Bitcoin Tulip Mania

Bitcoin Tulip Mania

Bitcoin has been dominating the headlines in the news. You may have seen the following in the media recently:

–              “Bitcoin mining ‘is using so much energy that it is causing electricity blackouts’ amid fears it will consume more power than the world by 2020”

–              “Experts say Bitcoin mining is consuming more power than used by 159 countries”

 –              “It is creating a ‘colossal’ carbon footprint as the value of one-coin surges to more than $18,000 amid violent swings in the cryptocurrency market”

 The words alone sound like a science fiction novel: Bitcoincryptocurrencyelectricity blackouts.

What is Bitcoin?

How is it impacting the financial markets today?

And what is its impact on the future market of tomorrow?

Bitcoin is a cryptocurrency, which means it is used in the digital realm as a form of currency online.  It has value:  it is being traded under futures contracts on the Chicago Board of Trade, and, you can use it as a method of payment in many stores such as the clothing retailer the Gap and the satellite provider DISH Network.  It is the quintessential “future is now” online curiosity – a unit of exchange where the transaction does not include a U.S. dollar or some other form of national, physical currency.  It’s price-to-dollars has surged in the last year, and it has become more and more prominent with the online market and those sophisticated in the digital sphere.

However, can a currency not sanctioned by state truly compete with the dollar, euro, gold, or more traditional forms of exchange in the marketplace?  And is this price surge a market reality, or the classic case of the “bubble” asset.

Bitcoin Tulip Mania

Coindesk.com Bitcoin Valuation July 2010 to 12/12/2017

Is Bitcoin the Currency of the Future?

  1. Huge price run-up in 2017 suggests avid interest. From 2010 to 2013, Bitcoin was valued in a range of $100 U.S. dollars.  There was a surge in 2013 to a valuation range in $900 U.S. dollars.  As of January,  the price of one Bitcoin has surged all the way to over $17,000 U.S. dollars.  For a currency you cannot hold, or touch, but can only use on a digital screen, this has been a unique surge in value, with global implications.
  2. It works without a central bank and a printing press – this seems like the ‘future is now’. Bitcoin is the world’s first digital currency, and the one most commonly used as of this date.  It works as a “peer-to-peer” transaction.  There is no bank to store the money in, no need for a governmental central bank to manage and print the currency.  You mine for bitcoins online, you transact business using a bitcoin software program and it is recorded in a non-governmental system of storage known as a blockchain.  It can sound technical, but for those familiar with the digital landscape, it is a fairly simple system to use.   No central bank makes it a favorite among many who want less of the government involved in economic transactions.
  3. Futures trading, GDAX trading, and old line Wall Street is all the way in.: Perhaps not all the way in – the NYSE has rejected trading Bitcoin futures because of “wild price discrepancies” making it difficult to create an equitable marketplace.  Nonetheless, the Chicago Board of Trade has opened futures contracts on Bitcoin, and it has been firmly established in the global currency exchange.

 

Bitcoin is a Classic “Bubble” Investment.

  1. 1800% increase in value … in one year??? You go from a digital currency that can be purchased in $900 U.S. dollars to over $17,000 … and that’s not a bubble?  Investors have made money, and you can make money betting on futures, but it is payment mechanism that will be in direct competition with the U.S. dollar as backed by the U.S. government – historically, competing in the Feds space has not been a long-term strategy for success.
  2. No price transparency. Bitcoin is traded on several exchanges, and the price valuation is widely divergent from one exchange to the other.  This was the principal reason the New York Stock Exchange hesitated on allowing futures contracts on Bitcoin from being traded on the market.  You cannot get an accurate bid with such price discrepancy.  Furthermore, despite its digital nature, the attempts to “mine” for the bitcoin – find it on the internet grid – makes it a not very liquid currency.  For these reasons, the price appreciation looks more like speculation and risk than sound investment strategy.  Most notably, the price of Bitcoin has seen an 80% correction 5 times in the last 4 years – hardly the model of a stable price climb.  For many analysts, all of this makes it a bubble.
  3. Governments will not accept currency competition they don’t control. Couldn’t governments simply ban digital currency?  Yes, and China already has for transactions involving start-up businesses.  Many analysts celebrate the attempts at banning, saying that the digital currency would simply move to an open market – and that is the beauty and greatness of free markets and capitalism!  But that assumes that more governments, and the biggest one of all – the U.S. – won’t follow suit and attempt to regulate and/or ban competing currencies such as Bitcoin in the future.  Because the U.S., and most countries, will not allow any competition to their currency, there will naturally be a limitation built into the system regarding Bitcoin’s market cap and potential growth.

