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I've avoided REITs focused in Manhattan for the last two years as I never bought into the idea that NYC office space was coming back quickly. CNBC reported this morning that Manhattan office space has only recovered to 65% occupancy while residential is at 96% occupancy with average rents of $5,200 a month. Over the next several years there's going to be massive investment to convert office space to residential so more people can live and work in the city. The two REITs I follow are SLG and VNO. Both are down ~50% this year with yields of 10% and 9% respectively.
I don't think these are investible today but should be on income investors watch list if you think there's a Manhattan turnaround story.
Here comes the Emsam defense. Johnnie, we're gonna need you again.
If he's taken an Emsam hit you must acquit.
This is such an insignificant amount of energy we could use coal to produce the 300 megajoules of energy without creating any additional global warming. 3-megajoules is less than one kWh. Of course we should use "clean coal"..:).
Thanks for reporting jbog, can you supply a link to this analysis? Thanks.
Mining Bitcoin is horribly inefficient because the Bitcoin model is old and horribly inefficient. But if there's a Bitcoin-buck to be made, it'll be made in Texas. Round up your kWhs cowboy and keep 'em cheap.
TEXAS IS BECOMING A BITCOIN-MINING CAPITAL. CAN THE GRID HANDLE IT?
While the collapse of cryptocurrency exchange FTX earlier this month dominates national headlines, the Texas blockchain and Bitcoin community is determined to forge ahead.
“Texas is home to the largest Bitcoin mining sites in North America, and fast achieving status as the undisputed Bitcoin mining capital of the world,” Texas Blockchain Council President Lee Bratcher said at an industry summit in Austin last week.
Enticed by relatively cheap electricity, businesses that mine energy-hungry Bitcoin and other cryptocurrencies have been knocking on the state’s door. But after a summer of record heat and energy demand, and on the heels of Winter Storm Uri in 2021, concerns about the Texas electric grid loom large.
Those worrying about crypto mining’s power use include Senator Elizabeth Warren, U.S. Representative Al Green, and five other federal lawmakers who wrote in October to the Electric Reliability Council of Texas (ERCOT), which maintains the state’s power grid. The legislators’ letter outlined concerns that the state’s cryptocurrency boom could raise Texans’ electricity bills, destabilize the grid, and exacerbate climate change. Warren, Green, and their colleagues pointed out that Texas is already home to roughly a quarter of U.S. Bitcoin mining and that state leaders—including ERCOT’s previous Interim CEO Brad Jones—have actively courted the industry.
“Given the impacts of crypto-mining on the climate, the grid, and to ratepayers, ERCOT’s support for this industry is irresponsible and highly concerning,” the lawmakers wrote.
The letter asked ERCOT to answer a list of questions by October 31. Nearly a month later, the agency has not sent a formal reply yet. During a press conference introducing Pablo Vegas as ERCOT’s new CEO, Vegas said he looked forward to responding. For now, he simply said, “We want to be able to serve any business that wants to do business in Texas. And that includes crypto miners.”
The lawmakers singled out Texas partly because of its independent grid, which has few connections to the rest of the country. Independence allows Texas to escape federal oversight, but Uri showed that isolation also makes Texas more vulnerable. As the climate changes, the grid needs to withstand hotter summers, worse storms, and less predictable weather overall.
“We don’t have a means by which we can link up with another grid in a time of dire straits. We are literally on our own … when the heat waves come our way, we have fewer options,” said Green, a Democrat who represents Southwest Houston and was the only Texas legislator to sign the letter.
Today’s cryptocurrency is a consequence of the 2008 financial crisis, according to Molly White, a software engineer and cryptocurrency researcher who runs the popular website “Web3 is Going Just Great.” Many crypto evangelists in the United States believe that the federal government sacrificed everyday Americans’ hard-earned wealth to bail out banks and that government can’t be trusted with people’s money. They view Bitcoin and other cryptocurrencies as a decentralized alternative.
“Crypto is really born out of very libertarian ideologies around freedom from state control of money,” White said.
It’s not a neatly partisan issue: Democrat Beto O’Rourke’s gubernatorial campaign accepted $1 million from now-disgraced FTX founder and former billionaire Sam Bankman-Fried.
The most popular cryptocurrency, Bitcoin, relies on a public, distributed, digital ledger system (or blockchain) that requires participating computers to crank out tremendously energy-intensive calculations. Computers that successfully complete these calculations get to validate transactions for the public ledger and get their own, new bitcoins in return—known as “mining” the currency. The bar for validating transactions rises constantly, and these days mining a single bitcoin requires more electricity than the typical American household uses over several years, according to a 2021 New York Times analysis.
