YouSaid · the spoken record

Michael Kao

lines on the record: 103
first: 2022-06-06
most recent: 2022-06-06
sittings or episodes: 1
sources: podcast

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“The both converts are deeply out of the money. And so you're going to see massive vault. And that's why I put it on. So just a tactical trade. But I thought, you know what, I've been tweeting about this for so long. And basically, have had like zero skin in the game. And so I finally put a little bit of money where my mouth is on this one. So just for fun.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Credit deterioration in that distress zone makes it so that if you're a convertible arbitrageur, it's nearly impossible to hedge because on the downside, your credit losses are going to massively outstrip what the equity, what your equity can do. You could be on a 300 or 400% delta and still be under hedged. But then when there's a short covering rally caused by whatever all of a sudden you're 400% short is going to be a massive overhead. So you're just going to see crazy, crazy vall on the stock for the foreseeable future until the stock recovers back to like 500 or 600, then you're going to see it calm down because it'll be at least one of the converts will have moved out of the distress zone. But at $244.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so yeah, exactly. So I hate talking about stuff where I actually have an interest in it. And up until last week, I had no position in Bitcoin or in microstrategy. As of last week, when micro strategy stock ripped because of what I think of as negative gamma short covering, I put on like a put spread in microstrategy. So I do have a position in it, but it's not material. I just think that it's interesting. So one of the things about negative gamma is that when you are in the distressed zone, you will see the stock make massive gyrations both on the downside and on the upside. And that is because, you know, if you go back to that chart that I keep talking to, right, the steepness of”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“No, you're not missing something at all. I wrote a thread about exactly that. And it's called MSTR More Real Options Thoughts, April 29th of 21. I basically said, yes, technically the answer to your question is yes, but practically speaking, the company is 99.9% incentivized the same way as investors. So even though you could argue that from a narrow zero sum perspective, the bond issuer wins if bond investors lose and the real put gets exercised, right? But, you know, but the thing is, what company's CEO issues a bond to win from that perspective?”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“It just short put optionality that is a huge problem. Correct me if I'm wrong. Isn't that huge problem borne by people who own the convertible securities and not micro strategy itself and not the equity holders of micro strategy? Or am I missing something?”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“He's got time, so it's not as if he's going to get margin called anytime soon. That is totally not the point of any of the threads that I was writing about. What the threads that I'm writing about is that he's basically swapped zero vol asset to 100 vol asset, and you've got now layered in these short put dynamics into his capital structure that are subject to real perception to business reality perception to reality business deterioration issues. So if even the blue chips of the fangs are experiencing major growth headwinds, I can't imagine he is immune to that, especially if you attach the negative optics of having levered his capital structure with Bitcoin. That's my point.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“No, not necessarily. No. I think there are some collateralization. There's a collateralization requirements for the Silvergate loan, but that in and of itself doesn't pose an issue, right? Because, again, he's got time.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Lean, sorry, a springing maturity on one of the converts, if I'm not mistaken, or no, it's something to do with the 0.75% convert tripped its covenant, then it would cause the June 15th, 28 note to also jump ahead. So he's got a couple of these sort of accelerants. But again, that all still misses the point. My point is that it doesn't matter whether it's a 25 maturity or a 35 maturity or a 50 maturity if he trips a covenant and goes into default. That's the main point. That is the main point because perception to reality risk is the key here”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“So, I don't know the actual breakpoints of when he might hit those covenants, but the point I was making is that the maturities, again, back to my comment in a bankruptcy, it doesn't matter what your maturities are. And so that's actually critical. It doesn't matter. This silver gate loan primes everything else, both from a capital structure standpoint and from a temporal standpoint, from a maturity standpoint. The silver gate one is March 23rd of 25. So that actually jumps even in front of the first convert, which matures 12, 15, 25. There's also a, if memory serves, it's buried in one of my threads. There's, I think the senior secured had some spring.