Bitcoin has had a huge run-up in value.  But even as we go to press, it is well off it’s highs.  It is a tradeable asset in the marketplace:  it can be held as a store of wealth, it can be used as a digital payment source, and it can serve as a hedge like gold or government bonds. But the crypto-asset, the crypto-currency, is not a competition to national currencies.  Like anything else in the stock market, it can go up, and therefore, it can go down.

“Tulip-mania” – which occurred in the Dutch Republic in the 17th century – was the original “bubble asset” having a huge run-up in value on tulips and then a complete collapse in 1637.  It was memorialized in a famous 19th-century book by author Charles Mackay – the title speaks for itself: “Extraordinary Popular Delusions and the Madness of Crowds.”

Whether Bitcoin is a bubble or not, it certainly will go up and down in the market. How can you avoid those potential losses and that roller coaster ride?  Call your Ty J. Young Inc. advisor today and learn how you can have your money completely protected from stock market losses and growing at the same time! 877-912-1919.

Bull Market May Never End

Bull Market May Never End

One constant for the last 7 to 8 years has been the ever-increasing value in the U.S. stock market.  There have been hiccups along the way, but since the Dow hit bottom in March 2009, the market has been screaming to new heights every year.

The Trump election seems to have made it soar upward faster than ever before.  Just consider the data:

**Record high’s weekly, in some cases daily!**

11/22/16              –              Dow 19,000

1/25/17                –              Dow 20,000

3/1/17                  –              Dow 21,000

8/2/17                  –              Dow 22,000

10/18/17              –              Dow 23,000

11/30/17              –              Dow 24,000

By every measurable standard, this is the greatest bull market of all time!  It is the Tom Brady, Michael Jordan and Babe Ruth of money!  It is “The GOAT!”

We know this just by comparison. Consider these past bull markets:

1946-52                –              267% gain on the S&P

1982-87                –              229% gain on the S&P

1993-2000            –              302% gain on the S&P

2009-2017            –              330% gain on the S&P

Here are the reasons why the market continues its record-setting run, and some reasons why it may finally be ready to correct.

Top 3 Reasons the Market Remains in BULL Territory:

  1. The ‘Trump-Bump’. The Trump-Bump has many factors, some of which includes massive deregulation and the expectation of fundamental tax reform.  The tax reform bill has reached the conference committee between the House and the Senate, and seems poised for passage.  It’s best features include lower, flatter rates; cutting business tax rates; increasing child tax credits; and, eliminating loopholes.  It should be an economic boon for the country.
  2. The Rise of the ‘Non-Fundamentals’. The “Old Fundamentals” of Wall Street that analysts used to look for market trends included P/E ratios, the consumer price index, the rate of inflation, jobs reports, unemployment, and housing starts, among others.  All of these and more were, and some still are, important in trying to figure out the direction of the market.  But we developed the list of “NON-FUNDAMENTALS.”  They are more important now today than perhaps the old Wall Street numbers game and they consist of the big three: (1) Sentiment, (2) Safety, and (3) Strength.  Public SENTIMENTthe public BELIEVES in the economic-friendly changes Trump has promised. SAFETY – our system is “safer” than our global competitors.  Why?  We have the deepest capital markets, innovation, and the rule of law. And, STRENGTH –  despite the last 8 years and the drag on capitalism, the U.S. remains the strongest nation on Earth.  The dollar remains the world’s reserve currency (for now).  And keeping your money in U.S. markets is a smarter bet than China, Europe and elsewhere.
  3. The ‘old’ fundamentals aren’t doing so bad, either. Last quarter 70+% of corporations posted reported earnings EXCEEDING analysts’ expectations. Profits are up. Revenue is up. GDP is above 3% for 2 straight quarters and heading towards the best year in over a decade. Inflation is elevated from 1.9% to 2.2% this past month, but not a runaway problem like the early 1980s. Housing starts and sales are far and away back to pre-2008 levels in terms of pricing and market health and standard measurements of job growth and the unemployment rate are steady.

 

What are the reasons we could see a correction?  Most analysts have been shocked we have not seen a correction at some point over the last 8 years. History and reason dictate one should be coming soon.

What Risks to a Market Correction Could Bring the “Bear” Out from the Woods?

  1. What goes up MUST come down … right? History dictates we must have a correction.  This market has been supported by 8 years of money printing … 8 years of Fed Reserve easy money interest rates … 8 years of quantitative easing … This was artificial stimulation. Therefore, we have been due for a correction for some time.  Even a 5% correction will be a 1200-point drop on the Dow.
  2. The fundamentals don’t support a “forever” bull market. Some market fundamentals look good.  Others?  Not so much.  Consider:  Labor participation rate lowest in decades at 62.7%. Individual investor accounts cash holdings at an all-time low.  This means investors are “all-in” with no more cash to put into the market. Fewer companies in Dow, no diversity in stock purchases.  In 1997, there were 7300+ companies traded on the Dow, today there are 3600 and dropping.  Longtime analyst Mark Hurlburt has stated this means “…Harder for your money-guy to construct a broad-based, diversified portfolio that can perform better than broad-market index fund.”
  3. Geopolitical risks – the ‘known’ ‘unknowns.’ A)  China – you cannot trust their numbers or their markets in a communist state B)  Russia – what will the Russians do next in Eastern Europe or the Middle East C)  Europe – Europe’s most important player, Germany, has an election crisis and the continent is devoid of leadership D)  Middle East – this one requires no explanation E)  North Korea – this one also requires no explanation.

