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[readthinkhunt]

Thoughts end June 2021

Doomberg 

SILVER - switch SLV to PSLV (Sprott) to prevent manipulation. Wall St Bets are removing physical silver.  SILJ looks a decent bet at moment. Solar includes silver. 

OIL - unless something dramatic happens, oil is going much higher. $300 is possible, new ATH coming. 4 tail winds: 

- ESG constraining SS

- Fossil fuel underinvestment. 

- Massive monetary and fiscal stimulus. 

- Fiat currency debasement. 

Gravekal 

GOLD - gold’s time to shine? Series of rolling bubbles...gold next? Crypto to gold, or has crypto permanently damaged gold? Basel III funding requirement kills paper market. 

OIL - to gap higher during summer as Europe, US hit the road. 

Blain’s porridge

Sell USD, buy COPPER. 

Fed view transitory, but inflation through rising labour costs. Already real. But...companies will work to resolve bottlenecks. 

Equities long, but exit by end of year. 

Druck

BTC - Best engineering talent still going into crypto. Doesn’t think BTC ever currency, too volatile. But can be something else. Youngsters prefer BTC to gold. 

OIL - does great during inflationary periods, better than industrial commodities. 

[readthinkhunt]

Old dudes talking long cycles

Russell Napier

Long term deflationist, recently flipped to being an inflationist. Thinks inflation could surge to 4% as early as 2021. 

Prepare for Secular Inflation (Jan 2021)

https://www.macrovoices.com/938-macrovoices-256-russell-napier-prepare-for-secular-inflation

https://www.youtube.com/watch?v=p044vfmVvoA

Growing Wealth in an Inflation Avalanche (Feb 2021)

“Large negative real interest rates will mean anyone wanting to protect wealth will have to borrow money. This is going to lead to large demand for credit, which will lead to rationing of credit.” (5 mins into this video)

Invest in countries with low debt to GDP ratios. Switzerland, Singapore...aside from those they are all in Emerging Markets. (21 mins)

https://www.youtube.com/watch?v=isoFAE-Xw2w

The age of inflation - Why I changed my view after 25 years 

https://worldoutofwhack.com/2020/06/30/the-age-of-inflation-why-i-changed-my-view-after-25-years-russell-napier/

Ray Dalio

Why in the World Would You Own Dollar Debt? (March 2021) WAITING FOR THE LAST DANCE

The economics of investing in bonds (and most financial assets) has become stupid. 

Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better? 

If bond prices fall significantly that will produce significant losses for holders of them, which could encourage more selling.

Imagine what would happen if, for any or all of these reasons, the holders of these debt assets wanted to sell them.

History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash.

I believe cash is and will continue to be trash (returns that are negative relative to inflation) so it pays to a) borrow cash rather than to hold it as an asset and b) buy higher-returning, non-debt investment assets. 

These tax changes could be more shocking than expected. For example, Elizabeth Warren’s proposed wealth tax is of an unprecedented size that, based on my study of wealth taxes in other countries at other times, will most likely lead to more capital outflows and other moves to evade these taxes. 

The United States could become perceived as a place that is inhospitable to capitalism and capitalists.

I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short USD cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. 

I also believe that one should be mindful of tax changes and the possibility of capital controls.

https://www.linkedin.com/pulse/why-world-would-you-own-bonds-when-ray-dalio/

Jeremy Grantham 

The Hazards of Asset Allocation in a Late-stage Major Bubble

The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

These great bubbles are where fortunes are made and lost. Positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.

But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives.

It is highly probable that we are in a major bubble event in the U.S. market, of the type we typically have every several decades and last had in the late 1990s.

It will very probably end badly, although nothing is certain. I will also tell you my definition of success for a bear market call. It is simply that sooner or later there will come a time when an investor is pleased to have been out of the market.

Today the P/E ratio of the market is in the top few percent of the historical range and the economy is in the worst few percent. This is completely without precedent.

This time, more than in any previous bubble, investors are relying on accommodative monetary conditions and zero real rates extrapolated indefinitely. 

This has in theory a similar effect to assuming peak economic performance forever: it can be used to justify much lower yields on all assets and therefore correspondingly higher asset prices. 

But neither perfect economic conditions nor perfect financial conditions can last forever, and there’s the rub.

