Whitney Tilson’s email to investors discussing that Bitcoin is fundamentally worthless; America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work.
[bufffett]
Q3 2020 hedge fund letters, conferences and more
Bitcoin Is Fundamentally Worthless
1) Almost exactly three years ago, in my daily e-mail on December 16, 2017, entitled “I’m calling the top of the bitcoin/cryptocurrency madness,” I wrote:
In the past week, I’ve been asked about bitcoin by a parade of the least-knowledgeable investors imaginable – and the only times such foolishness has happened before in my 18-year career were at the peak of the Internet and housing bubbles, so I’m calling a top right now.
Blockchain technology is real in the same way that the Internet was real back in 1999 and housing prices tend to go up in the mid-2000s – in other words, a good idea taken to absurd extremes is NOT a good idea!
That said, the greed and speculative nature of humans is inherently unpredictable, so for all I know bitcoin could go to $1 million.
But I do know the ultimate outcome: smoldering rubble, a lot of finger-pointing (where were the regulators?!), and a lot of tears and empty bank accounts, especially among those who can least afford it.
I nailed the top – $20,000 – to the hour. It was a great call, as the price of bitcoin crashed by more than 80% over the next year to less than $3,200. But since then, bitcoin has been on a tear and just surpassed its previous 2017 high, as you can see in this chart from CoinDesk:
In light of the incredible run-up since March, have I changed my view that bitcoin and other cryptocurrencies are nothing more than techno-libertarian pump-and-dump schemes? Or, as Warren Buffett said, “probably rat poison squared?”
In a word: no.
Yesterday, my friend Anton Wahlman published an article explaining why: Andrew Ross Sorkin, Here Is Your Bitcoin Bear Case: $0. Excerpt:
This was my favorite line:
Bitcoin bulls point to the scarcity of Bitcoin: Only so-and-so can be “manufactured” inside a computer. Let’s take that at face value for a moment.
Why should something be valuable just because it is scarce? I can burp only a limited number of times per day. That doesn’t mean that my burps are worth anything to anyone.
Looking outside a single Bitcoin, the notion that there can only be one cryptocurrency, and that only that one must hold value, is also absurd on the face of it. There is no limit on how many cryptocurrencies can be created.
That said, I would never short any cryptocurrency – ironically, for the exact same reason I would never own one: there’s no intrinsic value. Therefore, it can literally trade anywhere – $100, $1,000, $10,000, $100,000, or even $1 million! You never want to be short an open-ended situation like this.
Nor do I think cryptocurrencies are going to collapse imminently, as I did three years ago. Unlike then, these days I am not being “asked about bitcoin by a parade of the least-knowledgeable investors imaginable.” In fact, quite the opposite: more mainstream people and firms are getting involved, which may give the sector legs for a while, as this Wall Street Journal article notes: Bitcoin Exchange Coinbase Files for Initial Public Offering. Excerpt:
Bitcoin has begun to win mainstream acceptance this year. Investors including Paul Tudor Jones and Stanley Druckenmiller and companies such as Massachusetts Mutual Life Insurance have disclosed bitcoin holdings in recent months. Other companies including Square (SQ), PayPal (PYPL), and Robinhood Markets have opened up their platforms to crypto trading.
In summary, I think you will lead a happier and more prosperous life if you avoid cryptocurrencies altogether.
If, however, you insist on allocating a small portion of your portfolio to this sector, at least find an experienced expert to guide you – like Eric Wade, the editor of Stansberry Research’s Crypto Capital newsletter. Here’s a picture of us when I had lunch with him in Los Angeles 13 months ago:
It’s a risky sector (which Eric of course acknowledges), but he looks for the cryptos that are designed for a specific, useful purpose… such that they have a real chance to survive, endure, and grow. That’s what I would do if I were investing in this corner of the market.
You can learn more about Crypto Capital here.
