HF&G - FEBRUARY 2021 - ISSUE 13 - CAN'T PLAY BASEBALL IN A HURRICANE
This month we look at Crypto Tulips, Double Standards in Covid-Variant naming, and how to use our monthly portfolio review. New stock pick only available to paying subscribers.
Are you frustrated as an investor? Are you holding non-tech stocks which are just not “moving” while SPACs, IPO’s, crypto, and tech bellwethers rocket higher on a daily basis?
You are not alone!
The liquidity explosion in capital markets makes analysis of company fundamentals almost an afterthought. Well-known investor Marc Cohodes put it as follows:
“You can’t play baseball in a hurricane”.
Hereby he means that the “hurricane” is G7 central banks, pumping trillions of dollars which are creating an upward storm in many financial assets, and analyzing businesses via fundamental metrics “playing baseball” is taking a backseat. He made the comments in the aftermath of the GameStop saga.
There are also assets that are steady during a hurricane: and here we look at Gold. Crypto bulls will advocate that “Bitcoin” is the new gold. HF&G believes gold and crypto cannot be compared as they serve a different purpose.
Central banks might come to see Bitcoin as the enemy (as they don’t control it) but regulatory bank changes might change central banks’ stance towards gold for the better.
On the gold front, HF&G recommends one reads what Basel III rules will mean for gold going forward. Yes, this is old news but HF&G feels it is not widely reported and its impact may not be understood. The implementation of Basel III starts tomorrow (1 March 2021).
What does Basel III mean for banks’ gold reserves?
Currently, paper gold is not a first tier asset. Only fully allocated physical bullion that has no counterparty risk attached qualifies as a first-tier asset. Basel III rules coming into effect in March through to January 2022 will eliminate any valuation haircut.
The new rules will require a provable 1:1 ratio of fully allocated gold reserves, with no counterparty risk. Under Basel III rules, every central bank will be able to revalue its physical reserves higher, from a current 50% haircut into a fully cash exchangeable asset.
HF&G thinks that global central banks will be very incentivized to have a higher gold price as they own a lot of gold which is valued at 50% of market value and this will be revalued. As a reminder: how the US Fed’s balance sheet has exploded over the last 100+ years.
TULIPS NO MORE?
Since HF&G recommended having some crypto exposure in August 2020 our three picks have all gone up substantially. Our trusted crypto-guru and long-term $LINK marine Señor BenV is right to take the victory lap. BenV proudly shared this interesting chart chastising HF&G for calling them “Crypto Tulips”. 1-0 for BenV.
Fair enough, maybe the term Tulips does not apply and we should re-phrase it “Crypro Stomach”. You need a strong stomach to hold any crypto as the day-to-day and week-to-week gyrations can be gutwrenching. Therefore we continue to advocate only allocating a small part of your portfolio to crypto as most investors like to sleep at night.
ONE YEAR LATE + DOUBLE STANDARDS
Imagine you are in a car accident at an incredibly busy intersection. There’s a lot of damage to property, a massive pile-up of cars/trucks/passengers with a large impact on the community. The scene is chaotic. Police need to arrive but more importantly, the insurance experts need to arrive to determine what are the origins of this crash and who is at fault.
Now imagine, the insurance experts arrive 12 months after the fact. How useful would that be? Would they find something or would everything have been cleaned up?
This is exactly what the WHO is doing in Wuhan. The World Health Organization went on a Covid-19 fact-finding mission 12 months after the fact. HF&G hopes the inspectors at least had a good Wuhan tourist guide because other than some landmarks absolutely nothing will come out of this one. Luckily, the walk from the Seafood market (official origin of Covid-19) to the Wuhan center for disease control (conspiracy origin of Covid-19) was less than 300 meters apart.
As discussed last month we are still in the grip of the British variant, the Brazilian variant, and the South African variant. So all of a sudden it is “OK” to link the virus to a country but when Trump and others referred to it as the “WuFlu” or “China virus” this was off-limits and we ended up with meaningless “Covid-19”. Senior Citizen Joe has now even officially banned the word “China Virus” (source: Newsweek.com)
It is just HF&G or is the double standard just glaring? Why do the Brits, Brazilians, and South Africans all of a sudden get singled out? These mutations could have originated somewhere completely different and just have been detected at a much later stage.
Lastly, on Covid we get shocking revelations from Welt Am Sonntag. Note: this is one of Germany’s most respected newspaper and it is hard to accuse them of being a conspiracy think-thank. The newspaper revealed that the German government forced scientists to write a pre-determined outcome with regards to Covid-19. The goal was to instill maximum fear so the “lockdown” measures would be accepted by the general public.
HF&G stance on the gigantic overreaction to Covid-19 remains unchanged. Don’t believe HF&G? Just read how the WHO suggested to deal with a pandemic in 2019. In this official 2019 WHO document it advocates against border closures and travel restrictions.
PORTFOLIO OVERVIEW
Overall HF&G’s picks have continued to perform satisfactory: our losers are down small and we have multiple multi-baggers after 12 months. Not a bad outcome. The list below speaks for itself.
Want more ideas like this? Take a subscription for less than 1 USD/day. One good idea will literally payback for itself multiple times over.
Finally, HF&G has received some reader questions/feedback: how do we use the above table?
Every investor is different. Some might only look for high-yield ideas, while others would want more high-risk idea generation. If you are risk-averse focus on the right column above (Risk Level) and avoid all stocks with HIGH risk.
The funniest question remains: do you really believe in these companies? Obviously, we do think they represent good value from all the publicly available information that is available today. HF&G would not write about them if they were not attractive after careful analysis. Will we always be right? No! There are bound to be hit and misses along the way but so far our gainers are consistent and are solidly outperforming most benchmarks by a mile.
HF&G will be releasing this month's pick only to paying subscribers. Teaser: the stock trades in Singapore will pay a hefty special dividend during 2021 and a corporate event is bound to unlock more upside as of 2H21 and into 2022.
That’s it for this month. Enjoy reading Warren Buffet’s annual letter and happy hunting in these volatile markets.