Musings – June 22 version

Monday morning delivered the news of a merger announcement between two of my banks. It’s not often I get to play both sides of a deal, so I have to enjoy this one. PB was a hold in my portfolio representing about 1.7% where LTXB was a buy having risen to 1.8% on its’ way to a 3% maximum. My confidence was so bullish that LTXB was my one entrant in Roadmap 2 Retire‘s 2019 Contest. My confidence was inspired by Kevin Hanigan’s (LTXB President & CEO) response on the Q2 2018 Earnings call (July 18, 2018) response in the Q&A on the M&A topic, “We are trying to position the franchise to be the prettiest girl at the dance, whether we’re a buyer or a seller. And I think we’ll soon be a whole lot prettier, if not the prettiest girl at the dance.

Pretty they became as PB is paying 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old. Moral to the story – you never know the gem you’ll find embedded in earnings calls.


My initial take with Facebook’s Libra Cryptocurrency is that it’s intriguing, plausible but comes with contradictions. Now – similar to the Mueller report – I’m still digesting the details, but the first two to jump out at me were:

  • Envisioned both as a Stablecoin (tied to a basket of fiat currencies) and a viable alternative to the unbanked masses, is to a degree, an oxymoron as I doubt the majority of the unbanked are versed in currency exchange fluctuations which could have either a positive or negative impact to their wealth.
  • The white paper addresses a goal of social goodness through ethical actors, yet a cursory review of the Founding Members reveals the following:
    • PayU (part of Naspers which had a controversial move from South Africa to the Netherlands – socially responsible?)
    • One founder is Thrive Capital – a VC firm run by Joshua Kushner (Jared’s brother), which would be a potential question mark worthy of further investigation

My interest lies more in the unnamed banks which will be holding all these low cost deposits, and I’m sure there will be more to follow …


The final point this week is on tariffs. Unless a country is self-sufficient, trade is not a zero sum game. There will be surpluses here and deficits there, the goal being all is basically even when viewed on a multilateral basis. My thinking is that the president has been one-upped in the trade war he started. If a measure of greatness is the wealth of a country, perhaps the campaign slogan should be “Making America Irrelevant Again“. China’s reaction (in the long game) to the tit-for-tat brinkmanship has been to reduce tariffs on other country’s goods when retaliating against US tariffs. Good luck getting these markets back …

My Updated Crypto View

Occasionally I use this space for further elaboration on topics that recently garnered my attention. I spent the better part of this past week on one such beast thanks to Caleb over at Buy, Hold Long. He recently added a You Tube channel to his site and the topic on crypto diversification got my attention (as well as a few views). I can’t say my opinion was changed (it wasn’t) as a review of my original thesis reflects (by chance) I pegged the top of the crypto market (almost). His approach though had me reflecting on the similarities to DGI strategies.

The BHL analysis essentially takes the top 100 currencies by market cap to determine the most profitable investing approach. One of the two Crypto ETFs awaiting SEC approval uses a similar methodology, albeit with the top ten. Some of the questions I posed to BHL are indeed reflected in the Bitwise ETF Trust‘s S-1. For instance, an inflation adjusted formula is used and trade suspensions and hard forks are addressed. Private keys and cold storage (security) have been anticipated and rebalances are monthly. The biggest difference between BHL’s Top Ten and Bitwise is that BHL is equal weight and Bitwise is more market cap (with some constraints) weighted. Additionally, Bitwise will carry a 2-3% fee.

There are some intricacies needing to be fleshed out notably in the KYC and FASB/IFRS space which may result in crypto purists losing faith primarily due to the potential loss of any remaining anonymity. Yet some (like me) may come around thanks to the ease of negotiating multiple wallets, exchanges, and yes, diversity. Until then, I’ll keep my head in the sand waiting for the day US investors have a legitimate crypto ETF alternative.

My final concern with the BHL study (date bias) can not be proven in my cursory review, as my question also reflected date bias. I can state the broader model outperformed as it did in BHL’s although with lower gains. Second was the Top Ten. I do think BHL may be onto something and encourage you to take a look at his efforts!

Selective Updates

Crypto Update

What a difference a year makes.  Last year I penned My Views on CryptoSince hitting its peak of $19,783 last December (17th) the drop has been breathtaking to say the least.  The -84% haircut (through today) makes even GE (-63% this past year) look like a great investment.  Though enthusiasts maintain the theory that a need exists for an alternative to fiat currency, the reality is that other than some emerging and frontier markets the real world has yet to embrace this concept.  The continuing requirement to classify many ICOs as securities may be a contributing factor to the malaise.  Yes, the wild west is being tamed.