Those are just a few.

Analyzing the market for the last 8 years has been pretty simple – you just sat back and watched it go up, up, up.  The problem with a long bull market is that you can’t predict when the correction is coming, and the longer the bull runs, the deeper the bear strikes.  Losses will match or exceed gains when it turns south, and that can come at the worst possible time.  The smart money puts at least some of those gains into safe investment vehicles, in order to prevent a 2008-styled portfolio apocalypse.

Help us help you by calling now! Every single day, our advisors help people protect and grow their money. Speak with your Ty J. Young Inc. advisor today for no cost and no obligation. 877-912-1919.

Saudi Arabia Could Damage Dollar

Saudi Arabia Could Damage Dollar

It is a good bet that if something is not in the daily headlines of the major media, then it is probably very important.  Under the radar has been the dramatic, volatile political turmoil in Saudi Arabia.  The country’s strategic relationship with the United States has a significant effect on the price of oil, energy, and the primacy of the dollar in global oil markets.  Upheaval can impact the dollar in significant ways, and dramatic, substantial volatility can risk the reserve currency status of the US greenback.

We have talked about the issue of dollar primacy before.  Once backed by gold, the dollar became the world’s reserve, singular currency of value after World War II (although it was widely in use prior to the war).  When we went off the gold standard in 1971, the dollar remained the world’s reserve currency for the principal reason that no one could challenge our cultural, financial, and military superiority.

Things have changed.  While gradual changes in the global economic landscape were inevitable, from a myriad of factors, it has been the previous 8 years which has radically and fundamentally transformed our leading position in the world.  Lacking the physical dominance on the global landscape, why would other countries feel compelled to use the dollar as a reserve currency?

Nonetheless, replacing the main unit of exchange in over 80% of all global economic transactions was not going to happen easily, or overnight.  Hence, the dollar remains “King Dollar” … for now.

 What could hasten changes in the global foreign exchange markets, and central bank usage of dollars as the primary global currency is a massive upheaval in energy markets.  While the U.S. has become mostly energy independent (thanks to free-market capitalism, innovation, and fracking), and has almost become a net “exporter” of energy in less than a decade, most of the world remains dependent on energy supplies from the Middle East.  Upheaval in those markets can impact pricing and therefore global economics.

And that is what makes the Kingdom of Saudi Arabia’s most recent internal political struggles so important.  Consider these recent events:

 1)            The transfer of power went to a younger, less experienced son as opposed to an older cousin or brother of the current King – King Salman.

2)            His son – Mohammed Bin Salman – is 32 years old and a reformer and is currently titled as the Crown Prince.

3)            For the first time in decades, the power struggle has been public and nasty, with dozens of relatives, brothers, uncles, cousins, etc. arrested for “corruption” … bank accounts seized, wives and children under house arrest … the new leader plans on clearing out all potential threats to his rule.

4)            His expected reforms have riled the conservative Wahhabi’s and Sunni Mosque extremists, splitting the country and the public in two.

The U.S. and Saudi Arabia have been strategic partners for almost a century, and bound the relationship further with not so secret, but off-the-record, agreements between then-President Nixon and King Faisal shortly after the Yom Kipper War and the first OPEC oil embargo – which provided that the U.S. would guarantee Saudi security and oil transport security in the gulf, in exchange for cheap supplies of oil and purchases of U.S. Treasuries.   Oil is traded in dollars – going off the gold standard in 1971, this helped ensure dollar stability as it floated against other currencies.  Liquidity and stability, backed by U.S. military might, kept the dollar as the world’s reserve currency even as it was no longer backed by gold.

Saudi Arabia Could Damage Dollar

The pillar of U.S. military might has been shaken and dollar liquidity was questioned with the 2008 financial crisis. Therefore, more than ever, dollar stability depends in no small part of stable energy markets.

BUT … the “palace intrigue” in Saudi Arabia, on the surface, can have some appeal.  What is the good and the bad of Saudi politics?

What Good Can Come From Saudi Political Intrigue?

