Silver Lining

Happy Canada Day

Happy July 4th

Happy Summer

We have a long weekend ahead of us, some holidays, and sunny days.

In an environment where it feels like everything is falling apart, you don’t need more negative news. I wanted to break the cycle. Sometimes in the darkness there’s a glimmer of light. In other words, when things look black, there’s always a silver lining. 

I want to shift your attention away from what appears to be an ongoing crisis to the silver lining. Basically an advantage that comes from a difficult or unpleasant situation.

We have been in some bad spots in the past. We have shown in the past that we can overcome challenges with hard work and ingenuity. 

I’m going to pick on some hot topics and look at the silver lining. Here’s are some quick take on 

Energy, Blockchain/crypto, housing, inflation, and Europe. 


We are living in a great energy shock. Despite the short-term pain inflicted, I believe in the longer term it will transform the energy industry. Where we are today is the result of decisions made in the past. Governments have failed to deal with the demand side of the equation when coordinating a transition away from fossil fuels. By restricting fossil fuel supply before developing adequate alternative solutions, policymakers have stunted oil and gas investment. Nevertheless, the “cure to high oil prices is high oil prices.”

We all hate expensive oil (except for producers and Alberta). But the conditions for cheap oil are not there. We don’t want to drill more, we don’t want to build more infrastructure to move it, we don’t want to build more refineries, we don’t want unethical oil, we don’t want Russian oil, and we don’t want dirty Canadian oil. Unless demand drops, oil is staying high.

There are no perfect solutions here, only trade-offs. The world is realizing you can’t go to carbon-neutral policies overnight; it will take a while. Society has to recognize the need for more sources of energy, and especially the need for more sources of clean energy.

I’m not talking about greenwashing or ESGing the problem away. We need a serious credible energy security strategy. Not a feel-good measure to get through the next election.

The silver lining is this backdrop could accelerate the clean-energy transition. We are in a transition from a fossil fuel economy to a clean energy economy. We are at a moment when better government policy triggers the investment needed to resolve the conflict between a safer supply of energy and that is climate friendly.

We need all hands on deck. We need smart resilient grids. We need hydrogen. We need nuclear power. We need renewables to be more dependable. We need LNG. We need nuclear fission. We need storage. We need better technology.

The wind and the sun are free abundant energy sources that are not controlled by petro-dictators.It takes about 18 months to get a solar project to scale. Much faster than a gas plant.

We really need to embrace nuclear power. Nuclear is clean energy. It does not emit carbon. It’s steady. Nuclear can keep the lights on when the sun doesn’t shine and the wind doesn’t blow.

The invasion of Ukraine underscores the energy argument that they afford their owners a security of electricity supply. Having more nuclear plants means Europe would have less reliance on Russian gas, which is boosting Russia’s income.

The Arab embargo of the 1970s caused short-term pain for the West, but also spurred a drive for fuel efficiency that ultimately reduced its reliance on oil. I think we are at a similar moment today. We may find ourselves hoping that the short-term pain similarly gives way to the long gain of energy security.

Blockchain, Crypto, Web3, Metaverse

I’ve been both an admirer and critic of the blockchain crypto space. I admire the innovation. I criticize the scammer aspect of it.

In the last few months we have seen the bubble pop and it was loud. The speculative mania of the last two years has ended. The mania touched a lot of assets: tech stocks, cryptos, pokemon cards, housing, wine fine etc…Right now a lot of things are crashing back to earth. And like any crashes, there’s pain, there’s damage and there are losses. The “why” is a convergence of many reasons, but mainly it’s because of inflation. If you want to point your finger at something, it’s at the Federal Reserve. By aggressively hiking rates, the Federal Reserve removed the punch bowl in the middle of a party that degenerated for way too long. Now there’s a massive hangover. 

One area that received an old school beating, it’s crypto. The blockchain/crypto universe presented itself as revolutionary. As the next big thing. There was a lot of hype. Like promising new exciting space, you get a lot of scams and b.s. And then comes the meltdown. When you get a good beating, the scams, the phonies, the weaks, all get washed away. My point is whatever emerges from the beating will be better and stronger.

We have seen this story before. It’s reminiscent of the dotcom bubble. It was the same thing. The Internet presented itself as the new emerging space that will revolutionize everything. We knew it was here to stay. But it was impossible to pick the winner. With hindsight, it’s easy to say that Google won search. But it was impossible to tell in 1999. The dotcom party lasted a couple years and crashed hard in 2000. A lot of young promising startups disappeared.

Just like the dotcom bubble, the crypto universe suffered from too much hype and risk relative to the actual use cases being created.

Despite all of that. The metaverse, whatever exactly it is or whatever form it takes, is a thing. Defi is here to stay. Web3 is here to stay. That means more digital assets. More digital assets means more tokenization. The ecosystem being designed will be better (more contribution and less extraction). 

It’s hard to imagine a world, maybe years or decades from now, in which web3 doesn’t play a role. Eventually you will see better ownership, better governance, and a better economic model. We are in the early innings of this stuff. It’s going to take a long time. But whatever comes out will be better.

Home (Un)affordability

The surge in prices from the last two years is cooling. Sure home prices are expensive, and mortgage rates are roaring. Are there any good news for prospective home buyers?

The answer is yes. Home inventories are on the rise, increasing an annualized 18.7% in June. This is driven by both sellers entering the market and by moderating demand.

Bringing supply and demand to an equilibrium will take time. High prices incentivize constructions which led to an increase in supply. We are also seeing a drop in the cost of material like lumber.

This is not a quick fix. The good news is that we are building more.


I don’t need to tell you that higher prices sucks and if inflation doesn’t get under control we could be in serious trouble. So what’s the good news?

