TwoCitiesCapital

FNMA spiked 30% today into the close on 3x average volume. FMCC up similarly. I don't see any news or announcements on Yahoo, Seeking alpha, etc. Is this just random trade activity? Or was something released?

CAN and DO are very different. I'm just as productive at home as before. I've got numbers and statistics to prove it. On the other hand, I have a lot of difficulty interfacing with coworkers when I need their cooperation on something - particularly when it's time sensitive and critical. Sometimes phone calls and emails go unanswered for hours on end even when it needs immediate attention. Over the last 18 months, there's been several times where I've escalated to managers and the request has also gone unanswered. This didn't happen in the office because I could just walk over to their desk. Now? They're not at the computer/phone/desk are walking their dogs, or napping, or taking care of their kids, or taking extended lunch breaks with friends, or whatever and not doing their jobs. Ultimately I like the idea of a flexible work arrangement being a permanent feature going forward. But there absolutely needs to be accountability for people NOT doing their jobs. Also, as someone who is single and lives by himself - I'm starved for social interaction. I want to go back to the office just to have casual conversations again. Not sit in the same prison of an apartment, alone with my own thoughts, for another 18 months. As pointed out by others, if restaurants and bars are open, so should places of employment with some guidance on in-office/at-home work arrangements.

I imagine it was both. I think there was a bit of hubris in thinking they could immediately repeat the success of Bank of Ireland and also the recognition that Greece was having multi year depression. With an equity market down 90% from its highs and the situation unable to get much worse, it was an attractive environment to be picking long-term investments. But the situation did get a little worse before it stabilized and got better and they were about 2 years early on the Eurobank in hindsight. That's the risk with these things and why a basket approach might've been better than having all your exposure in only 3-4 companies where 1 was much larger than the others. All that being said, I imagine all of these Greek investments are well positioned to do very well going forward for the next decade.

Pretty certain that's exactly what it is. The funds are held by Gemini Trust co which is a regulated Trust company and are held by third party custodians. This isn't Gemini's checking account for their crypto exchange that the USD goes into.

Money markets have third party custodians and auditors too. Seems like the intermediaries are the same. Only difference in this instance is the money market units thenselves earn interest due to the inherent risk associated with the reserve assets backing them. Here, the GUSD itself doesn't accrue interest but rather you earn interest by lending out the GUSD deposits. Stablecoins are a hybrid of traditional money market and banking systems. It's unclear to me if they should be regulated like securities (a la money market) or like banks (a la other deposit/lending institutions). What is clear to me is that a New York domiciled trust company currently regulated by the New York State Department of Financial Services with established and trusted third party custodians and a third party auditor is unlikely to be comingling reserve assets with its own as you have implied this entire time. If they've manage to hoodwink all of those counterparties/regulators/established auditors with something as simple as validating dollars in reserve versus # of GUSD on-chain, then we must seriously ask ourselves if any banking institutions are safe.

I tend to agree. I wouldn't lump BTC in as historically it's had limited correlation to equities but this doesn't strike me much different than September 2020 did. Tech exploded with everyone excited about Tesla/Apple stock splits, they made highs, and then dipped 10-15% and took 2-3 months to recover. That 10-15% wasn't a regime change and I'm not yet convinced this one is. If we were out of incremental buyers, I'd expect flows and sentiment to be through the roof. Not anywhere near as negative as it's been for the last 6 weeks even as equity markets were creeping to new highs. Not betting the house on higher highs, but have repurchased names I trimmed now that many are down substantially from where I let them go at.

I don't disagree that there will be an inflection point. I don't know when it will be. But I doubt it's in the next 6 months unless if China just dramatically mismanages this whole Evergrande default and it cascades. My best guess is is mid-2020s. Demographic picture will be changing with millenials hitting high earnings years at a greater rate than boomer retirements. If there's a "green revolution", you'll see inflation from energy/transportation redesign and the associated utility scale investments. We might start seeing the impact of the simplification of supply chains and some globalization reversing. Etc. By the middle of this decade, multiple disinflationary forces could be gone or reversed and only then do I think there's a significant inflation - which is what I imagine the bear market would be predicated on. Until then - I imagine it'll be a lot like the two dips we saw in 2018 on the one in 2020. Fast/deep corrections, much faster than historical ones, but ultimately we recover from them in just a few months time. Still keeping elevated cash with this outlook though - always could be wrong on the timing.