  1. Reform and modernization represent a slight shift in values and beliefs. Any change in the treatment of women, in diversifying their economy, and helping to stamp our radicalization in the Muslim faith are welcome and needed changes in Saudi society.  It also makes it easier for the U.S. to do business with the very home of Islam making an effort to modernize their society.  The anti-terrorism effort should get a boost as well.
  2. Reduces stress on Israel. Saudi money and regional influence directly impact the Israeli-Palestinian conflict.  Sensing a greater threat in Iran, the Saudi’s (along with the Egyptians and Jordanians) have moved closer to Israel in regional political and military coordination.  That is a good thing for both Israel’s tactical defenses and U.S. strategic interests.
  3. They are the new bulwark against Iranian hegemony. Iraq was the original barrier to Iranian influence in the Middle East.  When we destroyed Iraq, we were supposed to serve as the guarantor by remaining there.  With Obama’s withdrawal right when we had won the war, Iraq fell apart, leaving Iran as the most powerful and influential player.  Combined with Obama’s Iran deal, giving billions to the mullahs, and not preventing Iran from becoming a nuclear state, our allies in the region rightfully determined we could not be counted on.  However, this has forced the Saudi’s to devise their own strategy in combatting the Iranians, and that is a good thing if they can pull it off without our help.  Less blood and treasure will be spent by the U.S. if the people who actually live there take up their own defense.


What Bad Can Come From Saudi Political Intrigue, and How Could it Impact
Dollar “Reserve Currency” Status?

  1. U.S. withdrawal has moved the Saudi’s closer to Russia and China China from an economic perspective, and Russia from a military perspective.  The Saudi’s were infuriated at Obama’s Iran deal – rightfully knowing it would empower their Shia rivals.  They also had momentum and believed they could topple the brutal Assad regime in Syria.  But that momentum was reversed with Obama’s failure to enforce the “line in the sand” when the Syrians used poison gas on their own population.  This was again rightfully perceived as weakness, and gave the Russians the belief they could intervene without US pushback…. which they did and we did not.  The result has been a multi-year, multi-front war pushing Sunni Saudi Arabia back, and empowering Shia Iran to their detriment.  An Iranian land bridge now reaches all the way to the Mediterranean and further empowers the Hezbollah terror group and threatens Israel.  US foreign policy in the region under Obama has been nothing short of catastrophically bad for everyone, and Saudi Arabia has borne the brunt of the suffering.  No wonder they are seeking new, powerful friends to help secure their defense.  The Russians are on the side of Iran, but more than willing to play the regional security guarantor role that we have given up.  The larger plan for Russia and Iran is the removal of the U.S. from the region, and removal of the dollar as the primary currency in energy trades.
  2. China has the same objective – end dollar primacy. China has the same objective – end the role of the dollar as the global reserve currency.  This gives enormous economic benefit and leverage to the United States, and China believes that role is no longer deserved.  Saudi Arabia fears a powerful enemy in Iran, destabilized borders with Syria and Iraq, and their own potential internal strife with their reform and modernization plans (Iran is funding destabilization efforts in Saudi Arabia as well – seeing an opportunity).  The U.S. is no longer a reliable, stabilizing ally, and therefore – in steps China.  This past year, deals have been signed worth over $65 billion; oil deals between Saudi ARAMCO and China’s state industrial company Norinco have been signed; it was a direct signal to the entire region:  Saudi Arabia was moving away from U.S. dependence.
  3. If Oil trades in other currencies besides the dollar, that is the last pillar of dollar dominance in global markets. All 3 countries – Russia as a regional power with global military reach … China as a global economic power who has nukes but not the ability to forward deploy, yet … and Iran, a regional player seeking regional hegemony and eventually to play on the global stage … ALL THREE want the following: (A) control of energy markets;  (B) removal of the U.S. from the region; and, (C) replace the dollar as the currency used for trading in the energy market, and in turn, drive it from its position as the global reserve currency.   All for different reasons – China wants to rival and eventually surpass the U.S. as the pre-eminent nation on Earth … Russia wants to secure its borders and regain past glory … Iran has ideological beliefs in destroying the Jews and the Great Satan (the U.S.)… to accomplish these tasks, the easiest way is through economic warfare (actual military conflict would result in global destruction and/or US victory, so that is not a current option).  The easiest way to succeed in economic warfare is through downgrading the value of the dollar, eventually replacing it in energy markets, which would be the stepping stone to a new global reserve currency.  Remember – people use the dollar because of its safety …first backed by gold, that protection has been gone for 46 years……then backed by our power, and that’s been eroded the last 8 years.  These efforts start in Saudi Arabia – the kingdom which controls OPEC, controls energy prices, and who feels we have left them hanging alone in a very dangerous part of the world.

 Dramatic changes in our economic way of life may or may not be coming our way, but regardless, the information we do have suggests a protection strategy for your money is a safer way to approach the political and economic unknown. Call now to learn how you can have your money protected from stock market losses and earning a reasonable rate of return! 877-912-1919