Well we are doing something about it. We rediscovered an old truth: That is inflation is a monetary phenomenon. Now that we recognize the problem, we can address it.

For the last decade or so we had the luxury of living in a low inflation world (1.7% on average for 2010-2020). During that period some crazy ideas have emerged like the modern monetary theory (MMT) which states that you can print and spend as much money as you want without causing inflation. It’s hard to wrap your head around but that view was being pushed by certain academians, economists and politicians. The most interesting thing about the current inflation wave is how quiet the hype MMT ringleaders are right now. 

Inflation is influencing behavior, including mine. Companies are reining in the pizzazz. People are being more careful. For example, because of high gas prices, people will buy more electric cars, carpool more, take the smaller car, walk or bike more. Basically less driving. All these decisions have an impact.

Going after inflation means more short-term pain. It won’t be easy. It could mean a recession. But if we get inflation under control, it could set the conditions in place for lower long-term interest rates and a prolonged economic boom. A situation similar to the 80s, when the Federal Reserve crushed inflation with a hammer.

Inflation isn’t great but it has a silver lining: It favors debtors by letting them repay their loans with cheaper money. A few years of moderate inflation might have helped everyone reduce their leverage.

European Unity

Concerns over European disunity are overdone – for now.

The silver lining is that Russia’s invasion of Ukraine jolted Europe into unity. Yes some diplomats wonder whether the whole thing was worth whipping up in the first place. Yes there’s intra-European squabbling. That won’t go away. But continental unity is holding up rather well. A united Europe is better than a not united Europe. Because history suggests that a not-united Europe is a dangerous Europe.

The EU agreed to stiffer sanctions against Russia, which included an embargo on most imports (with some exceptions).

The EU is a union of 27 democracies. It’s supposed to look fractious. Democracy is a messy process. European unity will always be tested. So far it seems to be holding.

On that note, I want to wish everyone a great summer,


The Gas Tax Holiday is An Expensive Gift

On June 22 President Biden asked Congress to suspend federal gasoline taxes for three months. It’s a fixed tax, 18.4 cents per gallon. At over $5 a gallon, it’s less than 4% of the current price. It goes without saying that the motive is to give drivers a small break during the summer driving season.

I get it. This is the first normal summer in over two years. I don’t know many people that are changing their summer vacation plans in what seems to be the first normal summer in over two years. I myself plan on driving a bunch and yeah, high gas prices sucks.

Now that I stated the obvious, let me state the non-obvious. If Biden’s plan is to fight inflation, his solution could backfire.

It’s Political

We all feel the pain. I understand what Biden wants to achieve. I understand that he wants to take some of the pain away from the consumer. I understand that he wants to give families a little bit of breathing room. I understand that he wants less inflation. Of course inflation is deeply unpopular heading towards an election.

But it’s also about the politics. The Democrats are going into the midterm election deeply unpopular and they need to show something. They need something tangible that says “hey we provided relief from gas prices”.

If Biden and the Democrats were serious about fighting inflation and high gas prices, they would focus the real issues behind high prices and not just try to apply a short-term band aid for political gains.

Biden’s solution is not going to fix the high gas prices. A temporary reprieve from the federal gas tax will make the problem worse. Maybe a lot worse.

  • The problem behind high gas prices is supply. Not demand. We don’t need more demand. We need more supply.
  • Dropping the gas tax will boost demand for gas. It’s supply that needs to be address.
  • How are you going to meet that extra demand when supply is already stretched? This mean one thing: Higher gas prices.
  • Even if you pump more oil out, you still need the infrastructure to support it. You need to distribute it and you need to refine it.
  • Refineries are even more constrained now so supply is nearly fully inelastic. There’s supply capacity but it’s in Russia. And that’s no-go.
  • If it takes 10 years to build a refinery, and another 10 years to break-even, in a context where there’s no social acceptability for these projects, you can see why nobody wants to build one.
  • How much really will be passed to consumers? Retailers can simply raise the base price of gas to make up the difference.
  • The federal gas tax is 18.4 cents per gallon, less than 4% of the current gasoline price. Plus, a break on a fixed rate looks even worse if gas just keeps getting more expensive. The tax is fixed, so as the price of crude oil rises, the tax accounts for a proportionately smaller share of the total retail gas price. The more expensive gas gets, in other words, the less a tax break matters.
  • Cheaper prices, if any, will encourage more driving and as a result more pollution.
  • And what happens once the “holiday” is over and prices goes back up. Or will they extend the holiday. Governments are notorious for extending popular programs from “temporary” to the “permanent”.
  • Removing the tax will turn out to be expensive. The tax provides an important source of funding for road construction. Expect road quality to take a toll. It’s also part of the bi-partisan infrastructure bill. They haven’t mention how to will make up for the short-fall.
  • Other measures to curtail rising gas prices, such as releasing oil supply from U.S. reserves, haven’t worked.

I’m not a “tax” guy. I like paying less taxes as much as the next person. But this is not area where cutting the tax will do more good than harm. In the end, you might end up with higher prices. The oil industry is as complex machine. Removing a tiny tax is not going to solve the problem. There’s no easy fix.

Like I said, the solution is more supply. It’s often say the solution to high prices is high prices. There’s some truth to that. High prices forces consumers to change their behavior. Maybe drive less. Take the smaller car. Walk or bike more. Car pooling. Buy an EV. High prices leads to demand destruction. Higher prices also result in producers pumping more oil.

The Biden approach reminds me a little bit of the 70s. I wasn’t around during that time but I know people that were. I also read on the subject. Inflation was a major problem back then. And politicians kept throwing band-aid to the problem. Things like rent-control and price control were introduced. Nixon imposed a 90-day freeze on wages and prices in order to counter inflation. Then I think it went on for two years. On the surfaces the measures sounded good and they were politically popular but they were disastrous. It was called the Nixon shock. It didn’t go well. Inflation rose. There was an major economic failure (73-75). A recession. The problem became worse. People became poorer.