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“So that's not to say that it's going there or that Bitcoin is going there, but I think one of the names, one of the names thread that I wrote, sorry, the penultimate thread that I wrote on MSTR is called the MSTR tail wagging the Bitcoin dog. And the point of that was basically to show how if he does trip a covenant, whether it's due to perception becoming a reality risk or Bitcoin itself going down causing him to start liquidating Bitcoin, it could be a situation where it's MSTR, a very concentrated whale liquidating into an illiquid market that actually wags the Bitcoin dog. So I think that's an interesting dynamic. Yeah, so that's my view on MSTR.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Break even value. I guess this is the way to think about it, right? The price, the Bitcoin price, the minimum price that Bitcoin has to be at for all of his debt to be made whole at par in a liquidation is around just below $19,000. If he trips some sort of covenant and he's put into liquidation, right? Bitcoin has to be above $19,000 for the equity to get a dime.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Could be the constraining factor. The other issue that I would point out is that if and when he trips a financial covenant, and again, this was not as much of an issue when he just had $1.7 billion of near zero coupon convertibles, but it's a material risk now that he's got $2.4 billion of debt, 700 of which is coupon bearing, and have financial covenants. So if he trips a covenant, I used to always tell my analysts, look, in a bankruptcy, all maturities spring to tomorrow. It doesn't matter whether you have 2025 maturities or 2050 maturities because in a bankruptcy, all of those maturities need to be met before there's any value to the equity. And so when you look at his balance sheet now,”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“He's not in trouble right now. He's officially, he's not in trouble right now. I feel like I've been misquoted a lot on this, basically, because people think that because I point this potential time bombs in his capital structure that I've somehow said that he's about to lose his business. I said no such thing. I basically said that, look, he's put himself into a corner where perception to reality risk is real.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“The only difference is go back to that chart of the federal balance sheet and let's take a look at where we're at 2020 versus 2022. That's the big difference. I would say that in 2020, look at the federal balance sheet went from $4 trillion to $9.5 trillion. And now we're on the cusp of unwinding that as opposed to just having... Basically, being in the middle of that pump.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“What's kind of scary? And if I were him, I would be losing sleep over this. And I don't understand how some people touted this as a good thing. But when Tara blew up, about 80,000 Bitcoins were liquidated, and that caused a 25% drop in the price of Bitcoin. Some people were touting that as some sign of resilience. I see it exactly as the opposite, the sort of inelastic supply cuts both ways. 80,000 Bitcoins represents exactly 0.4% of total coins in existence. So you're telling me that 0.4% liquidation caused a 25% drop in the price, and that's a good thing. Yeah, I kind of, I would be worried about that if that's my primary treasury asset.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's right. You know, look, if it weren't for the fact that he made this sort of, he painted himself into a rhetorical corner by saying he's going to spend every cent of liquidity on buying more Bitcoin. You know, he would have been in decent shape because he could have managed his balance sheet and maybe deviated from his plan and diverted some of the liquidity to buying back some of the bonds at a discount or, you know, basically delevering that way. But I think he's too far gone now to even do that because with so little excess free cash flow, net of CapEx, and he's got coupon bearing debt, I think he's just got to, he's Just got a hope that Bitcoin holds at current prices and his business doesn't deteriorate to the point where he's forced to delever at an inopportune time.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Don't boggle the imagination that his fundamental business might be slowing down as well, not even counting any sort of perception to reality issues where if you're his long-term client, you look at his website, there's barely anything on his core business. Everything is Bitcoin, laser eyes, like the guys gone crazy. Would you think twice about renewing long-term contracts? Maybe I would think about at least a second source. So I view the business, sorry, the perception to reality risk as real. And now when he's got coupon bearing debt on $700 million of debt, 200 of which is sofur based floating.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Hundred million of coupon bearing debt because the coupon bearing debt now by my calculation has estimated debt service of close to 45 million, which is about half, more than half of his EBITDA. That's before CapEx, if you assume that his CapEx is necessary for the maintenance of his business, he's left with a razor thin free cash flow margin on his business. And remember we talked about this business to reality risk that the banking system had. Now, granted, you know, his software business doesn't have the same sort of run on the bank dynamics that a commercial bank would have. However, in this macro environment of all these macro headwinds of US dollar wrecking balls, slowing growth, et cetera.