Bubbles, bubbles, everywhere.
BitCoin has passed tulips in 1637 as the biggest bubble that ever existed. The S&P bubble (see yesterday's post) is only up 300% in 8 years – hardly a blip on a chart where BitCoins (/XBT) is now up 6,500% in 3 years. Amazingly, it was only two weeks ago when I said "We Will All Be Billionaires" if the markets keep growing at this pace yet the pace most certainly has continued, with our Money Talk portfolio (see yesterday) hitting +80% in yesterday's trading.
There were no changes and no adjustments – just the same 4 positions going from +70% to +80% in two weeks while BitCoin went from $11,200 to $18,000 (+69%) and our GreenCoins went from 0.000220 to 0.000812 (+269%) before crashing back down to 0.000305 as we reminded people not to be greedy and take profits in yesterday's Live Member Chat Room. Of course the whole thing is ridiculous, but it's a ridiculous thing we can play with – so why not?
We're still accepting GreenCoins (GRE) as payment for 2018 Annual Memberships during the month of December at 0.00044 so, if you can buy them for 0.000300, you're getting a 25% discount at the moment but I'd offer 0.000200 – as those lows are still filling if you are patient. That gives you a 50% discount on Annual Memberships so, assuming you wanted an Annual Membership anyway, it's a free way to go through the process of playing the cryto market and, if you get lucky, GRE pops again and you can sell them for 4x, which pays for the Membership (2x) and leaves you 2x in your pocket as well!
See how easy it is to make money in America – we just make everyone rich on a weekly basis – what could possibly go wrong? Two weeks ago, if you bought a BitCoin for $11,200 to exchange for GreenCoins (that's how small cryptos work, they trade in BitCoins) and you waited until they were back at 0.00022 on the 8th, your BitCoin was at $20,000 and you only needed 22.7M GreenCoins for a Premium Membership, which is only $4,994 but then the GreenCoins hit 0.001 so, instead of giving them to us, you cash them out for $22,700 and pay for the Membership with $9,995 cash and then you are left with $27,111, which is a $16,511 (147%) profit in two weeks AND a free PSW Premium Annual Membership – you're welcome!
This is all, of course, RIDICULOUS as money isn't supposed to appear out of thin air – no matter how perfect your market timing because SOMEONE, SOMEWHERE has to be taking perfectly good money and transferring it to you through their own idiotic decisions (like buying and holding BitCoin without taking anything off the table). Of course, you have to be smart enough to cash out or all you have are paper gains, which can vanish as quickly as they came.
On December 1st, BitCoin was at $10,000 and let's keep in mind there are only 21M BitCoins in the World and 4M may be "lost" so 17M yet there are 8Bn people in the World and even the top 0.1% (1/1,000th) of them are 8M very rich people. In the US, the Top 0.1% have over $2M of ANNUAL Income, averaging $4M and that doesn't include the incomes of the the Top 0.01% (1/10,000), who make $27M/yr on average.
Now, how many people do you know who have a BitCoin or two? You know me, I've got 2. I know dozens of guys who have 2-20 of the things and that's AFTER me screaming for them to take some off the table. I don't even know 10,000 people so it's very easy to imagine that just 1 out of 1,000 (8M) of the World's wealthiest people holding just a few BitCoins each would suck up the entire global supply.
And THAT is what's causing the bubble. Like a hard to get toy on Christmas, there is simply not enough supply of BitCoins to meet the demand and the people who have them aren't selling as they are dreaming of getting $100,000 a piece for their digital currencies and we have projected $40,000 being a possible top if the Government doesn't shut it down first.
The thing is, it's all an illusion because only 4,127 BitCoins were traded on the Futures on their first dayand volume dropped the 2nd day (today is day 3) and that's only 0.0196% of the coins (1/5,000th). So now we're talking about 1/1,000 people on the planet Earth owning a BitCoin and only 1/5,000th of them made a transaction so it's 1 out of 5M people who are setting the prices for BitCoins and there's a seller who only needs to find one idiot out of 5M people to pay a premium for his coin and the price keeps rising.
When the price keeps rising, more idiots come off the sidelines (and these are rich idiots, so don't worry about them) and they pay more for the next coin and so on and so on. But that's not even the end of it, because you must buy a BitCoin to buy the other CryptoCurrencies, so even people who don't really want a BitCoin are forced to buy some at the day's price. Each time one person pays $100 more Dollars for a single BitCoin, the "*value*" of all 21M BitCoins goes up $100 or $2.1Bn – just because some idiot pays $18,300 instead of $18,200**.
4,127 idiots in a day spending $75M on BitCoins sent the price up on Monday from $15,000 to $18,500, a gain of $3,500 that was then applied to the other 20,995,873 stagnant coins, giving them a "gain" of $73.5 BILLION – that's 1,000/1 leverage of money coming in to a single coin and the APPARENT wealth effect on Millions of BitCoin holders. This is not real – it's an ILLUSION created by the scarcity of the product and the low level of transactions.
Imagine what would happen if, for example, 40,000 people tried to sell a BitCoin instead of 4,127? THAT is when we will have some price discovery and the same thing is true in the broader markets, where a combination of low volume and lack of selling (on expectations of better tax rates next year) has pushed the market much higher in December as well. To the same extent that you understand why BitCoin pricing may be just a ridiculous illusion - the same is true of the stock indexes, which couldn't possibly be worth 40% more than they were last year just because US Corporations are getting a tax cut.
And, as I noted yesterday, I could have told you the same thing about the value of Yahoo and other Dot Com stocks as they passed $100 in 1998 but that didn't stop Yahoo from making lots of people rich as it hit $300 in 1999 but it was back below $30 a year later and died a slow death, agonizing death over the next 20 years but that was considered a winner compared to what happened to most of the other over-hyped companies at the time.
Fortunes are made AND lost in these kinds of markets and we're playing along and having some fun but never lose site of the fact that it is just fun and we're not taking any of this seriously and we ALWAYS have one hand firmly on the exits – ALWAYS!
Meanwhile, we got a surprising dip in Core CPI – dropping to 0.1% and giving the Fed an excuse to possibly hold off on raising rates or, if they do, then they have an excuse to say they are taking further increases very slowly. Headline CPI was 0.4%, as expected with rising Gasoline prices but the Core CPI pretends the average American doesn't use energy – or eat food and, for them, inflation is just 0.1%.
We'll see what the Fed does today (2pm) during our Live Trading Webinar (1pm, EST) but I agree with Jim Grant, who says that historically low interest rates are distorting the perception of investors. As noted by Grant: "Interest rates are prices. In fact, they are the most consequential prices in a market economy because they discount future cash flows and they help us to set investment hurdles and to measure financial risks. In short, interest rates are prices and prices convey information and distorted prices convey misinformation."
Everything is so happy now. Every market is up and the economy worldwide is starting to appear more vibrant. All this seems as if it cannot be improved upon. So at best, these radical monetary policies have postponed the tough decisions to bring unprofitable firms into profitability and to restore government finances to something resembling balance.
In many parts of the economy there is more leverage than before the financial crisis. So I think it’s wrong to judge these experiments in radical monetary policy in terms of success until we’ve seen the other side of the cycle and until we have seen the consequences of the balance sheets that we collectively have built up over the past ten years.
In other words, please, be careful out there!