This tax holiday thing is a gimmick (Even Obama dismissed it as a gimmick in 2008 when he ran against McCain). This is coming from a President that canceled the Keystone XL pipeline expansion on his first day in office. And now he’s begging Saudi Arabia to drill more.

What’s needed is a serious plan to address energy security. Democrats and Republicans need to figure this out. They need to hit reset and work on a serious energy supply plan. Not just something to get past the next election.

The government’s role to set the conditions for the market to provide energy. Not picking winner and losers. We need a all-hands on deck approach. Oil, natural gas, wind, solar, hydro, and nuclear.

Of course the perfect solution would be to use no oil. But we are not there yet. The transition to renewable will take time. Nuclear has to be part of the picture. It’s a carbon free.

The main question with renewables is: Can the world dramatically scale up green energy to power the economy as well as alleviate climate change—bridging the tension between energy security and climate security?

In the end, there’s no perfect solution, only trade offs.

Write Down Your Investment Thesis

Write down your investment thesis. What business do you want to buy and why? You need to lay out the case on why this investment opportunity should generate a compelling return. Keep it short. It has to fit on one page. Be clear and to the point.

This process will force you to clarify your thinking. It will force you to focus on the essentials and eliminate noise. It will keep you on the right track. Can you answer simple questions:

  • What does the business do?
  • How does it make money?
  • How is the balance sheet?
  • Is management highly skilled with a history of treating shareholders as partners?
  • Is the management growing the size of the moat?
  • Does the business reinvest their free cash flow in a manner that continues to earn above-average returns?
  • How do you blow up the business?
  • Valuation: Why is it cheap? What is the market missing?  What are the sellers thinking? Why does this opportunity exist? What’s my margin of safety? What’s the upside?

This shouldn’t be a complicated process. You don’t understand the business? Move on. You can’t figure out how it makes money? Move on. The balance sheet is weak. Move on. Management sucks. Move on. They don’t allocate capital appropriately? Move on. Is it too expensive? Move on. How are you going to sleep at night if you can’t clearly answer these simple questions?

This process filters out a lot of the noise and forces your focus on the essentials. It also prevents mistakes. The investment should fit your investment philosophy and strategy.

The thesis also comes in handy if you are considering selling. Are the initial reasons for buying no longer valid? Was it a mistake? Over-valuation? Or are you selling based on emotions? Again it forces you to think rationally. With a solid thesis, this way, your sell strategy is built into your buy decision.

Great businesses are not all that common, and finding them is hard. The opportunity needs to jump at you. It needs to be obvious. If you identified a great business at a reasonable price, invest and sit tight. This simple step will help you sleep better at night.

SPACs are Trash

Special Purpose Acquisition Companies (SPACs) have gone through a few boom and bust phases. When capital is cheap and plentiful, SPACs are fashionable. When capital dries up, SPACs are the object of scorn.

SPACs provide a different avenue for a company trying to go public. SPACs put a reverse spin on the conventional IPO model for raising money. In a regular IPO, a company raises capital for its business. For a SPAC, first you raise the money, then you buy a business.

What’s a SPAC?

SPACS are shell corporations designed to take companies public. They are also called “blank check companies” or “blind pools.” 

SPACs have a simple model: raise funds from the public markets as a shell. The money raised goes into a trust. The shell goes public just like any other company does. Then it finds a company to merge with. When the deal closes, the acquired company becomes publicly traded.

When they announce the merger, shareholders can either accept stock in the new company or redeem their shares at the original price of the offering (normally $10 a unit). Once a SPAC goes public, it typically has 24 months before it has to buy something or it must dissolve and return the money to investors.

How does it work?

I don’t want to bore you with the in-and-out of a SPAC. But if you understand the basics, you can see where the incentives lie, who benefits, what’s in it for investors, and what are the risks and opportunities.

Continue reading “SPACs are Trash”

Spring With a Dash of Turmoil

Winter is gone, spring is here and summer is around the corner with a dash of turmoil. The nice weather feels great. We’re living in extraordinary times. But it’s scary out there. While I remain optimistic, we are facing challenges at every turn. Pandemic “side-effects” are persisting. The markets are wobbly. The macro picture is choppy. A recession may be on the way. Inflation is persisting. Rates are rising. The war in Ukraine is dragging on. And we are one bad decision away from a nuclear war. On a positive note, is it safe to say we are turning the corner on the pandemic?

In the wake of a bear market, some companies have been impacted more than most. Let’s rewind a bit. We had a pandemic, unprecedented government actions that flushed the world with cash, and central banks with a zero interest rate policy combined with quantitative easing. There have been some side effects.

This is the weirdest economy. Everything is out of whack. We are apparently in this massive economic boom that feels like a recession. The consumer is flush with cash but can’t buy anything. You want a car? There’s none. You want a home? Get in line. Even Tom Brady can’t afford to retire.

On the topic of lines, last week I had to wait in line outside the grocery store before it opened to make sure I had lobster for Mother’s Day. I got lucky and Mother’s Day was saved. All the lobsters were gone soon after and Mother’s Day was ruined for a lot of people. You normally wait in line for a rock concert, not the grocery store. While I was waiting in line for lobster, in some parts of the world some people will starve because we can’t move grains out of Ukraine. I think we hit a peak and it’s a sign interest rates will rise.

As for what else happened in the last two years, we had a bunch of shitcos that went to the moon and back. If you think the markets are off, it’s nothing compared to the bloodbath in crypto. Despite all its promise, stablecoins became unstable. TerraUSD had one job: Maintain its value at $1 per coin. Its creator suggested that the coin could ultimately supplant the USD itself. It’s now “worth” 17 cent. The chart below display the spectacular collapse since Wednesday.

