- the source for market opinions


June 27, 2019 | The Abnormal

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

As much as I hate to do this, a few words on BTC.

The blog’s trigger-happy DELETE button has seen a lot of action in the past week as crypto cowboys flooded here to pump Bitcoin and pretend they know what they’re doing. Of course, they do not. Nor does anyone. Bitcoin’s not money, not even a legitimate security. It’s backed by nothing and does nada. You can’t actually spend it, or even easily store it. The exchanges trading it are often flaky, failed or felonious. Just ask the clients of Quadriga. Ouch.

BTC is a lottery. A pure speculative play. As such, backed by zero in real assets, it has the potential for wild volatility. Thus it went from dustbunnies to almost $20,000 a unit in months, then collapsed to $3,000 and had since jumped magically to over $10,000. Those ‘investing’ in Bitcoin (or its digital spawn) may justify their rashness by saying this is the future of money and blockchain technology may change the planet. All possible But that doesn’t make this a stable thing to own nor a place to put precious capital.

Comparisons with the turn-of-the-century dot com phenom are strong. Investors gambled billions on Internet startups with bold ideas and scant revenues, simply because everyone knew the world would go online. It did. The Internet’s changed everything. It’s a true, historic human revolution. But most dot-com enterprises were 95% hype and 5% legitimate. They failed. Tech stocks ultimately lost 80% of their value and took more than a decade to recover. It turned out the connection between The Future and profitability was a tenuous one. Investors became crispy critters.

What’s different this time?

Not enough.

Bitcoin jumped the better part of 40% this week. Yes, in one week. But it also lost 12% in less than 10 minutes. In one day the price swung about 15%. Given the recent run-up, it’s fairly likely the mythical currency could lose a third of its value in the next few days. Or weeks. Maybe by sunup.

Why the renewed interest in this moister moolah?  Blame Facebook’s announcement of a new digital, spendable thingy called Libra, due to launch next year if it can possibly integrate with the existing global payments systems. The betting is an online behemoth like FB, rich in cash and resources, might actually find a way of making crypto work in the real world. Meanwhile the Fed, America’s central bank, has gone dovish. That means interest rates are expected to fall as 2019 progresses, with an easing of monetary policy, more economic stimulus and a consequentially lower US dollar. Gold has benefited. So has Bitcoin. After a long tightening cycle and stock market inflation, a bunch of money is looking for the next play.

If you want to buy BTC, good luck. It could soar quickly and make you a bundle. You could lose that in a week or two. The volatility is extreme, and the whole point of a 60/40 portfolio is to mitigate big swings and quell the unbridled human emotion that leads to crazed decisions. Normal people, in other words, do not own Bitcoin. And on this blog, as you may have noticed, we’re all normal.

$     $     $

While the Fed looks poised to drop interest rates, no such luck in Canada. Mr. Market has pushed the beaver buck up a couple of cents recently on that expectation. Now some economists are speculating it could swell from 76 to 78, perhaps even 80 cents, before the Bank of Canada falls into line with a drop next (maybe) winter.

Meanwhile, hungry lenders have slashed mortgage rates in what might be a brief but intense war. The Big Guys are under 3% on fivers, and loans are available through brokers at 2.5%. Given that inflation’s 2.4% this is, like, free money. Why would you raid an investment portfolio (up close to 10% this year) to buy a house when the bank’s cash is so much cheaper?

Well, this weekend could change things. Trump meets Xi in Japan. If the US and China come to some kind of détente, or understanding or simply agree to re-open trade talks, markets are likely to cheer. Stocks up. Bonds down. Yields rise. After all, 45 wants to go from being Mr. Tariff to the guy who did an historic trade deal, just as the 20-odd Democratic contenders start gaining public attention. Betting against America before the 2020 election is probably a very bad idea.

The bottom line: lending rates may well have hit bottom. House prices, of course, have not. But if you have to buy, borrow big.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

June 27th, 2019

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.