Stocks Mentioned Nvidia (NVDA), Blackstone (BX), Resolute Mining (RSG.AX), Barrick (GOLD), B2Gold (BTG), Super Micro Computer (SMCI), i-80 Gold (IAUX, IAU.TO), Integra Resources (ITRG, ITR.V), Alamos Gold (AGI), NextDecade (NEXT), Interactive Brokers (IBKR), Nutrien (NTR), Mosaic (MOS), Microstrategy (MSTR), Scorpio Tankers (STNG), DHT Holdings (DHT), New Fortress Energy (NFE), Coinbase (COIN), Star Bulk (SBLK), Golden Ocean (GOGL), Eagle Bulk (EGLE)
Highlights
November 04, 2024
So Nvidia (NVDA) wants the US Supreme Court to immunize it from pesky investor litigation when the accounting fraud is revealed and the stock crashes 80%. The end game is near.
November 05, 2024
Someone asked me: "How can you be so sure NVDA is committing accounting fraud? Their Free Cash Flow growth says demand is real."
Enron used to collateralise its SPEs with Enron stock and take out cash. It was an unending gravy train until the banks cut off credit. Nvidia hides its problems in off-balance sheet liabilities, thus generating the FCF illusion.
Looking at just one metric or another does not reveal the true picture. You don't simply get to a $3.5 trillion market cap without being a master manipulator.
Bernie Madoff is no fool and it took him about two decades to swindle investors out of $65 billion. Today, the Fed can print $65 billion in a day and nobody would even blink.
Germany's WireCard didn't even make it to a $30 billion market cap. China's Sino-Forest got up to $6.2 billion. Canada's Bre-X got to C$6 billion. Frauds are usually small, which is why no one is incentivized to catch them.
How Nvidia managed to reach into the trillions is going to be a book someday. No point in speculating on the how, that's up to PwC to figure out. There's no fresh data or insight I can add - either my explanations (and that of others on FinTwit) makes sense by now or it doesn't.
November 06, 2024
Will the Fed spite Trump?
The dollar is raging. The Russell is up >5% to a new high indicating the economy, as opposed to the Mag 7 dominated stock indices, is going to make a comeback under President Trump. Yet, bond yields are rising even as the Fed is expected to cut rates by 25 bps on Thursday.
Long bonds isn't even a contrarian trade. It is the obvious trade everyone seems to have missed because the great Druckenmiller is shorting bonds.
I remember when Bond King Bill Gross called German bunds the "short of a lifetime". Shorting bunds then would have shortened your lifetime, or at least ended your career as a bond trader.
In 2016, Fed chair Janet Yellen hiked rates by 25 bps following Trump's victory, just to make his first 100 days harder.
I'm not ruling out the possibility of Powell doing the same, but Powell is an Obama appointee who played well with both Trump and Biden. He's not going to take after Yellen.
I think the bond market is missing something. I'm long bond futures once again.
This was my previous long bond trade. It worked - smack bang in the middle of an inflationary episode - because of skewed positioning.
April 2015: Bill Gross calls German bunds the short of a lifetime.
Yields continue lower until 2020.
November 07, 2024
What Barron's wants, Barron's gets.
Just remember, the Fed cut rates by 50 bps to goose the markets before elections. Now that Trump is in, they're going to start walking back the dovish tilt. If you must dance, start moving closer to the exit.
November 08, 2024
Inflation
"Low inflation can be a problem too." - Jerome Powell
Reminds me of Yellen in 2019 lamenting about the low inflation high growth environment. No matter how high inflation goes, central bankers always worry about low inflation. Ben Bernanke even proposed air dropping bags of money over Manhattan to combat deflation.
The Fed has set the stage for the Roaring '20s to turn into the Stagflationary '20s.
Is real estate coming back?
Blackstone (BX) Real Estate is acquiring ROIC (cool ticker) for a 34% premium. ROIC’s portfolio consists of 93 high-quality, grocery-anchored retail properties totaling 10.5 million sqft concentrated in Los Angeles, Seattle, San Francisco and Portland.
The commercial real estate market has risen from the dead. It wasn't that long ago (March 2024) that an NYC office building was sold for the proverbial dollar.
As my buddy Jason and I talked about on our show earlier today, lumber futures had a band squeeze breakout.
Where do we go from here? No idea. But it's beginning to look a lot like reflation.
November 09, 2024
A personal story
It was 2021. I'd just gotten married and moved to an apartment in the suburbs. The place was a swamp that was slowly getting reclaimed, with limited entry and exit access.
