FRMO Corporation (FRMO) CEO Murray Stahl On Q1 2022 Results – Earnings Call Transcript

FRMO Corporation (OTCPK:FRMO) Q1 2022 Earnings Conference Call January 1, 2021 4:15 PM ET

Company Participants

Therese Byars – Corporate Secretary

Murray Stahl – Chairman and Chief Executive Officer

Steven Bregman – President and Chief Financial Officer

Conference Call Participants

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.


00:03 Good day, and welcome to the FRMO Quarterly Conference Call. As a reminder, today’s call is being recorded. And at this time, I would like to turn the conference over to Therese Byars. Please go ahead, ma’am.

Therese Byars

00:14 Thank you, Jenny. Good afternoon, everyone. This is Therese Byars speaking. And I am the Corporate Secretary of FRMO Corp. Thank you for joining us on this call.

00:23 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

01:14 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 2022 second quarter earnings. A replay of this call will be available for one month, beginning at 7:15 this evening. To listen to the replay, the toll-free domestic number is (888) 203-1112. The international toll number is 1 (719) 457-0820. When prompted, key in the passcode 6605367. These dial-in numbers are noted in the FRMO press release dated January 13, 2022, which may be found on the FRMO website by clicking the link called Information Statements & Announcements. The press release can also be viewed on the OTC market’s website by typing in the ticker symbol FRMO and clicking on the news link.

02:28 And now I’ll turn the discussion over to Mr. Stahl.

Murray Stahl

02:33 Okay. Thanks, Therese. And thanks everybody for joining us. I thought I’d commence by saying two things: number one, I have a little bit of a cough and I don’t have Coronavirus or anything, I have a little bit of cough. Reason I do it is, I do too much talking. So I’ll try to drink a lot of water and hopefully you won’t hear anything from me other than the actual analysis. That’s one; Number two, I going to start with an interesting fact by the FROM consolidated financial statements. So if you refer to our November 2021financials, and you’ll see something interesting. So you look at the line, loss income from operations before provision of taxes. It’s about $2.2 million loss, now that’s largely the Texas Pacific Land Trust declined by roughly 150 points from its prior quarter end number and maybe loss of point or so, but that’s okay.

03:34 And you can see the bottom line, because lot of that is the HK Hard Assets with which FRMO only owns some piece, not the entirety. But what’s really interesting is, if you look at stockholder equity attributable to company, $178 million. I mean, you really don’t see a tremendous decline in shareholder value at least as it’s competed and formalistically speaking, in GAAP accounting. You all know, to go back to the income statement the actual recorded loss is $350,000, but there is a lot of other things going on. And it kind of balances it out.

04:24 So when look at things that way, it’s a way of introducing that FROM has come, in my humble opinion, a very, very long way. There’s a lot going on. And I hope I’ll have occasion to touch on some more salient points of it. And then, I’m sure the question and answers get more of it.

04:48 So I’m sure there will be questions about Texas Pacific. So we’ll leave it aside and I want to go to cryptocurrency. So cryptocurrency for us is a real business. And it can develop in a lot of different ways. We’re still figuring out how it can develop, we do have and I’m going to read these numbers in a moment to you. We do have a fair amount of cryptocurrency holdings. We don’t want to be merely a cryptocurrency holding company. We want to be a cryptocurrency operating company. And there are variety of ways we can go and we’ll touch on each one of them.

05:31 And so in preparation of that, let me just read some numbers to you. We do this every quarter. The first set of numbers are, crypto in one form another form held through our private investment funds, there our interest in the private investment funds, since we implied share quantities of each of those, so just re-dose it. Bitcoin investment trust GBTC, 579,695. Bitcoin SV, it’s actually Bitcoin cash is SB. There is two kinds of bitcoin cash, this is bitcoin cash SV, which is actually a fork of bitcoin cash, 94 units.

06:25 Ethereum Classic Trust is the gray scale, so Ethereum Classic Trust, this will be shares, 4,148. Grayscale Bitcoin Cash Trust, we have some restricted shares, we actually subscribe to these, 9,897. Grayscale Bitcoin Cash Trust, the same thing, unrestricted, we can sell those tomorrow, not going to, but we could, 16,439. Litecoin — Grayscale Litecoin Trust restricted, 1,155. Grayscale Zcash Trust, 596. Grayscale Litecoin Trust unrestricted, 4,645. [indiscernible] Bitcoin Gold that we have, 222.

07:28 Now held directly, almost all of this, but not all of it. Shares that were units that we mined over the years. So we keep mining. So bitcoin, the largest quantity, 116.3 actual coins. Grayscale Bitcoin Trust Shares, we’ve actually bought some share over the years, 7,644, unrestricted. Same goes for Ethereum Classic Trust, 18 shares. Grayscale Bitcoin Cash Trust, 12 shares. Grayscale Litecoin Trust, 6 shares. Litecoin that we mined, can I have some more remarks about Litecoin just a minute, 1,194.5. Ethereum, 35. We actually mined Ethereum.

08:24 Ethereum Classic that we mined, 661.7 and Zcash, 59.9. By the way, should have said earlier, so I’ll say it now. The shares we own directly of Texas [indiscernible] Corporation, that we actually own not many funds, 7,340 shares we own indirectly, which is, that’s actually owned in various funds, not least, which is HK Hard Assets, 50,184 you can add two and that’s our ownership there.

09:04 Another thing that’s important to understand, Winland. We used to call it Winland Electronics, now we call Winland Holdings. We own 29% of Winland. Every quarter we buy a little bit of Winland. So we own over 1 million shares. I lease neglect to write down exactly how many shares we own at Winland. So if you pardon me, just look up Winland, multiply by 0.29, that’s approximately how many shares we have, next time I’ll be better prepared. I’ll write down the exact number of shares, at least to get that on the few shares we buy.

09:43 Anyway, it’s important to note the crypto that Winland has — Winland is mining, bitcoin. Winland has 45.3 bitcoin, so we have this month by 0.29 you get FRMO share. So I just won’t repeat that again. Bitcoin, we actually purchased some, 7.4. Litecoin, we actually purchased some in Winland, 14.5. Remember, this is what Winland owns to get with FRMO own indirectly, you need to multiply it by 0.29. Zcash, we purchased some Zcash, 53.5. Bitcoin Cash, 1. Bitcoin gold, 8.7. Ethereum Classic, 9.4. Those are our holdings.

10:39 You’ll note that as we embark upon our cryptocurrency activities, we stayed within the framework of those currencies that are following the bitcoin protocol. As you probably know, Bitcoin Cash, Litecoin, Zcash, etcetera, Ethereum is an exception. They follow the bitcoin protocol. So my theory, instantly I believe them and [indiscernible] in this theory. I believe ultimately that the coins that follow the bitcoin protocol will ultimately have a value similar to that of bitcoin.

11:24 Why do I believe it? Because there’s same monetary policy. The difference at the moment is, let’s use Litecoin as the example. Litecoin has mined proportionally less of a total of coins that are available to be mined. So its inflationary at the moment is therefore higher. But ultimately, all these numbers are going to converge. I believe ultimately, ultimately some years now, but nevertheless, ultimately there is going to be a convergence of these, because ultimately you are not going to see a lot of trading with bitcoins or litecoins or anything else, that will be kept to store value.

12:06 Why they are kept to store value? Because everybody is going to know what the policy is. Now, a lot of people say and there is some justification or saying is, I just don’t agree with it. How it is going to be a store of value? Look how volatile bitcoin is. Well, the reason that the cryptocurrencies are volatile is, and we’ve said this many times, and it’s worth repeating. The cryptocurrency is volatile, because the mining economics are constantly changing. The prices of machinery through the rigs to mine. The difficulty rating, which is number of rigs that are running and how many rigs you have to compete with to actually mine a coin. Those are actual factors.

