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GCap #3: Right now it’s all about optionality

The Guerrilla Capitalism Monthly Briefing.
GCap #3: Right now it’s all about optionality
This is the Guerrilla Capitalism quasi-monthly briefing, third edition.
Bitcoin Halving 2020 – Bitcoin Reformation

The title for this month’s edition comes out of this talk between Tuur Demeester and Ryan Selkis around the event of the May 2020 bitcoin halving “and the political, historical, and economic significance of Bitcoin as a technological revolution”.

One of notable takeaways from Demester was the idea that it is still too early to tell which defensive strategy will be the best defensive strategy. I think about this all the time, especially when it comes to dry powder / war chest.

Is cash safe? What if your bank undertakes a bail-in?

Physical gold? What if there is widespread gold confiscation?

Bitcoin or alt-coins? Which crypto to bet on, and what if governments outlaw that?

Owning property in another political jurisdiction? Which one? And how will you get there if you need to?

Multiple businesses? How will we know which ones are even permitted to operate let alone will weather the economic storm.

At this point, it’s too early to tell and so what we really need to do is cultivate optionality.

This goes beyond “diversification”, in the sense of simply holding a mixed bag of (hopefully) non-correlated assets. Optionality transcends paper claims on assets goes directly to providing real life alternatives.

That’s the name of the game right now.

A great listen via the Messari podcast.

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The following is not investment advice:

(I in intent to add more specific tactics and strategies around wealth preservation, or on occasion, let’s call it for what it is, speculation.)

Further on the topic of Bitcoin, there is the historical phenomenon of the Bitcoin price entering a bull cycle 12 to 15 months after each halving (after an initial drop).

Via

After the previous time to this (2019) when I caught Tuur Demeester on a podcast, I wrote this article about a possible bottom and shifted my business strategy over at easyDNS.

At that time we were converting our Bitcoin into gold via Goldmoney (note: they no longer accept Bitcoin fundings anymore), and we shifted back to accumulation. We’re been in accumulation mode ever since. (We also accumulated from 2013 right into the December 2017 super-spike when we cashed in our chips).

Anyhoo, I came across another way to pick up what I view as a long dated call option on Bitcoin, which was to buy shares of HUT 8 Mining Corp (TSE:HUT).

Hut 8 is a straight ahead Bitcoin mining farm operating in Alberta, Canada, where they were getting dirt cheap electricity. With oil and gas at unheard of levels (I’m sure we’re all aware how oil hit a negative price back in April) they are paying even less for energy and they’ve swung to profitability.

To me, this chart looks like a textbook “Stage 2 Breakout”, as popularized by an old, somewhat obscure, but in my experience excellent trading book by Stan Weinstein called “Secrets For Profiting in Bull and Bear Markets”.

The title and the cover look cheesy, but it really holds up well. If you’re familiar with Mike Swanson from Wall Street Window, he’s based a large part of his methodology on this approach for the near 20 years I’ve been following him.

The Weinstein methodology, in a nutshell is this:

There are four phases in any financial instruments cycle:

  1. Basing
  2. Running
  3. Topping
  4. Falling

That’s it. It applies to stocks, it applies to markets, it applies to sectors. You have to figure out what phase whatever you’re looking at is in, and if you’re right, then you know what to do.

For example, the major indices have been stage 3 “topping” for a couple years now, and have finally entered a Stage 4 “falling” or bear market. That’s why I’m not chasing this current rally in the wider markets.

Gold, and precious metals, on the other hand, have been in a stage 2 bull market for a couple years now, and hardly anybody notices. Or cares. (This may be changing as we speak).

Back to Bitcoin. I think Bitcoin is still somewhere, possibly near the end of the Stage 1 “basing” phase that came after the last bear market (2018-2019), and the next phase is Stage 2: bull.

With all this in mind, I re-entered HUT 8 last week. That’s my disclosure that I have a position in HUT, and the other one is this: I have previously lost money trying to go long this stock. So as QTR Podcast guy often says “Don’t listen to me, I don’t know anything”.

Still, my preferred method for accumulating crypto-currencies always was and remains to earn it. Take them as a payment option from your business and sit on them until the next superspike. If you don’t know where to start for that, take a look at MyBTCServer which is an open source project that makes it easy to setup your own crypto payment server.

If that’s outside your wheelhouse, fear not, over at easyDNS we’re going to be rolling out a managed service to deploy MyBTCServer under your own domain later this summer. If you’re interested, jump on the invite list here.

Bill Fleckenstein On How To Profit From Central Bank Mistakes – The Felder Report

Another great podcast I heard over the past month was Bill Fleckenstein on The Felder Report.

