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Bitcoin, the Dragonslayer?

It is about ten o’clock in the morning on Sunday and I am at the store.

There is a cute scene in the 1981 Disney classic “Dragonslayer” which I am reminded of often now. The story is a classic knight-saves-maiden-from-human-sacrifice tale, with our maiden selected from among the virgin girls to be fed to the dragon for the greater good. The scene I am reminded of takes place the evening before the scheduled, ritual feeding-to-the-dragon, and the knight, Galen, will almost surely be killed as he readies to face the dragon in its lair. Oh, if only there were another way out of this terrible dilemma for them both. The film makers of course are very aware there is another way out, and there is a little moment in the film to acknowledge it in an unspoken way. It’s cute. I keep having that same feeling as I listen to different podcasts and financial news outlets ponder the US dollar’s reserve currency status, where I think: ‘awe, isn’t that cute? They are talking about bitcoin but we are all playing it coy for the kids and not saying bitcoin. So cute!’. Of course, plenty of the pods are saying bitcoin, but the closer one gets to what I think is fashionably called the middle of the Overton window, the coyer the discussion. Just like movie theater audiences will invariably think to themselves (and one or two will invariably yell out) ‘Galen and Valerian should just have sex, then she won’t get sacrificed!’ I feel like yelling into my phone at these interviews: ‘oh, yeah, and there is already a politically neutral, high-functioning alternative with a booming financial services eco-system growing all around it!’. But they know that.

When I hear the discussions about secular transitions from deflationary to inflationary episodes, I have the view that bitcoin brings a lot of gravity with which to affect the process. So, within a framework of dialogues where participants seem to agree, more or less that 1) there will be a big impact from monetary and fiscal actions, 2) that impact should generally be negative effect on USD’s relationship with world trade, that 3) the timing and severity of the negative impact are ameliorated, domestically, by USD’s status as the pre-eminent global reserve currency, and 4) that the transition away from dollar denomination hinges on the lack of an alternative, it makes me think of Galen.

For those interested, I can think of two places where I have recently heard some strong discussions about macro trend shifts, where the discussion of USD’s global reserve status seems to blush toward bitcoin. Both are on Macrovoices podcast. One of those I mentioned previously on Twitter, where you can follow me @goodfindstores Check it out here: https://twitter.com/GoodFindStores/status/1265462553011871744?s=20

The other is a Macrovoices episode I listened to just last night. Check out guest Harley Bassman at about minute 41:00 as he gets into explaining the dynamics he thinks will impact the secular transition:

https://www.podbean.com/ew/pb-sbzi6-e12334

I mean, he even says “there is no plan B”, as if a coy nod to the prominent analyst, thinker and writer from bitcoin Twitter, @100trillionUSD, and all of the bitcoin community.

Mentioned in this episode are a couple other themes I am following, and which are coming up more and more. The first is the idea of investing in art, jewelry, and other stores of value as a hedge against the risks of holding cash during an inflationary episode. It just gets a passing mention in this episode, but this subject is very germane for me since I am naturally long both fine art and jewelry through my resale store. I think antiques will also see a resurgence, if not for their value as decor, or utility items, then for their scarcity of material and construction. The second is the spread trade Mr. Bassman talks about putting on the SPY, to get strong trading leverage on a macro thesis in this messed up market. These are the exact kinds of trades I have been using to deal with the environment, and my speculative objectives. I think even my most recent post about SIVR fits this model of trading, which I wrote about here: http://rwhadvisoryllc.com/animal-spirits-or-spirit-animal/ . So, nice to hear such an experienced voice advocating the strategy I have been using. I have been hating the high cost of premiums on SPY, but maybe will fish around there and some other broad indexes for an appropriate spread trade when the markets open tomorrow.