A cop and a couple of do-gooders dressed in hospital outfits would stand at a strategic cross-road and accost all passers by. "Papers, please?" was followed up with a jab up your nose with one of those cotton swab covered nose javelins.
If you tested positive, you'd get a call next morning at 6 am asking you to surrender at one of the three local hospitals, where you'd be kept in solitary confinement and charged around 1.5 lakh rupees ($1900) for the privilege. That was 1 year's life savings for most people in that area, which was almost entirely blue collar.
Pedestrians, cyclists, and people on two wheelers were subject to this atrocity. I drove a Black SUV, which gave me a free pass through the checkpoint.
When they came knocking door to door, we'd avoid answering the door. The apartment had a welded grill door which we kept padlocked, so we were never afraid of a break in.
But every day, we saw tens of hapless middle class folks be harassed and stripped of their savings.
I used to love walking along the swamp. I'd drive out at twilight after the checkpoint was shut, find a desolate spot, and take a walk.
One day, a cop on a motorbike showed up out of nowhere and told me to mask up. I pointed out I was all alone, it was a desolate area, and I wasn't hurting anybody. Besides, my mask was in my car (pointed out my black SUV) and I couldn't comply even if I wanted to. It was the closest I've come to civil disobedience.
My great grandparents were freedom fighters and spent 5 years in prison for defying the British Raj. I often wonder what it takes to be able to stand up to tyranny.
I just moved away when my lease was up. I chose a gentrified neighborhood and moved to a swanky penthouse apartment in a gated community, which cost 4.3x as much in rent.
But I never again had to worry about being accosted by the cops and asked to show my papers.
Trump Tariffs
I've gotten a lot of questions on the tariffs, so let's dive in.
Who pays the tariff? The American importer of Chinese doodads. Sure, it hurts the Chinese manufacturer by lowering demand, but the tariff is ultimately paid by the American consumer.
This much is obvious. And any libertarian (or even Democrat) would stop here and say Trump tariffs hurt his voter base. Those who've read up on history will point to the Smoot-Hawley tariffs as the cause of America's Great Depression.
All fair, but let's go beyond that. Trump is a businessman. He's routinely threatened to walk away from partially constructed buildings and leave the banks to deal with the fallout. His tactics always prevailed in getting lenders to come to the negotiating table.
Indian IT cos want unfettered access to US banking clients? India will have to remove their 200% import duty on Harley Davidson motorcycles and Jack Daniels whiskey.
EU automakers need access to the US market? Stop fining the US tech giants billions of dollars for incorporating in Ireland and bypassing EU taxes.
Higher tariffs - if implemented- will be a net negative. But imo, the tariff threat will actually lower global trade barriers and make consumers everywhere better off.
November 11, 2024
Resolute Mining Mali woes
Resolute Mining (RSG.AX) hit hard on the news their CEO has been detained by the military government in Mali. Mining executives were kidnapped and held hostage in 2016 as well, so these risks are well known. They're just not priced in until after they happen.
Previously, Mali threatened Barrick (GOLD) that they will lose their Loulo Gounkoto mine in 2026. They changed the mining code to grab a 35% equity stake in new Malian mines.
You could have totally seen this coming if you paid attention to the fundamentals instead of the angle of the chart. Here's B2Gold (BTG) way back on the Q1 call talking about Mali risk:
“So the issue there is that the government wants to take too big a piece of the pie in 2023. The big question is who's going to go explore for the next Fekola in Mali, if the economic terms are much less attractive than they have been. Just a reminder, we built Fekola mine for over US$500 million, 100% of our risk.
To date, the government of Mali has realized a little over 50% of the economic benefit of the Fekola mine, with no risk. I think that's a deal anybody would take all day, every day. If someone wants to spend all the risk capital, we get 50% plus of the upside. So I'm worried that the new code is going to change those economics. So it doesn't speak to what we're doing, but it speaks to -- because of our very robust economics and the trucking opportunity, but it does speak to the future of gold mining in Mali”.
For me, Mali is a jurisdiction to avoid. I'm okay with DRC but not Mali.
Japanese Yen
The move lower in the yen shows investors are getting complacent again. The Bank of Japan cannot afford to fail, since failure in this case is fatal for the Japanese economy.
The Fed won't allow them to fail either, since the resulting pressure on Treasury yields will force them to resume QE. This isn't going to be a repeat of the Soros EERM scenario. JPY shorts are going to blow up - matter of when, not if.
November 13, 2024
Crypto Portfolio Update
When this ends, a lot of people are going to lose a lot of money really quickly. My crypto portfolio is 100% in cash.
Better 5 days too early than 5 minutes too late.
