fees by batching customer trades/actions and it simplified the taxes. If 20k wasn't enough to start with, how many people are actually going to be involved in that eco-system? And then, eventually Celsius and Block Fi both went under (amongst others) and the whole trust in that CeFi ecosystem was shattered so where do you go now? As a result, ETH and DeFi ecosystem have really lost their luster. Not to mention there have been few improvements over the last 3-4 years and it could be argued that ETH got worse now that it's PoS instead of PoW. I'm basically 99% BTC and 1% ETH and LINK and that's predominantly just to scratch my trading itch without touching the BTC stack as much.

Nah - I'm still accumulating. Bitcoin often takes a breather during miner capitulation post halving. Not to mention the supply event of the German government selling offset much of the prior ETF accumulation in terms of taking BTC supply off market. Just gotta be patient. Slow accumulation via the ETFs, corporate balance sheets, governments, and retail will eventually eat up the supply which was just halved. Just requires a little patience. I don't mind waiting longer, but I think 100k by December may be in the cards regardless of the election outcome.

Yes - this is why many people include the unfunded liabilities in our total debt calculation. Once you add Social Security and future Medicare/Medicaid liabilities, the numbers are just nonsensical.

+1 I've learned that the system doesn't work or hold people accountable. Only works for the rich and powerful 1) was rear ended by an uninsured driver from behind. I had to pay rentals and my insurance deductible. Never saw a penny from the driver at fault even after getting a judgment to cover the out of pocket expenses 2) had a landlord steal $5k deposit. Never saw a penny after getting a judgment. Paid sheriff's to collwct and they simply asked him nicely for the money . Eventually gave the claim to collections and never saw a cent 3) had my girlfriend's parked car totalled in the apartment garage by a drunk driver. We found the car with damage in the correct spot, paint transfers matching the vehicles, and an empty bottle of tequila in the front seat. Sent photos to the cops. They didn't do anything - not even question the guy or pull the footage from the garage cameras. GF now has a new car note and higher insurance as a result. 4) my condo building had a fire in November which ruined the rooftop, and subsequently my condo unit occupying the two floors beneath. Everyone is in agreement that this is the building's insurance responsibility. Here we are in August (8 months later!) and work just started for replacing the roof. For the last 8 months nothing was done, my condo would flood every time it rained, and the building owner and management company who have been bungling this from day 1 offered no relocation assistance nor ever demo'd the unit to prevent mold. Now the unit has mold throughout and the neighbors beneath have been dealing with increasing amounts of water damage from flooding through my floor. Lawyers I hired agreed it was clearly a breach of contract, came up with some grand legal plan to file suit against building owner and management company, took my 4k retainer, and then advised I not move forward with the suit as I wouldn't win enough to cover the legal fees The system doesn't work for normal people. And god forbid you find yourself on the wrong side of it without the means to fight

Quite honestly, it's probably because they can't. The idea of using insurance liabilities to invest in long duration equity assets SHOULD be terrifying. High leverage with a very uncertain repayment schedule gives you a duration mismatch worse than banks. Which is why it's so important to get the underwriting piece right, and then having ample liquidity, so you don't ever have to force-sale equities at inopportune times. Most people shouldn't be trusted to do it and regulations have since been passed to prevent many from trying to do things like this. What expertise do these finance guys have in underwriting insurance liabilities? Moving to more exotic forms of fixed income DOES make a lot more sense with less danger. It's surprising to me that it's taken this long for people to do it. When Exor bought PartnerRE, the first thing they did was flip the fixed income into corporates. Surprising that they didn't already own those and that it was so easy to pick up another 1-2% on float.

Ideally, 1) the way this works is that Fairfax closes the TRS 2) counterparty dumps the FFH shares they were long as a hedge to the short-swap position 3) FFH price gets depressed 4) Fairfax keeps hoovering up excess shares at depressed prices

Yup. I'm excited. I add every once in awhile. But it first traded at this price in 2017.... Book value keeps growing, they keep repurchasing, and I'm satisfied - but not going all in on the discount to NAV that may, or may not, close in the next 5 years.

That's because names like BofA were up over the last 2-3 years while fundamentals and profitability deteriorated at the same time. Sentiment is only now catching down to the performance they've been displaying as a business.

Probably how it would work. In other news, Fairfax probably made a quarter billion, or more, on their bonds today and the stock is down 5%. Basically completely undoes the unrealized loss from Q1 while adding $100 million to their coffeers - but today isn't the only day interest rates have fallen, nor will it be the last.

I would love to see it for a tactical trade, but highly doubt it. I don't expect them to go much past the duration of their book of insurance TBH Prem made an about face in 2016 from deflation positioning to inflation positioning and was willing to sit basically not earning anything on bonds for ~5 years. I don't think he's gonna suddenly view bonds as being attractive again. While they may tactically add/reduce duration to play rates or but a handful of long Treasury futures, I would be shocked if they were making big swings into long bonds when their view is time isn't the friend of the bonds.