And people want this in their retirement account.

Oh, and Elon Musk, the same guy that launches rockets and that wants to build a base on Mars in case he can’t save Earth, wants to buy Twitter (now on hold). It’s hard to reconcile everything. When historians look back on this strange time we are living in, I’m not too sure what they will make of it. Maybe a chapter on what not to do. On the bright side, we can only improve from here.

All this turmoil has serious ramifications. Trillions in market value has been erased. Everything is down. Well almost everything, except for oil. Oil had one hell of a roller-coaster. Before the pandemic, like most things, you had to pay for oil. Then at the beginning of the pandemic, unlike most things, oil prices went negative at -$37 a barrel, meaning producers were paying you to take their oil. And that was too good to be true. Now we have to pay for oil again.

For the past two years, investors have been piling on “pandemic winners” of the technology sector. Technology has and is changing the world. I always knew this. My main issue with some pockets of the technology sector has always been valuation, which often made no sense to me. There are tech companies, like Microsoft, that are real backbones, cash generative businesses. You can value that. But there’s a large portion of the tech sector that were trading at insane prices with nothing but fantasy to back it up. A lot of these companies have corrected, some are down 75% and more, even among some good businesses.

Take Snowflake Inc. (SNOW) for example. Snow is a cloud-based data platform that does AI stuff. They are among the leaders in their space. Great company. But price was and still is the issue. At its peak SNOW was trading at 180x its sales. It means buyers were paying $180 for every dollar of sales. What does that mean? Roughly speaking, for the shareholder to break-even, 180x sales implies that SNOW would have to return 180 years of sales to its shareholders to get his money back. That’s insane. And if you are still reading, you would point out that’s impossible because a company has overheads, employees, taxes, and investments to make. Well that’s the kind of irrational behavior you see in public markets. Today SNOW is trading at 32x sales, still too much for my liking. I wouldn’t be surprised if more carnage is on the way.

I’m not implying you can’t do well paying a high multiple for a company. You can. But you have to do your homework. If SNOW’s revenues grow 1000% for the next couple years, you will do well. It would make 180x sales look cheap. At the end of the day it’s about getting more than what you paid for.

Ask yourself this question: Are high-growth companies worth the premium in a world where rates are higher and the present value of future cash flows is correspondingly lower? Again, the key to investing success is in getting more than you paid for. 

It’s worth repeating that you shouldn’t worry about the stock price in the short run. It’s up and down for no obvious reasons. But in the long run the stock price is a measure of the progress a company made over the years. The progress is a function of continual investments in people, R&D, capital expenditures, and products. These important investments are what drives a company’s future prospects.

If there’s any silver lining, the more severe the correction, the more I get excited about buying great businesses at a reasonable price. A lot of companies have been absolutely crushed and forward-looking expectations have significantly dwindled. Even though I still have questions and concerns, now that the gap between expectations and reality has massively dwindled, perhaps counterintuitively, I think there’s a lot of good stuff that is more interesting to pay attention to today than two years ago.

Although I began this email highlighting the challenging landscape, it’s nothing we can’t overcome together. Yes we are all wrestling with COVID-whiplash but we have the solutions and the means to overcome anything.

Thank you for reading,


Russian-Ukraine, World War III?

Part I – Thoughts on the Ukraine Crisis (pre-war)

Part II – It’s War

Part III – War. War Never Changes

Did the Russia-Ukraine conflict ignited WW3 and we are just slow to realize it? I think we are fighting a proxy war with Russia.

We all heard of Albert Einstein saying: “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”

Everyday it seems we are getting deeper, more involved, one inch at the time into the Ukraine-Russia conflict. We are providing more intelligence, more heavy weapons, more sanctions, more money, more strong statements, more secret politician visits. 

I saw videos of bombed out hospitals, schools, train stations and corpse on the street of executed civilians. Babies are getting blown up. What did they do? We should be doing everything we can to help Ukraine. We are punching below our weight. We have the resources to ensure a Ukrainian victory. The international community has a moral obligation to defend Ukraine’s democracy and freedom.

How do we answer attacks on hospitals, schools, shelters? The Bachu massacre? The Mariupol siege? Genocides? There are claims of chemical weapon use. Now Russia is threatening nuclear escalation if Sweden and Finland join NATO. How do we answer that?

Much more could be done. We have provided weapons and some economic aid to Ukraine. Confiscation of any Russian assets and foreign reserves abroad would be a good place to start, with the proceeds used as a resource to help Ukraine. More weapons and support to the Ukrainian army. In addition, we should make plans for rebuilding Ukraine after the war. Talking might feel good, but it’s time to get it done.

We have this weird balancing dynamic. One foot in, one foot out. Our hearts and minds are with Ukraine. But let’s not help them too much because it might make Putin angry. Biden called Putin a war criminal and the media wondered if he crossed the line. 

Russia has to be defeated. Ukraine has to win. Ukraine’s fate matters beyond Ukraine. A decisive Ukrainian victory could transform the security of Europe and by extension, North America. A Ukrainian victory would deter another Russian invasion. Victory would also be the best basis for launching a post-war democratic state that is less corrupted. The Ukrainian victory could invigorate the cause of democracy around the world.

Our slow pace in arming the Ukrainian army/people has only let more innocent people die. What more do the Russians have to do for us to really help Ukraine? If not now, when?

I don’t want war as much as the next guy. I have a family and kids. I want a better future for them. But for some reason, for that better future, it seems you have to fight for it. In a twisted logic, you need war to get peace. WWII was an example. Nobody is arguing that letting Hitler do his thing would have been beneficial. Letting Putin do his thing is not a solution.