November 14, 2024
I'm out, guys. I know there is a 100% probability of Super Micro Computer (SMCI) getting delisted but I made more than 70% of my potential profit assuming this stock is a zero.
On the long side, if I believe something has 30% upside and it ends up having 50% upside, I lose out by prematurely cutting winners. On the short side, I don't see this stock going negative so my gains are capped. AI stocks aren't crude oil - you don't need to pay someone $40/bbl to take it off your hands.
Better to take the win and walk away, leaving me unexposed to negative surprises. What kind of surprises? Look up Tesla-SolarCity. Jim Chanos called it a "shameful example of corporate governance at its worst", but after 7 long years, the Courts ruled in favor of Elon Musk. A lot of people hated Elon for it, but it is what it is and the markets aren't fair or efficient.
A great trader once said: "I've met old traders, I've met bold traders, but I've never met an old, bold trader."
Maybe I am getting old, but when everyone sees an easy profit in shorting this accounting fraud to zero, I see black swan risk. If you do short SMCI to zero, I doff my hat to you!
Is SoftBank the canary in the coal mine?
Masa Son lost 90% of his net worth when the dot com bubble burst. When the credit line dries up, I expect history to repeat.
If you study Enron, Lehman Brothers, or even WeWork, it wasn't operating losses that took them down. It was banks shutting off credit. That sends collateral values lower across the whole daisy chain, and such schemes unravel rapidly.
We haven't seen that so far because bank credit is at all-time highs. But the first bank that stops doing business with SoftBank will set off a wave.
Blast from the past - Never sell your IBM
"Never sell your IBM shares."
"Nobody got fired for buying IBM."
IBM was the original AI stock. Their chess program Deep Blue was able to beat then reigning champion Garry Kasparov.
Investors loved the stock because the returns were spectacular. The flip side is the drawdowns were equally spectacular, especially since this was the era where mutual funds were popular and the average holding period was >2 years.
As the below chart of yearly returns shows, entry timing was more important than holding period in determining your returns. The same applies today with respect to stocks and crypto.
Timing the market is more important than time in market, always.
Nvidia
Analysts at Raymond James and Susquehanna raised their price target on NVDA to $170 and $180, respectively.
Meanwhile, SMCI, which is Nvidia's third biggest customer, is going to get delisted for accounting fraud and shine the spotlight on Nvidia's accounts receivable and off-balance sheet arrangements. However, since the news of EY resigning was released two days after Nvidia closed its books for the quarter (how convenient!), they can legally avoid booking impairment charges and consider it a subsequent event.
But if they guide the next quarter higher, and their external auditor PwC resigns, all hell breaks loose.
Either way, the accounting fraud is about to be revealed and investors are set to lose billions. The ratings upgrades help clients "in the know" avoid the carnage and exit at the top - the same playbook that was used to dump SMCI on retail back in March (see below post).
i-80 Gold
If i-80 Gold (IAUX, IAU.TO) were liquidated and each of their assets sold individually, the company would likely fetch $500 million.
Integra Resources (ITRG, ITR.V) bid $70 million for Florida Canyon in Nevada - a money losing operation that was passed around from Alio Gold to Argonaut, then spun off when Alamos Gold (AGI) acquired Argonaut because they (AGI) didn't want the hassle of dealing with that operation.
By contrast, i-80's problem is simply too much water inflow at Cove, and stretching itself too thin for a junior miner.
The market is ignoring the strategic value of Lone Tree, which possesses the only autoclave in the region outside of the Nevada Gold Mines JV.
Gold at $2600/oz makes a lot of crappy small mines economic (even the Pan mine is now profitable), and a pivot to a toll milling model like Dynacor (DNG.TO) could be a big value unlock.
Before Vizsla (VZLA) became the next Silvercrest, it was sold to investors as an exploration company with a processing infrastructure kicker. i-80 can adopt that playbook.
In a sense, the company is suffering the same fate as predecessor Premier Gold because there are too many moving parts, and investors hate having to buy a stock on the basis of a sum-of-parts valuation.
Absent a transformative deal, the stock is likely to be in the doghouse for the next few quarters.
I won't say I predicted this, but I did call it a hard sell and avoid on May 28 (link below). The stock has fallen 65% since, and I think is now worth looking deeper into.
November 15, 2024
Does Susquehanna really like owning known accounting frauds? SMCI
Today's rating upgrade on NVDA is bizarre given they actually owned SMCI and by extension, must know the whole story.
The Fed is a political institution
The Fed does a surprise 50 bps cut to help the Democrats get re-elected.
