FRMO Corporation (FRMO) Earnings Call Transcript & Summary

Good day and welcome to the FRMO Quarterly Conference Call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Thérèse Byars. Please go ahead.

Thank you, Telari. Good afternoon, everyone. This is Thérèse Byars speaking, and I'm the Corporate Secretary of FRMO Corp. We thank you all for joining us today. I just have a few housekeeping things to read. The statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable. Or that future investment decisions will be profitable or will equal or exceed the past performance of the investments. For additional information, you may visit the FRMO Corp. website at www.frmocorp.com. Today's discussion will be led by Murray Stahl, Chairman and Chief Executive Officer; and Steven Bregman, President and Chief Financial Officer. They will review key points related to the 2020 third quarter earnings. A summary transcript of this call will be posted on the FRMO website in the coming weeks. A replay of this call will be available for 1 month, beginning at 7:15 this evening. To listen to the replay, dial -- for domestic, toll-free number is (888) 203-1112. The international toll number is 719-457-0820, when prompted, key in the passcode 2844813. These dial-in numbers are noted in the FRMO press release dated April 13, 2020, which may be found on the FRMO website by clicking the link called Information Statements & Announcements. The press release can also be reviewed on the OTC Markets website by typing in the ticker symbol FRMO and clicking on the News link. And now I'll turn the discussion over to Mr. Stahl.