12:52 In the case of Bitcoin, that difficulty rating changes, generally speaking, going up, it is changing every ten days on average. So when it changes it becomes harder to mine bitcoin and just like it was hard to mind gold or it was more expensive to [indiscernible] wheat or soybeans or something. Let’s just say, just illustrate the point, let’s say, it became twice as expensive [indiscernible] soybeans. Well, the price of soybeans would reflect that, same as bitcoin. The only difference is, the cost structure of wheat or soybeans or gold is really well understood.

13:32 You’re not going to have a major technological change in the manner in which those commodities are produced. That’s not true of crypto. You can frequently do have major changes in the manner in which those things are produced. And those changes either positive or negative they really reflect what reflected in the price of the crypto. Eventually people will get that right. Eventually, people are going to agree upon a certain — certain set of semiconductor or a certain protocol, a certain technology and there’ll be a big number of rigs or machines that you prefer mining. And then those costs will become relatively stable. It’s just that. At the moment, it changes.

14:45 Now let me make a point about a theory. You’ll note that, I don’t know if I’m going to get this question I haven’t seen the questions yet, but I anticipate somebody ought to, if they didn’t, they really should. Why am I focusing on bitcoin and not ethereum? Add to the question. Ethereum has a smart contracts, ethereum has a lot better technology, which is true by the way. So the dominant technology is ultimately [indiscernible] even it doesn’t actually necessarily [indiscernible] on a given day, and I’ll give you the answer to that in a second, but just to illustrate, a lot of people think that cryptocurrency are a battle between technologies. It’s not battle between technologies. So just that crypto — that bitcoin as a crypto and ethereum as crypto are doing very, very different things.

15:42 So in doing different things they’re going to have entirely different cost structures. So I’m looking for something, a sheet of paper, which you’ll bear with me. I memorize these numbers, but I don’t want to — I don’t want to give them to you, unless I actually read the exact numbers. So here they are.

16:11 Let’s start with ethereum. If you’re going to mine ethereum and you might want to write this down. If you are going to write mine ethereum, the state of the art mining rig is the [A10] (ph) miner. That A10 miner draws 960 watts of power. It runs, meaning, its computational power is 500 mega hash, mega stands for million. So when they say 500 mega hash, what i mean is, this A10 miner does 500 million calculations in a second, well calculations.

16:53 The state of the art bitcoin miner is the S19, also known as the S19 pro. The S19 pro draws 3,250 watts and runs at 110 terra hash, terra shorthand for trillion. So it means that it’s generating or it’s producing if you like 110 trillion transactions a second. Now, you have to compare the two, one is in trillions of transactions, one is in the millions of transactions.

17:35 So, let’s try to find the common basis. So let’s say we wanted to put them both on a mega hash basis. Meaning, how much power does it draw per million transactions or million calculations a second. Well, if you do division, the Ethereum A10 draws 1.92 watts per mega hash. So what I’m really doing is, understand the mega — the calculation. I’m taking 960 watts for 500 mega hash. I’m just dividing 960 by 500. So I can get to 1.92 watts per mega hash.

18:23 Now Bitcoin draws, as we said before, 29.54 watts per terra hash. So how do you convert terra hash to mega hash, I guess, divided it by 1 million, because trillion is million millions or million squared. So write this number down. If I do that calculation, convert the S19 to the wattage per mega hash, I basically have to divide it by 1 million. In other words, bitcoin draws 0.002954 watts per mega hash. So you can clearly see bitcoin is infinitely more power efficient than Ethereum.

19:15 Now the reason that’s important is, if these things were to scale up, you can understand why Ethereum is going to use lot more power than bitcoin, especially if you are going to do all these validation of smart contracts and whatever. The more smart contracts you do the more power you’re going to use.

19:43 So, if you thought about – if you thought about in a point of view of the user of ethereum, and you are thinking about one day it’s going to be scaled up [indiscernible] why ethereum has to move away from the proof of work system like Bitcoin has, [indiscernible] system. So you’re going to put up some [indiscernible] as collateral. You might be the validator of a transaction. So you’re not going to have redundancy [indiscernible] Bitcoin blockchain. Why that can have redundancy? Because want to save the power. So that being the case what if you made a mistake or someone attack you? The guarantee is you are the guarantor. So the guarantor have to be by definition, the people who are most able to guarantee the transactions. Meaning, the people who have the most coins.

20:40 So you can end up with a concentration of power. In my opinion, this is my opinion, feel free to disagree with it since virtually everybody disagrees with it. You’ll end up with the Central Banking System ultimately. In the sense that, a concentration of power, a handful of people making decisions. Now some committee or some group has to decide if there is a hack, who is responsible. Also requires a centralized decision making body. That’s kind of interesting.

21:17 Here is another way of addressing the same thing, because it’s more or less same question. It just comes up, you read about it in the papers. So I’m to take the same question. I’m going to ask myself a question. I don’t even know I’m being redundant some of the questions I get. But it’s important to understand how we’re developing as a firm. Doesn’t bitcoin use a lot of power. Well, bitcoin blockchain, that’s what you’re studying, that’s what you are reading.

21:50 The bitcoin blockchain approximately is 447 gigabites it’s a big chain. If you watch a Netflix movie in high definition you use 3 gigabytes power. So clearly, 150 people watching Netflix in high definition are going to use ultimately bandwidth and therefore the power of bitcoin blockchain. It gives you an idea of how power efficient bitcoin is, that’s why I’m involved in it.

22:34 The coin that are using the same structure are equally power efficient. Ultimately, you look at the bitcoin blockchain, you’ll see 80 somewhat odd percentage points run by 20 some odd thousand dresses. That’s not 20 some thousand people, that’s 20 something house of dresses, we have multiple dresses. And we are large owners of bitcoin. It’s Concentrate. Ultimately if you believe in [indiscernible] bad money drives are good. It won’t trade a lot. The technology will be more or less [indiscernible] be set, won’t be volatile there will be a store of value.

23:19 The next liquid coin with same monetary policy is then big kind of the thing people concentrate on and so on so forth. And by the by, if you look at the blockchains of bitcoin cash or litecoin or whatever, you’ll see, believe it or not, they are more concentrated than bitcoin.

23:42 So, we’re doing the cryptocurrency since one approach is mining. We’re doing a lot of our work through mining, we are early mining company. We brought public at the end of November another company called Consensus Mining, it has a somewhat different strategy but still mining.

Those shares we publicly traded. [indiscernible] publicly traded right now. They publicly trade in about 10 months.

24:14 And on the deal, we actually bought more Consensus Mining stock. Sorry, I neglected to tell you how many shares we own of that, but it’s all linked. And then there is our holding in 7.1% of Hash Master. Hash Master is a hosting company, so a cryptocurrency mining equipment repair business.

24:42 And I think it’s fair to say that businesses is flourishing right now. Lot of ways we can go. Be better if somehow we find a way to consolidate these things and make them one operating company, [indiscernible] will figure it out. Right now, we’re examining different possibilities. That’s crypto out.

25:03 On the money management side. On the money management side, what we’re doing is, we are entering – we started our first ETF. It’s called Horizon Kinetics inflation beneficiaries ETFs.

We’ve got about $850 billion in assets under management. One of the problems that Horizon as a firm has had, a lot of people had this problem. We believed and everyone believed that you can’t do actively managed funds in ETF, and ETFs were passive creations. ETF is just cheaper, much more operationally efficient than the conventional mutual fund. So for a lot of years, we were disadvantage. So about a year ago, January 12, I believe, 2020 to be precise, we started the inflation ETF. It’s been a very successful product.

