Worldcoin's 3000% Gain. Plus, Gold, Dividends and Wedgification. | Barron's Streetwise

Here's a comprehensive summary of the YouTube video transcript:

Key Concepts

• Timber/Timbre: The quality of a musical note, sound, or tone that distinguishes different types of sound production, such as voices and musical instruments. (Mispronounced as "timber" initially, corrected to "timbre").
• Crypto Treasury Company: A company whose primary business strategy involves acquiring and holding cryptocurrencies as assets on its balance sheet.
• Worldcoin: A cryptocurrency backed by Sam Altman, founder of OpenAI.
• Bitmine Immersion Technologies: A company backed by Peter Thiel, focused on stockpiling Ethereum.
• MicroStrategy (now Strategy): A prominent example of a company that shifted its strategy to holding Bitcoin, significantly impacting its stock price.
• Debasement Trade: The stockpiling of assets like gold and Bitcoin to protect against potential declines in the value of the US dollar.
• Real Interest Rates: Interest rates adjusted for inflation.
• Quantitative Easing (QE): A monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to inject money into the economy.
• Stock Buybacks: A company repurchasing its own shares from the open market, reducing the number of outstanding shares and theoretically increasing the value of remaining shares.
• Dividends: A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
• DIVB ETF: An iShares Core Dividend ETF, focusing on stocks with decent dividends.
• PKW ETF: An Invesco Buyback Achievers ETF, focusing on companies that have engaged in stock buybacks.

8kco Holdings and the Crypto Treasury Phenomenon

The discussion begins with an anecdote about the correct pronunciation of "timbre" and a humorous self-correction. The main topic then shifts to the investment world, focusing on gold, Bitcoin, and crypto treasury companies.

A notable event highlighted is the 3,000% surge in the stock price of 8kco Holdings in a single day. This tiny, formerly corrugated packaging company, which had pivoted to "e-reselling" (reselling inventory from other e-commerce resellers), announced a private stock sale and plans to accumulate Worldcoin.

The significance of this event is explained by its connection to several prominent figures and companies in the tech and finance world:

• Worldcoin is backed by Sam Altman, founder of OpenAI (creator of ChatGPT).
• 8kco appointed Dan Ives, a Wall Street analyst, as its chairman.
• 8kco received a cash infusion from Bitmine Immersion Technologies, a company backed by venture capitalist Peter Thiel.
• Bitmine Immersion Technologies is chaired by Tom Lee, a Wall Street crypto analyst, and focuses on stockpiling Ethereum.

The speaker posits that the surge in 8kco's stock, Worldcoin, and Bitmine's stock is driven by investors anticipating a similar success to that of MicroStrategy (now Strategy). MicroStrategy's strategy of buying and holding Bitcoin led to an over 1100% stock price increase over three years. This success has inspired over 200 companies to become crypto treasury companies, meaning they primarily buy and hold cryptocurrencies. Strategy is the largest, followed by companies like Mara Holdings and Bitmine. The financial mechanics of this phenomenon are humorously described as a "simultaneous wedgie" for sustained flight, implying a somewhat illogical but effective financial momentum.

Gold and its Investment Appeal

The conversation then turns to gold. Despite the rise of cryptocurrencies, gold's allure among investors remains strong.

• Gold is up 39% year-to-date, significantly outperforming Bitcoin (up 22%) and the S&P 500 (up 12% with dividends).
• The "debasement trade" is mentioned, referring to the strategy of holding both gold and Bitcoin to hedge against dollar devaluation.
• JP Morgan, the world's largest bullion dealer, is "exceedingly bullish" on gold, predicting a price of $4,020 by next summer (a roughly 10% increase from its recent price of $3,640).
• JP Morgan attributes gold's recent price action to a negative correlation with short real interest rates.
  • The yield on a one-year Treasury has fallen from over 5% last summer to 3.6% recently.
  • While inflation has only slightly decreased (from 3.1% to 2.9%), the significant drop in Treasury yields has caused real short-term Treasury yields to plummet.
  • Historically, a plummeting real short-term Treasury yield has led to a rise in gold prices.
  • This suggests investors may anticipate the Federal Reserve allowing inflation to remain slightly elevated to prevent job losses, which could weaken the dollar but benefit gold.

Bitcoin and its Valuation Relative to Gold

JP Morgan's analysis extends to Bitcoin, suggesting its price is currently too low relative to gold.