Thank you very much, Thérèse, and thank you all for joining us. First, let me apologize for a little bit delayed start. I'm going to indirectly blame the coronavirus threat, not to insinuate in anyway, none of the participants in this call have the coronavirus to the best of my knowledge. But you see in the modern world since we engage in social distancing, we're doing this conference call from different locations. And in order to do that, we all have to have the same documents to refer to. So in my case, I work with pencil and paper, ink and that sort of thing. Every other human being in the planet works with e-mail and Citrix and drives, all kinds of stuff. So to coordinate and orchestrate all that work stuff in my humble opinion is a lot harder than pencil and paper. So it's my recommendation that the world go back to pencil and paper. But no one's going to listen to me. So that's my apology and now we can get to the business at hand. So I'm going to -- what I'm going to do is a number of things. I'm going to go over the financial statement. And I'm going to try to explain it because it's actually rather complex. Then I'll talk about some strategic things we're doing, and then we'll do the Q&A, and Steve will chime in and when he thinks are the appropriate moments. So if you go to the income statement because that's actually the harder thing to understand in the balance sheet. And if you look at these, we have some realized gains and we have some unrealized losses and we had some dividends. And even though this is done in the way that generally accepted accounting principles mandate, my sense is that people will be much more interested in how much money did you make or lose from Bitcoin? How much money did you make or lose from TPL because those are our salient assets. So I'll try to so -- so in looking at the income statement, let me explain it this way. When you see unrealized gains and losses, they can come from 2 different things. They can come from the partnerships or they can come from the HK Hard Assets, well over 90% of that is TPL. The partnerships, so for example, the Polestar Fund, I believe I may be slightly off, but I think it's 39.4% TPL and Horizon Multi Strategy is roughly 43% TPL. And so when you see these movements up or down, they're basically largely, not entirely, but largely either TPL or the Bitcoin. I'm going to read you more numbers in a second, so you can zero in on what this is. But just going through some of these columns, these have nothing to do with TPL or Bitcoin. Dividends and interest income, theoretically, have almost nothing to do with TPL and Bitcoin, except that you might be aware that TPL paid a very substantial dividend. And we have the very substantial holding in it through the funds in March. So therefore, in March, this dividend interest income number is going to be higher. But even then, you can't -- by looking at it figure out how much TPL interest income, how much TPL dividend income we actually had because the HK Hard Assets is consolidated, and the partnerships are not consolidated. So what's going to happen is if I understand my accounting principles properly, the entirety of the dividend is going to be booked and then some is going to be backed out for stuff that we don't own, and that's going to come out with the bottom line. Equity income from partnerships, limited liability companies. A lot of that is actually HK. The unrealized losses or gains if we ever -- if we get them, those are the partnerships of HK Hard Assets primarily because that's where the bulk of our money is. The Bermuda Stock Exchange, we don't own anymore. We sold it for MIAX. So that line is going to be eventually eliminated. And there you have the situation. Now interestingly, obviously, subsequent to February 28, various securities depreciated value. We have a very interesting situation going on here. So what's going to happen is there'll be certain unrealized losses. And you'll notice as you go down further, you'll notice in this particular month end February 29. We have $1.2 million provision for income taxes, and we have almost 3x that number in a 9-month number. And if we don't do anything, we're going to have a similar number in the fourth quarter. Now we really don't -- even though we like to make money, we want to minimize taxes. So we have some interesting choices before us. And I just want to explain what our choices are. We can do nothing. And these estimated taxes will become realized taxes. Estimated taxes means we actually pay these amounts. These estimated tax will become real taxes or we can do 1 of 2 things. We can sell some securities at losses because they might be -- they might have mark-to-market loss opportunities. And we can -- pay some or maybe even all of that. But then again, we don't really want to do that because we like the securities we have. The other thing we can do is we might be able to take some mark-to-market losses, or short positions. We don't really want to do that because they're almost all path-dependent to ETFs, and we know where they're going to go, which is down. So the choices are, if we sell some securities, the cash balance will go up and if we did that, we don't want you to think that we're just adding to our cash balance. If we do a thing like that, and we don't know what we're going to do yet. It's being done to mitigate the tax liability. If we decide to realize a loss by buying back short positions, the cash balance obviously has to go down because you have to spend money to buy back short positions. We don't want to give you the idea that the cash balance is permanently lower because they have to acquire the amount of days, I think it's 30 for the tax law. We would reestablish our positions if that's the way we go. So -- or we might do nothing. We don't know. Anyway. It's sort of an oddity when you get down to the fact that we're almost paying $3.3 million of taxes, a lot of money to pay in the year where we have mark-to-market losses. So most people would say you should do some tax management. We intend to do some tax management or we should do some tax management and can guarantee we're going to do some tax management, but just be aware that, that may or may not come. And so far as the balance sheet is concerned, you can see it's a pretty strong balance sheet, tax liabilities aside. And one more interesting thing that you end up having when you have unrealized losses, in a way, some of those unrealized losses, if you do nothing, are actually subsidized by deferred tax liability. If we kept everything and we did nothing, eventually, we have to pay those taxes. If we do nothing and the market value is lower at the end of the quarter, the deferred tax liability actually goes down as well. So we have that and if you're interested in calculating our shareholders' equity. As we said, everything, we like everything we have. And you know what we have. So let me give you more color on what we have. We have -- in the partnerships, the numbers I'm going to read to you come from the partnerships. These are basically cryptocurrency assets that come from the partnership. So on a look-through basis, on a pro rata. We own FRMO via the partnerships, 545,145 shares of GBTC, the Bitcoin Investment Trust. We own a small number, 5,684 shares of XBT, which is a Bitcoin tracker. We own 91 shares of Bitcoin -- 91 units of Bitcoin Cash. We own 91 units of Bitcoin Cash SV. We own 1,493 units of the Ethereum Investment Trust. We own 4,833 units of the Bitcoin Cash Investment Trust. We own 433 units of the Ripple or XRP as it's known, Investment Trust. We own 493 units of Litecoin Investment Trust. We own 522 units of the investment trust. You want the unit values of all those you can go to the Grayscale website, and you'll see unit values for all those, you'll see the current unit values as of -- I guess, in Howard, you'll see values as of today, you can price those out. And finally, we own 204 units of Bitcoin Gold. As of March 31, this is data that's been given to me, on pencil and paper, by the way, $4,120,000. But looking at these, the prices that are being used I think they're higher right now. Anyway, on March 31, it was $4,120,000. Coins that we mined, that we still have. We have 49 Bitcoin. We have 342 Litecoin. We have 35 Ethereum. We have 641 Ethereum Classic and 46 units of Zcash and direct ownership we also own directly 7,644 shares of GBTC, the Bitcoin Investment Trust. So just to review, if you want to take the entire of your GBTC it's 545,143 -- 545,145 shares in the funds, and there are 7,644 that we happen to own directly. And that's actually a fair amount of money. Now with regard to HK Hard Assets. We keep increasing our position, and you'll see this Note 1. As of the most recent quarter end, we own 18.86% of HK Hard Assets. So we keep contributing to that partnership. In a few minutes, I'll talk about the logic of that, what we're doing. But first I'm going to talk about cryptocurrency. So when you look at this balance sheet, and you look at these assets, what you'll see is you'll see in different parts various investments in cryptocurrency endeavors. If you put it all together, we can drop into one LLC and call the business. In a way it is a business. But as cryptocurrency evolves, it's unclear to us in any event, how it's going to evolve. So is it better to be a miner of assets? Is it better to be a holder of assets? If you're going to be a miner of assets, is it better to lease out someone else's hosting facility? Or is it better to have your own hosting facility? So example, you will see other investments we made an investment in HashMaster, which is such a hosting facility. Is it actually better to take your hosting facility and use your hosting facility to host only your own servers, is that better? Is it better just to own the real estate in some way participate in the profitability of mining? So you'll see we bought a building. Just one of the first -- I think it's our first real estate asset that we have, and that's under cryptocurrency mining assets. And of course, there are -- there are servers in there as well. We actually, this particular month, we actually sold servers or parts of servers that we weren't actually using, some we were using, some we weren't using. First time we actually sold servers for scrap. And yes, we actually were able to get some money for that. So we'll be ordering more equipment as the months progress. And you'll see or you should see, if everything goes according to plan that the cryptocurrency business is gradually going to grow. Why is it going to grow in here? I'll talk to some strategic things, basically in its own way, even though it doesn't seem like it, it's related to HK Hard Assets. It's our belief, and it's always been our belief for the last 5 years, that with all the money being traded in the world, we're bound to get at some point, some inflation. It seems to be obvious to us that most currencies, certainly all of the leading currencies are being debased. We used to say figuratively the money supply in the United States is growing at almost a 90-degree slope, with the graph shows the 90-degree or almost 90-degree slope. And now if you look at the numbers and this is on the website of St. Louis Fed, it's almost literally, not figuratively, a 90-degree slope. So that's the logic of having crypto, and that's the logic of having hard assets. TPL is not the only asset in the HK Hard Assets fund, or LLC, even though it's a big part of it. There are other assets. And they all have the similar characteristics. The idea is to buy things like royalty companies that basically don't have a lot of operations but get a royalty on something with a view to, if that price goes up, get a lot more revenue and the operational expenses don't increase proportionately. That's the basic idea of it. Whether that proves to be a sensible investment or not, we will see. But I'll say this for TPL, 5 years ago when we started -- roughly 5 years ago, we started HK Hard Assets. The price of oil if memory serves was about $110 a barrel. And 2 days ago, you were able to buy oil, actually, they would have paid you to take oil at negative $36 a barrel, meaning they would have paid you $36 a barrel to take the oil that was scheduled for delivery. So that's a pretty big collapse in oil prices. Maybe it could be bigger, but that's pretty dramatic. At the time, 5 years ago, TPL was roughly $100 a share, now it's roughly $500 a share. So that's what happens when the price of oil collapses. Can you imagine what might happen if oil actually went up in value. Now you get the idea of what we're trying to accomplish. Cryptocurrency is the same sort of thing. So we are used to and it's wrong that we all do this. I do it too, and I need to remind myself to stop doing it. What am I doing? I keep saying bitcoin goes up or bitcoin goes down. And I really shouldn't say that. Because bitcoin doesn't go up or bitcoin doesn't go down. What everybody should do with their bitcoin charts, they should turn them upside down. If you turn them upside down what would show is the dollar in relation to bitcoin. So when bitcoin goes up, what's actually happening is the dollar is going down in relation to bitcoin. And the euro is going down in relation to bitcoin as well as the Swiss franc, as well as sterling, as well as the yen. So basically, what bitcoin is, is really a long-oriented way of shorting fiat currencies. Why do you want to short them? Because altogether, they are clearly losing purchasing power. Now ordinarily in currency trading, what you do is you short currency in pairs, meaning that you might sell dollars for yen or yen or euros or euros for sterling and so on and so forth. So you're basically saying currency A will be better or worse than currency B. When you buy bitcoin, you're basically saying bitcoin is going to be better, than all the currencies put together. So that's what we're trying to do. And towards that end, Horizon has created a number of partnerships, the best in cryptocurrencies. And despite all the turmoil that happens in securities markets, they consistently pay dividends. And it's my belief that one day, mining of currencies is going to be a much more important asset than buying bonds. Why do I say that? Because it's obvious that many bonds yield little or nothing. The idea of giving some entity, in many cases, the government, your money to hold for X number of years and to give it back to you debased at a certain rate and to give you a miniscule amount of interest, that's not a reasonable investment. So that's how we structure these things. And you get an idea of what's going on. As we increase our exposure to various crypto assets, we might choose to combine all of these things into 1 company and make it easy for you to see it. At the moment, we don't do it not because we want to obscure anything. We just don't know what's going to happen. What are some of the uncertainties? Well, we have a halving coming up for bitcoin in a couple of weeks. We don't know what the hash power, the hash power refers to the computational power network after the halving event we don't know what the price of servers are going to be. We don't know what the power of the servers are going to be. There are a lot of uncertainties. So to throw a lot of money into it is actually dangerous. To build a business gradually throws off cash flow and reinvest that cash flow, I think, is rather risk-averse. We may be able to expand and avoid, I think, virtually calamitous events, by just going gradually and taking our time and pacing ourselves. So I think it's the realistic way to go. To give you an idea of what's happened in the equipment market. If you were to buy new equipment today, it's probably going to use 1/4 of the electric power per terahash, what it would be used 2 or 2.5 years ago. And the price is down similarly. It's much cheaper. And it's much more efficient. I would also argue it's more durable, meaning that you have less breakdown. Plainly, just to summarize, so we're in mining. We own cryptocurrency. We invest in cryptocurrencies. We have part of our hosting business. We have a part of a mining equipment repair business. And of course, we have the real estate. Altogether, it is a business. It just doesn't look like it. In the future, we'll try to make these statements a little more naturally, but I think you get the sense of what's going on to the extent we have appreciation or depreciation. It's largely Bitcoin and TPL or TPL and Bitcoin, if you like, I read the amounts there. And you should be able to figure out a lot. And if you want more detail, we're happy to provide it. So just ask what you need. So with that, I'll invite Steve, if you have things to say. Do you want to say to them?