26:09 We’re in the process of converting one of our mutual funds to an ETF. If that’s successful, we intend to go alone that route more. There’s another ETF, I mean another mutual fund, which we’re also considering or in the process of making ETF, these are smaller funds. And basically changing the charter to be a little bit more expansive than what it is right now. So we’re well into ETF space, major change for us. It’s led to, I think considerably increase in assets under management, and I hope we’ll be able to report more interesting developments along those lines in due course.

27:02 That’s kind of about it for prepared remarks. Steve, you want to add, maybe a lot of things I missed. You want to add anything to what I said so far?

Steven Bregman

27:15 Hi, Murray. I just had to turn off my mute button. No, I don’t have anything specific to add right now.

Murray Stahl

27:26 Okay. So that’s — I hope that’s a decent pricey. We go further, we have a lot more to say. It’s just that we want to get to the questions. So, Therese, if you wouldn’t mind reading them, I’ll do my best answer.

Question-and-Answer Session

Q – Therese Byars

27:40 That’ll be my pleasure. The first one is, are there any updates to potentially becoming an operational business rather than just an owner of assets? Are there any updates that can be discussed with shareholders?

Murray Stahl

28:01 Okay. Well, to do that, basically I just kind of alluded to it, but didn’t go there. To do that, the easiest path is to acquire 51% of one of our publicly traded subsidiaries. So the company we have the biggest stake in right now was Winland, it’s about 29%. Usually quarter by quarter we buy more. In the most recent quarter we bought some more. So if it’s going to happen, when it’s going to happen? The step one what you would see is one of our businesses require 51% and if we could and conduct their operations via that. But we haven’t done it yet for reasons that I’d implied, but I haven’t gotten into, but I’m sure you’ll understand the absence of detail at the moment. But that’s what we’d like to do.

29:02 In cryptocurrency, they just — it’s just an incredible field, it’s just starting. And that’s one of the reason we picked it. Because we knew very little of that. But we knew at least as much as everybody else, [indiscernible] nothing about it. And that was a starting place of it. And I have big expectation for crypto. And of course, in the fullness of time, the inflation in my opinion, I can say much a bad, but maybe I have some questions about. The inflation is just getting started. So, I think crypto is going to flourish in that environment. But we’ll see. What’s next?

Therese Byars

29:42 Okay. Would Horizon Kinetics ever consider closing their mutual funds to new capital if the assets under management ever reached the certain limit? And what would that limit be?

Murray Stahl

30:00 I don’t know the answer to that question, at the moment. So we try to answer it this way. I mean the honest answer is, I don’t know. Reason I don’t know is, that’s worthwhile stating, at last, let’s call it 12 years, I think that’s about right, might be even 13 or 14. Horizon itself, and I don’t think we’re the only firm of this type. You were operating under two, I think, big constraints. And for a lot of years, it appear to me it wasn’t a good way out or at least a good solution to do.

30:39 One, I already alluded to. We had mutual funds and we have ETFs and [indiscernible] ETFs at scale, wasn’t clear, we could ever get into ETF business unless you want to be an index, I didn’t really want to be in the index business at least not in large scale. So that was impediment.

31:04 Second problem was, our posture vis-a-vis the mega technology companies, see what they are. These are basically the largest companies. Yes, I don’t have to mention their names. The problem that I saw, maybe it was mistake on my part. So feel free to critique me if you like. The market cannibalization, you can see them. It is so large and basically — and they are valued on the premise, they can grow at 15% or 20% whatever it is by company.

31:40 The idea that a multi trillion dollar company could actually grow by that amount consistently, because that’s what underlies the valuation. I simply didn’t agree with that proposition. And some agree with it. So ultimately, I believe there was going to be some major market reversal. Maybe we’re in right now. Who knows. But that to me the salient problem. The fact that continued for so many years, and the market cannibalization were up in trillions. That just illustrates where about all time, the top heaviness prop indexation. Sooner or later, every index that ever existed in the history of indexation.

32:32 Something by definition is going to be the best performing stock. Something is going be a second best performing stocks. Some going be a third best performing stock. Leave it alone long enough and index is passively managed, it becomes enormous relative to the economy. And the economy, starts responding to the size and scale and political influence of that enterprise. Kind of like a good example in the 20th century is Germany and Deutsche Bank or Germany and [indiscernible].

33:07 And the economy loses I would argue a great deal of its supplement. Because so much is dependent upon the continual success of one core, a handful of companies that may have completely exploited their niche. Sometimes they are challenged by new competition, sometimes they just approx accurate. Lots of things can happen. Sometimes the governments view them as a source of tax revenue and things happen that way, and they get excessively regulated. There are a lot of ways that comes to an end, but it has a life cycle. So everything was premised on that happening. So far, it hasn’t happened actually so you could argue.

Steven Bregman

34:06 I would a comment, Murray, something you observed some time ago. And not only hasn’t this dynamic on the way it’s gotten worse and it potentially could become spectacular depending how things play out, which is, I spent a couple of years now since the proportion of the US stock market shares held by indexes across the 50% threshold. So — and this year, this year in 2021, the amount of money that flowed into ETFs was $900 billion. Ten years ago exactly, it was $100 billion. So it’s a new record, 6% higher than it was last year. And in the final months of last year, in December, the come up to just under $100 billion dollars, basically the higher annual inflows of 10 years ago. So as more money goes in, I think, I don’t know if I did the math right, I think that the amount of money that net, that flowed into ETFs last year was well over 10% of the total amount of money in indexes in the United States or [Multiple Speakers].

35:43 Yes. So what happens is, you can just — it’s a mental experiment, you can do without a pencil and paper is that, as the share of available — the proportion of available shares not left up in the indexes flow as inflows that keeps shrinking. So the proportion of liquidity available for subsequent purchases shrinks, and it’s kind of like a — not of short squeeze, but a float squeeze. So the market should get more and more volatile and who knows what kind of extreme behavior that could be not just down, but even up before things go too far. [Multiple Speakers]

Murray Stahl

36:25 [Multiple Speakers] elaborate on that if I may. Yeah. Excellent point. So let’s just say, so we’re obviously adherence to the inflation view. So let’s just say there really is a lot of inflation and people make up their minds, they want to buy external, why don’t we even say — the biggest one of the energy group. It has got $200 billion of mark cap.

36:47 The trouble is, a very large proportion of that market capitalization is actually owned indexes. So when they go up or down or sideways, indexes unless money comes out is not going to sell. And maybe more money will come in. So if people decided no, what I really want is, I want to buy Exxon. Shares actually wouldn’t be for sale.

37:10 Today we — all these money indexes and you find a certain plasticity — plasticity is the word I want to use in markets that existed before. It might even become sematic. So, I don’t like to put a cap on it. I don’t know what’s going to happen in the world of mutual funds. Maybe we’ll just have ETFs maybe we will convert them all. It won’t have any mutual funds in the conventional sense of the word and maybe the capacity of ETFs actually to manage would be somewhat different.

37:45 Maybe we’d find some other structure for it. Anyway you see why when you write all these things about indexes, it’s so hard to know what the future market structure is going to be [indiscernible] we’re reluctant to just put arbitrate numbers to it. This whole adventure indexation. We were a lot closer to see the end of it than we are to the beginning of it.

38:09 And so really amazing things in my humble opinion are about to happen. So that’s why I’m kind of reluctant to put numbers to the mutual funds. And that’s an acceptable answer.

