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  • Kashyap Sriram

Weekly rollup | Dec 26 2022 - Jan 01 2023

Stocks Mentioned: Bit Mining (BTCM), MicroStrategy (MSTR), Global Ship Lease (GSL), Blink Charging (BLNK), ChargePoint Holdings (CHPT), EVGO (EVGO)


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December 26 2022


December 27 2022


Bit Mining (BTCM) announced that the Company's subsidiary, BTC.com, experienced a cyberattack on December 3, 2022. In the cyberattack, certain digital assets were stolen, including approximately US$700,000 in asset value owned by BTC.com's clients, and approximately US$2.3 million in asset value owned by the Company.


The stock is up 3.3% pre-market on this news!


https://btcm.group/news-detail?id=52667


All reasons to stay longer in Vietnam:

  • Lending by Vietnamese banks rose 12.87% as of Dec. 21 from the end of last year.

  • Vietnam is forecast to record a trade surplus of $11 billion this year.

  • The government on Tuesday said foreign direct investment inflows are expected to rise 13.5% from last year to $22.4 billion.

Vietnam central bank buys dollars to shore up reserves after selloff


December 28 2022


Lumber may have bottomed with this data print but timber stocks have not.


MicroStrategy (MSTR) sticks to the Martingale method


"During the period between November 1, 2022 and December 21, 2022, MicroStrategy, through its wholly-owned subsidiary MacroStrategy LLC (“MacroStrategy”), acquired approximately 2,395 bitcoins for approximately $42.8 million in cash, at an average price of approximately $17,871 per bitcoin, inclusive of fees and expenses.

MicroStrategy, together with its subsidiaries, increased its bitcoin holdings by 2,500 bitcoins, from approximately 130,000 bitcoins as of October 31, 2022, to approximately 132,500 bitcoins as of December 27, 2022. The approximately 132,500 bitcoins held by MicroStrategy and its subsidiaries as of December 27, 2022 were acquired at an aggregate purchase price of approximately $4.03 billion and an average purchase price of approximately $30,397 per bitcoin, inclusive of fees and expenses."


https://www.sec.gov/Archives/edgar/data/1050446/000119312522313098/d398241d8k.htm


This is something I hadn't considered when I recommended buying Vietnamese stocks. Manufacturing moving out of China will benefit Vietnam and Thailand.


Apple to start making MacBooks in Vietnam by mid-2023


December 29 2022


December 30 2022


Sell Global Ship Lease (GSL)

The company registered a $150 million at-the-market offering of preferred shares yesterday, bearing 8.75% interest. It's a smart move on their part to refinance before rates head higher or the junk bond market implodes further, but it's bad news for equity investors.


I want to see the company shed vessels (like ESEA is doing) and use the proceeds to shed debt. Any asset heavy company will suffer from the Fed sending the interest rate into the stratosphere, and GSL is in the unfortunate position of being dependent on global trade while being asset heavy.


In short, good move from the point of view of survival. Terrible news for equity holders.


Sell.


https://www.globalshiplease.com/static-files/b536a14e-39b2-4bf1-a424-d496303772b6



Yields on 5Y treasuries crossed 4% today.



Bond yields are moving up across the curve. If you're looking for an explanation as to why stocks are tanking, that's it. Higher discount rate on cash flows implies lower present value. And since higher rates will tip the economy into a recession, it also implies lower earnings, which makes it a double whammy for stocks. Raoul Pal says it's not the rate hikes so much as the rate of change in interest rates that matters most, and that is quite likely true. What's also true is that expectations matter as much as actual earnings - and America's love with indexing and "Stocks for the Long Run" is dead.


Just as the end of the crypto bull market last November sparked a rush into staking and yield generation schemes, the end of the 14-year long Fed supported rally in equities will spark a rush for safety, viz. into bonds. If you believe the Fed has triggered a deflationary depression, as I do, the safest place to hide out is precious metals, followed by US treasuries and select 100% equity financed growth stocks. CDs are already making a comeback.


The problem with owning bonds is that the Fed is committed to hiking rates to 5.1% and keeping it there, which means the short end of the yield curve is going to remain under pressure. When the Fed was paying 0% on excess reserves, banks had an incentive to lend. With Fed Funds at a terminal 5.1%, why bother lending and taking risk when you can just park your money at the Fed risk-free? After all, the interest on reserve balances (Fed funds rate) is guaranteed by the Fed. And the Fed has zero bankruptcy risk, since they can just print money. This credit contraction makes it harder for companies to refinance/roll over debt. This cascades through the economy, killing long-lead capex projects, reducing aggregate demand, slowing business activity, and eventually leads to higher unemployment and bankruptcies. Every holder of assets gets squeezed by declining prices, and is forced to dump assets to preserve equity. In 2008, we had debt deflation but it was halted quickly by Fed QE and TARP. This time, it looks like the Fed is going to raise rates into a recession in order to kill the economy.


The last debt deflation episode was the Great Depression, so there's no recent parallel to study. The gold miners performed exceedingly well during that period, as costs went down but the gold price was fixed by the government. Bonds did not, as yields soared on the long end to make up for perceived risk. The Fed hadn't invented QE then and the pseudo-gold exchange standard meant they couldn't really do QE, so yields spiked to make up for the risk of currency devaluation.


I like gold and the gold miners in this environment. But I also like long duration Treasuries. The Fed can talk a great game about hiking rates and reducing the size of their balance sheet, but if they continue to do that and trigger a debt deflationary crash, investors will flock to US treasuries for safety. If they blink and start emergency QE like the BoJ right now or the BoE earlier, rates are going to come crashing down (like March 2020), making long bonds a winner.


If the Fed succeeds in inducing a recession, bonds go up.


If the Fed blinks and tries to avert the coming Greater Depression, rates go down in a jiffy and bonds skyrocket.


The only scenario in which bond yields can continue rising is if we have stagflation, i.e. stagnant growth with high inflation. There's no evidence of that, and one glance at the long-term charts of commodities proves it. Natural gas is down 35% this month, and down 62% since its June high when inflation peaked. Stagflation? Not according to any non-ag commodity.


I'm long long-duration bonds and I think it's the best risk-reward right now. It definitely feels scary to be long bonds when yields are spiking during low-volume holiday sessions, but the many years I've spent as a value investor is handy training for gritting my teeth and getting through the drawdown.


Suggested reading:


https://fraser.stlouisfed.org/files/docs/meltzer/fisdeb33.pdf


https://cdn.mises.org/-2-43_2.pdf


30Y yields


From 1926 to 1934, the yield curve was mostly flat. Long duration corporate bonds traded at the same yield as short term bonds. It was after Executive Order 6102 that the market started pricing in currency devaluation. So even assuming the Great Depression holds as a parallel, I still like the bond trade as 30Y yields can't run much further before reversing hard.


The US govt is incentivizing EVs and the EV infrastructure plays are perking up on this news. It looks like they may have put in a bottom and are on the rebound.


Buy Blink Charging (BLNK), ChargePoint Holdings (CHPT) and EVGO (EVGO) to take advantage of this news driven rally.


Biden tax credits aim to jolt electric delivery truck demand


ChargePoint Holdings (CHPT)


EVGO (EVGO)


Blink Charging (BLNK)


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