I understand that we don’t want to provoke a madman with nuclear weapons. I wish they could hash out a peaceful deal. But like I said in my opening, there’s a real war and maybe we are slow to recognize it. The line has been crossed. The ugly conflict is about to get uglier. The Ukraine government has raised its ambitions from mere survival to the recovery of all its territory, including land lost to Russia in 2014, such as Crimea.

Russian Energy

It seems that Europe is inching closer to banning Russian oil. It won’t be easy. Each EU nation is different when it comes to dependence on Russian fossil fuels. If Europe wants to win a proxy war with Russia it needs to cut off the oil & gas imports. It needs to. Despite broad disapproval of the war it’s Russia’s fuel that’s fueling their war machine.

The EU needs Russia’s energy to power its factories, cars, and heat. The faster it can find alternatives, the faster it can cut its ties to Russia. And weaken Russia in the process. Russia might find an alternative buyer, but it might get less for its energy and there are logistical issues (shipping vs pipeline). LNG shipping terminals are being built or expanded across Europe, which would allow the continent to be less reliant on pipeline gas from Russia.

As for the Russian oil industry, it’s an open question how long Russia can maintain current production levels without the Western companies who have now left. Schlumberger and Halliburton have left Russia. These were the brains, the know-how. How do you keep your wells operating, let alone drill without them? Look what happened to Venezuela after the Western companies left. Russia pumps out about 10 million barrels of crude oil a day. This amount will slowly decline overtime (or maybe fall dramatically? I don’t know how you operate without them, they are vital to world oil production). Russia doesn’t have that expertise, let alone the equipment. This will be a slow-moving development, and sadly, it means energy prices will keep rising.

Putin’s Health

There are a lot of rumors surrounding his health. They are just rumors as far as we know. But it’s hard to deny that photographs and pictures suggest poor health. Something is off. His face looks puffy, his walking doesn’t seem natural, he seems to be limping. He covered his lap with a blankey during his May 9th parade. I don’t know about you, but covering your lap with a blankey during a military parade takes away some of the strength you are trying to project. On their own either incident would be easy enough to dismiss. But taken together they will do little to dispel persistent rumors that Putin is suffering health issues.

Putin is going to turn 70 in the fall. Being 70 in Russia is like being 100 years old in the West. Russians are not known for their long-life expectancy. I know it’s not precise but I do know with precision that Putin is mortal.

Foot to the Throat

After reports of atrocities in Ukraine (killing of civilians, sieging, rape…), I notice a change of tune amongst top Republicans and Democrats.

I believe that even if Putin departs, sanctions and export control will stay. Why? Because you will have another Putin. It’s an autocratic country where succession has always been an issue.

Even if the new guy (or girl, they had Catherine the Great after all) comes in and ends the war, promises freedom and democracy, and all that good stuff, nobody will believe it. It’s a country with no rule of law. It’s a country with no credibility. Why bother? The world doesn’t need Russia.

The US has their foot on Russia’s throat and they are not taking it off. Russia has been a pain in the ass for years and now the US has Russia exactly where they want it. A weak Russia works in the West’s favor. It’s better in the interest of everyone, except Russia. Unfortunately, it’s the Russian people that will bare the cost.

Berkshire Hathaway 2022 AGM

I’ve written about my trip to Omaha in the past so I won’t repeat myself. You can read about it here and here.

For the first time since 2019, Berkshire Hathaway had their AGM in person. You don’t just make the trip to Omaha to simply listen to Munger and Buffett. CNBC broadcast the meeting and you can catch it on Youtube.

So why go?

“It really feels good to get back and be doing this in person. It’s been three years. And it’s a lot better seeing actual shareholders, owners, partners… …I mean, for example, if we had a manager someplace that was 98, I might want to send somebody by occasionally to see whether he was cutting paper dolls or something. We probably do things that are a lot more foolish than cutting out paper dolls, but we’re having a lot of fun doing it. And we really have a lot of fun when you come visit us.”

–Warren Buffett, 4/30/2022

It’s good to go check on if the top two person in charge are still alive.

Warren Buffett and Charlie Munger are mentors and role models. Not just in investments, but also on how to be live your life. They truly treat shareholders as partners. They have been extremely successful and have a lot to share. You try to learn from people like that.

Going to Omaha for the Berkshire Hathaway AGM feels a little bit like going to church or to a rock concert. You get hit with wisdom and when you leave you have an energetic buzz feel that you carry with you. You have to be there. If you have been, you know what I’m talking about. If you have never been, you need to go. It’s the difference between watching a rock concert live and on Youtube. It’s the same music, but two totally different experiences. When you mix the energy + the people + the ambiance you get a great experience. Listening to Buffett and Munger for a few hours leaves you more calibrated, a clearer mind, and feeling good.

The AGM is much more than another shareholder meeting. Anyone who has been would tell you that. An investing ecosystem has been built around the AGM. There are numerous events, panels, cocktails meetings, dinners etc…basically networking and learning. You try to soak in as much as you can.

The best was meeting old friends and making new ones. Omaha is the de facto place to meet like minded investors. It’s where everyone gathers. If you are a serious investor or want to learn more, it’s a good trip to make.

The vibe this year was great. It’s great every year. But this year was a little extra. I think it has to do with the fact that the AGM wasn’t in person for the last two year. So it was great to be there in person.