I think it may go a little deeper though.  Consider this:

  • the majority of ICOs require Bitcoin to purchase
  • If the US market is limited until SEC compliance is obtained the supply/demand ratio is impacted
  • As the price drops, mining becomes unprofitable
  • With pricing pressure, the speculation component becomes riskier

In a nutshell, my belief is that the ICO aspect is artificially drawing down the cryptocurrency space but remain doubtful that the glory days will return anytime soon.


Yield On Cost Update

In September, I mused on the YOC metric.  A current, real-time example of a valid potential use is probably worthy of discussion.  The view presented by YOC is generally framed by initial yield and dividend growth compounded by the time held.  Over the past two years I’ve had a stagnant YOC for two primary reasons:

  1. Some of my longer term holdings were lost via mergers for cash, and
  2. My current focus on M&A action – which tends to initially be more of a short-term view – for a third of my portfolio.

My portfolio’s average YOC today sits at 3.54%.  When compared against treasuries (with their increasing yields) my view is the risk premium associated with equities, coupled with the tax benefits with treasuries are beginning to converge.  My cross-over point is about a 1% differential and when attained, I’ll reenter the bond market following a 10-15 year absence.  Catfish Wizard recently wrote on his particular strategy.


‘Tis The Season Update

The annual addition to the trust has been completed with the first foreign issue.  With Friday’s market swoon, Royal Dutch Shell (B shares) was added to this portfolio.  The other change during the year was the loss of WGL via merger for cash in July.  This cash was redeployed in August into Atmos Energy (ATO).  Incidentally the acquirer, AltaGas (ALA.TO,ATGFF) was subsequently forced to cut their dividend by 56%).  Kind of like taking the money and running on that one!


There it is – akin to a Greatest Hits release.  In all seriousness though, I think it’s fair to share some of the thoughts that play a role in the direction my actions take me.

Until next week …

An Historic Day

marchlifeToday saw worldwide protests to demand that student’s lives and safety become a priority by ending gun violence and mass shootings – starting with schools.  The movement, born of tragedy, has morphed into a cause not dissimilar to the ones I saw during the Vietnam war – sans violence.  These protests seek to place the spotlight on Congressional inaction and President Trump’s failure of leadership to prevent further violence.

In a surprising twist, these students have already succeeded in gathering the support of at least one leading Republican donor, perhaps dampening the hopes that this issue would subside prior to the midterm elections.  Now this issue (among others) could be a front-and-center talking point ranking up there with NRA scorecards and contributions.  Perhaps the conservatives that supported Citizens United v. Federal Election Commission in 2010 will rue that decision as the tables could be turning.

At the very least, the students of Marjory Stoneman Douglas High School are gaining an invaluable civics lesson which crosses all the societal divides currently plaguing America today.  If their efforts gain further traction, we could be witness to a generational change agent over the long term.

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Johnny-come-latelies

Generally I refrain from back-to-back posts with similar topics but decided to make an exception this week as the moving parts have kicked into high gear.  My post last week addressed my uneasiness with cryptocurrency as well as my interest in the underlying blockchain technology.  It appears that my view has some support as two blockchain ETFs debuted on January 17th (BLOK and BLCN) and one January 25th (LEGR).  This should be followed by KOIN next week.  Horizons and Harvest (HBLK) also have ETF applications pending.  Grenadier penned a piece on Seeking Alpha that did some analysis on the first two.  Four of LEGR’s top five holdings are included in either one or both of the originals so it will probably be similar.  David Snowball highlights this sentiment in his piece There’s no idea so dumb that it won’t attract a dozen ETFs stating, “…there are no publicly traded companies that specialize in blockchain; there are mostly companies with a dozen other lines of business that have some sort of efforts going into blockchain.”  This is 100% correct.

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My Views on Crypto

There have been many times where my opinion of cryptocurrency and blockchain have been sought.  My thoughts have always been – and continue to be – that blockchain holds promise while Bitcoin and most of the other cryptocurrency contenders have little merit.  Point of fact being I did add to my blockchain centric investments last month while refusing to play in the pure cryptocurrency sandbox.  With the current euphoria I decided this week to at least frame my position a little while noting I could be either wrong, premature or both.

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