If Gemini is putting up its own unencumbered assets, and not USD reserves/treasuries held by third party custodians on behalf of depositors, than I'm still uncertain as to how you come to the conclusion that there'd be a lack of reserves against GUSD issuance. The reserves would still be 1:1 USD:GUSD and held with the third party This is whole point of having auditors and third party custodians - to prevent the company from doing stupid shit with reserves that aren't theirs. To say Gemini could do otherwise is to say State Street and the auditor aren't doing their job. Either the reserves back GUSD or they don't. That's all that matters. Both GUSD and USDC release audited statements of their reserves and composition on a regular basis. Both use trusted third party custodians. Both hold the vast bulk of their reserves in cash equivalents. And one is issued by a regulated publicly traded company. To suggest that a bank run could occur because they could hypothetically be deceiving their custodians and auditors and pledging reserve assets they don't own as collateral for debt at the exact some time we hypothetically assume an Ethereum based CBDC is released and no one wants to own any alternative of equivalent value all seems like a massive stretch. If you don't want to own them, fine. But you don't go have to go around implying malfeasance supported only by a string of hugely unlikely what-ifs as an argument against owning them.

So what evidence do you have that Gemini is putting USD reserves for GUSD into Treasuries and then borrowing against that? Because that's the only piece here that would make any sense as to why couldn't redeem for USD on demand. It would also be fairly damning of State Street, Signature Bank, and BPM who custody and audit the reserves if they're allowing Gemini to pledge money it doesn't own as collateral for loans for its own benefit.

Not quite sure I understand the issue here. Let's assume they lend out $1,000 to a crypto company at 10% interest. Does it matter if that crypto company pays that $100 interest in GUSD acquired on the market or via revenues? Or pays it in USD that Gemini then holds in reserve to issue new GUSD against? It matters not who holds the GUSD, or what form the interest takes, so long as Gemini has depository reserves to back the GUSD in circulation one for one. As far as a run on the bank, again - assuming that the U.S. releases a CBDC that is Ethereum compatible (a very big 'IF'), who is to say an actual bank run would occur? I'm not so certain. Just like the introduction of GUSD and USDC, and DAI, and a half dozen other more transparent and audited stable coins didn't create a run on Tether. But let's assume it did create a bank run and everyone in the world who holds GUSD redeems for dollars at the exact same time. Those dollars are held in reserve in bank depository accounts. Why wouldn't Gemini be able to redeem against that? Again, all that matters for Gemini and GUSD holders is that the dollars are still in reserve to be redeemed - and Gemini is audited regularly displaying this. The people who will find themselves in a world of pain? The people who borrowed in GUSD who can no longer put their hands on it to repay the loans because there will be no GUSD in circulation. But even in this scenario, I'm fairly certain they could work out a deal with Gemini, or BlockFi, or Celsius, or whomever to repay the loan in fiat equivalent, or whatever digital currency is offered by the U.S. gov, because they should all be the same $1 equivalent.

Gemini is a crypto exchange that sponsors its own stablecoin. They take institutional deposits in dollars and issue GUSD one for one in exchange for those dollars. The dollars are held in reserve to back the GUSD - the GUSD circulates on the ethereum blockchain to provide liquidity to the crypto system. Coinbase does something very similar with USDC. I believe the FDIC insurance is talking about the dollars held in reserve by Gemeni - not your GUSD. They likely have relationships with dozens of banks and can open depository accounts to hold the cash from your deposit as reserve against the GUSD issued up to the 250k FDIC limit. I work with a traditional brokerage company and we do something similar for clients with large cash balances - rotate cash balances across multiple financial institutions so that no single institution holds more than the 250k of the client's funds to stay within FDIC limits. So now you have an account that holds GUSD. What happens to this? How does the GUSD earn interest? Like a traditional bank. They lend it within the crypto space to traders, stakers, hedge funds, crypto-based businesses, or prop-trading strategies etc. There is absolutely risk that the loans they make default and that the institutions are found to be insolvent. That being said, both BlockFi and Celsius survived the 80% crypto drawdown in 2018/2019 without defaulting on depositors so I generally believe the internal risk controls have proven sufficient. I don't have an account at Gemeni myself, but I do this same thing at BlockFi and Celsius. BlockFi pays monthly - Celsius weekly. Currently, BlockFi is paying 8.25% on stablecoin deposits and Celsius is paying 8.88%. I have personally been with BlockFi since February and Celsius since July - have deposited and withdrawn from both without issue. PM me if you're interested in referral codes from promo offers.