Well, I have to think about that. Okay. Well, I gave a presentation to Horizon Kinetics investment clients yesterday. And the idea, I was trying to communicate most -- I think forceful is not the right word, but to provide the background and the framework so people would get it. It was about the basically a global money printing juggernaut that -- on a scale that's never occurred before. And the reason for -- I thought I was at risk for going on for 1.5 hours, was that if you just tell people as is the usual fare, we like this. We like that. We think inflation is going up. We like this company because it's got this PE net balance sheet. It's just opinions. They're just facts. And people get them all day long, and particularly nowadays in the current environment, people are distracted and they're agitated and what is they're going to choose to remember. And I thought the most important thing I could do is to paint the process of how we're getting here, what the central banks are doing, why they're doing it, why they're compelled to keep interest rates low because of the huge amounts of debt they already have and that they're simply multiplying. To give them a sense that what does $2 trillion mean as just the first step of our stimulus package, which is going to be dwarfed even if there are no other spending by the special purpose vehicle program that is all of $454 million out of the $2 trillion package. But the treasury working with the Federal Reserve is going to put in 10x that amount, just creating more money. So that could be $3 million or $4 trillion more, even if no more spending is done. To put that in context for people, with respect to the size of economies with respect to the amount of their debt and interest rate, to take them through that process to understand, if you understand it's no longer an opinion. If you understand it, if you buy it, if you buy into it, you accept that. Then you know it. And if you know it, then when one talks about what Bitcoin might do or what a royalty structured business like TPL or precious metals royalty company, might actually do under an inflationary circumstance relative to what else you might own, the typical more asset-heavy or operations-heavy business structures, then at least you've given something to somebody, something they can take with them. And they have a framework for understanding things. And I dare say that if you were to look for any company, any publicly traded company in the world and look for the exposures that FRMO Corp. has to call TPL, it's a stock ticker. You think it's an oil company. It's really, as Murray referred to it. It's just -- it's a royalty pass-through vehicle. It has no operating expenses, take the water complication out of it. It just has no operating expenses. It can be just hugely profitable on so many levels if Bitcoin just comes to be accepted as an alternative currency. And again, as Murray might have said a week or 2 ago, it was invented specifically for an eventuality like this. And then some of the other securities you own, basically, in the cash, you had cash, which is a strategic asset. You've got 2 of possibly the most strategic inflation beneficiary assets you could think of. I don't think you could find another business that has these characteristics. It's those exposures. I would think that for anybody who understood what it is. You can't get that in one package anywhere. Anyway, that's what I got to say. Sorry to be analytical about it. It's actually the way I see it.