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“To a hundred vol asset, which is Bitcoin, and he's amplified it even more by levering to the hilt, to the point of 2.4 billion. And now, before this latest tranche of 700 million of debt issuance, the secured debt issuance, that's coupon bearing, he was actually indecent shape. And I wrote at the time, you know, look, he's issued $1.7 billion of convertible debt. The coupons are low. The first maturity isn't until December of 2025. And I basically said, look, he's got a lot of time on his hands. And since he's got super majority voting control, no one can force his hand. And the only real risk is just his business deteriorating. Well, I think he's materially up the ante by issuing seven.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Correct. But then he gets the Bitcoin bug and he decides that, you know what, he wants to swap all of his treasury cash. And not only that, but he wants to lever up and buy Bitcoin with it. And so now 2.4 billion of debt issuance later, what he's effectively done is he swapped a zero vol asset, which is cash, right?”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“His capital structure before he did any of this by any Bitcoin, I think microstrategy was trading at around a billion dollar market cap. I don't even really, I've never delved that deeply into the fundamentals of his software business, so I can't speak to it with a lot of detail, but it was from what I understand, it's a fairly slow and steady low growth type of business. It was valued around a”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“So, if you think about it, right, let's see, a put call option looks like this, put option looks like that, right? And so when you look at this, so now let's go back into the world of financial options and think about this chart that you have on the screen. The reason why when a bond starts going into its distressed territory, it starts pointing down is exactly reflective of that short put analogy I just described to you, right? When a company gets so distressed that the bonds value starts acting like a short put on the company's assets, you have that negative gamma zone of that distressed area. Okay, so with that out of the way, let's think about what Michael Saylor has done to”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“You think about the accounting identity, assets minus liabilities equal equity. When you think of that accounting identity, here's how to think of it in option terms. The equity is basically a call option on the company's assets and the strike price of that option is struck at the amount of debt there is. So anything, if the company's assets exceed the amount of debt, right, then you have you as the equity holder have a call option on that, right? Now conversely, if you own a bond that that company has issued, you are effectively short a put on the company's assets and the put strike is the par amount of total amount of”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Private senior secured piece of debt that even primes that senior secured note. This one had Silvergate as the private lender. This one was priced at Sofer plus 3.7% and this one is due in 2025. So all in, he's got about 2.4 billion of debt. I wrote a thread in April of 21 called MSTR, a Real Options Analysis, where I go through what how to look at a company's capital structure from an options standpoint. And here I want to differentiate real options from financial options. A real financial option is like a call and a put on an equity, as you and I normally think of options, right? That's a financial option or an equity option. A real option is when you think of a company's capital structure and”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so I first wrote about this, oh gosh, many, many months ago, maybe a year ago, when Michael Saylor first issued his two converts. Yeah, he wrote, here, I'll figure it out. My first mention of this was back in February of 21. And he had just issued his second convertible bond. So the first convertible bond was a 0.75% coupon due in 2025. The second convert he issued was just a heroic issuance on his part, a zero coupon due in 2027. That was a billion five. Sorry, 1.05 billion. The first one was 650 million. Then once he's exhausted his convertible issuance capacity, he issued a senior secured six and one eighth coupon due in June of 28 to the tune of $500 million and most recently in March he issued a”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“It funded that in a very interesting, very clever way, I would say, via convertible debts, convertible bonds, which you are intimately familiar with, and you have been very outspoken in your views on this.