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FOLLOW THE MONEY with ROGER LIPTON – article published in prestigious RESTAURANT FINANCE MONITOR – 1/15/22

RESTAURANT FINANCE MONITOR – 1/15/22 ISSUE – Follow the Money with Roger Lipton – Roger’s monthly column

Inflation is in fact the real concern, but not necessarily the kind the journalists are talking about. The headlines are all about supply channel distortions that lead to a rise in commodity prices and the increase in minimum wage that drives labor costs up. Those are ripples in the inflationary sea compared to the tidal wave that is lurking offshore. It just so happens that the dangers we are about to describe hang over us just as the economy is already cooling. Open Table data shows indoor dining during Christmas week was down 33% from 2019 and Jeffries’ economist just cut their Q1 Real GDP Growth estimate from 6.6% to 1.5%.  Here’s the problem. A large part of the “recovery” in the economy has been generated by consumers taking their savings rate back to 6-7% from over 30% at the beginning of the pandemic and the wealth effect due to home values and stock market indexes near record highs. Even with household wealth (on paper) at record levels, consumers’ sentiment is the lowest in at least 13 years, the lowest in 40 years by some measures. The “wealth”, however, is largely a mirage. Over half the return in the S&P 500 since April has come from five stocks, the concentration higher than 1969 or 1999, before those bubbles deflated. A number of prominent bubbles have already deflated, including the SPAC universe, and Bitcoin is down 33%. Stock in the Robinhood trading platform is down 50%, amplified by the declines of over 50% from the highs in Game Stop and AMC. All of this is to say that tens of trillions of dollars printed by central banks around the world has had a predictable effect. Until recently it did not impact food prices but asset inflation drove the wealth effect that has kept the music playing for over ten years. We doubt that our Federal Reserve leading worldwide central banks, and the conspiring political class, will have the political will to take the punch bowl very far away. The attempt to do so, however, could be very unpleasant.

Restaurant stocks, on the other hand, have corrected materially from their much higher valuations in the Spring of 2021. Especially since many well-run chains have discovered new profit centers by way of servicing off-premise diners, and could even produce record high profit margins once the pandemic dust finally settles, the fundamentals at the current valuations justify a fresh look. For example, five well established restaurant chains, starting at the top of the alphabet, BJRI, BLMN, CAKE, CBRL and CHUY, on January 5th are down an average of 28% from their highs last May. While it is true that QSR chains are actually up 10-15% over the last two years, that is distorted by the extraordinary performance of Domino’s, Papa John’s, Wingstop and Chipotle, all major beneficiaries of the pandemic. Absent those, the rest of QSR is down as well.  The five IPOs of ’21, DNUT, SG, FWRG, PTLO and BROS are down a similar 29% from their post IPO highs. The two rapidly growing service companies, TOST and OLO, are both down over 50% from highs, more extreme declines no doubt due to the fact that, promising as they are, neither is yet profitable. At this point investment in “best of breed” companies is one way to go, with names like Darden, Cheesecake and Texas Roadhouse in full service, McDonald’s and Starbucks in QSR. Priced much lower, at 6-7x near term EBITDA are mature chains such as Bloomin’ Brands, Brinker and Ark Restaurants in full service. Well established franchising companies, here to stay (and grow), in spite of recent disruptions, are companies such as Ruth’s Chris, Jack in the Box and Restaurant Brands, now trading at near term EBITDA multiples in the low teens. All these valuations are 25-40% lower than just seven to eight months ago.

Over one hundred percent has been made in less than a year in a restaurant stock that has been publicly held for almost forty years, namely Luby’s (LUB). Some of us remember when Luby’s “wrote the book” in the cafeteria business, with highly paid store managers leading a great operating culture. As late as 1999 LUB was paying $.80 per share in dividends. After a $49M loss in ’01, including a $30M write-down, the Pappas brothers, highly regarded Houston based restauranteurs, bought effective control (9% of the Company for $10M). Importantly, at that time the Company owned the land and building under 125 of their 219 restaurants. LUB has lost money in 12 of the twenty years of Pappas ownership. In the course of it, Fudruckker’s was bought in 2010 for $63M in cash, with 59 company operated stores (22 with land and building) and 129 franchised restaurants. In 2012 LUB bought Cheeseburger in Paradise for $10.3M in cash, with 23 full-service restaurants in 14 states. At the end of 2020 the Company consisted of 61 Luby’s (42 with land & building), 24 company operated Fudruckker’s (9 with land and building), 71 Fudruckker’s franchised locations, zero Cheeseburger’s. In late 2018, with the stock at $1.50, an activist investor initiated a proxy contest against 36% Pappas owners, which precipitated a Board decision in May ’19 to “consider strategic alternatives”, resulting in a September ‘20 decision to liquidate LUB with an estimated $3.50 per share value. So far $2.00 per share has been paid out, with an estimated additional $3.00 per share to come. This result illustrated, as this column suggested back in September, that the dirt can be worth more than the operations. It also didn’t hurt that both the Pappas brothers were over 70, likely an incentive to monetize their long-term holding in Luby’s.