Some other cryptocurrencies, most famously Ethereum, use slightly different systems that require far less computing power and electricity. But Texas is dominated by Bitcoin. Because electricity is a major cost for crypto miners, they have an incentive to follow cheap energy. And in the United States, Texas hits the spot.
“The main attraction is cheap wholesale electricity prices,” said Carey King, assistant director of the Energy Institute at The University of Texas at Austin.
This is true across the state, but especially so in West Texas, where new wind and solar farms are popping up faster than new transmission lines to get that power to major cities. This “stranded” renewable energy contributes to very low and occasionally even negative electricity prices in West Texas. At the same time, oil and gas producers in the Permian Basin and the Eagle Ford Shale regularly flare, or burn off, natural gas leaking from their wells. Crypto miners see areas with these underused renewables and wasted gas as prime locations for their facilities, King explained.
Industry insiders argue that using this energy is a service to the grid and to the public, as is crypto mines’ ability to shut off quickly during peak electricity demand. ERCOT has agreements called “demand response programs” in which industrial customers, including most big Bitcoin facilities, get paid to cut back their energy use when demand across the state threatens to outstrip supply.
Over the summer, crypto miners did just that, shutting down as Texans sweated through extreme heat waves and ERCOT called for conserving energy. Along the way, these miners made a lot of money. In their letter, Warren and the other lawmakers called out Riot Blockchain’s 750-megawatt facility in Rockdale, an hour northeast of Austin. The company received an estimated $9.5 million worth of credits in July for curtailing its operations and energy use—much more than the $5.6 million profit it made that month from selling Bitcoin.
Participating in a grid operator’s demand response program is not unusual for any facility that uses a lot of electricity. In fact, ERCOT is treating crypto mining no differently than it does any other industry.
“There’s a set of rules that exist. And the crypto miners come in, and they fit the definition of being able to provide … emergency response services,” King said. “And so they sign up.”
But maybe treating everyone the same is the problem. Crypto mines are extremely sensitive to the cost of energy, meaning they would shut down anyway when electricity prices get too high. (In Texas’ current market, prices rise on hot or cold days, when everyone runs their air conditioners or heaters.)
Bitcoin miners check power prices “minute by minute,” said Bratcher, head of the Texas Blockchain Council. “The market functions of the grid are actually very effective in sending them price signals.”
Other big electricity consumers, like factories, are not necessarily as sensitive to energy costs, and often cannot shut down easily. Without the incentive of payment or credit from ERCOT, other customers might not have reason to cut back. But for crypto mining businesses like Riot Blockchain, these credits—which ultimately get added to ratepayers’ utility bills—are a bonus.
Representative Green called this “a new form of arbitrage.”
Miners might not go that far, but some agree that demand response payments probably aren’t necessary. Bratcher is involved in ERCOT’s Large Flexible Load Task Force, a committee set up to figure out how utilities should connect large new customers like crypto mines to the grid and how to use their flexibility in turning on or off. The group has not made any big decisions yet, but at some point, it may recommend that crypto mines be subject to different rules.
Cryptocurrency mining in Texas currently uses about 2,000 megawatts of power, according to a September report from the White House Office of Science and Technology Policy. That’s out of approximately 80,000 megawatts total on the Texas grid during peak demand.
Prospective crypto mining businesses have requested to put approximately 33,000 more megawatts in the ERCOT interconnection queue over the next few years (enough to power the whole state of Florida). This eye-popping number got Green and other legislators concerned, but it doesn’t accurately forecast what will happen. Basically, anyone can apply for this interconnection queue.
“ERCOT doesn’t know if that’s real or not,” Bratcher said.
He estimates that only a tenth of what’s in the queue is feasible, and the Texas Blockchain Council predicts that the state’s crypto mining load will approximately double to 4,000 megawatts by the end of 2023. That’s still a lot of electricity, but not the destabilizing amount lawmakers fear.
The more realistic concern is how much crypto mining will exacerbate climate change. Bitcoin entrepreneurs state explicitly that their businesses incentivize more energy production. And while Bratcher and many of his colleagues are happy to run Bitcoin on renewables, the state’s political leadership is not so happy to let wind and solar grow unfettered. In fact, the Public Utility Commission of Texas recently proposed a redesign of the electricity market that would reward energy companies for building new fossil-fueled power plants in the name of grid reliability and explicitly shut renewables out of reliability incentives.
Supporters of cryptocurrency hail the technology as the money of the future. Critics view it as gambling, and a waste of precious electricity when the world should be focused on energy efficiency and shutting down polluting power plants.
“The thing about crypto is that they’re really not doing anything that is useful,” said White, the cryptocurrency researcher. “It is primarily used for speculation. I think that’s important to realize. And that is somehow worth the electricity usage of small countries? That blows my mind.”
