Get ready for the biggest short squeezes of all times – Bitcoin

It seems pretty obvious to me that talking about Bitcoin as the “biggest short of all times” is only going to end up as one way – the biggest short squeeze ever known in the history of mankind before finally busting down on a slow journey to nearly zero.

I think the last time this happened was when the Hunt brothers were partially successful in cornering the silver futures market, before they lost control and it all collapsed underneath.

Another great example was when Porsche nailed short sellers of Volkswagen stock in 2008 by accumulating a hidden option to acquire 75% of the company, with the German state owning 20% – leaving precious little for short sellers to cover with.

The real issue here is marginability of Bitcoin futures – it doesn’t even matter if margin rates are 35% or 100%, if Bitcoins trade from $10k to $100k in a three-day period, we will start to see FXCM-type action in the brokerage sector and derivative clearing, just as the chairman of Interactive Brokers promised.

Once the short interest in bitcoin futures starts to rise, it is like adding gasoline to a six tonne pile of gunpowder and expecting everything to be all right while lighting up a cigarette next to it. Good luck.

This is starting to make gold look increasingly like a good bet.

Just for full disclosure, I’ve known about Bitcoin since it was under a dollar a coin, and clearly I was taken aback at how it has morphed into present day. I’ve been outright incorrect regarding pricing predictions.

Further disclosure: Have not owned, nor do I intend to take any positions on bitcoins, which is the closest thing one can get to legalized gambling.

Little activity to report

This quarter is looking to make records for low activity on my part. I’ve been attempting to scan the markets for various opportunities but have been coming up with blanks.

In general, most of the debt markets out there are trading out of proportion for risk. Blow-ups on unsecured debt like Toys R Us continue to be a reminder that something can go from 95 cents to 30 in short order.

The fossil fuel industry (specifically natural gas production) appear to have headwinds, and despite rumblings of a recovery in the crude oil market, I still do not see anything on the equity side that appears to warrant action at this point.

Retail has also been killed, but in many cases there is a lot of substance to the story – there is a generational shift occurring for physical shopping, similar to the digitization of newspaper media.

Indeed, it appears that two industries have been dominating the mind-share for investment capital: Marijuana and Blockchain technologies, neither of which I have any interest. I note with amusement that Village Farms (TSX: VFF) appears to be attracting disproportionate interest due to its announcement that it is preparing to grow marijuana in its greenhouses (presumably in British Columbia and not Texas!). I have no idea how far up the market can take these stocks (similar to Bitcoin itself), but it can always be father than one can believe is possible, let alone rational.

The good news is that when a few sectors dominate the allocation of capital, it usually means that other sectors do not receive the same attention and these can be scoured for opportunities.

Despite my antagonistic view on the general marketplace, most of my cash is deployed in cash-parking vessels and are earning incremental yields while I wait for higher risk/reward opportunities. Although I do not think a market crash is imminent, if one did occur, I would not mind.

Genworth MI’s slow ascent

Genworth MI (TSX: MIC) reports their third quarter earnings on Thursday.

The stock has been on a mild uptrend as of late:

I suspect in absence of anything material in the Canadian real estate market, that the upcoming quarter will be financially positive and the market has already anticipated this.

Genworth MI is also likely to announce an increase in their quarterly dividend. They also executed on a modest share buyback in the previous month.

Probably the biggest amount of uncertainty would come from the parent company, Genworth Financial (NYSE: GNW) where it is not apparent whether their merger will receive sufficient authorization from the federal government authorities to proceed or not. Because they have an upcoming US$600 million debt maturity in May 2018, things are getting a bit tight financially – while their holding company does have around $800 million to work with, an analogy after $600 million of that goes to pay the debt would be like running the automobile with no bars of gasoline left on the tank gauge.

Their 10-Q states, “In the absence of the China Oceanwide transaction or in the event we are unable to refinance our debt maturities, we expect we would be required to pursue asset sales, including potential sales of our mortgage insurance businesses in Canada and Australia and/or a partial sale of our U.S. mortgage insurance business to service our holding company debt.”

Will Genworth MI be sold? It would be an easy US$1.6 billion for them or more depending on how much of a premium they receive…

ROOTS IPO – Completely over-valued

Roots (TSX: ROOT) went public today. Look at the chart!

The only shock I have at today’s market reaction (it is trading down $2 from its initial price of $12/share) is how the institutions managed to find enough buyers at $12 to actually complete the sale. That was one heck of a sales job considering that anybody that is able to read a financial statement (do any financial institution managers ever read these prospectuses anymore??) would steer clear of this one. It isn’t even close in my estimation.

Conclusion: Another money-losing, negative book-value entity that has a huge uphill climb if it is to ever return any dividends to shareholders. I even love the $20 million distribution on May 2017 that Searchlight took out of the company before going public even though they were pushing the top of their credit limit (which was expanded on April 19, 2017). Will Roots go into creditor protection in a couple years?

There are some IPOs that make me think and wonder whether they’re worth purchasing (at least they’re worth the research). This one is an easy, easy pass.

Interactive Brokers CEO Thomas Peterffy on Bitcoin

Just reading the Interactive Brokers Q3-2017 conference call, we have the following amusing dialog between an analyst and CEO Thomas Peterffy:

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Mac Sykes
Understood. And when I think of IBG, I think of technology innovation, a broad suite of global product vehicles and as you mentioned, sophisticated traders. And love it or hate it at this point, Bitcoin’s market cap is now about 1/3 of JPMorgan’s. So 2 questions on this. Have you considered accessing this marketplace? And number two, have you heard client feedback asking for this kind of access?

Thomas Peterffy
The answer is yes to both, and the result is that we’re not going to do it.

Mac Sykes
Got it. What would make you just change your mind?

Thomas Peterffy
If the United States of America said, you know, besides dollars, we also have Bitcoins, and you can pay your taxes in Bitcoins, we would be the first one to go and do it.

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Ouch. Interactive Brokers is a brilliant, brilliantly run company, but the public entity is a company that only owns 17.4% of the actual operation. It is primarily for this reason and valuation that I am not an investor, but it is up nearly 50% over the past half year and strategically I think they are hitting every correct button in their business execution.