• Corporate treasury hoarding is a key factor. Companies now hold over 6% of the total Bitcoin supply, effectively removing it from circulation.
• This hoarding is compared to quantitative easing (QE), which historically reduced volatility in financial markets.
• Bitcoin's volatility has been cut in half this year, reaching historically low levels for the cryptocurrency.
• The ratio of Bitcoin's rolling six-month volatility to gold's has fallen to 2.0, the lowest on record.
• Given gold's $5 trillion market value (private sector) and Bitcoin's $2.2 trillion market value, JP Morgan argues that if Bitcoin's volatility is now only twice that of gold, its market value should be closer to half of gold's. This implies a potential 13% increase for Bitcoin's price.
• A circular logic is identified: corporate buying is driving crypto prices up, and this same corporate buying is used as an argument for crypto prices to go even higher.
• The increasing inclusion of crypto treasury companies like Strategy in indexes (e.g., Russell 1000) could attract more passive investment flows, potentially boosting their stock prices and leading to further coin purchases.

The speaker expresses uncertainty about the current phase of the financial rally, suggesting a "late money stampede transition into bullish Bakanelian denial," and calls for caution unless a stronger link can be made between the gold-backed Bitcoin case and higher stock prices.

Listener Questions: Dividends vs. Share Buybacks

The podcast then addresses listener questions, focusing on dividends and share buybacks.

Question 1: Reinvesting Dividends (Mad Owl 76)

• Question: Should dividends from an ETF like DIVB be reinvested or pocketed?
• Answer: Reinvesting dividends is strongly recommended.
  • Compounding Power: Reinvesting dividends allows for the powerful effect of compounding.
  • Historical Impact: Since 1987, reinvested dividends have accounted for 55% of the S&P 500's total return.
  • Dollar Cost Averaging: Reinvesting dividends automatically implements a form of dollar cost averaging, where more shares are bought when prices are lower and fewer when prices are higher.
  • Income vs. Reinvestment: While dividends can be used for spending, it's often more efficient to periodically sell stocks for cash if income is needed, rather than pocketing dividends directly.

Question 2: Share Buybacks vs. Dividends (Ben from Boston)

• Question: Is there a similar approach to investing in companies that focus on share buybacks instead of dividends, and are there funds for this strategy?
• Answer: Yes, there are funds focused on share buybacks, and it's a valid strategy, but with key differences and potential drawbacks compared to dividends.
  • Mechanism: Share buybacks reduce the number of outstanding shares, theoretically increasing the value of remaining shares.
  • Tax Treatment: Dividends are taxed immediately, while the increased value from buybacks is taxed only upon selling shares. However, a small tax on buybacks has been introduced to level the playing field, though a 7.2% US tax advantage for buybacks over dividends still exists (as of last year, per Tax Policy Center).
  • Historical Trend: Share buybacks have surpassed dividend spending in recent years.
  • Buyback ETFs: The Invesco Buyback Achievers ETF (PKW) is mentioned as an example. Over the past five years, PKW has outperformed the S&P 500, while the DIVB ETF has lagged.
  • Key Difference: Certainty and Comfort:
    • Dividends: Companies typically declare fixed dividend payments, providing a predictable income stream. This offers comfort, especially during downturns, as the income remains constant, and reinvestment at lower prices becomes more advantageous.
    • Buybacks: Buyback amounts are not fixed and are often discretionary. Companies tend to increase buybacks when times are good and cash is plentiful, and reduce them during downturns when they are most needed. This lack of certainty during difficult periods is a significant concern.
  • Conclusion on Buybacks vs. Dividends: While buybacks have shown strong performance recently, the speaker expresses a preference for dividends for comfort and certainty, especially in a high-valuation market. They believe buyback strategies need to be tested over longer periods, including more economic downturns, to fully assess their long-term efficacy compared to dividends.
  • Synergy: Many companies engage in both dividends and buybacks, and investors in dividend ETFs often benefit from buyback activity as well.

Conclusion and Call to Action

The podcast concludes with a humorous anecdote about an awkward encounter with an NBA star at a conference. The hosts encourage listeners to send in questions via voice memo to jack.how@hugbear.com, with "NBA hug" in the subject line for specific types of inquiries. They also remind listeners to subscribe and leave reviews on podcast platforms.