23 Nov 2021

MST Marquee Research

I am afraid I am a little worked up at the moment. I don’t think my letter today will make me too many friends but I need to get a few things off my chest. $200 billion of company market capitalisation on the Australian Stock Exchange is supported by companies with zero profits. Great research by Hasan Tevfik at MST shows that by investing $100 in a synthetic index of these non profitable companies going back to 2000 would be worth 35 cents today. That is a loss of more than 99%+

Then you have a small group of guys who made $500m with the IPO in Australia of Siteminder which now boasts a market cap of $2billion. Its a platform for managing global hotel bookings with 32,000 properties and 400 websites. The business has lost $50m since 2019 and barely has revenue above its 2019 levels. Its trading at 18x historic revenue, read again that is revenue as it doesn’t have profits to calculate a multiple.

I don’t wish to dump on platforms as I believe strongly in the value of platforms representing 2 sided markets creating win-win, which brings me to CoinList and their recent $100m raise at a $2 billion valuation. One big difference here is that it is at least profitable. Its a 2017 platform that serves as an exchange and primarily a place for Initial Coin Offerings (ICO). I don’t know enough about the specifics of the platform but I am starting to get a little bit concerned with the frothiness of the crypto market.

Finder.com a comparison website and money app valued at $770 million is offering a 4% return for investing in their Australian “stablecoin”. They claim it is “not a banking product, not a savings account, but offers a stable, deposit-like return for pledging fiat into crypto”. The TrueAUD stablecoin Finder is promoting is created by TrustToken a Silicon Valley backed by the biggest names in the industry. I have no problem with the stablecoin concept, naturally I am assuming here the stablecoins are backed by the underlying. If only Tether could prove that it is adequately backed by the USD it professes to represent. I am also not having a go at TrustToken. I am however having a go at a product that is being sold to represent a currency like the Australian dollar in digital form. I don’t know about you the last time I checked currencies don’t pay a dividend or yield and neither does gold or Bitcoin for that matter. So clearly they will need to be trading to generate the 4%. They say if they don’t make profits trading they will still pay the yield (with what money asks silly me).

In case you missed it there was a debate between brilliant loud mouth Peter Schiff and Alex Mashinsky on the merits of bitcoin versus gold. The interview turned quite heated with Schiff questioning Mashinsky on how his company Celsius was able to pay a 5% yield on investors Bitcoin.

Guys the point I am trying to make here is that we are in a very dangerous state when people are promising unsustainable returns, i.e. without taking risks that the public are not properly aware of. We are seeing way too much speculation in companies and platforms that have no chance of ever producing the earnings to justify the lofty valuations. Yes we are in a new era of sort where technology is once again advancing us at a very rapid rate. However the fundamentals on a global macro, geopolitical, socioeconomic level are simply not conducive to this alchemist state of the economy.

You can see below Bitcoin is under pressure we are at the 20% from all time high support level. I would bet anyone that we take out that level very soon.

I am tempted to write about the crazy dictator from El Salvidor. I actually think the guy has lost his mind. President Nayib Bukele is a 40yr old pip-squeak narcissist who is now committed to building a Bitcoin City. This is a guy who fired all judges over 60yrs old and replaced them with 5 Supreme Court judges. In case you never noticed the world has been swept up by an archetypal wave of Midas (maybe I will write about this on the weekend).

Bukele thinking he is a rockstar

I noticed reading the paper today many people being quoted that I know who were starting their current rise to prominence around the time I started my last company in 2016. It reminded me of how the startup scene and the business world loves to hear from CEO’s of companies. I know I do like to hear from these people as well but the problem with so many of these Summits, Conferences, Hangouts… is that the CEO is essentially reciting a script.

The script has been rehearsed to make sure it puts the company and the CEO or company spokesman in a favourable light. It is not knowledge sharing its sales. I am writing to myself more than anyone else as I am starting a new business and I can see the temptation to want to be a speaker at every opportunity to say why “my company” is the best place for you to be invested in as a customer or investor. I am writing this because when I read the paper today I was totally bored an uninterested in listening to what these so called experts had to say. Please shoot me if I ever become one of those “talking heads”.

Big News, China’s Central Bank is signalling a rates cut. If you have been reading my letters you will know that i have been speaking to the economic weakness in the Chinese economy and the precarious financial state of the property market. Forecasts are predicting less than 5% economic growth next year. That is pretty serious. I was thinking about the number of major global funds that have pulled out of investing in China due to concerns of the governments over reaching predilections. I suspect this will weigh heavily during their economic time of need. I am predicting a colder proverbial winter than usual for the northern hemisphere.

Other Big News, President Biden reappointed Jerome Powell as the Fed Chief. Yields on US government bonds took off on the short end of the curve. This is surely going to place breaks on the US economy but all the fiscal stimulus being voted on is going to try its best to ensure more than just a soft landing.

In the end a debt overhang will be a drag unless inflation turns out to be the cure. I am not sure medicine supports the idea of a vaccine with too higher concentrate of the disease being able to cure. I think when drowning in debt, injecting even greater amounts of debt can be lethal. Take a look at the growth in public debt since 1967 in the US. So far we have continued to kick the can down the road and we enjoy incredible prosperity. Can it last??????????

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