America’s Biggest Companies Are Putting Thousands Of People Out Of Work
2) This article in Wednesday’s Washington Post is a poor piece of journalism: America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work. Excerpt:
With few exceptions, big businesses are having a very different year from most of the country. Between April and September, one of the most tumultuous economic stretches in modern history, 45 of the 50 most valuable publicly traded U.S. companies turned a profit, a Washington Post analysis found.
Despite their success, at least 27 of the 50 largest firms held layoffs this year, collectively cutting more than 100,000 workers, the Post found.
The data reveals a split screen inside many big companies this year. On one side, corporate leaders are touting their success and casting themselves as leaders on the road to economic recovery. On the other, many of their firms have put Americans out of work and used their profits to increase the wealth of shareholders.
There are so many problems with this article that I scarcely know where to start…
First, regarding the fact that “45 of the 50 most valuable publicly traded U.S. companies turned a profit” doesn’t tell us anything about how much their profits have declined this year (substantially, in most cases), nor address the obvious fact that one of the major reasons many were able to turn a profit amidst the pandemic is because they quickly cut costs – including laying off workers.
Let’s take a look at one case study the article highlights, one of my favorite companies, Berkshire Hathaway (BRK-B). The article notes that:
Berkshire Hathaway raked in profits of $56 billion during the first six months of the pandemic while one of its subsidiary companies laid off more than 13,000 workers…
In an e-mail, Berkshire Hathaway chief executive Warren Buffett said he leaves all decisions at his subsidiary companies to the management of those companies. Airplane parts maker Precision Castparts, which Berkshire Hathaway acquired in 2015, was forced to cut staff due to a severe drop in demand for new planes, he said. Buffett added that he has given $2.9 billion of his personal wealth to charitable causes this year.
With nearly 100 subsidiaries, Berkshire is one of the world’s largest companies. It’s a collection of wonderful businesses, yet it wasn’t immune from the pandemic, as operating earnings were down 14.5% in the first three quarters of this year. But it was still highly profitable, earning $16.9 billion during that period (though nothing approaching the laughably wrong “$56 billion during the first six months of the pandemic” that the article claims).
But Precision Castparts’ business of making airplane parts was hammered by the pandemic, so it was forced to lay off 13,000 of its roughly 30,000 employees.
This is an example of corporate evil?
What, exactly, are the authors of the Washington Post article proposing? That Precision Castparts should have kept those employees (for whom there is no work) on the payroll, thereby exacerbating the company’s losses – because it’s part of a larger company with deep pockets that could afford to do so? Did I miss the memo in which Berkshire (and its corporate brethren) were designated as charities?
To be clear, I am 100% in favor of this country – the wealthiest in the world, by far – taking care (generously!) of the tens of millions of hard-working people who were suddenly laid off through no fault of their own. But that’s the job of the government (though it chose to provide some of the safety net to small businesses via the Paycheck Protection Program).
The article also blasts corporate America for returning cash to shareholders via dividends and share repurchases during the pandemic:
The top 50 firms collectively distributed more than $240 billion to shareholders through buybacks and dividends between April and September, representing about 79% of their total profits generated in that period. Except for the five companies that didn’t offer buybacks or dividends this year, no large firm came anywhere close to spending as much on coronavirus relief efforts as they did paying out investors.
Companies often buy their own stock during difficult economic periods to signal to the market that management still believes in their prospects. But those buybacks also mean companies are taking money that could have been invested into employees and innovation and giving it to shareholders, who tend to be high-income individuals and families.
“This is a global crisis but the big companies are not treating it as one – they haven’t skipped a beat,” said William Lazonick, an emeritus economics professor at the University of Massachusetts at Lowell. “Apple gave back tens of billions of dollars to shareholders,” he added. “It’s sick.”
I don’t see anything “sick” about this. Apple (AAPL) and many other companies are drowning in excess cash – even after they’ve “invested into employees and innovation” – so it’s perfectly reasonable for them to return this cash to the owners of the business (shareholders).
There are many, many things for which corporate America should be criticized – but laying off employees amidst the pandemic, while also being profitable and returning cash to shareholders isn’t one of them…
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