Okay, let me do some -- it's okay, Steve. I'll do some of the questions and you can chime in. No, no. I like hearing from you. I always find it insightful. And if you have anything to say about any of these, I'll give you the opportunity.So the first question is, would I mind walking through each line item in the table reconciles net income, excluding the effect of unrealized gains. Like the securities provide more specifics is not clear which line items related to HK Assets and TPL. So I tried the introductory remarks to actually do that. And -- because some are not related, and some are slightly related and some are really related. There's another way to do it, that I think it will be easier. So red, all of the cryptocurrency assets. So if you took all the partnerships and the FRMO that -- and the TPL that we own directly, by the way, almost all the TPL we own is indirect to the partnerships. But directly, in FRMO at the consolidated level, we only own 888 shares of TPL. However, looking through various partnerships like HK Hard Assets or the Polestar Fund and what have you. All together, it comes to 41,240 shares. If you price that out, that's actually -- that's actually many times the size of the Bitcoin investments. So as of February -- as of the quarter end, the market value of TPL relative to the market value of all of the crypto. This is the actual crypto not the cryptocurrency machines and other things. In round numbers, the TPL market value was roughly 7x the crypto. So I think that should make it clear that where -- you see appreciation, depreciation, they're both volatile, the lion's share of it is clearly going to TPL although Bitcoin does provide its share of volatility quite frequently. So I think that -- I hope that's the easiest way to look at it, and you can get an idea. But those numbers, by the way, we update them every quarter because they change. For example, we keep mining coins. Next quarter, we're going to have more coins and the ratio will change slightly. And of course, we'll give you the numbers when we have it. Another question FRMO previously instituted a stock buyback program. Has any FRMO stock been bought back? Has any of the company's cash been invested since the market decline? Given decline in the market, do you see this event opening up any potential opportunities, making a significant investment in near future? Okay. So as of quarter end, we didn't buy back any stock. This quarter, we're very likely to buy back some stock. As for the amount, I guess, will tell you at the end of the quarter because that's when we'll know the amount. We're very likely, I can't guarantee it. But we're very likely to buy back some stock or it's very likely to have happened during the course of the quarter, I guess, is the way you're supposed to express it. Given the decline in market, do you see -- do we see this event opening up any potential opportunities to make significant investment in the future? Let me say this about that. Theoretically, what we always wanted to do was to buy a company in its entirety, and we never did. Why didn't we do it? Well, 2 reasons. The first reason is some of the businesses they just were outside of our circle of competence and weren't even going to seriously consider them. Other businesses that were in our circle of competence, but you couldn't buy a company in its entirely and that it was pay to control premium at this lower interest rates. You're not going to get it for less than 25x earnings, anything. And that was the problem. And you start with a 4% return on capital if you get it for 25x earnings, and you probably won't get it for 25x earnings. So if it's a well run business, what are we going to add to it that's going to make it significantly better, chances are very little. And you're always taking a risk. So we never really did it. There are -- now having said all that, there are now other things that are very interesting, and we are in the process of buying some new stuff, no question about that. And maybe we'll talk about at the end of the quarter, but since we're still buying it, I guess it's premature to talk about that. But at the moment, let's say this, they're likely to be in the same inflation beneficiary class. Okay. I hope -- do you have anything to add to that, Steve, by the way? Are you there?

No. No.

