Hi Brian,
I thinned it out before I used a towel and found it worked much better. I would compare the viscosity of the thinned varnish to that of an oil finish. I did not have trouble with bubbles. You didn't shake the can before applying did you? I also found that saturating the rag completely worked best. I've been using a rag on my paddles with good luck but went back to the cheap foam brushes for the boat. That's just me, I like it better.