What to Do?

As often happens at bubbly peaks, today’s market features extreme disparities in value by asset class, sector, and company. 

Those at the very cheap end include traditional value stocks all over the world, relative to growth stocks. 

Value stocks have had their worst-ever relative decade ending December 2019, followed by the worst-ever year in 2020, with spreads between Growth and Value performance averaging between 20 and 30 percentage points for the single year! 

Similarly, Emerging Market equities are at 1 of their 3, more or less co-equal, relative lows against the U.S. of the last 50 years. Not surprisingly, we believe it is in the overlap of these two ideas, Value and Emerging, that your relative bets should go, along with the greatest avoidance of U.S. Growth stocks that your career and business risk will allow. Good luck!

https://www.gmo.com/asia/research-library/waiting-for-the-last-dance/

Howard Marks

Positioning for 2021

The fact that we already see full asset prices so early in the recovery is a source of risk. But on the other hand, the fact that the economy is likely to grow for several years is very encouraging.

But the downtrend in rates is over. Thus, while interest rates can rise from here – implying higher demanded returns on everything and thus lower asset prices – they can’t decline. This creates a negatively asymmetrical proposition.

So today’s high asset prices may be justified at today’s interest rates, but that’s clearly a source of vulnerability if rates were to rise. 

Can the Fed keep rates artificially low forever? On longer-maturity bonds? And what about inflation? 

Can the 10-year Treasury note still yield 1.40% if inflation reaches 3%? Will people buy it at a negative real yield? 

Reduced respect for the dollar (or increased quantities of dollars in circulation) could cause it to depreciate relative to the price of goods.

Is inflation a threat anytime soon? The answer’s clear: who knows?

How will we find jobs for all the people who are displaced by technology and automation and lack the skills required to participate in the information economy? What happens to parts of the country that are left out of the new economy?

With arguments on both sides, I feel the prices of most assets are in a gray area – certainly not low, mostly on the high side of fair, but not so high as to be unreasonable.

Because the primary risk lies in the possibility of rising inflation and the higher interest rates that would bring, I think portfolios have to make allowances: even though we can’t predict, we should prepare. 

This possibility means (a) bonds with maturities much above ten years are obvious candidates for underweighting and (b) inflation beneficiaries should be considered for overweighting, including floating-rate debt, real estate capable of seeing rent increases, and the stocks of companies with the power to pass on price increases and/or the potential for rapid earnings growth.

https://www.oaktreecapital.com/insights/howard-marks-memos

https://www.oaktreecapital.com/docs/default-source/memos/2020inreview.pdf

Jeff Grundlach

In his forecast for 2021, Jeffrey Gundlach predicted a “regime change.” Investors should prepare for themes that reverse prior trends: U.S. equities will underperform the rest of the world, inflation will rise, volatility will be higher, and the dollar will weaken.

https://www.advisorperspectives.com/articles/2021/01/12/gundlachs-forecast-for-2021-the-year-of-regime-change

[readthinkhunt]

Japan - Horizon Kinetics

- Occasionally an oppo pops up due to a regulatory or cultural change unique to a nation and time, typically bc industry/sector artificially constrained for a long period of time, until the regulation or limitation outlived its usefulness or the economic distortions it created began to interfere with other policy goals.

- Characterized by deeply discounted valuations of the companies in question.

- Characterized by an active value realization catalyst, namely the regulatory and policy change. That makes them high-return, low-risk possibilities and also, being so idiosyncratic, uncorrelated with other asset classes.

JAPAN

- Singularly low valuations and high cash balances of the publicly traded companies.

-  Generations of cross-ownership arrangements between corporations as a defense against takeovers and a corporate culture of lifetime employment. 

- It made for very inefficient operations and low returns on capital.

-  Ownership structures are opaque, managements not accountable. Hostile acquisitions in Japan is very, very low.

- Since 2013, additional regulatory directives: Inclusion of outside directors on corporate boards, tax law changes, change in the market structure of the Japan Stock Exchange.

-  Financial incentives on public companies to eliminate their publicly traded subsidiaries, either by spin-off or by acquiring them. Corporate restructurings on the rise, along with hostile takeovers and the incidence of parent companies acquiring listed subsidiaries.