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Protocols and practices and technology that would incline a digital asset to increase in price are sort of contrary to it actually being useful to its holders. For example, Uniswap is an incredibly useful protocol. I've never used it myself, but I've read a lot about it. But the tokenomics are not that great. If you look, it's down quite a lot. There are some other protocols, perhaps in the number one, number two slot that are a little bit more, they have a little trickier to use, but they're tokenomics are phenomenal. I mean, they have insane returns. So I think that is definitely a headwind. But Michael, let's set aside whether we think Bitcoin is going to zero, whether it's going to a million. I want to really bring everything together. Tell me about a certain company called MicroStrategy that was among the first company, the first company to do it in a big way put Bitcoin on its balance sheet.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“I would say I'm a long term bull on crypto, but in terms of the shorter term headwinds for crypto, I definitely think you make a lot of good points. My final thing I'll disagree with you on is that I think you're absolutely right that there is a trade-off between the tokenomics and the economics, meaning that the...”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, that's interesting. But the issue I have with that is that if we live in a I think he might be waiting for a long time for that. It doesn't meet any of the criteria, not even close, not even close.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“In fiat terms, crypto gets crypto in the same way that a fiat project begets fiat. So yes, you can sort of create synthetic fiat cash flows on crypto by selling a covered call or doing a selling put spread or whatever, but a yield forming token will give you that token. Ethereum will burn Ethereum for you being sort of a net buyback for you. But for it to give you fiat, that kind of defeats the whole point of crypto.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the vast majority of debt is for corporates as well as governments, as you say, is at the shorter end of the yield curve. So you're saying there could be a cap. We can't go beyond 3% because the system will break. Truly break, not just a spec goes down 90%, but truly break. So therefore the monetary tightening has to be on the long end of the curve and the Federal Reserve is going to sell a lot of coupon securities. The Treasury is going to issue a greater proportion of coupon securities, longer duration securities, rather than issuing short-term bills. I actually think the Treasury has already made some noises indicating that it plans to do exactly that. So you have the Federal Reserve selling trillions of Treasuries. You have the Treasury issuing tons of longer dated.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“What would be an interesting way of trying to institute like a controlled demolition of risk assets, the proverbial soft landing? I don't know that there's a good answer to that, but I feel like maybe the best shot at it is to try to do a bearish steepening, maybe limit what you do at the front end, maybe stop it two and a half, three percent tops, but try to steepen that back end so that you have, you know, a higher risk-free rate going out to the 30 year that has the effect of muting asset bubbles, for instance, like in real estate, without necessarily creating major funding stresses at the short end.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Why can't QT involve an artificial steepening, what I call a bearish steepening of the yield curve? And maybe that comes from issuing a 50-year bond or pushing treasury auctions out along the curve. I mean, frankly, I've thought for decades now that if the ducks are quacking at the long end and willing to basically pay 3% for 30-year sovereign risk, shit, we should be terming out all of our debt at the long end. We should do it. And, you know, a couple of weeks ago or I was talking to Bill Fleckenstein and Grant Williams on their podcast, and we were talking about, you know,”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Is basically the same thing except for credit markets. So all of those various estimates of risk premiums are built upon the risk-free rate. And I think the risk-free rate all along the curve is going up. One thing we didn't even talk about is it's not quantitative tightening just like quantitative easing was the creative solution to what happened when we reached the zero bound for the Fed funds rate. How else could we stimulate the economy? Well, let's suppress yields all along the curve. Well, now you could argue that the Fed funds rate ceiling for us to pull a Paul Volcker type move and jack the Fed funds rate. It's north of the inflation rate. Well, that's just not going to work given the various funding stresses that it would cause, not just for corporates, but for our own government, right? Well,”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Artificially engineered supply scarcity that's very, very reminiscent of the dot-com bubble. And if I'm right, that structural OPEX inflation is here to stay for a long time, you're going to see continued draining of this inflation capacitor along with other inflation capacitors. I think another big shoe to drop, frankly, is just housing. Well, real estate generally, but housing. And to your point earlier, Jack, about like, you know, thinking about different components, risk-free rates, credit spreads, equity market risk premiums, I think of the world that way too. I mean, the equity market risk premium is what real estate people call cap rates.