Roger Lipton




There has been a flurry of M&A activity: Panera selling Au Bon Pain; FAT Brands buying GFG Group with five brands; Famous Dave’s buying Village Inn and Baker’s Square; Lee’s Famous Recipe sold again; A Jack in the Box franchisee buying Taco Cabana; J. Alexander’s going private; the $500M IPO of Krispy Kreme and Fertitta’s multi-billion dollar SPAC transaction. The reasons include: (1) Very low Interest rates (2) P/E firms and SPACs are flush with cash and the restaurant space is always seductive. (3) The industry is recovering almost daily, so buyers sense opportunity, especially since off-premise sales provide new growth possibilities. (4) Post-pandemic it is natural for some single brand owners to have “had enough” and multi-branded operators have had ample time to decide which portions of the tree are worth pruning. With future operating margins still uncertain, there is therefore an ongoing pool of willing sellers. (5) Public valuations have recovered, providing a reference point for private valuations, all of which can be tolerated with the still low interest rates (6) The talk, by the Biden administration, of much higher capital gains taxes provides strong current motivation. Our conclusion: virtually all of the above ingredients will remain for the foreseeable future. Additionally, campaign season for the mid-term national election is already upon us. The Treasury and the Federal Reserve, openly working in tandem (violating the supposed independence of the Fed), will therefore keep interest rates low and money available. If you are a potential seller, get your power point presentation ready and, as Bernard Baruch advised, leave a little on the table for the next guy.  If you are a buyer, be careful out there. It’s not as easy as it sometimes looks, and leverage works both ways.

IN “THE ROOM WHERE IT HAPPENED” – WHY DID TILMAN FERTITTA SWEETEN THE DEAL? Outside the room, it is likely relevant that a great deal of the bloom has come off the SPAC rose. Only one of the six restaurant related SPACs has been trading above the $10 issue price and that has been Fast Acquisition Corp. (FST), which has been finalizing the proxy material relative to the pending acquisition of Tilman Fertitta’s multi-billion dollar hospitality empire (72% restaurants and hotels, 28% gaming).

Recall that shareholders in a SPAC have the right to redeem their shares at approximately the $10 issue price if they don’t approve of the suggested business combination. FST has been trading at about $12/share, normally a safe premium going into the vote. However, the possibility of deal rejection may well have been of concern to both Fertitta and the FST sponsors (Doug Jacob and Sandy Beall, most prominently), especially with the SPAC index trading down about 25% from its high earlier this year.

With even modest uncertainty Fertitta decided to sweeten and insure the deal by adding 42 additional properties, including Vic and Anthony’s,The Pleasure Pier on Galveston Island, the Mastro’s steakhouse chain and his 50% of Catch Hospitality Group. Collectively these properties generate EBITDA somewhere north of $100M, depending whether we talk pre-pandemic, the current recovery phase, or post-pandemic 2022. As a result, Fertitta will end up with 72% of the post-merger FST, up from 59% previously.

The resulting EBITDA is a bit of a moving target. In early January, 2021 his empire was strung out with over $4B in debt and apparently around $400M of pandemic depressed trailing EBIDA. Three months into 2021, there had been an already material recovery, so the original FST/Fertitta merged guidance was $648M of EBITDA in 2022. Now, 3 months later and including the additional properties, Fertitta has indicated that the prospectively enlarged company is currently (Q2’21) generating pro forma EBITDA at $270-275M for the quarter, or $800M annualized. The post-transaction Enterprise Value is estimated to be $8.6B or about 11x the current EBITDA ran rate. The new Enterprise Value/EBITDA is not materially different from the original. Importantly, however, the debt is not being increased. The merged debt will have been reduced from $4.5B to “only” $3B, from the $200M IPO raise and privately raised equity (the PIPE) of $1.2B.In The Room Where It Happened: We suspect that the institutional shareholders of FST were not adequately comfortable with $3B of debt relative to the original $648M of projected ’22 EBITDA. This transaction, originally and as adjusted, is a great result for Fertitta, who only a year ago stooped to raise $250M at 15%. With the hospitality industry now improving daily, he could afford to sweeten the deal. Sounds a lot better, relative to $3B of debt, to be running at $800M today than guiding to $648M in ’22. Tilman Fertitta is a practical man. The last thing this serial acquirer needs is to be mortgaged to the hilt just as his empire becomes publicly held once again. No doubt he said to himself: “Let’s get this deal done and move forward. Who knows what tomorrow brings?” And that’s what we would have advised.