- Timing now, time based incentives to reduce cross shareholdings. 

https://horizonkinetics.com/app/uploads/Q4-2020-Review_Final_Approved.pdf

[readthinkhunt]

The Art of Execution

“The Art of Execution: How the world’s best investors get it wrong and still make millions” by Lee Freeman-Shor

- Professional investors fail to deliver the returns they could generate because they fail to back their winners with sufficient share of their portfolio (career risk, regulation).

-  Individual private investors can take advantage. By concentrating on a small set of companies/sectors can gain greater insights than professional investors while also generating greater returns, unencumbered by how your peers see you or the eagle eye of the regulators.

‘I’m Losing – What Should I Do?’

- Have a plan so that you never lose money. Cut loses to prevent erosion of capital. 

The Assassins golden rules:

Kill all losers at 20-33%.

Kill all losers after 6 months.

The Hunters save some cash and average down. You must decide for yourself when to be an Assassin and when to be a Hunter.

‘I’m Winning – What Should I Do?’

The four main attributes of the Connoisseur’s were:

Buy companies that had a low probability of negative surprises, i.e. even if the company was run by terrible management ever it would still generate returns.

Find asymmetry: Only focus on investments with very good upside potential.

Invest big and focused when confident. 

Develop a high boredom threshold: It is very hard to focus on the handful of companies that you may be invested in without being drawn into new ideas. 

Stanley Druckenmiller, “When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you’re right on something, you can’t own enough.”

[readthinkhunt]

Lyn Alden 13 Feb 2021

Expansion in fiscal base positive for cyclical value stocks. 

Energy and Financials in particular; if inflation causes sell off at long end of yield curve, banks will benefit. 

Reflation will benefit cyclical value stocks. 

Yield curve control will favour precious metals. 

EM and Asia tech OK. 

Bitcoin, ETH likely not in bubble, given strong secular trend behind digital assets. 

[readthinkhunt]

Druckenmiller talks to Goldman

Buckle up, wild cocktail. 

Have had a recession 5x as large in 25% of the time. 11 million out of work, but largest increase in personal income in 20 years. 

Massive stimulus in Cares Act, increase in deficit in 3 months greater than last 5 recessions combined. 

Fed bought more treasuries in 6 weeks than they did in 10 years of QE. 

Corporates increasing borrowing massively (+$400 bn), when usu contracts in recession (-$500 bn GFC).

Juxtaposition v Asia is breathtaking. In US, M2 +25% of GDP in 18 months. In China, M2 same as was 3 years ago, hasn’t borrowed from future in same way. 

China, Taiwan, HK have defeated virus without borrowing from future. 

Exciting from macro perspective: Stimulus continuing + massive pent up demand >> world could be very different than today. 

Inflation relative to policymakers expectations is key. 

- Short treasuries at the long end. 

- Large long positions in commodities. 

- Very very short USD position (long Asia). 

- Mega-cap tech growth stocks could be very challenged next 5 years. 

- Cloud in 3rd-4th innings w/ Covid jump, not yet in 9th innings. 

- AMZN competitors could be wounded. AMZN/MSFT big underperformers recently after rotation to 40X revenues stocks, they are not overvalued. 

- Intel thrown in towel, Asia owns foundry, memory, robotics. 

- Next 5 years Asia looks a lot better. US needs to pay back transfer payments, loss of productivity etc. 

- China no QE and real yields higher, inward investment surpassed US. 

His model: 

- Can move between 5 or so asset classes. Currencies and bonds are liquid, can move within 24 hours. 

- Discipline and flexibility to avoid dangerous asset classes at different times. e.g. credit there is a debacle every 8 years, after which they can step in to buy. 

- Put all eggs in one basket and watch that basket very carefully. 

Bitcoin

- Bubble and lasting, driven by CB behaviour. 

- Was skeptical, but unbelievable marketing job and younger generation look on it same way he looks at gold. 

- SOV only due to energy cost, vol, tech issues he doesn’t understand. 

- Owns some, a plaything. 

- Could be a new asset class. 

American capitalism 

- Worried US hasn’t engaged in capitalism. 

- Interest rate at long end an incredibly important price. 

- Caste system, difficult for someone underprivileged to live American Dream. 