The Fed does a token 25 bps cut right after results are announced so it doesn't appear politically biased.
Reporters piss off Powell by asking him if he would go away if Trump fires him [for cause]. Powell keeps repeating no.
Today, Powell says no more rate cuts, FU.
If the Fed is not a political institution, it is doing a great job of pretending to be one.
Japanese Yen
Is the BoJ getting ready to intervene, or is the yen strengthening in anticipation of rate hikes next month?
The SPX, bitcoin, bond yields and the yen are all inter-linked. If the yen starts to strengthen, no amount of vol suppression can keep the stock market elevated.
Coffee
The way coffee is running, it is a good thing the BLS dropped coffee from the CPI back in April. Now if they base healthcare inflation on pharma stock prices under RFK, there's a fighting chance of CPI finally going negative.
November 18, 2024
Venture Global LNG is planning to raise $3 billion from its IPO. The hottest upcoming IPO is not CoreWeave or another AI bubble stock - it is an LNG terminal operator that directly stands to benefit from Russia shutting off the gas to EU. And from Trump getting rid of the Biden pause on new LNG exports.
I've been holding NextDecade (NEXT) since mid-September (up 45% already). At a $1.9 bn market cap for a 17.6 mtpa terminal, I'm eager to see the valuation on Venture Global so I can do a comp.
November 19, 2024
350 million people use the euro as money. Maybe half a million of them care about the EUR/USD exchange ratio on a daily basis.
23 million people think bitcoin is money. 23 of 23 million obsess over the BTC/USD exchange ratio on a daily basis.
Bitcoin is not money. It is a cult asset.
November 21, 2024
Resolute Mining (RSG.AX) CEO has been released by Mali on a promise to pay $80 million soon.
November 23, 2024
Is long/short equities dead?
Well known accounting fraud Super Micro Computer SMCI is up a whopping 78.4% this week because the Nasdaq chose trading volume and listing fees over their own rulebook. Committing fraud didn't even get SMCI kicked out of the QQQ ETF.
After closing the SMCI short last week (just in time!), my short book now has only NVDA. This is a market where 'anything goes' apparently.
The regulators don't crack down on fraud. The exchanges don't care. The ETFs don't care. Retail thinks buying fraud stocks is a great way to make money (+78% in a week feeds that mindset).
Interactive Brokers (IBKR) says they aren't making as much in their securities lending business since nobody wants to short stocks anymore. Has the L/S equity business model died? Is it time to go back to the old mutual fund model and run a long-only book with no leverage?
Serious questions I'll be pondering this weekend.
The agriculture trade
After multiple attempts at bottom fishing corn and wheat, I've given up on the trade. Trends in motion stay in motion longer than expected.
At some point we'll see an explosive move in the grains as inflation comes back, and I'll play it with my long positions in Nutrien (NTR) and Mosaic (MOS).
November 24, 2024
Microstrategy
Microstrategy (MSTR) is not a bitcoin 'bank'.
A bank takes in deposits and lends money. It used to be called the "3-6-3" business - borrow at 3%, lend at 6%, be on the golf course by 3 pm. Now there are variations on the theme but what Saylor is doing has nothing to do with banking.
Traders call it pyramiding, and if practiced at this scale inevitably ends with an epic blow up.
At least he'll make the history books like the Hunt brothers.
November 25, 2024
While the Hunt brothers are the most (in)famous for their attempt to corner a market, there were others after them.
Nick Leeson at Barings Bank kept buying Nikkei futures in the hope that his buying would push up the market and cover his losses. He broke the bank.
Brian Hunter at Amaranth kept buying winter gas attempting to bully the traders on the other side, and ended up bankrupting the fund.
Steven Perkins at PVM Oil Futures kept buying oil ($520 million worth in 2.5 hours) and pushed up the price by $1.50. But he was just drunk, so let's not include him in the Hall of Legends.
Michael Saylor at MicroStrategy (MSTR) keeps buying bitcoin in the hope that his buying will prop up the price. Liked Pied Piper, he is leading others (like Metaplanet) down the same path.
Because physical silver had actual users, the Hunt brothers failed.
Because Nikkei futures were too big to manipulate, Nick Leeson failed.
Because John Arnold couldn't be bullied, Brian Hunter failed.
Because Steven Perkins sobered up, got fired, and became too busy nursing the hangover of a lifetime, he failed too.
Since bitcoin has no commercial use, and nobody outside the space really cares, it is actually the perfect instrument for someone to corner.
Kind of like menhirs.
If you're on the fence, or think Saylor has uncovered some form of financial alchemy, read Obelix And Co.
