Money, drugs and crypto

...but only if you vote for me

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Bribery

Election bribery is not new. In Australia marginal constituencies receive many times more Federal funding than safe seats. 

It’s not normally advertised though, which makes the latest effort of Kamala Harris surprising on a number of levels. It is apparent that she is struggling for votes from black men under 40. Accordingly, she has offered “Forgivable loans of $20k” and the “legalisation of marijuana”. Not exactly a flattering analysis on her opinion of the target cohort, who presumably will ignore even more than they already are. 

More than that though “Protect cryptocurrency investments so Black men who make them know their money is safe”. Not all men, or any women, just Black men, so it should make for an interesting policy implementation. 

All of this of course is in response to the polling data that the party machine receives. Which is clearly saying that if you are negative on crypto it loses you votes and Black men aren’t turning out, so do something. Further analysis on this was provided by Coinbase this week, which pointed out that particularly in swing states the crypto issue is real.

If it were to swing just 10% of the holders in the various states, it would be enough (more than enough). Hence the panic. This is likely to be hugely beneficial to the sector going forward. I’ve said for a while that a negative stance on the asset class is an outright vote loser. That’s because people not engaged in the sector just don’t care; and people who are, care deeply. 

The Democrats may well get punished here for their open attacks on the sector in 2023, when they pretty much deliberately brought down Silvergate Bank because it banked the industry. A terrific analysis of which was provided by Nic Carter

A much simpler policy would be that if Black men invest in something, it would be nice to think that the government would not go out of their way to actively destroy the value of the investment. That would be sufficient. A policy of letting people quietly get on with their lives generally outperforms almost anything else. 

The outright bribe might work. For sure though, the political treatment of our industry is changed forever and that can only be a good thing. 

Chopsticks

You would all have seen it by now. The largest and heaviest object ever sent into orbit, went into space and came back to be caught in between a pair of chopsticks. 

It was a significant achievement, not because of the complexity but because it was done in spite of the Government and not with their help. The domain of space was once the realm of America and the USSR only, now it seems the private sector has entered at scale. 

The reality here is that governments around the world cannot afford space exploration. They can certainly pretend to but they are no longer capable of these kinds of achievements. The European Space Agency (yes, they have one) has 2,500 employees representing 22 nation states. SpaceX has 14,000.

It’s another example of the view that the era of the Nation State draws to a close. I do not think they will be missed, consider that much smaller economic units are far more efficient and easier to manage. The vast waste that occurs at scale is noticeable in large companies but not so noticeable in large countries. Billions of dollars are simply thrown away each year and because it's a rounding error nobody cares. As a business model it is simply not sustainable. 

Most Western countries now are faced with the stark choice of funding the medical bills of their largest voter cohort (the over 60’s) put up against all other priorities, education and health being stalwarts. Space travel simply does not feature and quite honestly it probably is better left to the private sector. 

The public sector of course will continue to bankrupt itself. A case in point in the UK which has recently settled an ongoing dispute with its train drivers. They were granted a 15% pay increase. I have no argument with their entitlement, they probably still aren’t keeping up with inflation. There was absolutely no discussion though about why on earth we still have train drivers. We have self-driving cars, a vastly more complex achievement,  but the thing that travels point to point on rails still has a driver…..why? If we can catch rockets descending at the speed of sound, surely we can automate a train. 

We should in fact be technologically far in advance of where we are. Generally it is the involvement of government bureaucrats and vested interests that holds that back. 

Exchange supply

It has been a strange six month period now since the halving. The price is almost exactly where it was in April, but the structure of the market has changed significantly in that period. 

As we have discussed about half the Mount Gox coins have been dispersed along with those belonging to Germany and some of the US government stash. Equally, those coins held by exchanges have been run down significantly, holdings have dropped from 3.3m down to 2.5m which is very close to all time lows. 

We could analyse and re-analyse but the metrics of bitcoin are fairly straightforward. Should the demand trend continue the price will have to start to steadily rise because the exchanges will need to restock at some point. 

I feel the general sentiment is well summarised in that message. The overwhelming majority of coins moving this year went to long term holders who have been accumulating; they are unlikely to sell. I accept too, that things have been boring recently. 

Boring is good, but boring doesn’t last forever. 