[readthinkhunt]

Indo Property links

https://indonesiaexpat.biz/business-property/market-entry-why-you-need-to-do-it-right/

https://sevenstonesindonesia.com/new-rules-for-foreigners-to-own-property-in-indonesia/

https://www.ashurst.com/en/news-and-insights/legal-updates/indonesias-omnibus-law---a-breakthrough/

https://sevenstonesindonesia.com/how-to-improve-your-roi-in-bali/

https://sevenstonesindonesia.com/dont-splurge-too-much-on-furniture-or-appliances/

https://sevenstonesindonesia.com/can-i-still-do-a-rental-flip/

https://sevenstonesindonesia.com/real-estate-investment-in-bali/

https://ppbali.com/bali-property-ownership-can-hak-pakai-changed-hak-milik/

https://emerhub.com/bali/buying-property-in-bali-as-foreigner/

https://www.gapurabali.com/blog/siti-purba-harcourts-purba-jimbaran/purchasing-land-and-property-indonesia-foreigner/buying

https://www.straitstimes.com/asia/se-asia/in-major-change-indonesian-minister-says-govt-to-relax-property-rules-for-foreign

[readthinkhunt]

Ed Miller Poker Skills ($1, $2 games)

1. Simple Preflop Strategy

Players play too many hands. 

So only play 

- pocket pairs

- suited big card hands

- suited connectors

Avoid ragged hands and most non-suited hands. 

If you have the cards, RAISE don’t LIMP. 

And because you only play good hands (you might be the tightest at the table), RE-RAISE frequently. This is part of strategy for punishing opponents for playing too many hands. 

(Play the fewest hands but re-raise the most often.)

2. Don’t Pay People Off

In simple games, when people make big bets and raises on the turn and river, they aren’t bluffing.

They bluff, but less that the theoretical optimal level; they don’t bluff often enough to make you want to call.

Therefore, if someone makes a big bet or raise, you should assume they have the hand they are representing. This usually means you should fold. If you should fold, you should fold. Every time, even if you have a big hand.

3.  Assess The Value Of Your Hand

Your goal when you flop top pair or any other value hand is to figure out how you can get the hand to showdown while charging your opponents the maximum value of your hand.

Not, in other words, to reduce the no. of opponents (which Annie would argue). 

The value of top pair depends on kicker strength, board texture, number of opponents, and opponent tendencies. And of course on the turn and river cards. 

4. Barreling

Barreling is betting because your opponent (or opponents) checked.

Barreling is usually a bluff bet and is a cornerstone skill to move beyond the most basic no-limit strategy. 

After the flop, players have to figure out a way to get rid of or hide their extra bad hands. Commonly, they will fold them post flop or will call with them.

Your job is to catch your opponents trying to hide their bad hands. For both folding and calling, the way to catch an opponent in the act is to bet.

Against folders, you tend to want to barrel all your junk, but you might check back your hands with a little value like bottom or middle pair. 

Against callers, it’s the opposite. You might check back your total junk, but you want to barrel all your marginal pair hands. 

5.  Evaluating Board Texture

The flop changes the hand values. 8-4-2 rainbow different to Q-T-T with a 2 suit.

Poor players tend to fold relatively strong hands and v.v. 

6.  Making Live Reads

Bet sizing tells are the most important.

A player who wants you to fold might shade a bet a few chips bigger. A player who is worried about getting raised might shade a bet a few chips smaller. A player who is looking for information might bet even smaller.

7.  Emotional Numbing

The ultimate goal is to build up tolerance to losing—both for magnitude of losses and for prolonged bad runs.

8.  Exploiting Aggression

Once you venture into $5-$10 games, you’ll find that you’re up against many players who are more than willing to bluff big. This requires you to abandon (temporarily) Skill #2 and develop this skill instead.

There’s usually a big flaw in the aggression many players use at $5-$10. Since they play too many hands preflop, they end up with lots of bad hands after the flop. But they don’t want to just fold these hands, nor do they want to call down hopelessly with them. So they turn them into bluffs.

You can exploit this aggression by anticipating it and then by calling. It’s a tricky skill, however, because you need to understand clearly which good hands are likely and which ones are unlikely.

9.  Playing Deep

Mathematically, there’s nothing fundamental that changes when you play deep.

There is one key adjustment when you’re playing deep. You have to learn the psychology of it. 

