Branzan Advisors Commentary | November, 2022

As many of you likely did over this past weekend, we spent much time reading different reports on last week’s rapid demise and bankruptcy filing of the FTX Cryptocurrency Exchange. While we expect it will take months or years before we know the entire story. It appears to be a fraud of monumental proportions and billions of dollars was likely lost. The amount of trust that individuals and institutional investors placed in Sam Bankman-Fried, the founder of FTX, is mindboggling. It’s been reported that sophisticated investors such as SoftBank, Tiger Global and Sequoia Ventures all invested material sums in FTX. It makes us wonder about the level of due diligence that is being conducted by these firms.

Branzan does not have any cryptocurrency exposure. Our lack of exposure to cryptocurrencies is primarily driven by our focus on investing in areas we understand. We have watched over the past year the amount of wealth that has been created by trading cryptocurrencies and tokens. We couldn’t make sense of it, but it clearly worked for all those speculators in their 20s who were able to buy Lamborghinis and McLarens with their newfound wealth. Until it didn’t.

We expect the failure of FTX will bring much needed regulation to the cryptocurrency industry. Whether this means that cryptocurrencies will become more mainstream or will be regulated out of existence is impossible to know. We will stay on the sidelines and focus on other opportunities.

2022 continues to be difficult for investors. As the Federal Reserve and other central banks raise interest rates and tighten monetary conditions to combat inflation, the impact is rippling across most asset classes. Hope springs eternal that the Fed will start to slow down future interest rate increases and come to the rescue again, but volatility in equity and bond markets remains high.  

One bright spot in 2022 has been oil and natural gas.  Supply disruptions from the war in Ukraine, OPEC+ cutting production and Wall Street clamping down on financing for profligate U.S. exploration and production companies has created a situation where supply and demand are tightly balanced. As a result, prices for oil and natural gas have been resilient in the face of a possible recession and other headwinds.  We remain bullish on oil and gas.        

Removing excess liquidity from the global economy is a painful process, but a necessary one. We believe there will be more compelling investment opportunities in the near future as a result of the contraction in liquidity. Too many investors relied on the premise that interest rates would stay low forever. That’s quickly changing and we believe it will create opportunities for Branzan. Our focus on hard assets and income-producing investments is crucial in times like this and we appreciate your ongoing confidence in our strategy.

Sincerely,

Branzan Investment Advisors

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