SANITY BEGINS ITS RETURN TO THE EQUITY MARKETPLACE: We wrote last month about the high contemplated IPO price for Krispy Kreme (DNUT). The deal was completed at $17/share, down from the original price range of $21 to $24 and the stock is currently trading around $18. Of the six restaurant related SPACs that are trading, only one is materially above the issue price and Tilman Fertitta sweetened the deal materially, as described above. Bitcoin, which we have also written extensively about, is down 50% from its high of just ninety days ago and 10,000 other cryptocurrencies are suffering to varying degrees. All good things come to an end.

FOLLOW THE MONEY, WITH ROGER LIPTON – as published by the widely followed RESTAURANT FINANCE MONITOR 6/15/21

as printed by the widely followed Restaurant Finance Monitor on June 15, 2021


YOU CAN EARN INTEREST ON YOUR BITCOIN – You will be hearing more about the opportunity to earn interest on your holdings of bitcoin or other cryptocurrencies. How can this be, since bitcoin cannot be possessed physically? This is a brave new world. Bitcoin and many of the other (ten thousand!) cryptocurrencies are traded on a variety of exchanges. Some of those exchanges are allowing traders to “short” cryptocurrencies, just as investors have been allowed to short stocks and bonds for ages. That means the exchange has to arrange a “borrow”, somehow segregating the asset from the owner’s account, allowing for “delivery” to whomever is buying it from the short seller. Just as when scarce or “hard to borrow” stocks are lent by custodians such as Fidelity, the short seller pays a fee to the custodian that can range from a couple of percent to upwards of 50% annually and 40-50% of that is shared with the true owner. The interest rate on cryptos varies widely, depending on the exchange and the coin, and can sometimes provide double digit yields to the owner. However, this attractive return is subject to the safety of the custodian such as Coinbase Global (COIN), the largest of many exchanges for cryptocurrencies.  All of this negates one of the original advantages of bitcoin and the other cryptos, which was to prevent access by third party agencies, including governmental authorities.  COIN is “regulated”, but by whom, and to what effect? The bottom line is that “third party” or “counter party” risk adds to the price risk of the crypto. How much do you really know about the exchange (depository) you have chosen, and what recourse do you have in the event of default? For what it’s worth, as this is written, Coinbase does not offer an interest rate for bitcoin owners, but the BlockFi exchange is paying 5%, Nexo is paying 6%, and Celsius is paying 3.5%, to name just a few. Be careful out there!

KRISPY KREME IS BACK, having filed IPO documents to raise an indicated $100M. Founded in 1937, Krispy Kreme came public in 2000 and was a hot stock for several years. However, very rapid expansion undermined the novelty effect, the Atkins diet craze may have hurt sales, the brand image was undermined by distribution points such as C-stores, and franchisees were further disillusioned by the profit the franchisor made on the distribution of product mix and donut making equipment. (Shades of TCBY!) A stabilization and building effort began in 2005, resulting in JAB Holding taking the Company private in 2016, for $1.35B. Fast forward: the rumored Enterprise Value of the coming IPO is $4B, including $1.2B of debt, $350M of that owed to JAB. The numbers: From 2016 to 2020, Net Revenue increased from $557M to $1.122B (a CAGR of 19.1%), but a large portion of that revenue growth was generated from the buyback (for $465M) of franchised stores. Over the same period, Global Points of Access increased from 5,720 to 8,275. The GAAP loss before taxes increased from $18M in 2018 to$21M in 2019 to $52M in 2020 but Q1’21 showed a GAAP pretax profit of $307k compared to a $12M loss in ’20. Adjusted EBITDA looked (predictably) higher: $128M in 2018, $151M in 2019, $153M in 2020, and $48M in Q1’21, up from $38M. The Global Points of Access grew further in Q1’21, to 9,077, up 9.6% in just three months. As presented early in the 200 page prospectus: “Krispy Kreme doughnuts are ….universally recognized for its melt-in-your-mouth experience. One differentiating aspect …is our Theater Shops with our ‘Hot Now’ light….the most awesome doughnut experience imaginable….we are an omni-channel business, via (1) our Hot Light Theater and Fresh Shops (2) delivered fresh daily through high-traffic grocery and convenience stores (3) e-Commerce and delivery and (4) our new line of packaged sweet treats offered through grocery, mass merchandise and convenience retail locations. In terms of valuation: The rumored $4B valuation, at 25x the Adjusted EBITDA current run rate of about $160M, seems fully valued, to put it charitably, and the outlook is not risk free. When the last IPO took place, in 2000, customers were lined up for blocks around a newly opened location. Not so much today.