Some players are far too eager to play for stacks when you’re very deep. Other players are too fearful to play for stacks when you’re very deep. Players who play for stacks at roughly the correct rate are rare.

The trick to playing with deep stacks is often to determine first whether your opponent is liable to get stacks in too easily or to be too fearful to play for stacks.

Once you’ve determined that, you want to bloat pots preflop more than you might in a shorter stacked game:

1. Be more willing to 3-bet preflop than you might in a shorter stacked game.

 2. Be much more willing to call a 3-bet preflop than you might in a shorter stacked game, particularly if you are in position. 

3. Be more willing to 4-bet preflop than you might in a shorter stacked game.  

This preflop play seeds the pot and prepares you to take advantage of the predictable errors your opponents make.

10. Taking On The Pros

The only true, long-term way to beat Pros is to master these skills better than they have. But on the way to that goal, you can take shortcuts here and there. 

A big way is to use reverse tells. I don’t mean that you should wiggle your ear when you’re strong when you usually wiggle it when you’re weak. Instead, I mean that you can mimic the weak plays that other players make, but have a surprise in store.

[readthinkhunt]

Saxobank - outrageous predictions

1.  A successful Covid-19 vaccine kills companies

The vaccine we've all been waiting for unwittingly creates a swarm of zombies.

Covid > money printing > lower interest rates > excessive leverage > risky portfolio positioning

“As 2021 gets under way, the merciless march of lower yields has left yield-seeking investors sitting on a pile of low-yielding junk debt with terrible reward-to-risk profiles, as zombie corporates teeter on the brink of default, having only survived the pandemic months with handouts and the lower refinancing costs.”

Vaccine rollout > normalisation >  inflation (due to earlier overstimulation) > overheating > higher yields > defaults

Strong recovery + rising defaults! Unusual but possible. 

2.  Sun shines on silver, which sizzles on solar panel demand

Solar panel demand sees silver's price skyrocket to $50/oz.

weak USD + negative real rates + excess liquidity + rising inflation expectations >> demand for hard assets

Green transformation such as photovoltaic cells used in solar panel production leads to silver supply crunch. 

$50 per ounce in 2021

3.  Next-generation tech supercharges frontier and emerging markets

Investors flock to new frontiers as new-age tech spurs productivity boom.

EM/FM growth underestimated due to key technologies may lie at the root of an acceleration in private sector productivity growth far beyond anything seen in the developed markets in recent decades.

Internet, mobile, entrepreneurialism

Satellite-based internet, fintech banking, drone tech (deliveries, agriculture) >> productivity upgrades

4.  Amazon “buys” Cyprus

Tech giant relocates its EU HQ to Cyprus to avoid a government crackdown.

Regulatory heat on FAANG > Amazon moves EU headquarters to Cyprus. 

“The country welcomes the giant corporation and the tax revenue that will help it reduce its debt-to-GDP ratio of nearly 100%, having chafed at the heavy-handed treatment by the EU during the 2010-12 EU sovereign debt crisis.”

Amazon consultants “help” Cyprus to rewrite its tax code to mimic Ireland’s, population happily in its thrall from the financial windfall and lower tax rates.

  EU retaliates and harmonises taxes. FAANG punished for hubris, incl in US. 

5.  Germany bails out France

It's Germany to the rescue as France's banking system stands on the brink of collapse.

France more indebted that Italy or Spain. 

High debt > higher defaults > banks suffer defaults > heavy bank selling 

Given extraordinarily high level of debt, France has no other choice but to come begging cap in hand to Germany, in order to allow the ECB to print enough euros to enable a massive bailout of its banking system, to prevent a systemic collapse.

6.  Blockchain tech kills fake news

Verizon, Twitter and Facebook unite to save the truth, and themselves.

“ The spread of disinformation is accelerated by algorithms that favour engagement, funnelling readers to extreme, attention-grabbing positions on blogs and biased new media outfits.“

+ deep fakes

Social platforms are forced to impose new countermeasures against fabricated and misleading news.

The enabling technology is a massive shared blockchain network for news content, which allows distribution of news in an immutable way with a validity check of both the content and the source.

Companies like Twitter and Facebook invest heavily in this blockchain tech, motivated first and foremost by self-preservation as the threats of regulatory oversight we’ve seen in recent years become white hot.