It was hearing Fleckenstein take the listener through the logic again that finally convinced me to swear off attempting to short sell, ever. Doesn’t matter what it is, doesn’t matter how much it deserves to go down, doesn’t matter if it’s an egregious hype job verging on fraud (looking askance at $TSLA)…. unless you’re a professional who can watch his positions full time, and lever up to get the returns, the risk / reward on shorting just isn’t there.

Not when there is a global, ingrained and systemic imperative to make stocks go up no matter what.

The better play, according to Fleck, and I have lost enough money to finally agree, is to just go long precious metals instead. “It’s a better way to express a short thesis on everything else”, in his words.

Because everything the central banks do to prop up stocks is simply wind at the back of gold (and lately, silver, maybe).

I think the only short I have on is a bit of TWM, the Russell 2000 ultrashort ETF. Because that’s the only short I’ve ever actually made any money on. The decay is not bad for an ultrashort ETF and I’ve been able to hold it for lengthy periods and come out pretty good when the market finally dumps. (Again, not  investment advice).

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The Four Shall Inherit the World

This Matt Galloway article (@profgalloway) on Twitter, where he’s big, looks at how Apple, Amazon and Google are thriving while nation states are failing. He discounts Facebook as the outlier sociopathic megacorp, who no longer gets to sit with the cool kids at lunch, but I think he’s underestimating Facebook and being too kind on the other three.

But this hits on one issue my compadre Jesse Hirsh (of Metaviews) discusses a lot on my new #AxisOfEasy Cybersalon podcast (our third co-conspirator is Charles Hugh Smith).

While none of us would lament the loss of what Charles calls “The Saviour State”, Jesse frequently points out it would suck even more if the biggest inheritors of power after the implosion of nation state relevancy were Google and Facebook. Along with Amazon (what I’ve come to call “The Company Store“).

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There Will Be Blowback, In Mostly Good Ways – AIER

I have to admit I am vulnerable to bouts of pessimism regarding the current pandemic and what “The New Normal” will look like in the coming years.

So I’ll leave you with this article by the incessantly optimistic Jeffrey Tucker which gave me some comfort. In it, he posits that the there will be a palpable backlash against government overreach. I hope he’s right:

“Our lives in the coming years will be defined by forms of backlash, as a much needed corrective. You can’t take away everyone’s rights, put a whole people under house arrest, and abolish the rule of law without generating a response to that in the future.”

My own Jackpot Chronicles goes through my four possible scenarios for how things play out, I recently put out Scenario Two: Conspiracy Theories meet Radical Uncertainty as well as Scenario Three: The Great Bifurcation which looks at the institutionalization of inequality by our elites. The final scenario should be out this week sometime.

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Jackpot Chronicles #3: The Great Bifurcation

This is part 4 of the Jackpot Chronicles: Four Post-Coronavirus Scenarios. Read the series here, or sign up for Guerrilla Capitalism here.

“In the future there will only be one occupation: managing one’s wealth. And the majority of the population will be unemployed.”

– Me.

The original working title for this installment of The Jackpot Chronicles was “Mandatory Pollyanna”. That’s the one where central planners and bureaucrats manage to “save” the global financial system yet again, but at a cost of undertaking an LBO of the entire economy and running it as a centrally planned utility.

I’ve decided to rename this scenario “The Great Bifurcation”, because should it come to pass,  I think the the inevitable result  would be the emergence of an even more pronounced and starkly divided Two Tier Society. Read on

The Jackpot Chronicles: When Tin Foil Hats Meet Radical Uncertainty

This is part of the ongoing Jackpot Chronicles, looking at four possible Coronavirus scenarios or lenses.

The last instalment was “Force Majeure”, which posited a complete breakdown in seemingly permanent institutions. As it may turn out, these outwardly immovable edifices may not survive this economic collapse and be left out of “the new normal” that emerges out the other end.

Given that the idea of Coronavirus being concocted in a Wuhan Lab has gone from being a conspiracy theory that could get you deplatformed, to being seriously looked into by Western intelligence agencies, now may be a good time to look at the “Tin Foil Hat” scenario, and try to discern where viewing this pandemic through the proverbial conspiracy theory lens actually gets us.

Conspiracy theories make for tricky subject matter for anybody who tries to look deeper than the veneer of conventional narratives. What we are expected to accept unquestioningly out of mainstream circles is sometimes less plausible than what we are expected to dismiss as conspiracy theories.

It get’s even more distorted when inversions or backwardations occur between what is fringe and what is, ostensibly, “fact”. Read on