Final thought:

No day is complete

No cycle can be all through

but for some changes

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Half a Blog Post, on Silver, and rwhadvisory LLC

It is about ten minutes after eight and I am at the store. Last night as I was loading inventory I listened to the most recent MacroVoices podcast featuring guest Ronald Stoferle. They covered many topics of interests, and the entire pod is worth a listen, as Erik’s always are. Check it out here: https://www.podbean.com/ew/pb-9q83q-de0932 . But the comments about silver had me checking in on the trade. I hadn’t been watching the silver trade very closely. Since I last wrote about silver on April 27, here, http://rwhadvisoryllc.com/silver-update-the-world-silver-survey/ when the closing spot price was $15.15 the metal is up 22% ending May at $18.49. Looks like it has taken a dive again so far in June, currently trading at about $17.99 as I write. Silver will continue to be an interesting part of the macro and monetary story, I believe. My take-aways? In the World Silver Survey the authors talk about and average silver price for the year of about $15.70 and a peak price of about $19. I would say so far their thesis is intact. Secondly, experts often talk about silver as gold’s volatile cousin, or sibling, or similar. I think in the MacroVoices pod I reference about the guest refers to silver as ‘gold on steriods’. During approximately the same time period (month of May) gold was up about 1.7%. I find May illustrates silver’s relative volatility.

Since I have my resale business, I continue to accumulate physical silver, but have not revisited a trade. I still have exposure to silver through my CDE trade (if you missed it you can read about it here: http://rwhadvisoryllc.com/one-of-the-days-in-quarantine/ . I am comfortable to continue in that fashion, as far as silver goes.

I have much, much more to write since last publishing. Coming topics will include:

  • Writing my own shitcoin on the Ethereum network
  • Orchid VPN
  • CA AB 2501 and reason # 47 on why MSRs are a liability, not an asset
  • Securitization of personal property and collectibles, or tokenizing them (ah…a peak at some of the thinking that went into launching Good Find Stores?)

So, getting this half-blog posted now and will return soon with these other topics.

Final thought: I had a former friend and colleague reach out to me the other day. She had seen my work anniversary notification on LinkedIn, and checked my profile. We haven’t spoken in about five years. She asked “Looks like you are consulting and doing retail?!”  The way I would say what I am doing is: I am building and buying businesses that interest me, and align with my long-term macro thesis and providing business planning, management and operations services, but only in exchange for equity-based compensation. But yeah, if you took a snapshot, I am totally doing consulting and retail. Specifically resale retail, which is an important distinction.

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Antepenultimate Day, aka Sunday

It is about ten minutes after four on Sunday, and I am at the store. I have a few thoughts to add to my blog ahead of penultimate day tomorrow on the May crude oil contract, so that is why I am here, roused to action after my nearly two days of torpor.

As we round the corner into the May oil contract expiry, the consensus appears to be that settlements will be more orderly and there will not be a repeat of last month’s eye-popping negative oil prices. My trades for on-the-water storage have retraced, but I still have conviction. Regardless of an orderly match-up tomorrow and Tuesday between paper and physical, storage on the water looks to me like it is going to be around for a while, and the tanker companies still look positioned to print money from it for a good little bit. My trades last until the October expiry for NAT, so I don’t need to worry if nothing exciting happens with May deliveries. For my FRO trade, I am good through June and can look ahead to Q1 earnings and estimates as a catalyst, currently scheduled for May 21st.

There have been a number of signposts along the way to help me get conviction that the storage trade will play out, including this one I just saw from @chigrl:

There has been plenty of additional discovery in support of the trade and it does leave me a little baffled that the tankers aren’t already doing better. Here is an interview with Frontline CEO Robert Macleod:

https://megaphone.link/SA6350053602

I found it informative, and the three things I took away were 1) I think he actually kind of giggled, at one point, when talking about the charter rates they would be reporting when he is allowed to disclose earnings, 2) charter terms are extending, which I felt might explain the leg down we saw in charter prices, and 3) he acknowledges that there will be a pendulum swing in the other direction, sometime early next year, when tankers have offloaded to land storage, but supplies are still excessive causing a dearth in shipping and significant excess capacity. In a world where you think the market is a forward-looking discounting mechanism, like they taught me to say in college, you might think this third point could explain the retrace in my tanker trade. As I said though, I retain conviction.