7.  China’s new digital currency inspires tectonic shift in capital flows

China opens up its capital account, giving foreign investors full access for the first time.

Allowing full access for foreigners into Chinese capital markets will reduce the main barrier of concern for foreign investors for using the CNY in trade and investment: its liquidity and direct access to their investments inside China. Meanwhile, the stability of the Chinese currency and the built-in traceability and oversight that blockchain tech enables would virtually eliminate the risk of capital flight or illegal transfers out of China.

8.  Revolutionary fusion design catapults humanity into energy abundance

The investment winds favouring "traditional" green energy are about to stop blowing.

March of human progress over the past 250 years has at every step been made possible by harnessing energy inputs with ever-higher density.

Green energy not the answer; system-wide effects from lower energy density mean they are really a big step backwards.

The world urgently needs a disruption in energy technology.

SPARC fusion reactor + AI > paradigm shift. 

The mastery of fusion energy opens up the prospect of a world no longer held back by water or food scarcity, thanks to desalination and vertical farming. It’s a world with cheap transportation, fully unleashed robotics and automation tech, making the current young generation the last required to “work” by necessity.

>>  most rapid and largest upgrade in living standards ever witnessed.

9.  Universal basic income decimates big cities

Commercial real estate is crushed as workers say "bye-bye" to big city life.

Covid > K-shaped > 

Even if younger professionals do get a job, financialisation of the economy has meant that a single income is not nearly enough to support a family, once insurance, education, and rent or mortgage payments are taken into account.

Technology is another driver, with the growing, wage-deflationary forces of software, AI and automation eroding a widening swath of jobs across industries.

Covid > permanent new UBI reality > city office real estate 100% or worse overcapacity. 

The new UBI also drives changes in the attitude toward work and life balance, allowing many young people to stay in the communities where they grew up.

Meanwhile, the professionals and the marginal workers in big cities also begin to leave, as job opportunities dry up and the quality of life in small, over-priced apartments in higher crime neighborhoods loses its appeal.

10.  Disruption dividend creates Citizens Technology Fund

Social and economic anxieties are consigned to the past as new fund alleviates inequality.

In the coming years, possibly within a decade, some one quarter of current jobs as we know them may be displaced, as automation replaces physical labour and AI replaces growing chunks of Information Age jobs. 

Oxford University researchers even project that half of US jobs could become obsolete by 2030.

This dynamic will aggravate both inequality and increasingly polarised modern labour markets.

“Disruption dividend”:  Citizens Technology Fund is created that transfers a portion of asset ownership of capital assets to everyone, with an extra portion going to displaced workers, allowing them and everyone else to participate in the productivity gains of the digital era.

Frees up enormous entrepreneurial energy at the individual and community scale as millions have more time and energy on their hands away from repetitive and stressful jobs.

Leisure, artisanal crafts, e-sports etc. 

[readthinkhunt]

New commodities super-cycle - Tien Variant Perception

1. Monetary policy dominance > Fiscal policy dominance...and fusion of both. 

2. Investors deeply underweight. 

3. Commodities cheap. 

>>  

 rising cross-asset volatility 

 too much leverage becoming a dangerous game 

 the long boom in financial assets ending, and real assets and commodities outperforming

The next commodity supercycle will be driven by heightened inflation risks, supply destruction and recovering demand.

- China deleveraging over. 

- Covid recovery > price spikes. 

- Investors underweight; dd for inflation hedges could see commodities rally. (Risk parity could go out of fashion very quickly.)

Commodities producers are capital intensive and capital destroyers. Need to either get timing right or pick survivors.

Energy sector similar to Gold in 2010s. Capital is very scarce > less competition for survivors. 

Coal vital for EM but pariah in DM. In EM runway is longer (60.70% in China and India). 

Gold - central banks are short of gold and are buyers. Not a hedge against inflation, a hedge against uncertainty. Jewelry dd collapsed but ETF dd picking up the slack. 

Silver - cheap relative to gold. Supply constraints, relative cheapness and growing investment demand are a recipe for explosive silver growth in the coming years.