 THE HOSPITALITY QUOTIENT – “Culture” is an overworked term in the hospitality business. Hard as it is to define, Danny Meyer and Howard Schultz have demonstrated how far a great culture can take you. My wife and daughter think I’m getting a little (or a lot) eccentric. Sometimes, after a service person responds to my thanks with a “no problem” I suggest that something like “my pleasure” is a lot more hospitable, personal, even charming. I feel like I’m doing them a favor, mentoring them if you like, and it costs me nothing. Most often they seem to appreciate it, and respond on my next visit, with “my pleasure” and a smile. Which leads me to my recent visit to Starbucks. The expeditor at the pickup counter, after I thanked him, responded with “my pleasure”. When I complimented him, he said that it was natural for him because he also works at Chick Fil A. So: the $7M per copy that Chic Fil A is doing, in a six day week, is more than double that of McDonald’s, which does a lot more than Burger King or Wendy’s. Maybe there really is something about building, among other things, a warm salutation into the training process. There’s nothing obnoxious about “no problem” but “My Pleasure”, “Always Nice to See You”, “You’re Very Welcome”, “Any Time”, “Come See US Again”, or down south “Y’all Come See Us Again, Y’Hear?” could go a long way. The above does not happen by accident.

Roger Lipton




The general market was basically flat in May but gold bullion and the gold miners had a good month. Gold bullion was up about 7.7%, gold mining stocks did approximately double that, and our Partnership’s portfolio mirrored that. The result is that gold bullion has now retraced its earlier loss, is now virtually flat for the year, while the gold mining stocks are now ahead for the year. There is every reason to believe that the last three months for gold related securities are a harbinger of even better performance to come.


It might not be a major factor, but bitcoin, which has likely attracted some potential gold buyers to the “digital gold, as bitcoin enthusiasts like to say, retreated from a high of $64,000 to a low around $30,000. We don’t view bitcoin as anything other than a symptom of the fiscal/monetary folly that has engulfed the civilized world the last ten years, but some speculators who might have “played” with gold or the gold miners have no doubt been seduced by bitcoin. We think, as we have repeatedly suggested, that gold is the real money, a durable and unique store of value and unit of exchange, as demonstrated over thousands of years. For what it’s worth, bitcoin is only one of 10,000 cryptocurrencies, and its dominance among them is being steadily diluted.


The absence of a steady return, in the form of interest or dividends, puts gold bullion ownership at a distinct disadvantage to bonds or stocks. These days, however, there is virtually no return in safe short term fixed income securities. One year US Treasures pay 0.14% and 5 years only gets you 0.79%. The dividend return on the S&P 500 index is only 1.38% and there is a natural risk within stock ownership. With inflation running about 4% in the last twelve months, stocks and bonds have a negative “real return” of about 3%, so gold bullion is not at such a disadvantage. It is worth noting that many of the high quality gold mining companies are now paying dividends of 2% or more, allowing the gold mining stocks to be even more competitive. This is why the performance of gold bullion and the gold mining stocks have correlated strongly with the level of “real interest rates”. The more negative the “real” return on stocks and bonds, the better gold related securities do.


You will be hearing more about the opportunity to earn interest on your holdings of bitcoin or other cryptocurrencies.

At first blush, how can this be? Who is paying this interest, especially since bitcoin cannot be possessed physically?

This is a brave new world. Bitcoin and many of the other (10,000) cryptocurrencies are traded on a variety of exchanges. Some of those exchanges are allowing traders to “short” cryptocurrencies, just as investors have been allowed to short stocks and bonds for ages. To allow this, the exchange has to offer a cryptocurrency “savings account” to owners, in turn allowing the short seller to “borrow” the asset from the exchange, which appropriates it (temporarily) from the true owner. That means the exchange has to “remove” it, somehow segregating it from the owner’s account, providing it to the short seller, allowing for “delivery” to whomever is buying it from the short seller.