Nothing? Okay. Another questions since FRMO and Horizon Kinetics share the same management and some investments, wouldn't a merger made good financial sense? It might. And it might happen. There's something called the affiliate rule that might make it difficult to actually pull off, but it might happen. We actually are -- it's one of the things we thought about. It might make things -- if it happened in the right way, it might make things simpler for everyone. So we're thinking -- we're constantly thinking about simplifying the financial statements because anybody who looks at it can see that it's actually very complicated. As a matter of fact, I know what's going on. And when they see it done in the style of generally accepted accounting principles, it's difficult for anyone even an insider to understand. Let me explain why. Because from the point of view of an insider, I just expressed it, we're talking about TPL. We're talking about Bitcoin. From the point of view of generally accepted accounting principles, there is no Bitcoin. There is no TPL. There's HK Hard Assets. It's a fund. There's share, there is the Polestar Fund. There is the Multi Strategy Fund. There are funds that need to be accounted for because those are the instrumentalities that are used to build the financial statement. Those are interesting financial instrumentalities, and of course, they're following a generic accepted accounting principle. But everybody who looks at the stock is thinking about cryptocurrency, they're thinking about TPL. They're not thinking in terms of the Multi Strategy Fund or the Polestar Fund, or HK Hard Assets because those are much -- they're actually -- as funds without an explanation, they're just inscrutable. That's one of the problems that we got to solve. And it's possible that if you put 2 companies together, it might solve that problem. So we're thinking about that. Anyway, you understand what the accounting issue is. You just have to follow the rules and the rules don't lend themselves to people like us and what we're doing to make it easy to understand. So I hope that answers the question. Here's a series of questions, so I'll read them one by one. It's actually different parts of one question. I see. 142 gallon barrel of oil creates 19.4 gallons of gasoline, the rest over half is used to make -- sustain other things, can the portion used to make gasoline, be used to make other things or must be thrown away if gasoline is no longer needed, if it must be thrown away or in how would it be done? Do you imagine if it can be used to make other things then is there going to be a declining diminished demand for oil for a period of time? To begin with, what is the oil refinery? Basically it's just a big boiler. And different products boil at different prices -- at different temperatures. So gasoline boils at 1 point and kerosene another, and jet fuel another, and asphalt another and so on and so forth. So everything in the barrel of oil is used to produce something. So if no one wanted any gasoline but wanted everything else, there is a portion of the barrel that's going to have to be disposed of. And it's really that simple and there will be quite a disposal problem. I don't see that as really happening. Like if there really wasn't demand for gasoline in theory because the oil refinery is a big -- basically a big boiler. Theoretically, you could burn the gasoline to create heat to boil everything else out. If you could use a barrel to create the various products, at least in a chemistry sense of the word. So in any event, it's a very long discussion, and I don't know if I should go into it, but I don't see a realistic possibility for replacing gasoline any time in the foreseeable future. I know I'm the minority in saying that, and it's probably not even politically correct and I'm not making a political statement. It's just, as far as I'm concerned, a fact of nature. And if anybody wants to discuss it, I'm delighted to discuss it, but I'm not going to go into it anymore in this part. But if somebody wants to ask me, I'm delighted to discuss it with them. Here's another part of the question [ TPS 8 ] -- website investor presentation, Page 8. Has existing relationships with 85% of the top exploration, E&P companies also blue-chip midstream companies, that's high-margin fixed fee streams and resistant to money price fluctuations. Would you clarify what this means for us? Specifically, what is meant by high margin, fixed fee, resistant commodity price fluctuations, how does this work exactly? Well, actually, I certainly with the qualification, I'm certainly not speaking for TPL. So I'm only speaking for myself and what this means to me. Essentially, just understand it, TPL is a royalty company in a variety of ways. And one of those ways is it gets easements for allowing people to cross its land. So in some cases, no one is actually doing anything on their land, but you have to do something on some other land unknown by them you have to cross their property. And you might have to, as an example, bring water to the properties. Just for the privilege of letting someone run a water hose. Looks very much like a fire -- like a firehose, is called lay flat, across the property, get money for that. It's like a ground lease or rent. It's not commodity sensitive. It's just a number, and it's a lease, it goes on for 5 years and it's renewable. In my personal opinion, which is nothing other than my personal opinion, those things have a very high propensity to be renewed. And probably be renewed to higher prices. Why renewed at higher prices? Because in their geographic area, which is the Delaware Basin, the western reaches of the Permian Basin, in my opinion, the development activity there is just starting, and it's going to go on for many, many decades. But again, that's just my opinion. How much of royalty revenue from oil is from fixed fees and dollars? What percentage is that totals a year has passed and what you expect looking forward? Well, that's something that's in the financial statements. It's there. I just refer the questioner to the TPL financial statement. It's all there. Anyone can look at it. What rights do lessees have in terms of capping the wells, they are -- that are drilled? Are they able to leave them capped for long periods of time without any penalties or what exactly? How does it work? Okay. So to understand the way the royalty works, the royalty is based on land that was disposed of many, many decades ago. So what actually happened is somebody else owns the land. That landowner has contracted with some entity to drill a well. What TPL retained is the royalty rights, so TPL has no ability to control what the landowner does, it just that TPL retains a royalty interest. If hydrocarbon is produced in that property, TPL gets the appropriate royalties. So the land owner works with the company that does drilling, that's basically how the royalty interests work. Okay. Here was a question I think I answered, but I'll just state it for the record. How many shares of TPL does FRMO presently own directly? And how do you own indirectly? I think I stated it, but let me just say it again. So directly, 888 shares. In total, direct and indirect, 41,240. And if you want indirect, obviously, you subtract 888 from 41,240, and that would be the number that you would need. Let's see. If -- we have observed that there has been a hiatus for quite a while now in the 13D filings, of new purchase TPL and affiliates which is FRMO. Despite the recent price decline and recovery, why have you stopped buying virtually daily? And anyway, all I can do to answer that question is, you need to look at another part of the SEC website. There is a daily filing of a Form 4. So the 13D, because there are certain SEC rules that determine what you need to put on a 13D and the other SEC rules to determine what you put on Form 4. So I can only say that if you go to the SEC website and key in the Form 4 as that pertained to us, I think all the questions will be answered succinctly. I think there's one, I believe many are familiar with Lacy Hunt of Hoisington Investment Management. Lacy sees, in a nutshell, that the burden of debt is so great, it's crippling the system and would -- could slow borrowing, MMT, MMT sense, or Modern Monetary Theory. I wonder if you have any thoughts on Mr. Hunt's thesis. [ I heard it might -- ] your thoughts on this, Murray or Mr. Bregman. I invite you to answer, Steve. I will start off and say you take all the debt in America, everything, everything from federal debt, government bonds to car loans, student loans, the total amount is over $77 trillion. The GDP is about $21 trillion. So every time you raise rates by a percentage point -- and by the way, that debt goes up by many, many billions of dollars every single day. 1% of $77 trillion is $770 billion. So 1% is nearly 4% of GDP. 2% is nearly 8% of GDP. At the moment, the GDP is actually contracting. So it's not possible to raise interest rates in any mature way without collapsing the economy. It just isn't. So as a consequence, if you accept that as a given -- I accept it, you need not accept it, I accept it as given, that means looking at the interest rates, assuming they are where they are, every bond is getting debased right now. So it seems to me pretty ridiculous that all of the bondholders are going to accept that position forever. At the moment, I can see why they accept it because interest rates did nothing other than go down and the price of the bond soared up. So there's no reason not to accept it, including lower rates. But you reach a point of where you can't lower interest rates further and then it becomes problematic. So I think it's a big problem. And people are going to have to find a solution to it. We propose our own, but I guess there are many ways around this problem. This is going to be a big problem. And the greater problem is how do people get income, in general, on their bond portfolio. And we propose ours, which is mining cryptocurrency, but maybe other people have ideas. Steve, I don't know if you have any comments to make on this particular question.

No. It's really just to comment on how people will always get caught late, and they get hurt. And they are misled by the popular -- popular provisions of news. I mean you talked about this recently, and I [ added ] into it as well. Whenever there is some change from whatever the norm is, you get newscasters, maybe they're financial newscasters, maybe they're just regular newscasters, but they don't actually do any of the research themselves. They simply repeat or collect opinions by other people. It's all secondary. And you find, over and over again, that they make statements that are actually false and misleading. If you actually are aware of any -- if you have expertise in any particular field, you tend to notice it when you hear it on television. It could be a police officer or a surgeon, and they're talking about police work [ but you're doing it ], that's not true. Well, the same happens in investments. And the biggest -- and the most prominent problem I see is that if you listen to financial news networks, whether that would be Bloomberg or CNN, FN or whatnot, is that what they're talking about in respect to the economy, in respect to all of these extraordinary changes, which are the stuff of history books, is they're talking about which the recovery quarter it will be. Is it going to be the third quarter? Is it going to be fourth quarter? Will the GDP this year be down 2% or 5%? It's all the usual affair. And it's -- as you said, it is just amazing that they're not talking about the inflationary impact, which is going to be huge. And it's not even arguable if one simply collected a series of historical examples, going back hundreds of years or thousands of years, that every single society that's ever produced huge amounts of new money, whether it's in the form of gold or paper or anything else, has suffered tremendous societal upheaval and debasement of savings. And it's right there. It's inarguable, but that's not what they're talking about. So as usual, the average person and then the average newscaster, they're not going to know it until it actually hits them, and it will be totally unexpected. And by then, it will be too late. It's really -- it's amazing. It's so big. It's right in front of us, but nobody is talking about it.