Even through many booms and busts, the overall use of Bitcoin and other cryptocurrencies continues to rise. Despite her critiques of the industry, White and other experts think crypto is here to stay.
In the wake of the FTX collapse, state lawmakers have expressed interest in regulating cryptocurrency to protect consumers from losing their life’s savings. But when it comes to tackling crypto’s consequences for the grid and the climate, there’s much less interest. The Republican majority is not interested in scaling back Texas’ energy consumption. Given the urgency of climate change, and given the Biden administration’s seriousness in addressing climate problems, crypto mining’s energy use may ultimately become a federal matter. The members of Congress who wrote to ERCOT are clearly interested. It remains to be seen how ERCOT and Texas leaders respond.
More notes from Molly White: There are now four crypto based US bankruptcy proceedings: Voyager (July 5), Celsius (July 13), FTX (November 11), and BlockFi (November 28). BlockFi should have gone under this summer but FTX loaned them hundreds of millions of OPM and gave them a massive line of OPM credit.
In other news another crypto exchange was hacked. The hacker created a heapin' bunch of tokens, then converted these worthless tokens to other tokens and made off with $15MM before the value of the original token crashed to 20 cents. So not only did the counter parties to this 3-card monte get ripped off, all the holders of the original token came home from work to find their investment all but worthless. Fun times.
If you think anything Jim Cramer says is worth listening to, listen to this. Of course Cramer is now calling SBF a fraud and a con artist. Fried may have set a new record for blowing up a Ponzi scheme or as their new CEO Mr. Ray said today; just everyday embezzlement. Looks like the Feds have found their crypto version of Bernie Madoff. So guilty the case makes itself.
On the other hand the class action lawsuits could go on for a decade. Thousands of lawyers working for years to squeeze billions out of every deep pocket associated with FTX. First Brady gets booted from the Pats, then his wife leaves him and now every ambulance chaser in the US is going to sue him for promoting FTX. Better keep working for the Bucs Tom, you're going to have to lawyer up again. Same goes for you Mr. Curry and you too Shaq. Also looks like FTX arena in Miami is a non-starter.
Poor Jim Cramer is on record calling FTX's Sam Bankman-Fried the JP Morgan of this generation. Is there anything Jim gets right? pic.twitter.com/r34EX5p6ad
— Xeriland (@Xeriland) November 14, 2022
Argentina is going to the finals. Messi offered a master class this afternoon. If you get a chance to watch a replay, take the time. His assist on the 3rd goal proved he's still unstoppable when he's on.
And Binance may be the next one under investigation.
NASDAQ up almost 4%, SPX up almost 3%. SPX implied open is 4,141, the highest since last August. For reference, the August peak was 4,325.
I'm afraid I was quite early with my tech buys. Like almost everyone else I think there will be another market dip so I suppose that means the market will wait until everyone thinks the end is near and shoot straight up. I remain almost fully invested.
Below is a link to Jon Stewart's podcast, 'The problem with Jon Stewart'. At 11 minutes into the podcast he interviews David Dayen who talks about the 'crypto skeme'. His point is simple; there's no difference between crypto and the South Sea Bubble or any other scam. There's no there, there. You just need a good enough conman to front the scam to convince enough people to keep buying up the nothingness. It's a very worthwhile listen and a good backgrounder on what happened with FTX.
It's closing up nicely today in front of all the possible volatility tomorrow and Wednesday. The 10-year treasury is up again today to 3.61%.
In other crypto news, a hacker monitoring a charity auction offering a beer with Bill Murray, walked away with $185,000 in ETH tokens when they moved them to a Binance account. The same hacker also attempted to steal $7.7MM in Murray's personal account.
Just beat my record for most consecutive days without dying.-B. Murray
Writer and coder Molly White has an interesting POV regarding blockchain, crypto and WEB 3.0, (the metaverse). A transcript of her presentation
Is web3 BS?
Last year I started to see a lot of talk about blockchains and crypto. In the mainstream media, on social media, with colleagues and friends. And that was nothing new. I mean, I’d seen crypto hype cycles before, and as someone who is not super interested in speculative financial investments it just sort of wasn’t my thing.
But this time, the message had really changed. There was this new word everywhere: “web3”. The future of the web, I was being told, was going to be powered by crypto and blockchains. I was reading that finally, we were going to fix the web! And that got my attention.
Because the idealism of the early web was compelling. This was a new technology that would provide everyone, regardless of means, with access to the world’s knowledge at their fingertips. It would provide equal access to things like governance and participation in their communities. Borders would no longer matter. The truth would set people free.