Just as when scarce stocks are lent by third parties (such as Fidelity, Schwab, etc) the short seller pays a fee for the “borrow” (can range from a couple of percent to upwards of 50% annually) and 40-50% of that is rebated to the true owner, who allows their stock to be “taken” temporarily by Fidelity or Schwab, and lent out. This can generate a very attractive “return” to the true owner. However, the risk to the lending owner is that the speculative security, which is “hard to borrow” and that’s why the short seller pays the interest charge, may be as risky as the short sellers believe, and decline sharply in price, more than offsetting the interest rebate to the owner. Parenthetically, the true owner can call for a return at any time if they want to sell the stock for any  reason. That in turn, can create a “short squeeze”, when the short seller is forced to buy back the stock, to return it to Fidelity or Schwab, who returns it to the selling true owner.

All of this negates one of the original advantages of bitcoin and the other cryptos, which was to prevent access by  third party agencies.

It also puts the cryptocurrency owner at the mercy of the “exchange”, on which cryptocurrencies are traded and within which ownership is maintained. Coinbase Global, Inc. (COIN) is the largest “exchange”, which came public recently and trades with its own Market Capitalization of about $50 billion. It is a “regulated” (sufficiently?, who knows?) cryptocurrency company that provides customers with a platform for buying, selling, transferring, and storing digital assets. Many exchanges offer a variety of interest rates on many cryptocurrencies. The interest rates vary widely, depending on the exchange and the cryptocurrency, and can sometimes provide even double digit yields.

However…..to earn that return you subject yourself to “third party” exposure, adding the exchange risk to the price risk of the crypto. How much do you really know about the exchange (depository) you have chosen, and what recourse do you have in the event of default?


I asked a good friend of mine, who has a substantial ownership of bitcoin, if he is earning any interest on his holding. He responded that he buys and sells bitcoin through Coinbase. He does not want to allow even Coinbase to appropriate his holding, let alone one of the other exchanges that are willing to pay a high interest rate. As of today, June 2, 2021, Coinbase does not show any interest rate offered on bitcoin, but the BlockFi exchange is paying 5%, Nexo is paying 6%, and Celsius is paying 3.5%, to name just a few.

There is no free lunch. Be careful out there!

Roger Lipton



The Labor Crisis – and some intended consequencesThe unprecedented labor crisis in the restaurant industry, more broadly within hospitality and retailing, is no secret. Since something like 20 million Americans are employed within these industries, the implications for our overall economy are significant.

The restaurant industry is now forced to pay anywhere from $12 to $16/hr. for starting crew members, and, even at that wage, it remains difficult to find candidates. Some companies are offering referral bonuses to existing employees, $50 to just show up at an interview and many other enticements. On a recent trip to South Carolina, I saw signs to this effect at almost every restaurant on the commercial strip. The most striking offer was at McDonald’s, willing to pay $28,000 as a starting wage to a trainee promising a management position within 90 days. The candidate might become a shift manager, rather than a general manager, but it seems a sign of clear desperation that a store owner will be required to hand over the keys to their $3M restaurant, for even a shift, after only 90 days of training.

The cause of the crisis unfortunately, as with most policy debates these days, comes down to a political divide. The left suggests that it is the fear of interacting with the public while Covid-19 is not yet eliminated, even $15/hr is barely a living wage, and some candidates still have to stay home with children that are not yet back in school. Conservatives suggest that enhanced unemployment benefits amount to more than a recruit would earn while working and “if you pay people to stay home, they will stay home”.

The enhanced unemployment benefits are slated to remain until September 6th, and it seems unlikely that the Biden administration will modify that. However, South Carolina and Montana announced their plan to withdraw from the Federal Program at the end of July and the US Chamber of Commerce announced its support of stopping the extra $300/week.

The Result – including some unintended consequences

  • Crew wages are taking a major step higher, and what goes up will not, in this case, come down.
  • Store level managers and other field supervisors will also need wage increases over time.
  • Staffing will remain a challenge, at least until September, because only half the country is Red, and Blue states will likely not change course.
  • Store level service will likely suffer and/or training costs will increase materially for raw recruits.
  • Menu Prices will move higher. It may be called a “Covid surcharge”, as in NYC recently, but customers will pay more, and, with inflation in the news, they will understand why.
  • Store level and corporate margins will be under pressure (vs. ’19), since menu prices can only be raised with great caution. The other “prime cost”, namely Cost of Goods Sold is also currently trending higher, affected by higher beef, chicken, etc.