There are plenty of examples of people being involved with Fairfax subs that did not feel "fair and friendly" with the take-outs/take-unders/sale of share of the underlying investments you could have been coinvested with them on. I'm not saying I have issues with Fairfax - but I am saying you probably cannot rely on them to act in a way that protects you as an investor in a vehicle alongside them. They're going to do what is best for Fairfax - not what is best for you.

Sounds like what you'd say if you didn't have a plan for the coming electricity shortage...

Snowballs get bigger as they roll downhill In 2019, people thought it was absurd to think institutions would be buying it or that countries would adopt it. Then we had MicroStrategy, Tesla, and Mass Mutual adopt it as on balance sheet asset, El Savador adopt it as legel tender, the SEC forced into approving the ETF, and now U.S. politicians falling over themselves to establish a strategic reserve and distance themselves from Bitcoin naysayers.... All of that happened in 5-years. What does the next 5 look like for Bitcoin?

+1 There are way more frivolous uses of electricity going on, at scale, every day like having your A/C at home while at work. I personally think the electricity used to support the only sound money system in existence is well worthwhile. But it's not really up to me, or the government, or Munger, or anyone else to decide which uses cases of electricity are meaningful. It is up to those paying the prices to use it which is why I don't b*tch at the neighbors in my neighborhood for "wasting" electricity to make their properties gawdy every Christmas.

+1 This is a great observation I don't think Buffett is infallible - but there's a reason he's buying utilities, railways, and etc

People still listening to these guys when they've been way behind the ball on this name for the last 3 years?!?!?!

Why wait? Perhaps either the capital constraints OR the desire to skip the 3.0 renovation and go straight to 4.0 on the remainder of the stores. Either way - it's something have a partner with deep pockets and a willingness to forego immediate dividends helps and having to publicly report results that would get thrashed by the upfront investment/depreciation accounting. We could very well see all of the stores renovated in the next 3-5 years instead of waiting at the current pace of ~20 per year and then Fairfax re-IPO....

I'm indifferent to it - though I've not looked into it in depth At this point - unless if its obviously lighting money on fire - I trust the management. People complained about Stelco too - Fairfax made out like bandits on that one. Other than Eurobank with its oligopoly that was bought on its way to bankruptcy - what Fairfax investments have "moats"? Fairfax is a classic value investor. Not a "buy and never sell" like Berkshire where the moat would be more important.

Oil prices have proven resilient - $75 has largely been the bottom-ish of the last 2-year range for WTI- which is above the highs of the 2014-2020 range. Share prices on the other hand? Largely have stagnated over the last ~18 months despite consolidation, deleveraging, and shareholder friendly policies. I suppose that spring is re-coiling...

Same model as MSTR, right? The premium to the BTC holdings doesn't have to make sense - people will still spin the narrative.

I think that neither party is serious about being fiscally conservative and that we're finally getting to the point where interest on the debt is untenable and only going to be payable via issuing more debt/printing money. It's already the second largest budget item with the first being social security (also indexed to inflation/interest rates). I DO think inflation is going to be incredibly volatile going forward, but I do NOT have conviction in trying to guess a specific level of average inflation over the decade other than saying it'll likely be higher than 0-4% which is the sweet spot for equities the last 20 years. I think gold, BTC, and other real assets will be the winners over the course of the decade, but they'll be incredibly volatile around the business cycle which is why I also like fixed income here in the near term. At some point, even that may become untenable at times pending what average inflation levels come out to - but am comfortable owning it now at 4-7% rates with where the trajectory on near term inflation is. Buying equities on dips (requiring selling on rips to have liquidity) will likely work even better than gold/short term fixed income/etc. But I remain unconvinced of buy/hold in this environment. I'm at ~65/35 today - up from 50/50 back in 2021/2022ish. Partly due to appreciation of equities and partly due to adding beaten down names in recent months like Alibaba and Prosus. I think 65/35 is probably the highest I want to be to equities though in the event my luck runs out and the sentiment on the names I own starts to turn for the worst.

Fingers crossed. Would love an opportunity for Fairfax to use newfound liquidity to take out another slug of shares.

I would argue that it was the benefit of foresight informed by history. I made the case for Gold/varying fixed income over general equities at that time and since. My equity allocations have overall done better than this (and better than fixed income), but there was no guarantee they would/will continue which is why I'm not all in on them and am trimming gains as they happen. The thesis was that equities, generally, are not the place to be during volatile and/or rising inflation. That is playing out right before our eyes even outside of a recession and even with the index as a whole near it's highs. It's not like we're cherry picking timelines unfavorable to equities. On average they've underperformed t-bills over the last 3 years. I expect a reasonably good probability they may underperform intermediate bonds over the next 2-3 years. Especially if we finally get that recession leading indicators have been screaming about for ~2 years. And gold will likely crush equities over the course of the whole decade. Its happening now right before our eyes. Just like it has in prior inflationary shocks.

I say bonds generally for all fixed income. In late 2021 I was buying t-bills and iBonds which I owned for much of 2022. 2023 is when I started adding spread and duration once you were getting paid for it. I've been increasing spread/duration all through 2024 as well. To further illustrate - S&P equal weight is barely positive over that period nominally and definitely negative on inflation adjusted terms despite having 3-years to catch back up with revenues and profits.