The web that we know today is a far cry from that early idealism. Most people experience the web filtered through the algorithms of web giants like Google and Facebook. Where information isn’t paywalled, it’s typically papered with advertisements. Web corporations squeeze every drop of data out of their users to resell or to build startlingly detailed advertising profiles. Social media companies optimize for engagement at the cost of everything else, even if it means radicalizing or inciting hatred in their users.
There are a lot of people out there who picture the next generation of the web as one where we reject the extraction and capitalization. I am one of them.
But that “web3” that I started to read about last year, amidst the advertisements of “fortune favors the brave” and crypto fanatics yelling about “going to the moon” and telling everyone else to “have fun staying poor”? That’s not quite how I expected we might get there. But maybe I missed something, I thought, as I began trying to figure out what web3 even was.
This was not the first time I had heard the term “web3”. Right around the turn of the millenium, people were talking about a different thing, “Web 3.0”, that was going to be the next generation of the Internet. At that time they were talking about the Semantic Web. Some of you who watched the Centre stage talks earlier this morning probably saw Tim Berners-Lee talking about Web 3.0 which, again, he defines very differently from the crypto version of web3.
The thing about a term like “web3” is you don’t necessarily know what it is until it’s happened. You don’t know what that fundamental shift is going to be that brings about a sea change in the web that deserves the name “web3”. So until then, we’re stuck guessing at what web3 might be—unless we’re a venture capitalist or a startup, in which case we have to speak decisively in the hopes of acquiring funding, even if we turn out to be wrong.
So, when I was researching, I was asking: “what is this new web3?” What was this next sea change that was going to be bringing about the future of the web? And it was hard to figure out. The one thing that was clear to me early on was that it was definitely supposed to involve a blockchain.
That turned out to be pretty emblematic of web3 projects as I dug deeper. What were they going to do? Who knows, but there was definitely going to be a blockchain involved. And the rest of it was pretty fuzzy.
As I researched more, I came across a few common buzzwords. Democratization. Decentralization. Censorship-resistance. The goals all sounded compelling, and really not unlike what I had in mind for the future of the web myself. But when it came time to find out how blockchains and cryptocurrencies were going to deliver us there, that was less clear.
And actually, unclear was the best case scenario. In some cases, it was outright ironic. The enormous venture capital firm Andreessen Horowitz published a slide deck hyping web3 that said “the Internet as we know it is flawed”. A graphic showed a flag planted in the web, emblazoned with logos of Facebook, Google, and Apple, with a caption showing that it was supposed to be decrying “Big Tech oligopoly”.
The oligopoly of Andreessen Horowitz, or its investments in the same Big Tech companies that they now decried, including Facebook, Instagram, and others, went conspicuously unmentioned. The slides underscored how now it was platforms like the OpenSea NFT marketplace that would help fix this terribly broken, unfair, monopolized web again, conspicuously failing to mention that Andreessen Horowitz had led several funding rounds for OpenSea and that OpenSea, at the time, held an outsized portion of the NFT market share. But they had nothing to fear if OpenSea lost its monopoly because Andreessen Horowitz has invested in other NFT platforms too.
You see, if they can convince people that this is the future of the web, they’ll be rich… richer than they already are. It doesn’t matter if it turns out to be true or not, or if they’re steering the web in the completely wrong direction, or even if they hurt a lot of people.
So in my research, I gave up on the smooth-talking founders, the venture capitalists with their slide decks and the tech journalists in the mainstream media who regurgitated sales pitches without much critical analysis and I moved on to something a little more concrete. I started looking at individual projects and asking, okay, how is web3 going? And what I found was: web3 is going just great.
I looked for projects that actually needed a blockchain and were credibly changing the paradigm in the direction of these stated web3 ideals. More often than not, I found projects that were rowing in the completely opposite direction.
Play-to-earn games introduced a rentier class of managers who oversaw low-wage workers in countries like the Philippines, Vietnam, and Venezuela and took a cut of their earning in exchange for just letting them play the game in the first place.
So-called web3 publishing firms sought to reinvent DRM, imposing even more limits on how textbooks or other material could be resold so that companies could squeeze out even more money from their users at more steps along the way.
Platforms that promised to empower artists who previously struggled to sell their digital art were full of stolen artwork, siphoning money away from the same digital artists that they claimed to empower. And those artists had to take time away from creating their artwork to find the stolen art, and then submit onerous takedown forms to OpenSea, and LooksRare, and Rarible and an endless list of other NFT platforms. Some of those platforms honored the takedown requests and removed the sales listings. Others had policies of not removing listings at all because, after all, if you want to go all-in on censorship resistance, that means everything. Your sales pitches might focus on controversial art, or empowering artists under oppressive regimes, but it also means welcoming stolen artwork, copyrighted material, spam, abuse.