BITCOIN (and its potentially fatal flaw) –  Bitcoin, and its recently highly publicized baby brother, Dogecoin, continue in the news. There were originally two major stated attractions of Bitcoin as the ultimate currency. It was (1) non-traceable by governmental authorities and (2) there could never by more than 21M coins issued. The first reason is now obsolete since its use is being “discouraged”, in a variety of ways, by many countries. Cryptocurrencies, after all, compete with the unbacked currencies issued by your friendly government. The US government says Bitcoin is taxable property and your 1040 tax return asks: “at any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” The second justification does not hold up because Bitcoin, the most prominent crypto currency, is steadily losing its dominance and there are nine thousand competitors. A year ago, the value of Bitcoin “mined” amounted to something like 75% of all cryptocurrencies, and an even higher percentage of transactions. Today, though the value of the Bitcoins issued amounts to a trillion dollars, the myriad competitors include Etherium (worth $458B), Etherium II ($458B), Binance Coin ($101B), Dogecoin ($64B), and Tether ($56B), together comprising an additional $1 trillion. It seems to us that it is just a question of time before Bitcoin gets diluted into relative oblivion.

Shake Shack – (receives our Financial Transaction of the Year Award) – The restaurant stocks are mostly at their highs, anticipating a full fundamental recovery from the pandemic driven challenges. Shake Shack (SHAK), one of the most admired fast casual chains, has continuously traded at a very high valuation since its IPO at $21.00 per share in 2015. Well run though it is, SHAK has been especially battered by Covid-19, since their locations are in urban locations, at destination malls and resorts, have had no drive-thrus, and their product doesn’t travel particularly well. SHAK declined from about $100/share in late ‘19 to a low of $30 in early ’20, then (after returning $10M of PPP funds) raised $136M from the sale of stock at about $40/share. It should be noted that their highest earnings were $0.72/share in 2019, so even the $30 low was 42x peak earnings and it will obviously be a while before that level is achieved again. The stock sale, at $40 was opportune but THE AWARD applies to the latest financing. In March, 2021, still reporting operating losses but with the stock at about $130, SHAK issued $250M of Convertible Senior Notes, due 2028, convertible at $170/share (236x peak historic earnings), with a ZERO PERCENT INTEREST rate. A score for SHAK, to be sure, now sitting on over $400M of cash and no (interest bearing) debt. Not so admirable for the institutional buyers who have now written a new book called “Reaching For Zero Percent Yield”.

Roger Lipton




We’ve written before about  Bitcoin. Suffice to say that we prefer gold as a store of value and unit of exchange (a currency). We suspect, actually believe that, when books are written about the financial follies of the early twenty first century, the rise of bitcoin and thousands of other cryptocurrencies will be one of the ringing bells signifying  the end.

That conviction aside: How’s the following for a perpetual motion machine?

The Grayson Bitcoin Trust (GBTC) (to quote Bloomberg) “is an open-ended grantor trust based in the U.S. The Trust’s shares are the first securities solely invested in BTC (Bitcoin). The objective is for the BTC Holdings per Share to track the BTC market price, less fees and expenses. Eligible accredited investors can invest in the private placement at the daily BTC Holdings per Share”

GBTC sells at a 43% premium to the value of the Bitcoins in the Trust. The more shares that are bought by investors, and issued by the Trust, the more Bitcoins need to be acquired for the Trust price to track Bitcoin. The number of shares in the Trust has steadily increased, from 490,000 in late October to 606,000 today. That means 116,000 new shares were issued and, based on today’s price of $31.00, would create a demand for $3.6M worth of Bitcoin. The beautiful thing is that the Trust continuously advertises the attraction of Bitcoin as an investment, which attracts new investors to GBTC, which requires more shares to be issued, which requires more Bitcoin to be bought, which  drives the Bitcoin price higher.

To be sure, $3.6M worth of buying over a couple of months is from huge these days, and the market value of GBTC , at $145M, is small by today’s standards, but GBTC is growing and incremental  buying, in any commodity, especially on a regular basis, can be more instrumental than it seems to the price of any commodity.

It’s a beautiful thing! Until the process reverses.

Roger Lipton

P.S. – This process, by the way, applies similarly to the more than 5,000 ETFs out there that represent trillions of dollars worth of stocks and bonds. The ETFs don’t have a 40% premium to play with but all the money managers that prefer ETFs to picking individual stocks do that job for them.



We don’t get them all right, but we’ve been consistently negative on the prospects for Bitcoin, ever since we started writing about it in August of 2017. Bitcoin was trading then almost exactly where it is at the moment, about $4,600. Among our articles was one written at $16,964 on 12/19.17, one day after the all time high of $18,674. We have provided, for your easy review, our writings that have included reference to Bitcoin, the most recent listed first. A summation of our opinion today, is exactly as we expressed it with our first mention back in August of 2017. “When the books are written about the financial follies of the early 21st century, the rise of bitcoin will be one of the ringing bells signaling the end”.  There was 100% risk in owning Bitcoin at $18,674 and there remains 100% risk at $4,500.