I am compelled to add this link, which I was listening to AS I WRITE. I just click-holed through to it and have never heard this person before, but I had literally written “I retain conviction” at about the 19:30 point in this podcast (see about minute 24:30ish), and I also love that he trashed on Nordic American (NAT) which was my exact trade last month (which I made very much on the fly without real research). Also appreciated his comments on the relationship between equity and debt. Agree with his position that equity benefits when debt is retired. Debt holders are betting against equity. They are enemies, IMO, from an incentive standpoint. Anyway, appreciated his thinking and delivery, so following him @JohnPolomny to learn more. Final note: disagree with the diminutive euphemism he uses for the global health crisis.

One last thing to mention, not so much because I think it impacts this specific trade, but certainly I think it is an important development in the macro-trade: these tankers from Iran going to Venezuela.

https://www.aljazeera.com/news/2020/05/iran-warns-disrupting-fuel-shipments-venezuela-200517194044512.html

I am haunted by the sense of theater I feel behind the actions of pretty much all participants. I don’t think it leads to solutions. Not solutions with a Nash equilibrium, anyway. More like the solutions you get in the school yard when the grownups aren’t looking.

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Oil Tanker Trade Update

Is it time to double down on the oil storage super contango bet? I have been doing my market and macro reading and listened to the MacroVoices update on oil contango and the storage crisis. My NAT options have retraced to $1.25. These are October 2020 expiry with a $5.50 strike. Currently up 100%, but that represents a very significant retrace from the high, and the options are still twice as costly as when I bought them. My polestar on matters oil, Erik Townsend at www.macrovoices.com, has just acknowledged evidence to support the storage crisis may have abated, due to aggressive well shut-ins and capacity created by decreased tanker spot market activity coming out of the Middle East. The May contact expiry is next Thursday, with last trading day on Tuesday the week following. It is a short time to have exposure, and the time spreads have narrowed significantly. I think it is worth a little more exposure to the possibility that the markets are bluffing on storage capacity. I have looked around at some other tanker cos, and I am decided to go long Frontline (FRO). Here is my trade, which will see me past the Q1 earnings release on May 21st. I feel pretty confident that they will be reporting some pretty eye-popping numbers from oil on water storage:

It will be an interesting stretch of time with the coming expiry of May oil contracts, and then the Q1 earnings. Time will tell. I’m excited to learn.

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Silver Update, the World Silver Survey

I am posting this short entry tonight to follow up on my posts about silver back on April 1st and 17th. I continue to survey the market looking for conviction on a silver trade. That conviction has manifested in the Coeur Mining trade I detailed, but so far nothing else. The CDE spread was performing well heading into the earnings call. On the call the CFO identified an approximately $10 million hit to free cash flow coming out of the company’s Mexico properties due to the covid-19 related shut-down. I personally listened to the call and was encouraged, but the market did not receive the call so well and the stock price is not back to a very similar level, around $3.60, to where it was when I put on the spread. With that in mind, it is my policy to double down on an unexpired investment thesis if the market presents an opportunity, so I am considering it. I am considering it with a strong lean away; I would like to find a different approach to any upside in silver, if I can get conviction, before revisiting my current trade.

But the reason I am writing tonight is because, during the month of April (and in fact it looks like just a day or two ago) the Silver Institute and Metals Focus have published their annual World Silver Survey, which can be found here: https://www.silverinstitute.org/all-world-silver-surveys/ . Anyone interested enough to be reading this post should be interested enough to read the report, but the take-aways for me were:

  • Excess inventories,
  • Covid-19 related disruptions across the supply and demand spectrum making projections difficult, and I would characterize Metals Focus’ estimates both on the impact to extraction and to industrial demand as far too conservatively low in magnitude,
  • Average 2020 price projected to be a meager $15.70, peak price target of $19,

Overall, I did not find the report particularly bullish for silver in the next 12 months. Time will tell. I would love to hear your key take-away from the World Silver Survey. Leave your comments below!