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Argument is that the narrative just keeps changing. It just keeps changing to kind of suit whatever story justifies like a higher price for it. And so ultimately, I'm left with just thinking, you know what, I think this time is no different. This is yet another B2B example of like an artificially.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“So basically, you saw that in that NFT situation when the marginal buyer was gone and you have perfectly inelastic supply, the price went from 2.8 million to zero, right? There's no marginal buyer for it. And that's the problem, right? So I think that, look, the supply inelasticity argument might be bullish price, but it's bearish adoption too, because you're not going to have Bitcoin being adopted as some global reserve currency if there's a artificially limited supply. But then if there's supply elasticity, right, like the US dollar, for instance, it might be ultimately bearish on price, but it's bullish on adoption. So it's, you know, which is it? And the fundamental problem I have with the Bitcoin.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Inelastic supply curve looks like. When you've got a perfectly inelastic supply curve, it's vertical, right? And so what happens is that if demand keeps going higher, then you have these parabolic increases in price. But if demand goes down, you've got a parabolic decrease in price. So the extreme of that would be, well, gee, the NFT of that tweet that sold for $2.8 million, that's basically a perfectly inelastic supply. That's basically what Bitcoin would look like if the last 21st million coin got mined and you're sitting at a non- Let's just humor the Bitcoin maxis and say it's trading at a million of coin. Well, if you've got perfectly inelastic supply at that point, how much of that can you actually monetize and actually sell and who's going to buy it”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Arguments for the Bitcoin Maxis is that because we are fundamentally limited to a 21 million coin supply and already 19 million of the 21 have been minted, you're going to have this supply inelasticity, right? And that, you know, eventually you can see each coin going to like a million dollars, et cetera, et cetera. Well, something I say, there's another thread that I wrote most recently called the beginning of the end of the liquidity lottery. I wrote this May 16th, so it's probably one of my more recent threads, where I talk about, okay, well, let's play this out to the limit. You know, the sword, I like to say that the sword of inelastic supply cuts both ways. If you think at that thread, I basically go into like basic econ 101 and look at what a perfectly”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“So, I have a problem with that too. And so you go back to, okay, let's just go back to the simple narrative of Bitcoin. It's a store of value and it is just a store of excess liquidity and a hedge against forever debasement of the US dollar. Okay, I can kind of buy that, but then here's the problem with it. One of the big use cases or one of the big”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Now, the pushback I've gotten is that there are some people who have actually tried to do a DCF of Ethereum and say, hey, look, you can model it out. You've got these gas fees that are revenues. And based on the gas fees, there's discounted cash flows back to token holders. Really? What are the revenues based on? What are the gas fees based on? Oh, the gas fees are actually based upon a starting value to the tokens themselves that you're trying to value. It's as if you're trying to value company X, Y, Z whose business is basically issuing shares of XYZ. So the problem I have is there's this built-in recursion into these valuation frameworks for these category two assets where you're arguing some sort of network of value accrual to the network effect.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Was such that these B2B stocks had stupid inputs going into the model, you at least had a valuation framework, right? What you're taught like day one in business school is how to value a financial asset, be it a capital project, an equity, a piece of cash flowing real estate, whatever it is, you can boil it down to a discounted cash flow analysis, which discounts cash flows ultimately, even though a lot of growth stocks never ever pay dividends, the valuation framework assumes that eventually, even in Amazon.com, eventually is going to mature to the point where it's going to start dividending cash flows back to the investor. The framework exists. No such framework exists.