This morning I was cruising youtube looking for virus update and ran across George. I like George. He has a POV similar to mine but not identical. Right now he’s expat living in Columbia. He calls COVID-19 the “cerveza sickness” because youtube demonetizes any channel that mentions corona or covid. Pretty funny since the whole narrative is pretty much about being drunk with greed and schemes. I also like Jeff Snider who George references several times.
His conclusion as to whether this is a 2008 event or a 2018 kind of event is in my opinion correct. Everyone says you can’t time the market but when you hear the whistle and see that big headlight bearing down on you something is up. Could be the train isn’t on our track. Could be the train will pass by on the next track over. Our mouse trap is set. Every asset class is high (except commodities). The planet is deflating no matter what central banks “think”. They are no longer the dog, they are “butt” the tail. In a deflating planet holding debt means the cost of ownership gets worse. You have to pay down the debt in more expensive dollars or go out of business. I totally agree our fate will be determined by our ability to deal with a simple strand of RNA that affixes itself to the ACE receptor and gains intimate entry into the machinery of life itself. There is no greater drama. No Bernie Sanders or Donald Trump, plastic boy Buttigieg, alzin’ Joe or the blow dried boobs at CNN trying to control your mind. This is the real deal and from what I’ve seen so far nobody’s got a clue. It’s like we’re all living on acid.
With the VIX at 45 I wouldn’t be buying anything or selling anything. Pretty much that train left the station a week ago Friday. I talked to my AUM Sunday and he talked me off the ledge, but it was my realizing the train had already left the station 2 days before, while we were talking that sealed my fate. Once you’ve already jumped out of the perfectly good airplane there is nothing left to do but descend. You can’t finance your lie on a 24% credit card forever. No that’s not a typo for life, it’s another name for narrative. Pop some popcorn boys and girls. Maybe revisit some old MMM or WCI articles about simple math or some bullshit. In the meantime it’s 51 degrees, bright and sunny, I got me a Latte, a freezer full of food and a wife that loves me. Life is good.
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I’m happy I de-risked a bit last year, thanks in part to this blog. I’m still equity heavy but the horse has left the barn. Fortunately, I have a fair number of working years ahead. Next week should be interesting, as should the response from the FIRE crowd.
Hey ED Glad it worked out.
Interesting Bitcoin article:
BTC is an interesting market. There are a ton of robots trading that market many of which share the same algorithms. This means much volume is generated by robots doing what robots do in a momentum fashion, not so much based on portfolio fundamentals. The robots track technical analysis like 50 day or 200 day moving averages or about 100 other “secret indicators”. It becomes law of large numbers, when the indicator becomes well known enough to publish an article about it, it’s directionality is then arbitraged out of business and it’s predictive value “signal” starts to look like the noise. This is well known so to me Casey looks like they have super secret knowledge to hawk as well as coffee mugs tee shirts and ball caps. Instead of itsey it’s bitsey.
I disagree that BTC can be added to a portfolio without upping the volatility. The very reason you can invest a few thousand on the promise of making a million is based on owning “volatility”. BTC is not a “thing” like a gold coin or an acre of land. BTC is a store of value based on the idea that you and me can make a bargain and live by a set of rules, and the crypto ledger aka the blockchain records our bargain immediately and permanently. So once we settle on a price and trade the volatility to each other the deal is 100% done. In that sense BTC is a true market as compared to say the S&P 500 where the stock price can be doctored by financial engineering. That’s part of its attractiveness to me. It’s immediate, not open to financial engineering by screwing around with EPS and stock buybacks financed by mountains of debt. zombie mutual funds dragging the price around etc. BTC is pretty ultimate in liquidity being the thing that sets price.
Regarding the halving, Gold has value based on the amount of energy you have to expend to get an OZ out of the ground. If it costs more to mine than it can be sold for, one would NEVER mine it. The cost of mining is its “hardness”. The advantage of gold is it doesn’t rust. If you buy an OZ today in 10000 years you will own 1 OZ. It’s this idea of energy per oz and the fact that its permanent that makes it valuable. BTC likewise has a cost of mining. The cost is the amount of computing horsepower necessary to keep the ledger. If you add your computer to the world wide distributed computing power you will be paid for your computing power in BTC. There are only a fixed number of BTC that can be mined. That number is 21M. A coin is a measure of the computing power expended and is paid at a certain rate/coin. Every 4 years the rate/coin is halved, meaning you have to expend twice as much energy to mine a coin. Since the cost is higher the intrinsic value is higher and the coin becomes “harder”. If I remember right this halving will put gold and BTC at parity in terms of hardness or it may be the next halving. Some time down the road BTC will become “harder” than gold and it will become the hardest manufacturable “thing” to own on the planet. Land is not manufacturable so it’s a different category. It’s the halving and increased hardness (needing to mine twice as many for the same profit) that increases the value of each coin. Miner will stay in business based on their efficiency since even if you make only 50bp/hr mining BTC you make it ALL the time as long as your mining op is online so it is a true money machine. That 50bp is pure compounding profit if your mining operation is set up correctly.
The thing that sold me about continuing to own BTC is that there are options available and you can short through options. Options have tamped down the volatility considerably IMHO. Before options you had 1 choices buy BTC or BUY cash. It was binary and the volatility was maximal. Now you can hedge. You can buy BTC and buy some puts to hedge the volatility so your vol exposure can be toned down. A second way is to own only a little BTC like 2%. That way the vol is hedged against a much less volatile 98% porfolio. BTC is non correlated to anything so owning it adds to diversification. It has been normal for BTC to front run in value some months prior to the halving.
Thank you for the detailed response. I am just now looking at Bitcoin and am only interested in a 1 or 2 percent holding due to its non correlation properties. I also like the idea of limited supply vs the gov’t printing press.
One other thing, I believe BTC, unlike gold has a shelf life, but I believe that shelf life lasts 100 years into the future and by then I’ll be dead so I’m willing to trade the narrative and the volatility it provides as it exists today. Amazon is disruptive. A 30 year old $30 share of Amazon is worth $1901 today. BTC is also disruptive so a small stake in BTC is essentially a permanent call option on a disrupted future, the same as a $30 share of AMZN, 30 years ago was a call option on a disrupted future. That’s how I rationalize the risk.