Therese Byars

38:24 Okay. Next part is, what was going on with FRMO’s investments and stock price in 2006 to 2009, which was a big rise and fall. Looking at the 2011 shareholder letter, the self-reported [indiscernible] did not drop the similar amount in those years. It was apparently growing all the while. It appears that FRMO was trading at some big price to total book value valuations in no times, but I can’t find any info on this or whatever actually going on here as FRMO do not publish official financial during those times part of the 2005 Annual letter. What I’m also interested in is, whether [indiscernible] has reflected on their investment choices lost process, that led to that rise and fall in market cap that did not recover until around just this year and changed anything, etcetera. Googling around, I couldn’t find anything where they looked back and talked about that. That’s end of that part of the question.

Murray Stahl

39:34 Okay. That’s good question. You gave the answer. So you’ll observe the high point in FRMO occurred at least in that era. And back in 2007 era, I don’t have a chart in front of me to actually see the high day, but let’s called it late 2007 for lack of a better thing, what happened in 2007? Horizon Kinetics, believe it or not for a brief period of time had $40 some odd billion in assets under management. So FRMO Was valued as if that would a continue, because FRMO gets about 5% of revenues from HK. At that point Horizon Kinetics were separate companies but the math we’re still same.

40:24 So we’re going to get all that revenue and expenses and was presume that’s going to keep growing. Well, obviously, we didn’t keep $40 some odd billion in assets under management and then came 2008, be it 2009. We didn’t change the strategy, it was never our strategy to be running hundreds of dollars in assets under management. It just happened.

40:55 Was our strategy to make the investments that we felt like making? So, what’s happening is, the clients are making the same investments we’re making. That’s it. Grew at levels, not going to grow at that level in the future in AUM, meaning in cash flow. Might get very big if inflation happens. It might even be a bigger number. But it’s not because we’re relying upon cash flow

We’re relying upon depreciation of our investments. If that scenario happens, which is the inflation scenario, I think we’ll have a lot of operational flexibility and we’ll see what happens there. So as I said, something really — something happened it was really very extraordinary. We didn’t anticipated it, it just happened and then came 2008. So there was nothing to change, because it was neither a positive development nor a negative element, it’s just a development. So that’s the story in brief.

Therese Byars

42:07 Okay. Was Horizon Kinetics mutual fund, Horizon Kinetics [indiscernible] limited partnerships. For example, [indiscernible] and multi strategy funds held by FRMO, what are they most similar too so I can get a better proxy understanding of how FRMO is investing. Since only the concentrated TPL and GBT positions are included in FRMOs financials. [indiscernible]

Murray Stahl

42:38 Okay. So what’s happening [Multiple Speakers] Let me answer that part and then I’ll address it. So, basically, you’re right in Polestar distributor fund, the big exposure is FRMO and bitcoin. But we’re buying other things. So we’re buying other things, two things that we’re — three things really. The three things we’re buying are Misabi Trust, The Prairie Sky, just similar to Texas Pacific Land Trust and a company called Labrador Iron Ore Royalty. Now, it’s happening as — This is same and all these companies and they use Mesabi Trust as the example.

43:33 Moved by little, we used the cash flow to funds to establish the business from Mesabi Trust. Ultimately, even though nowhere near to size of TPO. Ultimately, the position becomes sufficiently enough So dividend flow of Mesabi can pay for more Mesabi. So it’s self-replicating position. Meaning it’s growing organically and that’s the goal. To find maybe 9, maybe 10 if we can positions like that. I’ll describe them more in detail in a second where our criteria are.

44:18 We do self-replicate it. Remember, we’re not allowing for cash flow. If we it’s great [indiscernible] get it. So ultimately we will grow and as they grow, there’s more dividend flow. Ultimately when it grow bigger, than requirements to buy more shares. We’ll find something else to buy. What’s the common feature I mentioned those three positions, what’s the common feature? The role royalty business, what’s so great about royalty business. Well in theory done right. You have limit expenses and the royalty just comes from the mining extraction, whatever the price of the commodity. So Misabi Trust is an example.

45:07 Somebody leases the property, in this case it’s Cleveland cliffs. They mind whatever iron ore they are going to mine. The price is to price. You got a check, you have inflation, the revenues is going up, the expenses stay to same. Those are the businesses we’re looking at. Labrador Iron Ore royalty has a somewhat different structure, but the principles is the same.

45:38 As I said, when we combined 10 things like that, we would do it. You’ll see in coming months we are — we haven’t done it yet, but we’re going to invest in HK Hard assets too. That’s going to have yet another investment I haven’t mentioned. And you’ll probably get to see it in another quarter or so. Right now, we haven’t done it yet and the fund is too small. You see what we’re doing. We stick a little money in there, we get a little dividend flow, the thing becomes self-replicating and after a while we went out of inflation, it becomes big enough to show people, it’s going to happen. And it’s going to happen inside Polestar, and you’ll see this thing at HK Hard assets too. You will see some new investments, but we’re still buying some are disclosing what’s in HK Hard access to. Indeed FRMO has not even invested in it yet, but they will and you will see it.

Therese Byars

46:45 Okay. Given FRMO’s large — oh, I’m sorry, are you finished?

Murray Stahl

46:50 I’m finished. Was there another part of it, I understand.

Therese Byars

46:55 Given FRMO’s large oil exposure and the supply shortage thesis talked about by both Mr. Stalin and Mr. Bergman in various Horizon Kinetics and FRMO commentary has FRMO ever looked into the potential of supply impact of oil that [indiscernible] has collateral in [indiscernible] by large commodity traders like Glencore, etcetera, which would potentially be to back out of increased margin costs if interest rates where to raise. Basically, do you think the fundamental impact would be — what do you think the fundamental impact would be to FRMOs oil investments in total book value if interest rates were to rapidly rise, by say, 1 to 3 points, just to let the extremes form the mean of this example. Clarification, about the question, basically what rolled in is to strong mister greg thinks high plays in the current price of oil and how would rapid rise in interest rates affect that in FRMOs oil and other inflation investments in general?

Murray Stahl

48:08 Well hypnotization will be a problem. But before even got to that front, it is a problem. I don’t want to understate, but you got bigger problems. If I use the extreme number, 3%. The raise is — the central banks of the world raises interest rate 3 percent, 2 things happen immediately, look before you [indiscernible] oil. First thing that is going to happen is, the value of all sorts of assets [indiscernible]. So, for example, let’s take mortgage backed securities. So it’s about $10 trillion in mortgage backed securities. Whenever the value of the collateral rises, the orchestration of the mortgage backed issue refinances the entire thing and buys more mortgages. So, basically the b tranches and c tranches, they’re properly collateralized, there’s not a lot of excess there. So — and maybe wouldn’t be 3%, but use it just to talk about.

49:10 It wasn’t properly collateralized, there are all sorts of cut offs that happen and you can’t pay interest in principal on lower tranches. To be army again just on that alone. The army get into the banking system. So, it would be good for either to be sure, but the least of everyone’s problems. Basically, it’s 2008 on steroids raised to the third power. That’s how bad it would be. So I personally don’t believe and maybe I’m wrong, and we’ll find out if I’m right or not.

49:46 I personally don’t believe that scenario is going to happen. I personally believe another scenario is going to happen, that scenario is the inflation scenario. You’re going to see in my humble opinion. Endless money creation without stock. I don’t believe the [indiscernible] do much about it.

50:09 And point of fact, just America, just to give you one data point among many that I could give. In last five weeks Eight Seats government has borrowed weigh in excess of $700 billion dollars, five weeks. It just continues. Such as America, I just mentioned that, because we live here. It’s basically every country in the world. Slight differences among the countries if you’re really interested. But that’s way it is all over the world. And one of the — there’s a lot of reasons to that. But one of reasons and to me this is an important one. So I’m stating it. I could give a lecture, it goes on for two hours just on this subject. So I’ll just use this as a data point. In prior inflation, government, not just American government, any government, they would use the power of the Central Bank and they would fund some debt for some public purpose. Is it a noble public purpose? Is it not a public purpose. You could debate that. And people do, you can come to wherever conclusion you can come to.