Okay. Thanks, Steve. Next question, why won't cryptocurrency mining become a low commodity return like business? There's a good question. So in any business, generally speaking, there's usually 1 or 2 companies that get really, really efficient, and they have what is for them an acceptable rate of return, no one can approach their efficiency, and everybody is forced to either accept a very low rate of return or just get out of the business. So why won't it happen to cryptocurrency? Well, it could. It just won't. And the reason it won't is because if cryptocurrency is dominated by 1 or 2 efficient companies, no one is buying that cryptocurrency because it would be possible for somebody to manipulate. The whole idea of cryptocurrency, it's not controlled by anyone. So in order to avoid that situation, the following thing has happened and I believe will continue to happen for a very long time. In the normal business, the most efficient company sets the ceiling on what return on equity is going to be. Let's say, for search engines, you could say Google sets the ceiling, Google sets the return on equity. Everybody else, if you want to be in that business is going to have to live with a much lower return on equity. In cryptocurrency, the least efficient company sets the floor. So it has at least enough profitability that some not very efficient company can make an acceptable rate of return. Everybody else is going to earn a higher rate of return. So if you try by getting too efficient to dominate the business and drive your competitors out, you destroy your own business because you're going to destroy your own cryptocurrency. So the thing is structured. If you read original working papers on bitcoin when it was created, you'll see that was the intent of the creator or creators, if the word's plural. We don't know who actually created it. They say that it's some fellow named Satoshi. But we don't know if such a person ever existed. It might just be a pseudonym. In any event, the idea was it forces people to collaborate against their normal instincts. And the last decade, it's actually worked. And you see the same thing happen in every cryptocurrency. And we have over 5,000 cryptocurrencies. So you would have thought that, hey, at least in some of them, this would have happened. It hasn't happened yet. In my humble opinion, it's not going to happen. Okay. Some other questions. If inflation is your biggest concern, what do you do about the massive cash allocation that we'll continue to lose? Well, we have a lot of cash on the balance sheet. We don't have a cash allocation because that cash, generally speaking, is used as collateral for shorting cash-dependent ETFs. So again, general accepted accounting principles, cash is cash, has a line on the balance sheet. The number is x, and there it is. And the balance sheet, the way you do generally accepted accounting principles is there's an asset, there's cash, it has a certain number, and they figure out what that number is. And there's another number that goes on the liability side of the balance sheet, and that's your short exposure. And you're not supposed to combine them under generally accepted accounting principles. In our mind, that's what we do. So we just use -- so we're not sitting here holding cash and letting it erode. As a matter of fact, our various positions, over the years, whatever minimal interest income we got, the return, which is [ long ago tax ] and everything else, on the crypto -- I mean not on crypto -- on the short, paid for a lot of our assets. So it paid for, I think, most of it. So basically, we don't have a cash allocation in that sense of the word. We only have a cash allocation that's in the generally accepted accounting principle sense because that's the way you're required. There's no way that an auditor would let you combine, in one line in the balance sheet, cash and shorts. That's just not the way it works. We have to comply with the rules, obviously, but we can think whatever we like, and that's the way we look at it. Okay. Here's a good question. If the Fed will prop up the equity prices, why don't just go to long liquid names, and the ETFs are concentrated on those names. Actually, that question, I get asked a lot. And a lot of people believe that, so let me say a couple of things. First of all, the Fed did not prop up the asset prices, despite what everyone says, because central banks could prop up the asset prices and make them whatever they want. The Japanese stock market would be at the 1988 levels, and it's not. So let me tell you about the most liquid names. Let me tell you first indirectly, then I'll tell you directly. Pay attention to a telephone company, known as Frontier Communications, its stock trades at about $0.22 a share. Why should you pay attention that? Because when you go and live in it, you do a Google search, you download a movie on Netflix, you're messing around with an e-mail, whatever it is you're doing, for most of the journey of that data, let's say, you want to know what the price of FRMO was 3 years ago, it takes a fraction of a second to get that information. For most of the journey of that piece of data to your device, be it an iPad or an iPhone or maybe it's a desktop computer, it's going over a telephone network. And because of net neutrality, the big liquid names, Microsoft, Amazon, Facebook, Google, Netflix, et cetera, et cetera, et cetera, they're using a tremendous amount of bandwidth. For example, on a normal day, I think Netflix uses like 27% of bandwidth of the world. And they don't pay for it. The telephone companies pay for it. The telephone companies are getting to the point where they can't do it anymore. Frontier is going to go bankrupt. I do have a slide about that. Look at Century Telephone, the company that -- CenturyLink, I should say, the company that had been merged with Level 3, another big network provider, look at their dividend yield and see how secure people think it is. If you don't believe that, look at AT&T, big cap company, the yield's, I think, 6.6% or 6.7%. In this interest rate environment, it doesn't look too secure. In any event, they pay at a 100% of earnings. And every day, some people turn off the landline. So basically, these stocks are where they are for one reason and one reason alone: because of externalization. They have the ability to take their most significant cost, which is the cost of bandwidth, and get someone else to pay for it because of net neutrality. If net neutrality didn't work that way, they wouldn't be even remotely as possible as they are right now. They might say, "So what, we'll go on forever, right?" Well, maybe not. So pay attention to a small company, known as Cincinnati Bell, in dire straits. Perhaps not as dire as Frontier, but I think it's qualified as being dire. And Cincinnati Bell, despite its name, happens to own Hawaiian Telecom. Hawaiian Telecom, the landline telephone system, is uniquely expensive because, after all, it's a group of islands, they all have to be connected. And the Hawaiian state legislature, some months ago, decreed that they could basically pass their cost of the network to various people despite net neutrality. The FCC also ruled 1.5 years ago to change net neutrality. And as soon as the Hawaiian legislature did that, 2 companies began bidding for Cincinnati, one, Brookfield Asset Management; and the second, Macquarie Infrastructure. Macquarie won. I don't believe the deal is closed yet, but I think you're going to see some fireworks. So it's not -- to me, when you have huge, large capitalization companies that do nothing but go up and have returns on equity that -- well, I didn't want to quote that big is astronomical, that we have any historical precedent whatsoever. I suppose you can say it's because of the Fed, or I suppose you can say it's because people are brilliant, or you could say because there's some externalization going on, and there's something unusual going on. And I would recommend pay attention to that stuff. I don't think too many people will pay attention to it, but I think people should pay attention to it. And if you take it to its reductio ad absurdum conclusion -- because people keep turning off their landlines, eventually, no one's going to have a landline. That may take 5 years or may take 3 years or may take 10 years. I don't really know. But I know every day, people are turning it off, and there's much less subsidy. And by the way, it's happening in every country, it's not just America, it's happening in every country in the world. So when you look at Portugal Telecom or Telecom Italia or British Telecom or Orange in France, you name it, Magyar telephone in Hungary and on and on and on, the list goes, you'll see, more or less, the same thing going on. Somebody has got to support the bandwidth. And at the end of the day, if these companies have to support the bandwidth, if people believe the Fed can prop up equity prices forever, they're in for a great, big surprise, and it's going to be very unpleasant. So that's what I have to say. In any event, I could be wrong, that's why I don't own those companies and don't get involved in them because I don't believe that's sustainable. The next part of the question is would you call [ minimal ] as what private equity calls an [ LTO ], unless, of course, you have reason to believe that debt will never be able to take over the equity. So is there any foreseeable scenario whereby Civeo assets are taken over by their lenders at the expense of the equity holders? If not, why not go all in on what otherwise would be a crazy cheap call option? Well, I suppose we own a lot of that company, Civeo. And to be fair to them, they are paying down a fair amount of debt. And I wish they would have done it sooner. But if you look at the most recent communications from the company, they are paying down a fair amount of debt. And it sounds clear to me that if the lenders were to take it over, and I don't know what they'd do if it they were to take it over, I suppose we'll just have to see how that works. It's to -- it's unfortunate that they wouldn't pay down debt faster, I guess, is the way I would express it, and we'll have to see what happens. Okay. Next part of the question, any line of business or potentially new vector that you think has high potential to FRMO. Well, all I can say there is stay tuned for further developments, and you'll see what happens. I think that's all the questions I have on my sheet. Thérèse, I know you have some questions that came in after I got this sheet. So maybe you could read them to me, and I'll answer.