I think what happened was many of the equity holdings were down 30-50% and in tandem with the market hardening so they no longer had the over-capitalization they once thought. Agreed it was annoying. Also don't think it's a major issue - they found creative sources of funding, grew the premium base and float profitably, repaid that funding, and still "repurchased" a hunk of shares at the same time. In the end, it's not a significantly different outcome than we'd have expected from the beginning - just a different path. I don't think Prem is perfect. I don't think Prem is terrible. His history is littered with home runs and mistakes. The history is also littered with discounts and premiums. Why when one happens we try to find the reason that it will be perpetual going forward is beyond me. The stock is cheap. Prem is currently hitting home runs. The path forward is easy to continue that trend at this time. Buy the stock hand over fist until those things change.

I thought it had to do more with the short attack from years back, but that was also before I followed the company so might be wrong.

We'll see. I'm probably as bearish as they come and have been so for awhile. But a lot of the current technicals show caution/fear even as the S&P was making new highs pre-September swoon. Those fearful feelings were also amplified post-September swoon when buying the dip didn't work. The old archetype for equity bubbles is a blow off top and euphoria, right? Not making new high after new high while investors buy scared. Not to mention a lot of these markets are hitting massive resistance lines - yields have massive resistance at 1.5-1.6% and may come down. USD is the strongest this year, but also against resistance and could turn after the recent double top. S&P is at major support while RSI was oversold in over a year, etc. I think this is a likely a normal 5-10% pullback and we'll see substantially higher levels in the next 6 months as exuberance really kicks in. S&P @ 5000 wouldn't shock me over that period. That being said, the fundamentals terrify me and I've never been great at technicals so....

Brazil is moving forward to vote on a bill to potentially legalize Bitcoin as tender in Brazil. 13th largest economy in the world (9th on a PPP basis) and uses it's own currency - a currency that has lost more than half of it's value against the USD over he last 10-years. https://coinquora-com.cdn.ampproject.org/v/s/coinquora.com/brazil-set-to-adopt-bitcoin-as-its-legal-tender/amp/?amp_gsa=1&amp_js_v=a6&usqp=mq331AQIKAGwASCAAgM%3D#amp_tf=From %1%24s&aoh=16334129795541&csi=0&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Fcoinquora.com%2Fbrazil-set-to-adopt-bitcoin-as-its-legal-tender%2F

+1 same boat here. It's all about the price. All the excuses for the current discount existed back in 2018 when it was at a premium. Other than interest rates, not much has been said that sufficiently explains why we should expect this to persist. I think he was talking about the direction of the company though. I, too, have bought and sold my position in Fairfax based on the premium/discount to NAV and my view on forward earnings, but never thought the company was headed the wrong way. As a matter of fact, what got me interested in the company was their TRS and deflation swaps which everyone hates in hindsight.

In other crypto news, U.S. gov't officials reaffirmed desire to regulate, and not restrict, crypto. Stablecoins are now being discussed for regulations that would be similar to banks, but tailored to their business models. Discussed in the WSJ today. And historically Q4 has been the best performing quarter for BTC. We've spent months consolidating between 40-50k and tested, and survived, multiple attempts to break critical supports. Who is ready for the resumption of the bull market and new highs before year end?

Mine too. Hopefully this works out for them. Seems like crypto companies need to tighten up their controls. This happened to BlockFi too, so not limited to DeFi code flaws.

I don't have a problem with borrowing. I've borrowed to buy a little crypto and it's worked out well. I'm just not telling myself that it's an inflation hedge or that I'll be fine if rates go up simply because the amount I owe goes down. I don't necessarily think they RE prices HAVE to fall. But homes are already largely unaffordable if prices remain stable and interest rates go back to 4-5%. Rents are fairly high as well as a result. I don't think we can just continue to assume the the American consumer can pay more rent indefinitely - at some point they can't, or won't, pay it. Particularly if their wages aren't keeping pace with inflation which they haven't most years for the last 4 decades. My main point isn't to say that real estate is a bad trade or that your guaranteed to lose money. My only point is that I don't think it's a no-brainer in a 6% interest rate environment as it's being presented here nor do I believe its an inflation hedge now that the market is financialized. All that being said, I don't believe we're in an inflationary environment either so maybe none of this actually matters.