51:20 So but you could still say it could be for a war, it could be for public housing. It could be for whatever it. You could debate the necessity of those exposures and there are people on both sides. This even though that happened today, what’s happening today largely is not that. What’s happening today is, you don’t just had the population of oil. You have of everything. Look at private equity as an example. In private equity, it’s just leverage equity. That must be in America alone, $5 trillion or $6 trillion [indiscernible]. This company us at a leverage.

52:04 Real estate, such as home mortgages, what piece of commercial real estate are some few exceptions. What piece of commercial real estate isn’t leveraged manifold. There are some exceptions. Generally speaking, it’s highly leveraged. Real estate, farmland, you mentioned oil hypothecated, you can have said gold, I mentioned the mortgage backed securities, other kinds of bonds it’s just there is a lots of — there’s lots of commodities. Just the notion of a commodity feature itself. Look at leverage at any commodity future who even got the hypothecation.

52:46 Look what the margin requirements are in any combined, you name the commodity. So, the prior societal limits, let’s put it this way, on the use of leverage we long, long, long ago as societies exceeded it. We are in unbelievably uncharted territory. There is absolutely no historical press for what’s going on. This number I like to use, I can give you a lot of numbers, but as near as I can reckon, United States alone is $86 trillion of debt.

53:34 Let’s just use the — a 2% number, because at the midpoint of range that you selected, so I think it’s valid. Now remember the $86 trillion is going up constantly, but the interest rates go up by 2%, That’s about $1.72 trillion of debt service, right there. Ignoring the fact debt rises every minute or every day. The whole GDP to country is $23 trillion in round numbers.

54:06 The public spending, the spending of federal government, state government, local government is already over $10 trillion. So it’s almost half of the whole GDP. That’s why there is so much borrowing. So how is society? So if you say the government spends $10 trillion, let’s call it, it’s actually more than $10 trillion out of $23 trillion. There is $13 trillion left. So at $13 trillion it should go up 2% you had to find at least $1.72 trillion to cover the extra debts service. I’m not talking about population growth, which might require some social spending.

54:56 We are not talking about Medicare or Medicaid or healthcare in general. Infrastructure, people say it is efficient. [indiscernible] So if they try it, I don’t think they will but if they do. It’s clearly in my view. And that’s why I’m an inflation component. I have done the advocate inflation like I think inflation. I just think it’s going to happen and that’s one example of the reasons why I think that. Anyway, I hope that’s a comprehensive answer.

Therese Byars

55:34 Okay. Next, FRMO post on its website a list of shares of all stocks as other assets such as cryptocurrency that are directly owned by the company on a periodic basis in a manner similar to what is usually done with closed end funds?

Murray Stahl

55:55 I don’t think we — we certainly could do that. I just would rather not do it. So normally, I hope you can appreciate. I normally, if I can hear on the side of disclosure all [indiscernible]. But there is small positions, especially one in particular that we hope to build to a big one. We’re buying it right now, buying it every day. At the moment it is small, so it’s not a big deal. I really don’t want to tell the world what we’re buying or in the process of buying it. We get to a meaningful position where it could in success or failure impact the shareholder interest. I am more than delighted to disclose it to everybody, but I’m open to comment, but I hope everyone would agree, maybe you don’t, but I hope everyone would agree when the process accumulating something. And it’s good, a lot of people watching what we’re doing.

56:57 I don’t know if it’s a great idea to reveal everything we’re doing while we’re in the process of establishing it. So I hope you’ll understand that. Anyway, right or wrong, that’s our reasoning, but I invite comment on it.

Therese Byars

57:10 Okay. Next question with NFTs non-fungible token and digital art going mainstream. Is this an area that FRMO will consider entering by buying a board for instance with China moving to allow NFTs, the coming coin based NFT marketplace and real world utility of smart contracts. Is there an expectation that ethereum price will increase substantially up to and potentially flipping bitcoin.

Murray Stahl

57:46 Look, it can increase a lot. When I comment on ethereum, I anticipated a question like that. The bullish case with ethereum is the case to states. Non fungible tokens, smart contracts, etcetera, etcetera. And can we use the ethereum blockchain, it’s Really what we mean. Ethereum blockchain have been used for all these different things.

58:10 The problem is, if you do that, live numbers I gave before, especially if you smart contract contracts. It’s just a lot of electric power. So in the current mining environment, I just don’t see how you could scale it that way. Given the figure that quoted. I personally don’t see it. But it’s debate. I will say this, I’m in the minority by heck of a lot.

58:50 So maybe a couple of people agree with me, but it can’t be very many. I’ve encountered them recently, but the overwhelming majority – I think it is fair to say, the overwhelming majority supports the ethereum as the dominant cryptocurrency basis. So, I think I’ll just leave it with that. I stated my reasons, and I agree with it.

Therese Byars

59:16 Okay. With the next bitcoin having taking place in about 2 years, mining cost reductions are imperative. Is there an opportunities to manage using flare gas in the Permian basin?

Murray Stahl

59:33 Yes. No question. There is opportunities to mine using flared gas, and people are already doing is, it is just bound to happen. The real thing is, are there efficiencies in mining using asic chips. Can a technology be made better. So, without any use of flared gas or anything, if you were to look and see it last, I call five years, how efficient in power consumption terms. The asic chip has become at least in physics terms, I don’t think we reached the limitation of that.

60:15 So one of reasons I’m kind of reluctant to load up a lot of many equipment is, I’m not sure that we can’t make further improvements in the energy consumption of the asic chips. So I just don’t want to buy equipment that could be rapidly obsolete. Anyway, I guess that’s – Yes, an interesting way. I hope we’re talking about the subject.

Therese Byars

60:46 Okay. Was FRMOs ownership stake crypto mining business exchanges for shares in consensus mining and senior corporation or is that business take in the computer’s repair/service company in North Carolina still owned by FRMO?

Murray Stahl

61:08 Okay. It’s really two questions, because they are separate. So our stakes in the mining business and the Horizon Kinetics cryptocurrency mining LLCs. We’ve changed our interest in entirety for consensus mining shares. Minor point is that, can you find an interest income. We made it a practice. We still do it. We were going to buy mining equipment, Horizon itself, not FRMO, Horizon itself bought the mining equipment on behalf of funds. Then, we use it per month or so taking the risk, because sometimes you don’t get great equipment.

62:06 After month we’re satisfied it’s good, we would transfer it to mining LLCs and then they would pay us, because we laid the money out. One of the things we guided Horizon was, we had laid out money for crypto LLCs the equipment was good. We gave the mining LLCs the equipment and the mining LLCs never paid us. So in cash, technically speaking, actually legally speaking, in doing the audit to do the conversion it was a sizable sum of money that was owed to Horizon Kinetics. They are taking that money, we did not. We just said we don’t want the money, we’ll just convert our cash interest, which we owed, meaning, our receivable into more shares of it. That’s what we did. So we have that, the Hash Master interest is a separate company.

63:13 So, why is it separate? The HK cryptocurrency mining was profitable from the start. We put the interest in Hash Master and it was not profitable from the start. We encountered a variety of problems. Some of them were anticipated, some were not anticipated. If you have about 48 hours, I can give you a rundown down of every problem we had. So a lot of problems. At all of them, well let’s just say some of them were more serious than others.

63:51 As we were confident, we could solve them. And actually we did, the problem was, every time we solve the problem another problem that we generally did not anticipate, some we did, but generally we did not anticipate would arise, then we had to solve that problem.