McDonald’s

Most of us understand McDonald’s to be a fast food company and a very successful one. The less well known fact though is they are also a real estate company. McDonald’s owns 70% of its buildings and 45% of the land on which they sit, leasing them to franchisees. Overall the portfolio of land and buildings is worth in excess of $50 billion dollars. 

The burgers buy the buildings. That has been the play for decades. 

Times change though and while the entire world is wedded to the only scarce asset they know, housing, others are moving on. Michael Saylor’s Microstrategy being a case in point. The approach is far more controversial but exactly the same as MacDonald’s. Have a cash flow generating business (the data-analytics company) and use the cash flow to buy scarce assets. If Microstrategy had done this with real estate most of us would never have heard of them. That they have done it with bitcoin has propelled them onto the front pages.

This week Saylor revealed his strategy to increase the companies holdings of bitcoin to over 1 million coins (currently they hold 250,000). 

"Bitcoin is the most valuable asset in the world,"

"The endgame is to be the leading bitcoin bank, or merchant bank, or you could call it a bitcoin finance company," Saylor said, with MicroStrategy creating bitcoin capital market instruments across equity, convertibles, fixed income and preferred shares.”

There will be a lot of people rooting for Saylor to fail. Recall the headlines from 2022 “Michael Saylor Quits As MicroStrategy CEO After Bitcoin Losses”. His strategy is as simple and as old as time, take the cash, buy the scarce asset and keep doing it. 

Saylor’s strategy has to date been called risky and irresponsible. I doubt Ray Kroc got much love in 1955 when he was running around telling people he would build a global real estate empire by selling hamburgers. It was nuts. He died in 1984 worth $600 million. It was a lot of money back then. 

Euro-Trash

German GDP looks set to decline again in 2024. The government recently revised down their expectation to -0.2% from +0.3%. That follows a 0.3% drop last year. 

Germany has not had consecutive year GDP declines since reunification in 1990. The answer is not hard to find and its seeds are in the disastrous energy policies of the last decade. Per capita energy production in Germany is down 18% since 2003. It is an enormous decline for an heavy industry economy and quite obviously it has had an impact on the amount the economy can produce. Putting South Africa aside, the UK’s decline is even more spectacular. A 35% drop in capability as the government doubles down on its net zero by 2030 commitment. 

Meanwhile, China and India continue to build out their power production capacity. They know something we have forgotten: There is no such thing as a low energy rich country. Everything that improves lives requires energy and a lot of it. We can pretend something else is true and we will likely keep on pretending until we finally open our eyes and see what other countries are achieving. 

Watch Germany. It is on its way to being a middle ranking country, from being a very very wealthy one. The UK takes the cake though, a decline so spectacular it is becoming painful to watch.  The UK Government's “Secretary of State for Net Zero” Ed Milliband is installing flywheels across the country to stop the lights going out. 

The plan of course is completely insane because the cost of the Flywheels is absolutely enormous. 

You take electricity that you have generated from wind (yes, wind). That is then transferred to an enormous vats of acid which will be installed across the UK countryside inside thousands of tonnes of concrete. At 5pm when the kettles of Britain go on and there is no wind, Ed’s gurgling buckets of poison will dispense their energy into the flywheels, which presumably are the size of Belgium, and the lights will stay on (for 20 minutes or so). 

To be fair to the UK Government, all of this was laid out in their manifesto prior to the election. If you wish to take your country backwards to the poverty of the 1800’s you can read it here. My personal highlight is the “Warm Homes Plan”

The Warm Homes Plan will offer grants and low interest loans to support investment in insulation and other improvements such as solar panels, batteries and low carbon heating to cut bills.

In 2024 we are still struggling to warm peoples homes at scale? Is the solution really solar panels in a country where the sun shines twice a year? 

It seemed almost impossible that anyone would follow Germany after the disaster of their experience, but the UK is determined to do so. 

We will monitor their relative GDP decline with interest and sadness. It won’t be so bad, there will be growth. Perhaps 2% per year that the government can point to and claim success, as they are now doing in Germany. The truth will be different though, the technology exists to solve the problems Britain faces but that technology is ignored and so they slip further into the abyss of international irrelevance. 

Finally, and later than the usual, the EUR v Bitcoin update. The percentage change is for the quarter and it’s been a good quarter for Christine, up +4.3% v the dollar. Bitcoin managing only +4.85% v the Euro. We’re in front then but not by much this time. Props to Laggers. See you in Q4. 

Further information

Our August 2024 report to investors can be found here.

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