“Censorship-resistant” blockchain social networks became saturated with spam, driving away their actual users.
Users who were convinced to buy tokens to “invest” into the “future of finance”, the “future of the web”, were hacked and scammed and phished and rug-pulled.
Stablecoin projects promising to overcome the volatility that keeps so many cryptocurrencies from functioning anything like a currency ended in disaster.
And projects that promised to provide security and returns on people’s crypto holdings were demolished in a series of cascading failures that left people with funds they desperately needed either completely gone or locked up while bankruptcy proceedings were underway.
That was for the projects that actually existed. Companies lied about how widely used their products even were. Systems that were advertised as changing the world and already out there being used turned out to be in early beta testing phases or just vaporware. And when pressed on their many bold and confident claims, executives turned out to be talking about what one day might be possible, or the potential of this technology… once all the big problems were solved. But if there was one thing those executives were sure about, it was that you should buy their token, and you should invest in their startup, and they will figure everything else out later.
The thing about potential is that you can say it about anything if you don’t really have to back it up.
I could start going around with a pitch deck saying that the thing that will finally bring about the sea change in the web, and we’ll call it “web3”, is steam-powered computing. My slides might be very fancy, I might be very charismatic, and I might be able to paint a picture of a very utopian web that was once dreamed about that would be right around the corner once we all adopted steam-powered computing.
But it is up to the rest of us, the people who really care about the future of the web and dream of a better world, to determine whether it’s credible or whether it’s just a load of bullshit.
Now, the technology industry is full of people going around with their fancy slide decks, spouting bullshit about their “revolutionary” ideas. You get used to it, right? Most of us don’t waste our time pointing out every project that looks like it’s going to turn out to be bullshit because infeasible ideas burning out at the expense of some startup founders and some wealthy early-stage investors is an everyday occurrence that typically is pretty harmless in the grand scheme of things.
But when an entire industry emerges, and begins to sell this idea to the general public that a better web is only possible through a technology that shows little indication of being up to the task? When it preys on people’s hopes for a future of a better web, and their fears about the effects of the current web on themselves, their children, and society to convince them to buy in—literally—to projects that may never even exist? When it sidesteps regulations on early stage investing through token offerings and convinces average people that their only way to financial stability is to bet their savings on technologies that they don’t understand because “this is the future!”
Then it’s worth paying attention.
Despite the depressing state of what’s currently being called web3, some people hold tightly to the idea that crypto and blockchains will democratize the web, solve wealth inequality, bank the unbanked, and maybe iron your shirts for you in the morning. I’m sure you’ve heard a lot of them speak here already at this conference.
So far, the primary successes of web3 have been in shiny marketing selling people the opportunity to invest in vaporware. In regulatory arbitrage, exploiting the fact that regulators have been slow and hesitant to act on unregistered securities offerings. And in outright scams and grifts. Many people in crypto say they welcome regulation—again, you’ve heard that here— as though it is not the lack of regulation that has enabled so many of these projects in the first place.
So many problems in today’s web are driven by capitalistic forces driving ruthlessly towards the enrichment of monopolistic tech companies rather than the betterment of society. You’ll have to excuse me for doubting that our utopian web dreams will be achieved through the introduction of a hypercapitalist technology that aims to financialize everything on the web even further, and exposes user data on public ledgers where it can be scraped by even more tech companies than are profiting off data today.
There will be a web3. The web has been evolving ever since its inception, and there is no doubt in my mind that we are overdue for a fundamental shift. Will it be blockchains and crypto? Venture capitalists and blockchain startup founders really hope that you think so.
I hope that the rest of us will continue working towards utopian goals like the ones I mentioned earlier—the ones that many people who are working in web3 and on web3 projects share—without necessarily being shackled to a technology that holds little promise for the web.
Revolution is possible. But it’s unlikely that we will be fighting for revolution alongside the same venture capitalists and tech companies who helped to get us into this mess in the first place.
As technologists, our duty is to develop responsibly, and we should be striving for more in the web, pushing to evolve it into whatever web3 may turn out to be, and chasing those ideals that could make the web truly wonderful.
But when presented with lofty promises we have to remember to distinguish the steam-powered computers from the truly revolutionary.
Dig deep. Ask the hard questions. Criticize the flaws. And cut through the bullshit.
The markets were fine until the last 45 minutes when Wall Street decided to hedge the bets they'd made November 30th when the Fed indicated they weren't going to whip the market much longer. BTW, we're right back where we were on November 30.
The 10-year treasury finished up again to day at 3.57%. That was a very brief dive under 3.5% on Wednesday. Since then there's been profit taking in front of next week's Fed meeting.