Sure. Yes, I'd be happy to. Here's one. It says I am a RENN Fund shareholder and listen to FRMO calls as well as Horizon Kinetics calls on a regular basis. I was hoping Murray or Steven could spend a few minutes on the RENN Fund during the call today just to give a general update of what has been happening in the fund, if anything. I have read its SEC filings, so I have an idea of the fund's direction, but an honorable mention would be good. It's not a problem. It's all right.

Okay. Well, I'll give an honorable mention. So basically, as you probably know, we have a lot -- a big cash balance in the RENN Fund, and we've kept a big cash balance. So we had no idea that there is such a thing as coronavirus. We had never heard of coronavirus. And we just thought that sooner or later, there's going to be a shock to the system. It could have been anything. It could have been a war. It could have been earthquake in California. It could have been anything. It just so happened it's coronavirus. So when something -- if the valuations are too high, the valuation is going to contract when a new risk phenomenon comes into the marketplace. The market has to price that. That's number one. Number two, apart from valuations, if it's a big systemic problem, like coronavirus, it's not a problem that any individual can really deal with on their own. Yes, they can seek out a physician. Yes, they can be hospitalized. But in the aggregate, because there are many people, it just takes a long time. It takes a lot of resources. And usually, that requires some type of government intervention. And the government or the governments, I should say, around the world, they don't have the money. They got to print it up. And if you print it up, it changes the value of everything. So we really weren't -- we were disinclined to buy stuff. And in this most recent decline, we haven't really bought much, maybe a little bit in the gold-oriented royalty companies but not enough to make a difference in the cash balance as a practical manner. So we really haven't invested anything other than a minor amount. So we stayed put with the cash. So that's the most recent update. And as we have more updates, of course, we share that with people. I hope I answered the question. So what's next, Thérèse?

The next question has 2 parts. The first says, where on the balance sheet does the FRMO mined crypto fall? I assume cash and cash equivalents, but not sure.

Okay. Well, to tell you truth, before this call, I, myself, asked the auditors. The auditors didn't even know. They got to look it up. So even they don't know. I had thought that it was going to be in other investments, but it turns out it's not because other investments is -- other investments is a noncurrent asset. And crypto is regarded as a current asset. So they know it isn't in other assets and current assets. So the only place it can possibly be is on cash. It's got to be somewhere in the equity securities. And that would be logical because GBTC is clearly a security, and that's part of it. And I think the rest of the crypto is there as well. That's -- but I don't know that for a fact. I'm going to get that information shortly, I hope. And we'll find out. But GBTC itself, which is part of our direct -- is definitely in the equity securities part. The rest of it, I think, is there as well. So we'll see what happens, the mined stuff. I hope that answers the question. What's next?

The next part is any further thoughts on the halvening in light of the slowdown in mining equipment shipments.

