Hello Crypto.

Well, we did it. We finally entered the crypto space by purchasing a small amount of Canaan Inc. ($CAN) on the Nasdaq) today – a new kinetic rocket! Canaan Inc. is a Chinese company that builds crypto mining rigs – theirs is called the Avalon Immersion Cooling Miner.

The price of bitcoin has rocketed lately and this has caused a lot of buzz around blockchain / cryptocurrencies. On Saturday I was listening to The Market Huddle and Lynn Alden who I believe is one of the most knowledgeable experts on bitcoin right now. The demand for cryptocurrencies is increasing due to macroeconomic forces like the dollar’s perceived value decreasing and slowly losing its status as the word’s reserve currency.

Due to the nature of the hash behind bitcoin, mining the coins becomes more energy intensive with each coin mined. So, as bitcoin and other blockchain applications continue to grow in popularity, so will the demand for these sorts of mining tools.

Strategy. Conviction. Mathematics. Perseverance.

You’ve got to have an overall strategy. A north star to guide you daily.

You’ve got to have conviction. A strong hand when the questions and doubts come.

You’ve got to understand how the math works in your favor, and how it doesn’t.

You’ve got to persevere. Some days will be difficult. Stick to your plan and get past them.

Uranium is pulling back… for now at least

Uranium has been on a rocket ride since early November 2020 and we have enjoyed the run up. Here are a few daily charts of our favorite uranium plays Energy Fuels ($UUUU) and Denison Mines ($DNN) courtesy of StockCharts.com:

On the chart above notice how the MACD (Moving Average Convergence Divergence) black line has crossed below the red signal line. This is a bearish indicator for the Energy Fuels daily chart and could mean that a further correction is warranted and may take longer to play out.

In the case of Denison Mines ($DNN) above, the MACD line has not crossed over yet, but it is threatening to do so. Again, a potential bearish indicator for the daily chart and this could take longer to play out fully.

We feel like its important to take a look at the larger (macro) picture, so here are the weekly charts for Energy Fuels and Denison Mines:

Both of these weekly charts show a lot of strength and this correction may still be in its early stages. However for the long term we feel this correction is temporary and we are still very bullish on the uranium sector as a whole and believe we are still in the early innings of a longterm bull market.

Disclosure: We are long shares of Energy Fuels ($UUUU) and Denison Mines ($DNN). We are also both long and short call options of Energy Fuels ($UUUU) and Denison Mines ($DNN).

Macro Investment Strategy

It was the Summer of 2004 – songs like Float On by Modest Mouse, Take Me Out by Franz Ferdinand and Mr. Brightside by The Killers were hitting the alternative rock scene. I was visiting my brother who lived in Huntington Beach with a few roommates. He invited me to go out surfing with them. I love to skateboard and snowboard, so I thought to myself “how hard can surfing be?”

As soon as I got out into the ocean I didn’t understand how they could catch waves so well – it seemed effortless for them, while I was getting punished by the surf. My timing was off – I was fighting the waves while they were using them to their advantage.

I found that the same was true for the first half of my investing life. I spent the first half of my investing life fighting the macro waves rather than using them to my advantage.

So, what are these macro waves? Well, there are many markets at play, however I have chosen two that interest me most, and happen to be somewhat inversely correlated – the Nasdaq (Growth and Tech stocks) and Commodities (Value stocks). These two major markets have moved counter to each other for the past few decades. For example, here is a graph that shows the ratio of the Nasdaq to the Uranium price from 1970 to the present. The blue bar is the yearly ratio of the Nasdaq to the Uranium price. The red bar is the moving average of that ratio year over year.

Notice how the ratio (blue bars) look like large waves. Just like in surfing, its much better to work with the waves than against them. For this particular chart, one would have done quite well to purchase shares of the Nasdaq Composite in 1980, hold on to those shares until 1999, then purchase shares in Uranium stocks, hold on to those shares until 2007, and then purchase shares of the Nasdaq Composite and hold on to them until present day (we would argue that now is a good time to purchase Uranium stocks again – which we are doing).

Another advantage of this macro ratio investing is that you have an indicator (the red moving average) that can assist you in determining when values are no longer historically distorted. Essentially, moving averages can help you know “when to sell.”