Japan's lost decades
At the height of the Japanese asset bubble in the '80s, the grounds of the Imperial Palace in Tokyo were worth more than all the land in California - on paper.
In 1992, Japan entered a debt deflationary spiral that lasted until 2014.
November 26, 2024
Tanker stocks
Product tanker stocks are hitting 52-week lows. Refinery closures are bullish for ton-mile demand. I haven't been very active in this sector for a while cos well, gold took most of my attention, but I'm certainly watching tankers keenly now.
Incidentally, Scorpio Tankers (STNG) now owns 4.9% of DHT Holdings (DHT).
November 27, 2024
Japanese Yen
The Japanese yen has started to strengthen. Who saw this coming a mile away?
Coffee
Coffee prices hit a 27-year high. Better stock up. Oh, and remember, according to the BLS Americans stopped drinking coffee so it is no longer a part of the CPI.
Orange juice, lumber, coffee, gold, all signal one thing - Non-stop Inflation Merry-go-round.
Japanese banks
My theory is that the BoJ tried to prick the asset bubble by strengthening the yen. The market fought them off and doubled down on the carry trade.
Japanese banks are forming a double top on both the daily and weekly charts. If confirmed, we are likely to see the yen take out leveraged traders and cause a calamity on Wall Street.
De-leveraging episodes are always ugly. I'm a trader, I use stops, etc so it shouldn't matter - but I'm nervous as hell and sitting on a pile of cash. If this is what I think it is, I want to bargain shop rather than get hurt and freeze.
In a month's time, Norinchukin Bank will be a household name.
November 29, 2024
New Fortress Energy
New Fortress Energy (NFE) on-balance volume bottomed ahead of the price. Volume by price shows little resistance ahead.
The company has raised an additional $400 mn in equity (with the CEO personally buying $50 mn worth) and refinanced debt, is open to selling off assets, and the new admin might give them their long overdue $659 million check.
But the best tell of improving prospects? Their 2026 bonds shot up and now trade at a mere 11% yield.
I won't buy the 2026 bonds because the r/r is too low, and the 2029 bonds because the duration risk is too high, but the common stock is attractive.
NFE is now my biggest stock position.
Coinbase
Coinbase (COIN) Q3 crypto trading volume was $185 bn, down 18% qoq. Transaction fee revenue was down 27%, to $573 mn.
The company managed to nearly double revenues from the year ago quarter but with $1.2 bn in overall revenue, generated a mere $75 mn in net income.
The ETFs have successfully cannibalized their core business. They've been downplaying this risk for a while but the numbers tell the story.
Coinbase International is a joke. Their KYC procedure to on-board a Dubai client (me) is the financial equivalent of a colonoscopy. Coinbase Ventures is valuable, but until they monetize their stakes the market isn't going to give them credit for it.
I see no reason to own the stock at 20x sales, with trading volume declining and their other business lines yet to mature.
November 30, 2024
I'll add three more:
If you don't enjoy the game and you're only doing it for the money, the learning curve will get the better of you.
The skills that it takes to make money are very, very different from the skills that it takes to retain it. Hubris over "making it" will end in disaster.
Never compete against a benchmark. Everyone compounds at their own pace.
New position in Star Bulk Carriers
I'm now long Star Bulk (SBLK). Shipping is a cyclical industry. You make your money buying sentiment bottoms. The company's misallocation of capital has cost them dearly over the last year.
Smaller, but higher quality, peer Golden Ocean (GOGL) has surpassed SBLK in market cap, which I think is a historic first. That's with SBLK blowing out its share count by 40% to acquire Eagle Bulk (EGLE) earlier this year.
The risk is the company continues share dilution and favors Oaktree over other common shareholders, but the price justifies accepting the risk.
I'm also getting long a whole bunch of shipping stocks.
The entire shipping sector is in a bit of a panic now because an Israel-Palestine deal would open up the Red Sea and kill rates. Tariffs on China, Canada and Mexico will mean less goods being shipped.
I believe the market will continue puking into year end as falling day rates become mainstream news. There's no telling when the upswing will occur. I'm buying knowing this because... deep breath... this is an investment, not a trade. I enjoy buying value and I now have the cash for it. We'll see how this turns out.
China's $$$ flex
China just sold US dollar bonds in Riyadh. The offering was oversubscribed 20 to 1, and they raised capital at a lower interest rate than the United States govt. In Riyadh, not London or New York.
The world is changing and American exceptionalism is already on its way out. Can Trump reverse this? Maybe. The first 100 days are going to be closely watched by the geopolitical analysts.
Good Trading!
Kashyap