64:09 So for the first 22 months, maybe in 24 months, but certainly for the first 22 months of the Hash Master experience, it just wasn’t profitable. We were very confident that we could bring it to profitability. And actually it happened. There is one problem left, there’s nothing we can do about it. It just — there’s a contract that we’ve signed with another entity, it’s just [indiscernible] never sign that contract. It’s not a great contract. It’s going to expire in either 8 or 9 months, when expires we’re not going to renew it and because the exploration of contract have not going to do anything, it’s going to be meaningfully more profitable. You know, it’s actually furbishing right now. So we are not doing anything about it, we’re just going to wait out, whatever it is, 8 or 9 months and it’s going to be what it’s going to be.

65:05 So, we didn’t want to and that’s why we kept it separately. Different businesses have different business issues. So we felt that it just wasn’t morally right to burden one group of shareholders, they are investing in a certain area of cryptocurrency with the problems of no crypto — area of cryptocurrency that they really didn’t bargain for when they begin initial investment. So we just kept it separate.

65:36 And of course, like in all these cases, Horizon itself took the risk. On the theory of that, leader goes first. We are asking people to risk their capital, you meaning us, we’re risking it first. So we’re at the first level of risk. If what the heck that we know about buying machines, a little bit yes, not a heck of a lot. If you think of that back in the day, it was bold, it was daring, it was dangerous. So what’s right do we have to commit people’s money to something that bold, dead dangerous. We have to protect them, that was a $5 transaction or a $10 transaction, maybe no one would have cared and wouldn’t have been a big deal, and we wouldn’t have done that, but we were buying $250,000 to $500,000 dollars of equipment in a shot. By the way, some people buy $10 million in a shot. So knowing excuse aggression, but if you buy $10 million equipment in a shot, and you bought wrong, you get a serious problem on your heads. And that’s happened to a lot of people.

66:49 So we didn’t want that to happen. So we were going to buy in small lots. But there was a problem, surely speaking there wasn’t, surely speaking we board well. It’s not to say there was never a problem. So in one case, the shipment, as I recall, someone stole a couple of machines right off the truck. They really did. So we had to bring insurance carrier and get payment, document happened, when we got it, it just took a while. So that’s one kind of risk. Another kind of risk, we bought some equipment, had a virus in there. We should have checked on delivery, we did check, we missed that. The virus is placed there intentionally, placed to — purpose of the virus was, if you didn’t know, if we didn’t look closely you are mining a certain amount of cryptocurrency. And the virus you can keep running it, the virus could basically steal, I think, 15% or 20% of the cryptocurrency you mined daily. It’s a small enough number that you might not notice it. We noticed on the fourth day.

68:13 We turn the machines off, but now we got to get the virus out of there. That’s easier said and done. Took us six weeks to figure out how to get the virus out there. I tell you all that stuff, you can understand I’m not defending it, I’m just telling you, we did — the things we did why we did them — rationale and basically to put it in the sensor too, no one knew in the beginning what was what in cryptocurrency. You can make the assertion, but it’s a new field for everybody.

68:48 So as a moral question, as I said before, if it was $5 it wouldn’t be a big deal. Nobody would care, but it wasn’t five dollars. We felt we had to take some of the risk with our personal money before anybody else would take that risk. We thought that was the right thing to do, and we did it.

69:08 Ultimately it shows how seriously we took it, we even put our money up for consensus mining than HK Cryptocurrency Mining LLC. We forgot to eat and pay ourselves for equipment. We actually delivered which was good. Anyway, I’m not doing it to praise us. I’m just trying to – so when you see these compartment, which looks so bizarre, maybe bizarre, but there were reasons for it. Those are the reasons. So, we’re not looking to be called noble or anything. We just felt it was the right thing to do and that’s what we did. And we had do it over again, we did the exact same thing. And I can say in behalf of Horizon, no one has did, no one complained, everyone thought it is the right thing to do. And we did it and that was it.

70:03 I hope that addressed the set of questions.

Therese Byars

70:07 We have several more questions, and it’s almost 05:40 PM. So, I would say we probably would have about 40 more minutes.

Murray Stahl

70:22 Let’s do it. Let’s see how much we can get through.

Therese Byars

70:27 I’d like to hear any thoughts or comments you may have on Hash Rate flash equipment prices. I can’t help us sense the sort of convexity effect much like say interest rates approaching the zero bound. When I see asic prices and consider the efficiency current models have achieved and the availability of the power at attractive rates. This is notwithstanding the underlying belief that we all have in crypto, of course. How do conditions look from your perspective? Is dynamically scaling the operation up or down something you think about from a risk perspective?

Murray Stahl

71:03 Okay. So let’s start with the prices themselves. The state of the art, which is the S19 pro. If you want to buy one it can be a few dollars. The prices have come down in the last 10 days by about 5%. So let’s say if you bought one at $10,780 something like that, if you pay that price, that’s actually little bit more paper shipping, insurance or whatnot, but let’s leave that aside. At the current hash rate in a breakeven down about 680, 690 days. We’re 838 days roughly away from having it.

71:53 So the 838 days, you order it by the way, you are not getting delivery tomorrow. So from the 838 days you have to subtract laying out the money. How many days is it going to take to get delivery? See picking whatever number that is subtract from 838 tend to breakeven even time. Let’s say 680, 690 whatever. And you can see if you pay the current price, you breakeven with a little bit of profit to the [indiscernible]. That’s why we haven’t bought a lot of equipment.

72:32 However, there’s a good side to it. Good size is that, on an operating based to get about the breakeven. But if you bought a machine, if they deliver it today and you were just running it. Profitability it’s like 60 some odd percent profit margin. So the profit margin is

big enough to having occurred assuming everything stayed the same. Yes, we keep making money.

73:08 For me, I like the Litecoin numbers better. For about — I don’t know, 560 days away, something like that from having breakeven on a Litecoin L7 if you can get it. It’s about 370 days, but the profitability is so high. Just unbelievably high. When you see make a decent profit, you get to breakeven before having. You still be making money after the having. So what am I really saying? I’m saying that in Litecoin equipment the market is more or less discounted to having.

73:55 With Bitcoin equipment, the market is more or less yet to discount. It’s happening slower I predict. One way or another the next let’s say six months market will discount to having. We can do it in one or two ways, bitcoin price could go up or the prices of the machinery can go down, or can be combination of two. I don’t know what’s going to happen. I do know that in the United States in other parts of the world — I’m just going to take a drink of water for a second.

74:41 Believe or not, I have been talking the entire day. That’s why got a little bit of laryngitis. But anyway you need not have to worry about the stock in terms of my health, I’m good. Anyway the market is going to – there is a positive mining racks space. Very hard to find. It’s one of the reasons we have Hash Master that we have our own in a pinch. We have our own racks space. There’s a lot of racks days being built. When that racks space is built there is a lot of equipment that had been ordered. Hasn’t been delivered, there is no place to put it. I think the aggregate Hash rate is going to go way, way higher. That’s going to push to bitcoin prices way higher.

75:34 I believe that’s going to happen in next half year or so. If it happens, that resolved many equipment issue. Just to understand the caveat, if it’s 680 days or 690 days to breakeven, then there is whatever day’s delivery, we don’t have very many days left from the 838, which is time to having. Every day goes by, you’re losing a decent percentage of that. So, it’s important to get the hash rate up, then it will be more expensive than to make a bitcoin. It drive the price higher, but you can’t get the hash rate meaningfully higher until the mining rack space opens up, which I think is going to happen as they said over the course of next 6 months. It’s been happening over the last couple of weeks anyway, probably a little bit.

76:29 I hope I addressed it.