Overview of North Korea - from the NYT.
North Korea Wants Dollars. It’s a Sign of Trouble
SEOUL — When Kim Jong-un, the leader of North Korea, ascended to power more than a decade ago, he repeated two promises that his family has made since founding the country in 1948: to strengthen the military and to improve the economy.
On the military front, Mr. Kim, 38, has delivered more than his father and grandfather who ruled before him, accelerating the country’s nuclear and missile programs.
On the economic front, he has struggled, an already isolated country made more so by years of international sanctions over his nuclear program and border closures since the coronavirus pandemic.
Its trade with the outside world devastated, North Korea is scrambling for American dollars and other hard currency, not just to feed its people, but also to finance Mr. Kim’s military and economic ambitions. It is smuggling coal and stealing cryptocurrency. It is also trying to squeeze every bit of cash from the public, selling smartphones and other imported goods to the monied class, as well as collecting “loyalty” donations in exchange for political favors.
State-run stores like the one in the capital of Pyongyang are a critical piece. Customers can use American dollars to pay for international brands of instant noodles, deodorant, diapers and shampoo, while change is returned in North Korean won.
Such transactions, and other illicit activities, have allowed Mr. Kim to keep American dollars flowing into his coffers. It has given him the means to expand the country’s arsenal and capabilities, including testing a new intercontinental ballistic missile last month.
North Korea is now firing missiles at a rapid, sometimes daily clip. Washington, Seoul and Tokyo have all warned that Mr. Kim may soon conduct a nuclear test, its first since 2017.
Ascension to Power
On April 15, 2012, Mr. Kim gathered a massive crowd in Pyongyang to deliver his first public speech as the leader of North Korea. He said he would guide the country through any obstacle or challenge toward prosperity, yet he made clear that his first priority would be to “strengthen the People’s Army in every way.”
As he has pursued his dual goals, he has used a blend of propaganda and terror, purging or executing anyone standing in his way, while presenting himself as a “people-loving” leader in state-run media. He has made the government relatively less opaque, delivering frequent speeches and making decisions through broad party meetings. Mr. Kim even apologized for his shortcomings, tossing aside the myth of a faultless, godlike leader.
But Mr. Kim also knew that a real breakthrough for his country could be achieved only through negotiations with the United States, which led the push for international sanctions. When he met Donald J. Trump in 2018, he became the first North Korean leader to hold a summit with an American president.
An Expanding Arsenal
While North Korea has spent decades developing its weapons, Mr. Kim can take credit for the bulk of the advances. During his rule, the country became the first U.S. adversary since the Cold War to test both an intercontinental ballistic missile and what he said was a hydrogen bomb. Four of the country’s six underground nuclear tests happened under his watch.
In 2017, North Korea conducted its first successful test-launch of an ICBM, the Hwasong-15, which Mr. Kim said was capable of attacking the United States with a large nuclear warhead. Since his diplomacy with Mr. Trump collapsed, he has focused on making his arsenal more diverse and sophisticated, unveiling and then testing a host of new weapons, from a next-generation ICBM, the Hwasong-17, to nuclear-capable short-range missiles.
At a party congress in January 2021, Mr. Kim ordered his government to build both “super-large nuclear warheads” and make “nuclear weapons smaller, lighter and tactical.” He has called for the development of hypersonic missiles, submarine-launched ICBMs, nuclear-powered submarines and spy satellites. In April, he vowed to expand his nuclear forces “at the fastest possible speed.”
Though some recent ICBM tests have failed, North Korea is believed to have enough plutonium and enriched uranium to produce 45 to 55 nuclear weapons and may have already assembled 20 to 30 warheads, according to an estimate from the Nuclear Information Project with the Federation of American Scientists.
During a congressional hearing this summer, John F. Plumb, the Pentagon’s assistant secretary of defense for space policy, confirmed that most of North Korea’s ballistic missiles had a “capacity to carry nuclear payloads.”
The country has tested a dizzying number of weapons in recent months, one of which flew farther and higher than its earlier ICBMs. But North Korea has never launched a missile on a full ICBM range of 6,000 to 9,300 miles, raising doubts that it has fully functioning nuclear warheads that can survive the violent “re-entry” into the Earth’s atmosphere and hit targets across an ocean.
So far, it has launched all its ICBMs at deliberately lofted angles, the missiles soaring high into space. Their thrust was powerful enough that if launched at normal angles, they could theoretically reach parts or the whole of the United States, according to missile experts.
Mr. Kim delivered a message to Washington in 2018: “The United States needs to be clearly aware that this is not merely a threat but a reality,” he said. “The nuclear button is on my office desk all the time.”