Copper will play a pivotal role in the clean energy revolution sweeping across the world. EVs 4x copper, solar/wind 12x copper. Permanent demand! China uses half the world’s copper but only has 5% of reserves. West will join China with infra spend. Could be huge deficit. Dearth of new projects risks going into steep deficit. Very little being discovered. 

Can invest directly in the commodities but have to rebalance (which is good as sell high, buy cheap) but quite tricky. 

Equities are a good alternative, but get the timing right and buy the right names. 

[readthinkhunt]

Raoul on Life

Most wealth comes from one or two big, life changing bets. Almost no one gets rich from trading. 

The big bet relies on highly researched, asymmetrical bets that are poorly understood. 

Only once or twice in a lifetime if you’re lucky. 

1. Own your own house as soon as possible, in cash. 

2. Build cashflow; much better than capital in a low int rate environment. $100K income is equivalent of $10 million capital. 

3. Choose industry with a tail wind. 

4. Diversify your income. 

5. Accumulate savings in cash. 

6. Build portfolio to generate future returns. 

Investing is good as an intellectual exercise and maybe while investing you’ll come across the BIG idea. 

- obsess over it

- learn everything

- allow yourself to be challenged

Only once stacks up and starts to prove itself, push in the chips. 

If it fails, you still have an income. 

Might be able to generate much higher returns from an operating business. 

Raoul now 50% crypto!, 20% gold, 20% trading oppo, 10% cash. 

Will take crypto to 75% (70/30 BTC/ETH). 

Nothing is trending at the moment. Remain patient, not a time to push. Maybe reduce non-core equities positions? 

[readthinkhunt]

Bitcoin August 2020

A few seemingly significant developments of late: 

- Office of the Comptroller of the Currency (OCC), a branch of the Treasury that supervises national banks and thrift institutions, issued a bold interpretative letter outlining how US banks can interact with cryptoassets going forward.The letter, addressed to an unnamed bank, is remarkable in its progressive embrace of the crypto industry, explicitly permitting banks to both custody cryptoassets for customers and provide banking services for crypto-oriented businesses.

“National banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.“

https://www.forbes.com/sites/matthougan/2020/07/27/the-occs-notice-on-crypto-is-a-really-big-deal/#5202df6d6301

- MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset

“This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”

Share price traded higher on this development. 

https://www.businesswire.com/news/home/20200811005331/en/MicroStrategy-Adopts-Bitcoin-Primary-Treasury-Reserve-Asset

- BlockFi raises $50 million round C, following $30 million round B, including 2 university endowments (one of which is Ivy League)

On target for $100 mn of revenues next 12 months, $1.5 bn on platform. 

Offering 6% on BTC, 4.5% on ETH in a yield free world. 

Morgan Creek Digital, Valar Ventures (Thiel) – the lead investor in BlockFi’s Series A and B, CMT Digital, Castle Island Ventures, Winklevoss Capital, SCB 10X, Avon Ventures, Purple Arch Ventures, Kenetic Capital, HashKey, NBA player Matthew Dellavedova and two university endowments.

https://www.forbes.com/sites/robertanzalone/2020/08/20/bitcoin-lender-blockfi-raises-50m-in-series-c-round/#b4cae4e39f33

- Grayscale buying more coins than were being mined. 

Bought OTC to not impact the price? 

https://tokenpost.com/Cryptocurrency-investment-firm-Grayscale-buys-100B-of-Bitcoin-in-a-week-5683

- IMF is shilling crypto currencies. 

https://www.facebook.com/watch/?v=747759776002877

- Fidelity shilling bitcoin S2F

- S2F not yet reflected in price

Q. Why isn’t bitcoin price higher? 

Could it be rehypothecation? If so, is this a temporary structural short (price positive) or is it potentially a source of new bitcoin in the long term (price negative). 

- Lyn and Raoul think the easy part of the move has happened in metals, but opportunity exists to frontrun the insti interest into BTC. Great prospects next 18 months. 

Could sell off in a market sell off, but that would be a buying oppo. 

[readthinkhunt]

Russel Napier

https://themarket.ch/interview/russell-napier-central-banks-have-become-irrelevant-ld.2323

Inflation going to 4% next year. 

- Financial repression coming (policies to pay savers below inflation). 

- Switzerland and Singapore should escape as don’t have much govt debt. 

- Money supply up enormously but velocity down. As velocity normalises, inflation will kick in. 