Therese Byars

76:33 Okay. I’m going to these, it’s in three parts, but I think some of it you’ve touched on. To maximize bitcoin mining profitability requires low cost per acquired hash rate and cheap and reliable electricity. Just curious as to what your upfront cost per terra hash for machines and what your electricity cost per kilowatt are in your operations? Do you plan to diversify your mining across the country in the future at the current stage of operations? How many bitcoins are you mining annually? And would you ever consider a bitcoin dividend for shareholders? I can repeat [indiscernible].

Murray Stahl

77:14 Okay. So let’s just start with the costs. So best way to express it is electricity cost. We can buy electric power, the highest price we pay is about $0.05 a kilowatt. Lowest price we pay is about $0.01 a kilowatt. That varies by where you are. You may say, why don’t you put everything at the $0.01 kilowatt level. Well there are lot of issues. First of all, there may have racks space there. Secondly, you’re going to pay $3.50 is another rate we have. You get it, because you’re only buying off peak power, go somewhere else, you got to buy peak power.

78:05 Here’s the quality of space itself, there is the climate in the space. So many years ago, we made mistakes, you may understand why we took the risk first. We bought some equipment, equipment us good, it was put in the wrong place. We put in a place that was not far from sea shore. What’s the problem with that? The salt there, not goods for machines. We didn’t know that. We just didn’t know. Took about a month to figure it out. So we had do something. We didn’t want to expose the client base to that. We didn’t know that was going to happen. We just knew that sooner or later something is going to happen, we’re going to make a mistake, it just — that happen to be one of the various mistakes we made.

78:52 So, you don’t want to put your — it’s not just — it’s not a question of merely the lowest cost. We found low cost power in Canada. So what’s wrong with that, nothing wrong with, except in Canada the province of Quebec should charge — would charge us the sales tax on the power we buy. So we then petition the provincial government, well, there’s a treaty between [indiscernible] and Canada. We are Americans, you can’t charge us sales tax. And it’s okay, well, the way the Quebec law works us, we can charge you with sales tax, which will rebate you to money. They charge it and then they refund to you. So you get like an interest rate free long term you.

79:38 Okay, how long is going to take, do we get our money rebate? Do we have to deal with that. So that go through all these various issues because the point of the question is I understand it is, we have to be diversified. There is a lot of different deals you can have. And sometimes, it actually pays to have the high cost power, for example, in the course why do we pay $0.05 a kilowatt when we pay $0.01 a kilowatt, because sometimes in a really big rec space facility they are buying machines for themselves, and they’re buying in such volume, because it is such an enormous space, we can tie in with their purchase. Meaning everything we add gets them a bigger discount and we would — even though we’re buying in small quantities we would buy equipment at the volume rate. In discount we get an equipment and you’ve factored it in is more important than the fact we have to pay $0.05 a kilowatt.

80:45 So strategically, it was better to even pay a higher electric rate and be a partner on the deals to buy equipment, because the equipment is somewhat cheaper than otherwise would be. I think the one deal in particular that I would dare say we probably bought equipment at 16, if you can believe it. But the price we otherwise would have had to pay literally 16. Anyway, I’m giving you an example, but that’s probably the best case example. But that’s why we are diversified. We are in a number of different facilities, and we’re looking to expand our own facility. So we just ordered a — I think it’s like a 2.50 megawatt transformer, something like that, hopefully a couple of months when they build out, we’re going to have a lot more racks space. Anyway our facility in Hash Master, we actually own the building, it’s not a risk.

81:48 If you own a real estate, and the owner, once they use it for alternative purpose, you might not be able to renew your lease, so it’s important to own the buildings. You’ll see in FRMOs balance sheet, we own that building. That building, if we want to use it for alternative purpose, we can probably get, in my opinion, 2.5 times at least we paid for the building. Just an example. So I just give you the factors that occurred to me and the numbers that are associated with those factors.

82:17 So I hope I’ve answered all the aspects of the question. Maybe if I didn’t Therese, just tell me what I didn’t cover.

Steven Bregman

82:24 Steven here. Just for consideration. Questions about mining and cryptocurrency are endless interesting and edifying. And apparently, questions about Texas Pacific Land Corp are likewise endlessly interesting and fascinating.

82:47 I suspect many of the people listening would very much like to have a sense of urgency about getting to some of the final questions, which have to do with an article today in the Wall Street Journal, but I’m sure if you hadn’t read it, make sure to tell you about it.

Murray Stahl

83:06 Well, I haven’t read any article in Wall Street Journal. No, have no idea.

Steven Bregman

83:11 Okay. There is an article we’ve been questioned about. Which talks about the fact that there has been an increase in small earthquakes in various parts of Texas where fracking is going on. The Texas Railroad Commission is restricting use of certain wells that had been perhaps over used in terms of putting kind of source water and many companies are quoting in the article, that they can’t make a profit if they have to truck water out at $2 a barrel and things like this. So, therefore many people have read this and asked the natural questions my goodness. What does this mean for Texas Pacific Land Trust? That’s the gist of it.

Murray Stahl

84:14 Well, not a heck of a lot. To be perfectly honest with you, not a heck of a lot. So all you need to do, I’m not telling you any secrets. You just look at the income statement, you’ll see the bulk of revenue comes from existing leases, they’re going to last a very long time. That’s the bulk of it. And you’ll have some easements. The easements, some of it is, just people have to cross the property for whatever purpose. Other easements, you’ll have source water, so there’s two kinds of water. There is source water, meaning, someone takes the water out of the ground that you have and use it to frac and there us produced water. What is produced water? Well, if you put barrel of water, I’m just talking about oil in general. I’m not even talking about the company in particular. If you put oil in the — put water in the ground for fracking [indiscernible] you put in to make 10 barrels of water out. So you got to put somewhere.

85:33 Where you put it is a big deal. Now first is going to be cleaned whatever and the reason we cleaned is, there are valuable minerals in the water. So when people clean it [indiscernible] exercise. What comes out to water? There are chemicals as well residue whatever or something. So why people clean it. So it becomes – it’s not portable water, it’s so brackish. That’s not problematic.

86:05 Question is, where you put it? Every land owner wants to put it somewhere. So you say, hey, if you put it in county X you are going to cause an earthquake. We don’t want it in county X. Well, it might go to county Y. So it’s not going to cause an earthquake if you put it in county Y. So we are going to cause an earthquake if we put it in county. A lot of politics that go into these things.

86:43 So if we own land, the land itself is not — there’s a lot of land that’s not productive. Nothing happens there. So there’s a battle. If you control the regulations depending on where the ultimate put this water. Land debt has virtually no value, it can be incredibly valuable like anything else, political doubts. It be what it’s going to be.

Steven Bregman

87:11 I would add by the way that — please go ahead.

Murray Stahl

87:18 Have a look at Crane County and see the water flooding that’s going on there. And it’s not an issue because there’s a large contiguous space of land owned by one party. Can you see that? I’ll say no more about it, it’s not [TPO] (ph) land. And you’ll see there isn’t a geological issue, political issue. Let me explain why there is an geological issue.

88:09 Because the natural refresh rate on the ground water varies by year. We had heavy snowfall in the Rockies in a given winter which happens from time to time. That water is going to make its way to Texas. So if there were problems with earthquakes, how much snowfall Rockies in a good winter. A lot. So this would have been measured and happening from time in Memorial. Just coming, no one can manage the process.

88:48 If you imagine the process you know how much land can take. It’s well under control, it’s well understood geographically. I’m not a believer in the earthquake hypothesis. And $0.02 in not a matter, maybe that’s why it worth $0.02. I wouldn’t pay a lot of attention to it, but people do what people going to do. I can show you continuous properties. They’re being water flowed and no one saying anything about those properties.