His arsenal is not only a war deterrent to secure his regime’s safety from foreign invasion but also diplomatic leverage to win economic and other concessions. As part of his diplomacy with Mr. Trump, Mr. Kim halted nuclear and ICBM tests. But when it failed, he tried to strengthen his bargaining power by doubling down on expanding his weapons program.
Mr. Kim seems to have reached the conclusion that delivering on his promise of military strength is his best hope for economic gains, by exchanging part of his arsenal for sanctions relief. The recent torrent of missile tests, analysts say, was part of his attempt to flaunt his growing threat and bring Washington back to the negotiating table.
Economic Reforms
When he made that first speech in 2012, Mr. Kim also said he would ensure that his people would “not tighten their belts again,” a promise his father and grandfather made but failed to fulfill.
He introduced reforms that gave factories and farms more autonomy while keeping them under state ownership. He opened up more markets to supplement North Korea’s fragile ration system, which collapsed in the 1990s and contributed to a devastating famine. He vowed to weed out corruption and favoritism. He announced plans to open a host of free economic zones to attract foreign investors.
The extent of Mr. Kim’s economic drive is most clearly on display in Pyongyang, home to the loyal elite. The city has become brighter, its supermarket shelves more full of imports and domestically produced goods. Its skyline has also become dotted with tall, newly built apartment towers. Much of the change is cosmetic, many decrepit buildings coated with pastel-color paints.
While other cities remain far behind, Mr. Kim has concentrated his resources on the capital, positioning Pyongyang as a model of urban development. Under Mr. Kim, North Korea has opened a new terminal at the city’s international airport, renovated subway stations and opened new amusement parks.
Last year, Mr. Kim created several new residential districts on the outskirts of the city. He said there would be 50,000 new homes by 2025, the 80th anniversary of the party, to help alleviate housing shortages and replace the city’s older homes. Many are high-end apartments to be doled out to the elites in the hopes of maintaining their loyalty.
These reforms have done little to improve the country’s economic prospects.
North Korea crawled out of the catastrophic impact of the famine of the 1990s, growing an average 1.2 percent annually between 2012 and 2016, according to the South Korean statistical agency. But that was before sanctions and the pandemic.
The economy began contracting again in 2017. None of Mr. Kim’s planned economic zones have been built.
Resort towns that were being built to attract foreign tourists remain half finished or empty.
Last year, Mr. Kim warned of a potential food crisis and urged his people to prepare for tough times ahead. He has also told them to be ready to “tighten our belts” again.
Where the Money Comes From
To keep his promises, Mr. Kim needs cash urgently. He told Parliament in September that the government’s most important task was to solve the problem of the people’s living standards. Missile tests this year alone cost North Korea hundreds of millions of dollars, according to estimates by South Korean and American researchers.
His options are dwindling. The country’s combined trade deficit — the gap between the goods and services it imports and how much it exports — amounted to an estimated $8.3 billion between 2017 and 2021. Even factoring smuggling coal, selling fishing rights, stealing cryptocurrency and other illicit activities, the trade deficit may still amount to at least $1.9 billion, according to researchers at the Institute for National Security Strategy, a think tank affiliated with South Korea’s National Intelligence Service.
Mr. Kim’s regime is now trying aggressively to absorb as much foreign currency as possible from the public, especially from North Koreans who have accumulated such savings by smuggling goods from China.
The country has cracked down on the use of the American dollars in non-state markets, to force people to convert them into local currency. An unlicensed money-exchanger was executed for disrupting currency rates, according to South Korean intelligence officials. The government has encouraged people to deposit their dollar savings in banks, to place them under state monitoring.
To attract spenders with foreign savings, department stores are filled with imported goods, including Rolex and Tissot wristwatches, Sony and Canon digital cameras, as well as Dior and Lancôme cosmetics — all luxury items banned under U.N. sanctions.
Selling cell phones and airtime has also become a lucrative business for Mr. Kim’s regime. More than one in every five North Koreans are believed to have cell phones.
An array of cell phones, assembled in North Korea with components imported from China, is on sale and advertised on state TV. They carry pre-installed dictionaries and state propaganda but also offer apps for traffic navigation and games, including Super Mario and Angry Birds rip-offs, and even an app that promises to repel mosquitoes with sound.
Preferred stocks may also take some patience unless the bottom falls out of inflation. PPI for November was .3 or 3.6% on a yearly basis. If CPI is in this range that will be a good start. In several states gas is now below $3 a gallon and West Texas Crude is $71.50, the lowest price of the year. Housing should also be calming down as sales have dropped over 20% from earlier this year. The average 30 year mortgage has dropped to 6.5%. We'll know more next Tuesday morning.
