Category: Investing

This has been a tough month for fans of the Efficient Market Hypothesis. GameStop (GME) started out the month at less than $20/share and is now “worth” over $300/share. The market cap for this bricks-and-mortar retailer is over $22 billion:

Why doesn’t it come back down now? Mall-based retail isn’t a lot better than it was a month ago. The Wall Street shorts who got squeezed have presumably had to close out their positions by now. Unless the company can use its current high share price to issue more shares and invest them in some super profitable business, don’t the shares have to come back down to $20?

Suggested by a friend who ran one of the most successful investment funds in the U.S. for 20+ years…. “The Bit Short: Inside Crypto’s Doomsday Machine”:

The upshot [from looking at some money flows]: over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers.

This is unusual: if demand for Tethers were real, one would expect Tether Ltd. to combine together multiple USD deposits from investors into a single issuing block. Combinations like that shouldn’t add up to perfectly round numbers every time. What’s more, the supposed USD inputs (e.g., 401,431,056 USD in the top left transaction) are giving perfectly round Tether outputs (e.g., 400,000,000 USDT in the same transaction) in every block — regardless of the prevailing exchange rate or anything else.

The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that’s true! Tether Ltd.’s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.

From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million — going from $4.7B to $5.3B. (The table is in Bahamian dollars, but the Bahamian dollar is pegged to the US dollar, so 1 BSD = 1 USD.)
But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B!
The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to back the Tethers that were floating around in the crypto market.

So this was crypto’s big short: Tether Ltd. was short of US dollars — to the tune of about $25 billion.

If you’ve been waiting for the right time to move to Puerto Rico (for the 4% tax rate) and sell those $millions in Bitcoin you’ve been keeping on a Post-It note, maybe this is the time!

(Disclaimer: I haven’t done my own research into the crypto market. I’m sure that if I were a Bitcoin billionaire I would have lost the password!)

Since the article mentions the Bahamas and it is almost MLK Day… statue of Dr. Martin Luther King, Jr. in Bimini (he was there in 1960 to write his acceptance speech for the Nobel Peace Prize):

(Photo from a January 2020 Cirrus SR20 trip, when it was legal to return to the U.S. without a COVID-19 test.)

Related:

• our Bitcoin v. Medical School calculator (Dr. Jill Biden, MD can feel better about the tuition he/she/ze/they paid!)

A signature campaign promise of the Biden-Harris campaign is to raise the U.S. federal corporate tax rate to 28 percent or 31 percent on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.” (Tax Foundation) When we add in state corporate tax rates, the typical U.S. company might be hit with roughly 36 percent in taxes. Compare this to 12.5 percent in Ireland or 19 percent for a London-based company.

The Trump tax law changes of late 2017 took a lot of the wind out of the Irish inversion sails. If high corporate tax rates are restored by President Harris, though, it will again make the best economic sense for corporations to be headquartered in Ireland, the UK, or other comparatively low-tax location. Ireland has the lowest rate in the EU and everyone there speaks English (sort of). Can investors profit from a Biden-Harris election win, therefore, by buying Irish assets? Since U.S. law discourages sham inversions, the actual senior management jobs should migrate to Ireland. This should help Irish real estate, banks, insurance, etc. Under a Biden-Harris administration, an enterprise with management in Ireland and an operating subsidiary in the U.S. should have higher net profits than one in which everything is in the U.S.

Separately, how is Ireland doing with coronaplague? After more than seven months of shutdown, they’ve now entered “Level 5” double secret shutdown. Note that essentially everything is closed except for schools. Primary schools are unmasked. Once students enter secondary school they must don the hijab of the Church of Shutdown. Universities are open. Adult education is open, which includes flight schools (yay!). I was discussing this on WhatsApp with an Irish friend and I said “This is the mirror image of Massachusetts. Here almost everything is open except for the schools. And when we had almost everything closed, it was the marijuana and liquor stores that were deemed essential and kept open. Maybe this is all that we need to know to understand the difference between Irish and Massachusetts values.”

The WHO dashboard shows that Ireland, in its island redoubt, has suffered a little more than half the COVID-19 death rate compared to the U.S. or the U.K.

Ireland was already ahead of the U.S. in PISA scores (2018 snapshot). With the U.S. in the midst of what might be a multi-year education shutdown while Irish schools and universities are operating more or less normally (see Trinity College Dublin’s plan), is that another good reason to shift investment to Ireland?

What the Irish might call a sunny day, May 2019, on the Giant’s Causeway (taxed by the U.K., which is a great thing if you’re an entrepreneur!)

“Investors Have Been Making the Same Mistake for 300 Years” (The Atlantic) is an interesting article by Thomas Levenson, teacher of science writing at MIT.

Excerpts:

Already [in 1720] a wealthy man, Newton was usually a cautious investor. As the year began, much of his money was tucked away in various kinds of government bonds—reliable, uneventful investments that delivered a regular stream of income. He did own shares in a few of the larger companies on the exchange, including South Sea, but he had never been a rapid or eager market trader.

That had changed in the past few months, though, as he bought and sold into the rising market seemingly in the hopes of turning a comfortable fortune into an enormous one. By August, he’d unloaded most of his bonds, converting them and other assets into South Sea shares. Now he contemplated selling the rest of his bonds to buy still more shares.

He did sell nearly all of them. It was a disastrous choice. Within three weeks, the market turned. By Christmas, it had utterly collapsed. Newton’s losses reached millions of dollars in 21st-century money.

Even someone smart enough to steal credit for being the first to invent calculus was not smart enough to resist the Vegas-style appeal of the stock market.

I recommend this article, a rare break in the continuous stream of Trump-hatred from the Atlantic (owned by someone smart enough to have sex with a rich guy, thus illustrating a much more reliable path to wealth than trying to beat the S&P 500).

Related:

• my own advice regarding investment