Some combination, but cash is king. Let's say inflation does spike and interest rates do go to 5%. Sure your cash lost 5% that year. How much do you envision you'd lose in stocks? Bonds? Way more than 5% so your purchasing power has actually increased despite the nominal value loss. So I do hold some cash. I also own some real asset exposure (it's been what's been dirt cheap for the last 10 years), and have some financial instruments that will do well if 20-year rates rise to a certain point. But real estate has been so financialized at this point I'd expect it to behave more in line with other financial assets - negatively impacted by higher rates. The partial hedge only really works if you go short the bonds and hold that in cash. Buying real estate with the short mortgage proceeds just opens you up to leveraged basis risk. Maybe it acts as a hedge. Maybe it doesn't. Maybe the mortgage gets easier to pay in a higher rate environment with dollars worth less and higher rents. Or maybe your tenants default othe higher rent and the mortgage becomes MORE difficult to pay. Going short nominal bonds and putting the proceeds in cash or TIPS would be the sure-fire way to profit if you were right. Maybe even gold/silver. But buying real estate with the proceeds where the initial price was justified by 5-6% annual rent increases that may not occur just sounds like a leveraged basis trade to me - not an inflation hedge.

1) 5% inflation and 5% rates wasn't the scenario that I was discussing. Nominal rates were higher and I didn't say anything about inflation. 2) GDP doesn't automatically go up by 5%. There's a lag effect. Prices rise first. Then, slowly, wages rise. GDP, with some adjustments, basically measures aggregate incomes and incomes will lag inflation. Another way to look at it is this scenario. If prices rise faster than wages, people have choices with what to do. 1) buy cheaper alternatives 2) buy less of the same good or 3) cut into savings and keep buying the same volume at the higher price. Only the 3rd option supports GDP expansion and the 3rd option also can't persist indefinitely. The other 2 are slightly contractionary on real consumer spending. If inflation is up 5%, GDP may very well lag that 5% as consumers opt for cheaper alternatives and less volume. 3) Government can only roll debt as long as the market allows them to. Just because the markets have doesn't mean the markets always will. History is littered with regime changes and I don't trust thesis built on the premise that the US will be the most favored nation forever.

I'm sorry - I just can't buy "low rates is good for housing" and "high rates is good for housing". There are absolutely environments where housing will do poorly. Maybe I'm wrong about it being higher rates, but at some point, lack of affordability doesn't equate things becoming even LESS affordable. I think that type of environment has been afforded to us by low rates and won't persist if rates rise.

I was surprised too. Doesn't even seem like people tried to arbitrage it by buying shares and flipping into the tender. Figured everyone would be in on the arbitrage and it would likely fill in the lower half of the range. Was pleasantly surprised to see the fill at $14.90. Was even more surprised that I could buy those shares back in the low-to-mid 13s afterwards. As far as the discount and what Fairfax can do: I disagree having listing public or paying a dividend will get rid of the discount. The only thing supporting any argument for a premium is their access to off-market, non-public deals and their historical ability to do well with those. On the opposite end of the equation is the fees. Those two forces will battle each other pending market sentiment. Funny thing is, when this thing launched everyone gave them the benefit of the doubt. It traded at a sizable premium and I wouldn't touch it with a 10 ft pole. Now that they've actually demonstrated their ability to do this, and we no longer have to assume their success, it trades at a 30% discount - even amidst a tended offer!!!!! Thank you Mr. Market!!!!!

My main concern is that in a 6% interest rate environment no one can service their debt and you're not getting 5-6% rent raised but stagnant, or declining, rents. Maybe you still come out on top - haven't done the math. But at 6% interest rates my concerns are the govt is spending 40-50% of current budget on interest coverage. Government largesse stops. Corporate buybacks stop. Equities no longer look reasonable at 22x earnings. Profits? Stagnate because revenues can't keep pace with financing cost growth. Raises/bonuses/wage growth slows as corporate profitability stagnates, etc. If lower interest are a financial boon. Then higher rates must be the opposite. And so I don't think you can count on 5-6% rent growth in said environment when the price was so high to have required 5-6% rent growth to be attractive to begin with. I'm not in the inflationist camp - I think rates stay lower for longer. But my fear for the markets is that I'm wrong (as I often am), because a 6% treasury yield would absolutely wreck the economy.

Not an accounting professional, but I think this is right. My understanding is you have to consolidate anything where you have substantial control. Hard to argue that isn't the case here regardless of their % ownership.