That's been a great investment for you. How is there data center business coming along?
The 10-year note ended the day right at resistance, 3.49%. I just completed an organization of my 11 sets of preferred shares. In aggregate these shares are down .31% as interest rates moved up today. If/as we move up above 3.5% I'll continue to add and will likely open more positions. The aggregate dividend today is 5.93%. I'll report status on this sub-portfolio at the end of each quarter starting March 31. The portfolio consists of 5 banks, 2 insurance, 2 communications, 1 broker, 1 storage.
Opened PSA/PRK @ $21.05, yield 5.65%, yield at par 4.75%.
Opened FITBO @ $21.25, yield 5.84%, yield at par 4.95%.
Opened SCHW/PRJ @ $20.16, yield 5.52%; 4.45% at par.
Bank stocks make up less than 5% of my holdings. Specifically C is a Berkshire holding so I'm comfortable with fellow investors here. If you're referring to my recent buying of preferred stocks I think I've offered a clear explanation.
Closed 25% of C, -30% to balance long term capital gains at near zero. Will replace these shares after wash rules are satisfied. I currently have a small amount of short term carry over losses but I'll use those next year with options trades.
Sold 10% of ABBV & MRK ~50% gain after 17-18 months. Sold 10% of CVX ~80%, same holding period. Will need to sell part of some losers to off-set gains. I'm trying keep my cash at about 10% as I add preferreds.
Opened MET/PRF @ $20.43, yield 5.88. Coupon yield at par 4.75%.
The 10-year treasury note moved up 10bp to 3.51% this morning and now is dropping quickly. It appears the bulls are still in control of the bond market. Resistance is at 3.50% and the 10-year turned up, (interest rates moving down), about a half hour ago.
Opened WFC/PRA @ $18.95. Current yield 6.21%, at par 4.7%.
Thanks Nick. I was only able to pick-up one more today, (MS). I had orders in for half a dozen but the TNX dropped like a stone today, down 15bp. It's down 40bp in the last six trading days. I'm going to wait now to see if the CPI is a bit higher than expected. Any uncertainty and bonds may give up some of the gains they've made over the last month or so. The 10-year note is down 92bp since late October. I had expected support at 3.5% but we blew through that today and kept moving down. The two year treasury is down only 38bp during the same period and currently at 4.34%. The bond market clearly sees light at the end of the inflation tunnel.
Opened MS/PRO @ $18.20. Current yield 5.81%. Yield at par 4.25%.
One of the more useful and I assume, income producing ads that AMZN runs are the "Compare with similar items" offer. Every time you search for an item on AMZN they show you a half dozen well curated similar items to review. They also remind you of items you've purchased in the past and offer add-on items in the "buy it with" space. They've recently incorporated livestream ads.
To get to the screen with questions and answers along with additional information about the product you've just searched for you have to scroll through several screens of advertising along with offers to qualify for an AMZN credit card or financing options. For the most part, it's quite useful. As did many, our buying on AMZN shot up in 2020. What's interesting is the stickiness. We continue to increase the items we buy there because it's convenient and our infrequent returns are always easy.
Opened BAC/PRN @ $20.70. yield ~6%.
Should we be concerned about GOOGL with the release of ChatGPT?
https://www.cnet.com/tech/computing/chatgpt-explained-why-openais-chatbot-is-so-mind-blowing/
This one is a Buffett style investment for me. If AMZN continues to be weak over the next few months, I'll continue to add. AMZN over prepared for 2022 and it's been a weak year compared to 2021. They'll shed losses related to Alexa, add advertising revenue on their video offering, compete more and more with UPS and FedEx, grow their grocery business, grow AWS and I'm sure I'm forgetting other areas of growth.
5.77% is the current yield. At par 5.1%.
Added to AMZN @ $88.76.
Yes, I'm using both Quantum and Schwab. Opened JPM/PRK @ $19.48. Yield 5.77%
Thesis for all preferred acquisitions: Interest rates will continue up for the next few months and will begin to fall by the end of next year. As rates fall, all of these preferred shares will move up toward par of $25. The average dividend across all investment level preferreds will be ~6%. The capital gain after four years will average another 3-6% yearly average for a total return of 9-12%. I'll continue to buy until I have a minimum of 15% and a maximum of 25% of my income portfolio in preferreds or bonds. I'll be interested in Maryland munis once we move next summer.
Opened ALL-PRH @ $21.40, yield 5.87%.
Opened T-PRA and T-PRC @ $20.15 & $18.78. Both yield in excess of 6%.
From a Barron's article on housing:
Less demand means housing’s contribution to the consumer price index—it constitutes 40% of core CPI—could ease inflationary pressure.