Timeless Bitcoin

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In the Mayan empire, the cocoa bean was the unit of exchange.  The “Early Preclassic Maya” years walked through the late 1800s BC, while “Early Classic Maya” danced out to 600 AD. The Mayan kings of the city-states kept strict control over the cocoa bean supply. It was hard to grow. A supply growth under arrest, sound familiar? Cocoa crops failed all the time. And they had to be specially dried and fermented in a certain way to be valid legal tender. In other words, a cocoa bean required a lot of energy and was of limited supply. Like Bitcoin.

XBT Fails at the 200 Day
As the mad mob chases the brass ring, the drawdown brings a reality check. It took Google nearly 24 years to reach a $1T market cap, XBT just twelve years with the last $500B of gains this year. What does that mean? The beast inside the market is telling us there is a lot of capital that owns Bitcoin at MUCH higher prices. There is a substantial amount of weak hands in XBT that thirsts every minute of every day this week, “to get even and get out.”

Offered to the Kings

Keep in mind, there was a big difference. If you were caught growing cocoa beans illegally,  there was a good chance you’d find yourself on top of a pyramid with your living heart cut out of your body by a blood-encrusted priest (it was taboo to wash off victims’ blood) and have your still pumping heart offered up to the sun. The hot chocolate was the drink of kings. It was a special treat for the rest of the population. They literally drank money. Naturally, if a particularly expensive war came to a fruitless draw, the kings would release more of the cocoa beans than usual, i.e. they would debase their currency.  When a century-long drought came, the Mayans released so many cocoa beans they became all but worthless, the middle class was wiped out and that contributed to the Classic Mayan Collapse. Well, at least that is one hypothesis.  In any case, the real point is, the  Mayan kings watched their money supply like hawks. If someone had invented a virtual cocoa bean, he would have found his heartless body tumbling down a long flight of pyramid steps into a rapturous crowd.
And this brings us to Uncle Sam and Form 1040, which, after establishing your name, social security number, and contact information,  asked if you had traded any virtual currency during the past tax year. Then they asked about your deductions and normal income as per usual.  No government wants to see serious competition to its currency that it can’t control.  Sounds to us like the obsidian knives have been sharpened.


AMC Credit vs. Equity, Telling

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Broken Markets, Beyond Silly

Now we have seen everything. AMC´s 5.25s due in 2025 closed down a quarter-point at 79.796 cents on the dollar vs. the AMC equity 95% higher at $62.55.

“After 30 years of trading stocks and bonds, 95% of the time I can assure you, credit leads equities. That´s a 12.25% yield to worst vs. 5 year Treasuries at 0.79%. Sell Mortimer, sell AMC equity.”

Larry McDonald, Creator of the Bear Traps Report.

Bonds are Telling You AMC Shares are Smoking in the Dynamite Shed
AMC 5.75% due 2025 are offered at 81 cents on the dollar. Meanwhile, the stock is trading at all-time highs.  Disconnect.  In the old days when capital structure arbitrage actually worked, you’d buy bonds and buy puts in the dollar amount of the next coupon payment if you thought bonds were worth par under a bankruptcy scenario.  The put expiry would be for the month the next coupon is paid. You’d play this game every six months until it worked. But markets are so screwed up who knows if it would work anymore. What we know for sure is that the bond and the stock disagree about the risks inherent in AMC’s future.  


November 2019

Bonds 96 cents
Stock $9.50

May 2021

Bonds 80 cents
Stock $40.04

Central Banks and Market Dysfunction

With today’s endless central back accommodation – Lehman Brothers NEVER would have failed, fact. That´s what “un-free markets” have become in a world where Adam Smith’s “invisible hand” has been tied behind his back. When the cleansing process of the business cycle is NOT allowed to function over longer and longer periods of time, the moral hazard buildup will trigger a transformation into another serpent, another beast. The next Lehman awaits, just a different flavor, dressed up in unrecognizable packaging.

The fundamental problem with aggressive accommodation from central banks comes down to a market foundation built on moral hazard. Each day, week, and month the Federal Reserve provides more juice, the leverage piles up in pockets all over the planet. Of course, central bankers often do not see the toxic leverage until it is far too late. We are led by academics, NOT proper risk managers. Herein lies the conundrum. While providing excessive accommodation (the Fed is currently making $120B of asset purchases monthly), when traditional shocks arrive – as they always have – the loose fiscal policy will be untenable and looser monetary policy, inconceivable. The market is ill-prepared today – far less so than under normal conditions historically.

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Shares Complete with Butter, Comedy

Beginning today, shareholders can sign up to receive special offers and investor updates by registering at amctheatres.com/stockholders.

“Investors who sign up starting today and in the coming weeks will be awarded with an initial free large popcorn usable this summer when attending a movie at an AMC theatre in the United States. The offer will be made available in their AMC Stubs rewards account.” AMC