As for the takeaways, you can find comprehensive reports on the AGM with a quick search. Warren, at 91, remains super sharp. But he was a little slower in his answers this year. He has reminiscent of the past and rambling a bit. It’s just an observation. If I’m that sharp at 60 I’m taking a victory lap. Good meeting overall, here are some of the key points:

  • Berkshire bought $51 billion of stock in the first quarter. That includes a lot Chevron and Occidental Petroleum. When everyone is selling, they are buying.
  • Occidental Petroleum: They bought 14% in two weeks! Basically because of the gambling culture.
  • Charlie said that they preferred owning stocks than Treasuries as a reason for the massive purchases.
  • Charlie Munger calls criticism of Buffett as chair and CEO ‘ridiculous’. And it is.
  • BRK went from having $147b in cash to $100b. They are not hurting. Part of the problem with the high cash pile is the lack of investment opportunities over the years. But Q1 investments had to be the biggest investment in a while.
  • $148b in float, and growing.
  • BRK has been busy buying itself. Share repurchase of 10% over the last year and so. But buybacks slowed down in Q1-2022.
  • BRK is buying Alleghany Corp for $11.6b, poised to be Berkshire’s biggest acquisition in six years. Buffett told us the back story how the deal came together. It started when he got an email from the CEO asking him to read his letter.
  • Big arbitrage play on Activision-Blizzard. Owns about 9.5% of ATVI. Very confident that the transaction will close.
  • Buffett bought more Apple. Would have added more if the stock hasn’t rebounded.
  • I think I saw Ajit Jain sleep for at least a good 20 minutes.
  • Inflation swindles everyone. The best hedge is to invest in yourself. You want to increase your personal earning power. Businesses that doesn’t require a lot of capital might have an advantage.
  • Buffett & Munger ripped Bitcoin, Robinhood and the casino culture of the stock market.
  • There were new stories I think haven’t been told before. Like when he went to Vegas and the “$170m floating “plug” in the books” when he was at Salomon. Thank god they didn’t rehash the See’s Candies story.
  • See Candie’s broke their record for sales at the convention center. I think they sold over 15 tons of candies.
  • Like always they took a couple shots at the usual suspects: Fund managers, consultants, index fund managers that are activist investors, investment bankers, politicians, Wall Street, Bitcoin, GAAP rules.
  • Notable:  Tim Cook was checking on his biggest investor, Bill Gates, Jamie Dimon was around “visiting bank branches”, Bill Murray, Glenn Close, Dan Gilbert, Bobby Kotick also checking on his biggest investor, Mario Gabelli and Bill Ackman.

Crypto Circus

Another quick crypto memo. I just can’t let it go. This post is an extension of a previous post on crypto.

When it comes to crypto the majority of people are split into two camps. The pro-crypto thinks it’s the future. They are head deep into the stuff. The other camp thinks it’s a massive scam and you will lose your money.

I’m sort of in the middle. There are elements of truth to both sides. Yes, the large majority of the stuff is absolute garbage. It goes without saying that you should stay away. But I think out of the rubble some good stuff will come out of it. The blockchain is here to stay and will continue to improve.

If you are trying to breed crypto kitties, I can’t help you there. But I see benefits in some aspects of digital currencies. Banking has a lot of inefficiencies. It’s an industry ripe for innovation. Just think how antiquated it is to send money abroad. It takes like two weeks and the fees are high. If a digital currency can make this happen in seconds at a fraction of the cost, then we have major innovations and society benefits. That’s a win for crypto.

I believe that for crypto to go forward, it will need regulations. I know it goes against the fundamentals that crypto stood for when it was created. But it’s hard to see a world where crypto goes forward in its current form. You need faith in a system for it to work. If there’s no trust, it’s not going to work. Crypto lacks trust. Everyday there’s an exchange getting hacked or some NFT project goes to zero ripping off “investors”. The common people will avoid the wild west and stick with their current bank and habits. That’s why I think Coinbase is similar to AOL during the early days of the Internet. It’s not the best platform, but it’s user friendly and favors adoption.

For crypto to go mainstream, it has to shed its libertarian cypherpunks and crypto-anarchists reputation.

Here are some drawbacks that crypto need to address:

Fees: The cost needed to perform a transaction are ridiculous, especially when demand is high (called “gas”). For example, the group behind Bored Ape, Yuga Labs, launched its latest series of NFTs, called Otherside (virtual land). It was a massive success. Selling out in fewer than three hours, the largest mint and sale in NFT history generated an estimated $317 million. However some users paid as much as $10,000 in fees for the right to buy the land, nearly twice the $5,800 mint price for the underlying virtual plot.

Bots: Bots programmed to increase their odds of success in buying crypto/NFT are bidding transaction fees and hurting ordinary buyers. It’s hard to compete against robots.

Hacks & Scams: According to a report from the blockchain analytics firm Elliptic, around $10 billion in DeFi projects was lost to various hacks and scams in 2021.

The Myth of Untraceability: It’s traceable. Bad actors are learning the hard way. There are companies, like Chainalysis, that specialize in tracing cryptocurrency. When Bitcoin first appeared in 2008, one fundamental promise of the cryptocurrency was that it revealed only which coins reside at which Bitcoin address without identifying the coins’ owner. But every Bitcoin payment is captured in its blockchain and leaves a permanent unchangeable and entirely public record of every transaction. Every criminal payment is, in some sense, a smoking gun.

Currency Reserve and Trade: There are now between 10,000 and 20,000 different cryptocurrencies in existence, according to CoinMarketCap. But let’s use Bitcoin, the biggest and most popular crypto. With the current market volatility and correction, Bitcoin hasn’t risen to the occasion to be a dependable alternative. It bounces around way too much. It’s been labeled a digital gold. It’s not. I have my own views on gold, but it’s definitely a better safe haven than Bitcoin. 

It also failed the Russia war test. It was supposed to be cryptocurrency’s hour. It was said that war would create a bigger global appetite for Bitcoin. Times of tumult are often associated with monetary transformations. At the beginning of the Russian invasion, there was a initial surge initial surge of ruble purchases of Bitcoin. But not much. If crypto can’t be used to evade Russian sanctions, what is the point?