August 16, 2018



February 1, 2018



January 17, 2018



December 19, 2017



September 5, 2017



August 15, 2017



August 1, 2017












We wrote several articles on this subject, last summer and again in December. Our first cautionary notes were written 8/15/17 and 9/5/17 provided here, with Bitcoin trading just south of $5000:


Our last analysis was written 12/19/17, within a day of the high price above $19,000, provided here:


In a nutshell, not today, not tomorrow, but over a few years from now, it’s over. Blockchain technology no doubt has its applications but cryptocurrencies will fade into oblivion, with most of the fundamental flaws previously described in the articles linked above. We are not always right, and sometimes we are right or wrong, but for the wrong reasons. In this case, we’ve got it right for the right reasons. For heaven’s sake, don’t get seduced now, just because Bitcoin is down from $19,000 to $6,000. It is still $6000 too high.


Gold bullion has hit a new low for the year, with the gold mining stocks following along, leveraged as usual to the price of gold. As we have previously written, there are all kinds of reasons that gold should be spiking higher, rather than lower, and it is only a few months ago that gold was on the verge of an upside breakout. Best we can figure, in addition to a very strong dollar, the downside pressure on the gold price has been from Central Bank selling, a result of turmoil in Turkey in particular.  We believe this will run its course shortly, if it hasn’t already.

Turkey’s commitment to gold had already been demonstrated to be less consistent than every other important Central Bank. While most other Central Banks have been steadily buying (or maintaining holdings) in recent years, Turkey’s holdings declined from 504 tons in July 2015 to 377 tons in Jan 2017, then built up steadily to 582 tons in Mid 2018. The most recent report shows they only hold 236 tons in July, so they have apparently liquidated 342 tons in the last couple of months.  The good news is that they don’t have much left, perhaps nothing by now.

Recall that the Central Banks in total have been steady buyers over the last nine years, in the range of 300 tons annually, up 36% YTY in ’17 to 366 tons, and running up 42% in Q1’18, the highest first quarter since 2014. Turkey’s disposition in Q2 will obviously skew that quarter’s result.

Let’s go through today’s top ten sovereign gold owners, and their change in reported holdings over the last several years. We say reported because China, in particular, is likely understating their holdings in a major way. The highlights are that the US, with over 8,000 tons is nearly as much as the next three countries combined. For six consecutive years, Russia has been the largest purchaser, increasing its holdings by 224 tons in 2017 and  overtaking China  to hold the fifth spot. Not every central bank is a buyer. For the second year in a row, Venezuela was the largest seller, 25 tons in 2017 apparently sold to pay off debt. Total  sales declined by 55% in 2017, the lowest since 2014, obviously overcome by purchases since the total net increase was 366 tons. This nine year old trend is obviously demonstrating that central banks consider gold to be an increasingly important store of value and safe haven asset.

India is the tenth largest holder, with 560 tons, representing 5.5% of their foreign reserves. This has been virtually constant since 2015. It is well known that the Indian public believes in gold as a long term store of value, with gold jewelry often part of a bride’s dowry.

Netherlands, at #9, owns 612.5 tons, representing 68.2% of their foreign reserves, constant since 2015. Interesting that the Dutch Central Bank recently repatriated a large amount of its gold from the U.S.

Japan, at #8, owns 765.2 tons, only 2.5% of its foreign reserves, constant since 2015. Interesting that they have been one of the most aggressive money “printers”, with interest rates in January 2016 below zero, helping to fuel worldwide demand for gold.

Switzerland, at #7, owns 1040 tons, 5.3% of its foreign reserves, constant since 2015. Interesting that while Switzerland for many years was a hub of gold trading with European counterparties, much of today’s trading is done with the increasingly important Hong Kong and China bullion markets.

China, at #6, reports 1842.6 tons, representing a mere 2.4% of its $3T of foreign reserves. After not reporting since 2009, the People’s Bank of China reported 1708 tons in mid 2015, up over 60 % in 6 years. Monthly reports were then provided for about a year, with an increase to 1842 tons with no change reported since the end of 2016. Since China is the largest miner of gold in the world, about 400 tons per year, and no gold seems to leave China, most observers believe that various government agencies are absorbing a great deal. It is not hard to conclude that the 1842 tons may be understating the true holdings controlled by the government by thousands of tons. The government has also encouraged public ownership with gold backed bank savings accounts.