- CBs to be sidelined as govts now control money supply. 

- Own inflation-linked bonds, gold, equities (up to 4% inflation level), commodities (but China is a wild card). 

[readthinkhunt]

Nordea on USD

https://e-markets.nordea.com/#!/article/58415/fx-weekly-should-we-fear-a-second-lock-down

The latest running monthly development is a USD 300bn withdrawal of liquidity, which is a gamechanger compared to the bizarre excess liquidity regime that ruled through March, April and May.

But Mnuchin holds a potential USD liquidity bazooka.

USD liquidity will likely remain tight from a momentum perspective unless Mnuchin unleashes his liquidity-zooka during H2-2020.

Usually the USD only weakens if the Fed comes close to “out-printing” the US Treasury. Currently Mnuchin and the US Treasury “out-issues” the Fed, which rather speaks in favor of a strong USD.

While the Fed is the direct source of USD liquidity (or digital reserves), world trade is the main source of USD liquidity velocity.

When world trade flows freely and increases in volume, it usually leads to a weakening of the USD, while the opposite is the case when world trade slows. 

The running trade deficit of the US is a material source of USD liquidity for foreigners, why USD liquidity becomes scarce abroad when trade flows are subdued. 

This is the exact reason why the USD always gains during a US recession as the lack of imports lead USD liquidity to dry out outside of the US.

The USD was caught between a red-hot printing press (USD negative) and a material setback for world trade flows (USD positive) during April and May. Right when the Fed printing press is starting to run less hot, world trade flows are also showing signs of a rebound, which could lead to a renewed caught between stools scenario for the USD.

If i) the Fed keeps the printing press running, ii) Mnuchin reduces the issuance pace as too much debt has been frontloaded (the US Treasury could just decide to bring down the TGA) and iii) world trade rebounds markedly, then we have the perfect USD weakening cocktail in place. For now, only assumption i) holds fully true. 

[readthinkhunt]

Gold bull markets

https://www.visualcapitalist.com/golden-bulls-the-price-of-gold/

1969-1980: 122 months

1999 to 2011: 145 months

Current: Nov ‘15 to May ‘20: 55 months

[readthinkhunt]

Howard Marks

https://www.oaktreecapital.com/docs/default-source/memos/uncertainty-ii.pdf

Can predict the future. 

Tail events are all that matter. 

95% of all financial history happens within 2 SDs of the norm, while everything interesting happens outside of 2 SDs.

They are the events that create and eliminate fortunes. 

Can’t predict, but can prepare!

[readthinkhunt]

Daniel Lacall - dollar shortage

https://mises.org/wire/why-world-has-dollar-shortage-despite-massive-fed-action

$6 tr in stimulus announced, but $20 tr in demand for dollars this year. 

The global dollar shortage is estimated to be $13 trillion now.

Fall in exports, GDP and the price of commodities has generated a massive hole in dollar revenues for most economies.

According to the Bank of International Settlements, the outstanding amount of dollar-denominated bonds issued by emerging and European countries in addition to China has doubled from $30 to $60 trillion between 2008 and 2019.

The Federal Reserve knows that it has the largest bazooka at its disposal because the rest of the world needs at least $20 trillion by the end of the year, so it can increase the balance sheet and support a large deficit increase of $10 trillion and the US dollar shortage would remain.

With a global crisis on the horizon, global demand for bonds from emerging countries in local currency will likely collapse, far below their financing needs. Dependence on the US dollar will then increase. Why? When hundreds of countries try to copy the Federal Reserve printing and cutting rates without having the legal, investment and financial security of the United States, they fall into the trap that I comment in my book Escape from the Central Bank Trap: ignoring the true demand for their domestic currency.

A country cannot expect to have a global reserve currency and maintain capital controls and investment security gaps at the same time.

The race to zero of central banks in their monetary madness is not to see who wins, but who loses first. And those that fail are always the ones who play at being the Fed and the US without the US's economic freedom, legal certainty, and investor security.

Fed QE is not unlimited, it is limited by the real demand for US currency, something that other central banks ignore or prefer to forget. Can the US dollar lose its global reserve position? Sure it can, but never to a country that decides to commit the same monetary follies as the Fed without their analysis of real demand for the currency they manage.

Resolving with USD to upside.