Bitcoin is still an experiment. I am reminded of an old Larry Summers line (former Secretary of Treasury). Speaking at Harvard’s Kennedy School of Government in November 2019, the former Treasury secretary observed: “You cannot replace something with nothing.” What other currency was preferable to the dollar as a reserve and trade currency, he asked, “when Europe’s a museum, Japan’s a nursing home, China’s a jail, and Bitcoin’s an experiment”?


When you read crypto hack and scam stories, you begin to understand the strong impulse of so many central bankers and financial regulators around the world to shut down the whole crypto circus. I think the government will build a payments architecture that eventually will win the trust of the users.

Governance is the core pillar of any form of digital currency. It is critical that any framework on digital currencies ensures security, efficiency and legitimacy of payments. On these fronts, there is a lot of work to do.

Government shouldn’t regulate for the sake of regulating. You don’t want to stifle innovation. The government’s job is to create the conditions for the industry to grow and as an intented side effect: provide confidence and trust in the system.

Uber Won

Uber won. I’m not breaking any news. We all know Uber won a long time ago. I finally traveled for work the last few weeks, a first since the 2020 Covid lockdown, so I had the opportunity to check out how the taxi/ride-sharing industry is doing. It was nice to be out and about.

Let me be clear that this is not a stock recommendation. I haven’t looked at the stock in years. I remember it used to burn a lot of money. Maybe they turned things around? I don’t follow the company so I don’t know. This post is about Uber, the ride service, not the stock. (Update: Okay, I quickly checked the stock and it’s not going well.)

I checked Uber, Lyft, and the regular local cab service. Maybe the local cabs had the opportunity to patch things up over the last couple years. Like picking up the low hanging fruit such as better service, easier payment service, a driver rating system, technology adoption among other things. Basically taking on Uber but with a local flare. In my head I framed it as the big outside chain vs the local established family restaurant. I even downloaded the local cab app.

Verdict: Uber crushed it. It’s in a different league. The regular local cab drivers were nice and got me to my destination. But that’s the minimum right? Their car was ok. More used and messy than new and clean. Fine for my standards but I can see another person not being satisfied with the “hygiene” standards. I know Uber has higher standards when it comes to that stuff. And when it came down to paying with a credit card, oh boy, do we go back to the stone age. First the driver was reluctant, then he had to set up his machine, then he had no paper, then it wouldn’t print my receipt…on and on. Out of my pity and desire to help, I almost told him that there’s an app for that stuff. You would think that after the Uber disruption and the pandemic that drivers would have figured out the credit card thing. Who carries cash?

As for the local taxi app, it wasn’t functional. It just wasn’t working. It was broken. I couldn’t get a cab and their GPS map thing wasn’t working. The whole thing was bad. It looked like a school project put together at the last minute. There’s no point in addressing the design. Because the app wasn’t working, I ended up calling 3 different local companies. The first one didn’t pick up. The second one went to voicemail. The 3rd one had the wrong phone number listed!? Archaic. I think they are just trying to lose or they completely gave up. It almost looks like these professional sports teams that are tanking on purpose with the hope of drafting that number 1 pick but in this case in the hope of a government bail out?

This is a broad generalization, but local taxi companies in cities operate as a cartel. You have 2-3 companies dominating the city. Business was good so there’s no need to up their game. None of them invested in technology. If it ain’t broke, don’t fix it. But the taxi industry is broken.

The taxi industry was ripe for disruption. Innovation is what happened. You have an old stodgy industry anchored in their comfortable ways of doing things. Uber saw an amazing opportunity to bring innovation to this antiquated industry. The threat to the old school taxi industry: A phone app. Uber has a great app. The service is great. We rate the driver, they rate the riders.

I remember when Uber started disrupting the local taxi game. There was a lot of resistance from the cab drivers. They paid good money for their “medallion” (license to drive a taxi). They basically bought a job, a way to make a living. The medallion could be sold at retirement with the expectation that it would be worth more. But in life nothing is a sure thing. That system was disrupted by a superior outsider with deep pockets that didn’t pay good money for a medallion.

My take: Reimburse the medallion and call it game over. Trying to save an outdated business model that refuses to adapt simple technological improvements is a fool’s errand.

I’m amazed at the strength of the local taxi lobby. They have the support of many politicians. I don’t get it. It’s not like giving rides is a strategic industry of importance. At its core the business is somebody giving a ride to somebody.

Uber is not perfect. The issues are well documented.  Here are some of the drawbacks:

Surge pricing: Your fare is impacted by dynamic pricing. The fare is constantly bouncing around driven by supply and demand. I have seen rates go from ~$15 to $75 to $130 then drop back down in 10 minutes. It’s annoying but I get it. Higher prices help encourage more drivers to go online and accept trips, which bring down prices. If prices are too low, there are no drivers. But as a consumer, we like flat/fixed fees. It’s easier to budget and provides certainty. On that point, I give local taxis the advantage.

Lack of presence in rural/regional areas: Uber was built for the metropolitan areas.

Restricted areas drop-off/pick-up: Because of by-laws, let’s say you were going to airport, Uber can only bring you to designated area instead of your carrier

Gig economy: There’s this whole debate over gig workers. There are good and bad points. I talked to two drivers with over 5,000 trips and they basically said they “game” the system. They don’t follow Uber driver’s recommandations. They said that Uber’s recommandations probably work well in a major metropolitan but not for a regional city. They developed their own way of making it work. The hustle economy is not for everyone.

As for Lyft, Uber’s main direct competitor, I kept comparing the fares between Uber and Lyft. They were more or less the same. The app is fine. But I didn’t end up getting a Lyft (I did maybe 3 years ago) So on that topic I don’t have much to add.

We should embrace innovation. That’s how we progress. That’s how society gets better. End the pain. Pull the plug. Stop protecting the unprotected. Reimburse the medallion and call it game over.