Russia, at #5, reports 1909.8 tons, representing 17.6% of foreign reserves. The Russian Central Bank has been the largest buyer of gold for the past six years, just last year overtaking China’s reported holdings. They bought 224 tons in 2017, at the same time selling a large portion of its US Treasuries.

France, at #4, reports 2,436 tons, representing 63.9% of foreign reserves, constant since 2015. There has been political pressure to not only put a formal freeze on selling, but also to repatriate the entire amount from foreign vaults.

Italy, at  #3, reports 2,451.8 tons, representing 67.9% of foreign reserves, constant since 2015. European Central Bank President, Mario Draghi, was the former Bank of Italy governor. He has described gold as “a reserve of safety”, adding, “it gives you a fairly good protection against fluctuations against the dollar.”

German, at #2, reports 3,371 tons, representing 70.6% of foreign reserves, virtually flat, down 9 tons since 2015. Last year, Germany completed a four year repatriation program to move 674 tons from France and the US back to its own vaults.

United States, at #1, reports 8133.5 tons, the highest percentage, at 75.2% of foreign reserves, holdings constant since 1971 when Richard Nixon closed the hold window. It is interesting, to us at least, that the value of our gold holdings, as a percentage of US monetary aggregates, is almost exactly where it was in 1971 before gold went up over 20x in value.

Taking the above into consideration, there is every indication that Central Banks other than Turkey, along with Chinese agencies in addition to the PBOC, and public buyers, in China, India and elsewhere will absorb Turkish sales (if they haven’t already). Especially in the case of China, India, Japan, and Switzerland, with low single digit percentages of their reserves invested in gold, obviously aware of the worldwide debasement of paper currencies, and the danger in most other asset classes, it makes sense to increase their gold allocation. We continue to believe that  gold will again emerge as a store of value and a safe haven. Gold bullion and gold mining stocks will catch up with the ongoing price inflation of virtually every other asset class. Money printing and deficit spending does not create long term prosperity.

Roger Lipton





The broad equity market continued upward in January. Gold bullion was up a little over 3%, the gold miners were up less (GDX up 2.2%, GDXJ down 1.3%). Our gold miner related portfolio was up inline with that group. We believe that the gold miners will start to outperform gold on the upside as they report Q4’17 earnings, the first quarter in over a year that the price of gold was materially higher than a year earlier. That will continue to be the case as Q1’18 is reported, and all through this year if gold holds its current price above $1300. We describe below two particularly positive recent developments.

The US dollar has recently been dramatically lower, in particular against the Euro, which represents the second largest collective economy in the world. We have written in the past that gold does not necessarily move inversely to the dollar, as many observers believe, since it depends on the time period one uses. However, all other things being equal, a weak dollar helps rather than harms the price of gold. The question then becomes: what is really the US policy? Over the last year, both President Trump and Sec’y of the Treasury, Steve Mnuchin have made statements that they consider a weak dollar a “blessing” in terms of US exports, our economy and our trade balance. They backed off that stance recently as they were attacked by certain pundits. However, DJT has continuously said “it’s all about jobs” and he is certainly not afraid of debt and deficits, which would pressure the US Dollar to the downside. The latest indication in this regard comes just last week in Davos, when Commerce Sec’y, Wilbur Ross, reflected back to 1945, just after Bretton Woods had established the US Dollar as the world Reserve Currency, and the US (with a strong dollar) was willing to be supportive of other countries rebuilding themselves after WWII. Ross said, though, that “it is a different world today”. (Check it out on Youtube, minute 19-20 in the presentation). Obviously, he is pretty directly saying that the US can no longer afford to support the worldwide economy at our own expense, implicitly blessing a lower dollar.

The second potentially powerful positive development is that a number of prominent institutions are planning to introduce cryptocurrencies BACKED BY PHYSICAL GOLD. Just this week, the UK’s Royal Mint, responsible for producing all the physical money in the UK, has announced the launch of its own gold-backed cryptocurrency. Also announcing similar plans are the Perth Mint in Australia, and the Sprott organization of Canada.

We have written (skeptically) about Bitcoin over the last few months, which readers can access through our Search function on the home page. We don’t think it is a coincidence that, virtually to the day that Bitcoin topped at $20,000 and started to fall by 50%, gold has been edging upward. It seems more than reasonable to think that speculators and investors would rather own a cryptocurrency backed by gold than backed by NOTHING. Since the total market value currently invested in Bitcoin and others is still something on the order of $300-400 Billion, there could be substantial additional demand for physical gold, whose total worldwide annual production is $140-150 Billion.

We  obviously believe that our gold related investment strategy is more valid than ever.