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“And I basically say that look, this category one, you really cannot value fundamentally. And the problem I have with Bitcoin is that the narrative keeps changing because some people will argue that it's a store of value. And it's like digital gold. And, okay, so then I say, okay, so then you agree that it's a greater fool trade. Oh, no, no, no. It's not a greater fool. That is a negative connotation. But there's value in the network. Again, NetCalf's law, the adoption, the network. Okay, how does the value of the network translate into cash flows to the investor? Because when I hark back to the bubble of 2000, right, even though the underlying equity”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Is a blunt one, it's basically going to drain liquidity from all of the bubbles together. There are two threads that I wrote about crypto valuation. There was one that was called playing Jenga with the Ouroboros. And that one I wrote in February of this year. And I basically said, okay, I kind of broke up crypto between sort of the store of value type of crypto, which is Bitcoin and say NFTs, because the two are very similar. You can't really fundamentally value them. They are sort of eye-ended beholder types of assets where truly the value is in the eye of the beholder and the greater fool, right? And then there's the category two of crypto, which would include, for instance, Ethereum and just all the DeFi tokens out there.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's so much to unpack here. Last May, I wrote this, I'm a big fan of using sort of mental models from other disciplines like physics and sciences to think about things in financial terms. And maybe that's a holdover for my engineering days. But I think of bubble assets as capacitors. And I guess the non-electrical engineering analog to a capacitor would be like a water tower, right? So it's kind of like a temporary store of excess liquidity. And when there is a need for that excess liquidity to be drained, these capacitors basically get drained, right? So if you think about my capacitor diagram,”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“They need to blend it. Yeah, so it's not that we don't use any of our light grades. We use certainly a lot of it, right? But we're tapped out in terms of what we can use. So that's why, remember I said earlier why I can't remember the exact numbers, but I read this paper that was commissioned by the Department of Energy, I think, around like 2016 or 2017 shortly after the export ban got lifted. And I was very, very surprised to see that pre-ban, sorry, pre-lifting of the ban and post-lifting of the ban, our imports were about the same. So that just tells you that the refining capacity just has not been retooled in decades. And that's really the key to solving the US energy industry.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“I believe that's the case. Yeah. I'm not an expert on the various grades. I remember, I mean, I had this complicated chart that basically shows the different API gradaries for different functions, but it's a whole complicated supply chain, the entire petroleum complex. But what you're highlighting, though, is a point I made earlier about how lookle is a factor of production in just so many things from all the various grades of fuels, but also to petrochemicals too, right? That's also part of a huge use of petroleum, which is why oil has been the primary commodity that I've focused on the last eight years.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“We don't care if Russia gets disrupted because we can produce all we need at home. But right now, that's just not the case. And an export ban would have a massive, massive backfiring effect on the consumer. And where I live in California, we're screwed anyways because California, we have no basically no pipelines from Texas. And so we're importing the reason why I'm paying close to $7 a gallon already versus the rest of the country is because we're sourcing pretty much all of our crudes from the Middle East, which is totally ridiculous.”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Small sliver of overall refining capacity, that it wouldn't matter, so they would have to import gasoline and both of which would be spiking because the rest of the world would not be able to source our light grades. And so it would just create just this massive, massive shit show. The right way, the only way that we can truly be, quote, energy independent is to essentially offer subsidies and force sort of forced subsidies in a way, force the refiners to spend these subsidies on retooling all of their refiners now to be able to handle basically our light grades, but that's a multi tens of billions, multi-year type of retooling project. But once that Is done, then we can be that bastion of self-sufficiency where we can basically say, hey, you know what?”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT
“Have to turn back the excess oil because they can't ship the rest out. So oil backs up all the way back to cushing. Cushing fills to tank tops. You get a repeat of what we saw during COVID where WTI collapses, potentially goes to negative as cushing goes to tank tops. But then what happens is that the only way that we the only part of our refining capacity that can actually utilize our light grades are in the northeast tab one. But the problem is there are no pipelines between pad three and pad one. So they can't really get our shale crudes, even if the Jones Act restrictions, which are restrictions on using domestic shippers to ship oil from the Gulf Coast all the way up to the East Coast, even if that got relaxed. The point is that the Pad 1 refining capacity is such”
2022-06-06 · Forward Guidance · Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao · IDENTIFIED FROM THE TRANSCRIPT