Random Post, Berkshire Hathaway AGM, Crypto, Twitter

Warning: This is going to be a sloppy post. I’m at the airport typing on a tiny keyboard.

Berkshire Hathaway AGM

On the topic of traveling, I will be at the Berkshire Hathaway Annual Shareholder Meeting. If you have told me two years ago that I wouldn’t fly for over two years I wouldn’t have believed you. Yet here I am.

Last week I attended the Fairfax AGM in Toronto. It was great. If I have the time I will try to write a post on it.

I missed traveling. It’s good to meet up and exchange with like minded people. It’s important to be exposed to different things, to new ideas, to a different perspective. It’s a good thing to be worldly. Zoom, you won’t be missed.

If you are in Omaha, come say hi.

I’ve a bunch of topics I want to get to. I might break down the post in two parts.

First, the polar opposite of what Berkshire stands for: Cryptocurrency.

Second: Twitter.


I haven’t written about crypto currencies in a while. I follow the space on and off. Call me a curious observer. In a sense, what they are trying to accomplish is amazing. At the same time I roll my eyes at the level of stupidity in the space.

The crypto space talks a big game. They are dreaming big; “We are going to revolutionize the payment systems”, “Defi is going to take down the banks”, “The users are going to be the master of their data and destroy Mark Zuckerberg!” And I’m like “wow, this is massive, it sounds amazing, show me what you got”, and they show you Crypto Kitties. Of course they get the last laugh because they are getting rich off that digital stuff.

People are spending millions on digital cats and it’s supposed to makes sense.

Maybe I don’t get it. Some do. Good for them. It has that early Internet day feel to it, when it was the wild wild west. Many didn’t think this Internet stuff was serious. We are in the early innings of this blockchain stuff. This post might not age well. But that’s kind of what you want, right?

In a nutshell blockchain can be thought of as a base layer on which other things can be built on top of, including bridges/connections to smaller and more experimental cryptocurrency projects, such as Ethereum and others.

Decentralized exchanges are a type of app that runs on top of one or multiple blockchains, in some cases connecting blockchains together, allowing users to swap their cryptocurrencies without the need for a middleman. Well you would think so.

So far, crypto hasn’t live up to the hype. The big dreams are still dreams. But it has also fail on some of its basic stuff that crypto promotes. Like anonymity (Freedom Convoy people and criminals are finding out the hard way), decentralization (it’s more centralized than ever), and away from government reach. If crypto can’t be used to evade Russian sanctions, what is the point? Plus everyday there’s some scam where people are losing everything.

If cryptocurrencies can’t have their moment in the sun when the entire Western monetary system is called into question, it may be time to call it quits.

The Middleman or Woman

Look I don’t like banks as much as the next guy. But they are doing a decent job. When you deposit $20, it’s there. Sometimes you just need that “trusted” intermediary. At the moment, from what I read on the crypto space, trust doesn’t come to mind.

Maybe the space will eventually mature. But right now users need Coinbase, which is a pain for developers. Coinbase makes access to crypto convenient, but it also undoes essentially all of the benefits of crypto. At a very basic level, it takes decentralization and re-centralizes it.

Which brings the question: Is Coinbase the AOL of crypto? You kind need it as a friendly way to introduce people to crypto and eventually they will move on to something better?


My 2nd topic.

First Twitter Post

Last week Elon Musk was teasing us. Now it’s a signed agreement.

I didn’t think it was going to happen. I though he was bluffing/trolling. I also didn’t expect the board to agree. This was a stock in the high $70s last year and they just accepted $54.20.

I still have my doubts that this transaction will close. Twitter is trading at $48.75, below the agreed price of $54.20. It’s a nice little arbitrage play. A 11% return if the transaction closes. At gap this big suggests that the market has some doubts the the transaction will go through.

Twitter co-founder Jack Dorsey said Twitter wouldn’t have to answer to Wall Street under Musk. I’m not sure about that. Part of the money for the deal is from Wall Street. Probably a loan with his shares as collateral. So if things goes south, he’s exposing himself to a margin call. But let me be clear, I don’t know the terms. That’s just me speculating. (Correction: I was reading that Musk pledge his Tesla shares)

Maybe Musk will get cold feet? Or maybe the board turned the table on Elon. “You want this mess? Please take it away from us.” Like a poison gift.

Musk runs Tesla, SpaceX, the Boring company, and other stuff. Companies trying to solve big problems. Why would he want Twitter?

Musk has promised to turn Twitter into an unfettered free-speech zone, a move that he has said is “essential to a functioning democracy.” He wants to make Twitter some kind of freedom beacon. Sounds great. Very nobel.

But what does that mean? Let Twitter become the mecca for Covid psychos, crypto loonies, quack science, Russian agents, racists and will destroy the platform. Good luck getting users and advertisers.

Musk’s pursuit sounds more like a crusade than a business decision. He’s on record as saying he’s not in it for the money. “I don’t care about the economics at all,” Musk said at a TED conference when the deal was announced.

Musk keeps refering Twitter as a digital townsquare. It’s not and shouldn’t be. Twitter is a private platform. It’s more a living room than a town square. Would you yell stupid crap in the living room? No you want decent conversation.

Twitter is 16 years old. It has underperformed all the other major social network. It’s growing at a slow pace. It has been eclipse by new comers, like Tik Tok. It’s easy to think somebody can do a better job. Twitter still has 229m daily active users. That’s something to work with.

When you are worth $300b, $44b is portfolio diversification. Or play money I guess. Rich people do stupids things with money all the time. Maybe this is his equivalent of buying the Dallas Cowboys or some Premier League soccer team. I mean football for my European readers.

Allright that’s it. I’m tired of writing on a tiny keyboard. I apologized for the unpolished post.