89:31 Does that answer the question and or concern? If you want to go further or I’ll go further.

Steven Bregman

89:37 Sure. I would observe that in certain areas where maybe small earthquakes are considered. Much of concern because there are low populations there. I hope there’s some counties in the Delaware trend part of the Permian Basin, such as London County where I’m not even sure if there are two hundred residents there. And anyway –

Murray Stahl

90:09 There aren’t. Anyway, whatever. I don’t regard even — I don’t even regard it as a geological issue. I really don’t. But just understand that ultimately decision are there to put the produced water is in the hands of the regulators. Depending on where the produced water goes, you can actually make a fortune. So, I hope you don’t think when to cash aspirations on anyone. That someone is just objectively considering geological consequences or certain activity. That lot of what you unfortunately, I know there is cash dispersion to anyone, certainly at the Wall Street Journal. It’s not near objective Insertion of actual data. I don’t think earthquakes are a problem whatsoever regard as such, I don’t think it’s a big deal. I really don’t. We won’t go into it in a more detail if you like. I think that’s sufficient.

91:42 So, I know for a fact, areas are being water flowed, and being water. That’s bad as much water can possibly put into place. And no one says anything about earthquakes. Personally those areas, and they’re not small. Maybe enough said about that or unless you want to go into in greater detail.

Therese Byars

92:18 Are there any of the other questions that you think might be — since we’re running out of time, we have about ten minutes.

Steven Bregman

92:24 I just want to make sure this one [Multiple Speakers].

Murray Stahl

92:28 Let me just — anything — the normal practice for us is, we just say this even at least one of the ten minutes. No practice stresses if we don’t get to it. Let’s just reprise and it could well be people are hearing answers to questions and it sparks ideas, I should have asked day A or B or C. So do we can, we run out of time, we run out of time, there’s nothing we can do about it, because these things are timed out, but we run out of time. Let’s just say that we will retrieve it and we’ll do any questions that we did not cover. And people have thoughts about other questions that just were imposed, add them in, we will address each and every one. I hope that’s fair enough.

Therese Byars

93:10 I think that’s fair. If we don’t get them, there are just a few. So we could even –

Murray Stahl

93:15 Okay. Let’s do our best. Let’s do our best. I’m super happy.

Therese Byars

93:19 Okay. So there are some questions about government standard. I’ll just read all of that and you can decide it, is there any update on the company’s activity. Are there ownership taken on standard. When do you expect to open your Diamond Trust? How much is institutional retail interest is there so far? What do you expect your AUM to be? And what management represented percentage to plan charge on AUM. So there is a kind of pause there.

Murray Stahl

93:44 A lot of questions here. To begin with, I am — in terms of when this all is getting off the ground? I guess that’s the most important question of the ones that are posed. I’m told by the various attorneys. 6 to 8 weeks. That’s what I’m told. That’s one.

94:03 How we increased our ownership of Diamond standard. Answer is yes. I don’t have a breakdown, sometimes we do these in the funds, in this case we actually did. We bought some shares. In some cases we put in the funds, we increased our position that way on the cases we didn’t put in the funds. Anyway, we did increase it. So obviously, I’m very enthusiastic about what’s going on.

94:37 The demand, I mean, the proof is going be in the pudding. I personally think demand is going to be very high. I can’t give you a number. I mean, I could, but it’s just a number, it’s just an estimate. It’s my personal estimate, and I’m not going to hit the mark. I’ll just say, it’s just a number that I have in my head and based on conversations I have with people, they are enthusiastic.

95:06 I believe tomorrow or the next day I have a call with someone who is very enthusiastic about it. I have ideas how to scale it faster. So, I don’t know what those ideas are, I haven’t heard it yet. Maybe they’re great. Whatever I have in my head is going to be — is going to be inaccurate, because somebody has a great idea. I don’t have all the great ideas in the world. I don’t know if I said it before, but I hope you realize that, but I don’t have the answer to every question. I’m just a human being. So, I know it comes in a shock, but it is the truth. Anyway, I know exactly what numbers is, it just that I don’t remember it.

95:56 So someone actually told it to me the early day what fifty is, it’s not a huge fee, it’s reasonable for what it is, because we’re just holding the diamonds. I would tell you, it’s not a big secret, I would tell you the number. But I just don’t remember the actual numbers. So I don’t want to give you a number that’s wrong, but in a few weeks documentation is going to be out and you are going to see the number. I know what number is, but yet I don’t know, because I didn’t write it down. I was told and should have written it down. I thought I can remember it, I just didn’t. So I’m not trying to abate the question, but you will know in a few weeks what the thing is.

96:36 So, really, I understand. You want know the potential AUM and to see how much goes to the bottom line, because the expenses are not going to be huge, although there are some expenses, it’s going to be very profitable, no question about it. [Multiple Speakers]

96:54 And you will be shocked, how profitable it is. I’m very, very excited about it. So let’s just – I’ll give you a number if I remember it but I just don’t. I’m reluctant to give you a number of that. I’ll be off by 5 or 10 basis points and I’d imagine not do to that to rather give you something, I know it is accurate. Next time, I’ll remember right then.

Therese Byars

97:16 Okay. I believe this will be our last question that we have time for. And others who have already touched on. So digital currency group has sold $700 million worth of shares, yet value of FRMO Holding why still held at a cost of $76,261? Is there a reason of valuation that has not been adjusted given the recent transactions of the sale of digital currency groups stock. The consensus mining and [indiscernible] Corporation has mentioned on page 6 of the consolidated statement on evaluation reflecting recent share transactions. So there’s the question.

Murray Stahl

97:52 Is there a reason, yes, there is a reason. So the reason is, so what happens is, quarterly we get a report from Digital Currency Group where they place the valuation on those shares. Obviously when we had a transaction we had to value it.

98:12 We deal with — I personally is — now we’re talking about US. When we did that transaction the certain existing shareholders had the right to buy some more. I personally put some more and buy millions of dollars’ worth, but I actually personally buy, so obviously, I know what the prices is. Trouble is, I actually paid a certain price, and I know exactly what that prices is. The document quarterly comes from the companies and they value it. Obviously, I should say, does goes without that thing I say it anyway. I bought shares at that price if I thought that was the right price, I probably wouldn’t have bought it. I think that prices was under value, just my opinion. So I think the price is even more. Trouble is, all that information says that on these documents, it’s private, it’s for us, we’re not supposed to leak it to the public.

99:21 So, if I took the price off that document, or I took the price off the transaction, I personally did and they increased the shares, kind of violating the undertaking, we’re supposed to keep this stuff confidential. That’s why we didn’t adjusted it. So you can blame anybody, let’s blame me for 99% of it [indiscernible] the company for 1% of it, because they want to keep everything private.

99:48 Google has bought shares. So swap shares. That’s public data. They bought shares. And your truly bought shares, Google has more money than me but I bought shares too. Anyway, it says in documentation, supposed to reveal it to a public or release it to public. So I’m not revealing it to public. That’s why we didn’t adjusted it. So, as I said, like in most things, 99% percent of the blame goes to yours truly. That’s one. So I hope that’s an acceptable explanation, because that’s the explanation.

Therese Byars

100:24 Thank you. Okay. I think that wraps it up.

Murray Stahl

100:30 Okay. So remains me to say, thanks a lot everybody for an engaging list of questions. I must tell you, I very much enjoyed answering them. I like the give and take. And thanks for your support and anything you think of in the interim, we’ll try to get you an answer. And it goes about saying, we’re going to repeat this in ninety days, you’ll see how we’re doing and look forward to giving you information at that time. So thanks again, and we’ll see you shortly.

Q – Therese Byars

101:07 And that does conclude this call. Thank you all for your participation. You may now disconnect.