Well, the slowdown of mining equipment shipments is basically that they're affected by coronavirus, too. And to a lesser extent, it was affected even before the coronavirus because of the tariff. So there was an effort to not produce these things in China but produce in Malaysia and avoid tariff, and then came the coronavirus. There's a certain amount of equipment that's clearly going to be unprofitable when the halving happens in about a couple of weeks. So all things being equal, the price -- or maybe the hash rate is going to go down. It's hard to imagine hash rate is not going to go down. So if the hash rate goes down, by itself, that actually might lower the price of bitcoin. On the other hand, there is a lot of equipment on order that's going to come to market in a very short period of time. Like, for example, some of the main companies are issuing coupons for large orders. So that market is opening up. So if the hash rate goes up, that will actually help the price of bitcoin. Not clear what's going to happen on the halving date. I can just say this, the halving of bitcoin cash actually happened, so at least we have an idea. We know that the hash rate went down. But the price stayed the same, more or less, actually went up slightly. So for lack -- and this is purely conjectural, but I think the same thing is going to happen with the bitcoin hash rate that's happened with the bitcoin cash hash rate. And logically, you would think the same thing would happen with the price. It should maybe go up slightly, but I don't know that, nothing other than a reasoned conjecture, so don't hold me to it.

Okay. Then the next question is also related to Civeo. You may have already answered. Could you please discuss recent developments since your recent write-up on Civeo?

Well, I guess I'm going to have to repeat what I said before, it's gratifying. They paid down a lot of debt in the most recent quarter. And they paid down some lesser debt, but not [ in bigger ] amount than the prior quarter. And all I can say is I hope it continues. It would have been a lot better had they done more of that sooner, but I guess we can't go back and change the past although -- much as I'd like to. And I guess that's what I'll say about it.

Okay. The next question, what effect has the coronavirus crisis had on the bitcoin mining business/sector, if any?

Well, you could say it's had a modest effect in that, like any business, it's reduced the shipments, the production of new equipment because coronavirus is basically a disruption to the whole world economy, so it reduced that. But on the other hand, if there's a business that's going to be not greatly affected by coronavirus, it's going to be crypto because it's hard to imagine the virus actually surviving in one of these data centers because it's just so hot in there. I think it's going to kill anything on the machines. Even when you have the air conditioning on, the ambient temperature can be 140 degrees. I'm not sure that the virus can even survive in that environment. And you could say that almost every business is negatively affected by coronavirus. Crypto might be the exception in that that's a business that benefits from inflation. And inflation, everywhere is a monetary phenomenon. That's what you read in the textbooks, and just look at the money creation all over the world. So theoretically, if you really want to make money from crypto, you really believe that the fiat currencies are being debased and if money creation is a form of debasement, which it is, it is being debased at the greatest rate since the end of the second World War, so I guess, the coronavirus in that limited sense is probably a positive for bitcoin and every other cryptocurrency, although it's a negative for everything else. Ironically, if you want to say on more general terms, virtually everything in FRMO is a beneficiary of the inflation that's being created by the coronavirus. So I'd rather not make money off human misery, better not to. Have less money and let the people be okay, but it doesn't look like it's going to work out that way. So coronavirus, I hate to say it, could be a very favorable thing for crypto.

Turning to the next one. Okay. This one, I think you touched on before. Have you employed any of your free cash to make investments during the market meltdown 3 weeks ago?

Not a lot. Not a lot just a little bit. The cash that we have is usually the cash -- the cash use for investments is the cash flow that the various businesses throw off, including the shorts. So when the shorts are throwing off cash, generally speaking, we are investing because we're doing it in a measured way anyway. The whole idea is to invest over time because there's no point at which we can predict this is the best point or the worst point. So for example, when the decline first started, you might have sold at very attractive prices, you had no idea how serious the coronavirus crisis is going to be and what's actually going to happen and how much the world is going to get affected: how many people are going to die, how many people are going to be affected, how serious is it going to be, how many people are going to be hospitalized and so on and so forth. There's a lot of things you just can't predict. All you can say is that there's a general trend towards the printing of money, and we want to benefit from that. We had no idea that the price of oil is going to go at negative $36 a barrel, impossible to predict. So rather than make a decision on any given day to commit a lot of cash, we just can gradually commit cash to the investments we like and leave it at that. So I hope that answers the question.

Okay. Last one is, what effect will the low oil prices have on the drilling activity on TPL land? We think the Permian Basin has some of the most attractive cost per barrel economics in North America. But surely, the devastating drop in oil price must have some impact. Is there a way to quantify this?

Yes. There's 2 ways to quantify it. The first way is if you go on the Baker Hughes website and look at the Baker Hughes rig count, you can see how many rigs are committed to every region. And what you'll see is because -- obviously, contraction drilling activity, contraction rigs, that the Permian Basin has the lion's share of the rigs that remain and has had the smallest contraction. And the other way, if you want more detail on different sectors of Texas, you can go to the website of the Texas Railroad Commission. And it's done by district numbers, so there's a legend. You have to look at the legend of where the Delaware Basin is, what the legend is. And you can see actually, not only how many rigs are there but you can see how much oil is being produced on a monthly basis. And you can get a very, very good idea of what's happening. So between the Baker Hughes website and the website of Texas Railroad Commission, I think you'll get a very good idea of exactly what's happening on a month-by-month basis.

Okay. That was the last question that we had.

Okay. So to wrap it up, anything you want to add, Steve, to what we have commented on?

No. If I did, [ actually, you answered it ], so maybe that's it.

Okay. So no. So thanks, everybody, for the questions and the attention. We found it kind of interesting. I apologize for starting a few minutes late. We'll try to be more prompt the next time. And of course, we'll [ speak to you ] in about 90 days. And hopefully, at that time, we can do this from our offices, and we won't have to social distance and the coronavirus maybe will not be as much of a problem as it is today. And hopefully, everything will be a lot better. So thanks, everybody, for the call. Thanks, everybody, for your support, and we'll talk to you again in about 90 days. Thanks so much. Bye-bye.

Everyone, that does conclude our conference call for today. Thank you all for your participation. You may now disconnect your lines.