Baltic
Dry Index. 1702
+23
Brent Crude 63.40
All
crises have involved debt that, in one fashion or another, has become
dangerously out of scale in relation to the underlying means of
payment.
J.
K. Galbraith.
For
more on bitcoin v gold scroll down to Crooks Corner. I know which one
I would prefer to own. But first this pre-bitcoin futures update.
Somebody has to
be on the other side.
George Goodman, aka Adam
Smith.
The Money Game. Why Are The Little People Always Wrong?
Is Bitcoin the Most Obvious Bubble Ever?
The
cryptocurrency is almost certainly due for a major correction. But
its long-term value remains a mystery.
Derek
Thompson Dec 9, 2017
To call Bitcoin the biggest and most
obvious bubble in modern history may be a disservice to its
surreality.
The price of bitcoin has doubled four
times this year. In early January, one bitcoin was worth about
$1,000. By May, it hit $2,000. In June, it breached $4,000. By
Thanksgiving, it was $8,000. Two weeks later, it was $16,000.
This astronomical trajectory might
make sense for a new public company with accelerating profits.
Bitcoin, however, has no profits. It’s not even a company. It is a
digital encrypted currency running on a decentralized network of
computers around the world. Ordinary currencies, like the U.S.
dollar, don’t double in value by the month, unless there’s a
historic deflationary crisis, like the Panic of 1837. Instead,
bitcoin’s behavior more resembles that of a collectible frenzy,
like Beanie Babies in the late 1990s.
But defining and identifying bubbles
is harder than it seems (kind of like
defining bitcoin). The term technically refers to an asset whose
price dramatically exceeds its intrinsic value. But who determines
price and value, anyway? Those aren’t scientific
concepts with formulas, like gravity or the length of a hypotenuse.
They are the co-creation of buyers and sellers whose needs and
attitudes are constantly changing.
Sometimes, spotting a bubble is very
easy. Imagine three public companies that make shoe leather—Derek
Leather, Inc., Joe Leather, Inc., and Becca Leather, Inc.—with the
exact same revenue, expenses, talent pool, and customer demographic.
Let’s say the market caps for all three companies start the year at
$1 billion and Derek Leather and Joe Leather don’t appreciate;
meanwhile, the public valuation of Becca Leather climbs to $2
billion, then doubles to $4 billion in a month, and then doubles
again to $8 billion in the following week. It would be pretty clear
that Becca Lather’s valuation makes no sense with an
apples-to-apples comparison to Derek and Joe.
But what happens when an entire
industry is a bubble? It becomes harder to make an
apples-to-apples comparison, since the entire sector is an
incomparable fruit. A good example would be early Internet companies
whose valuations soared in the late 1990s and crashed in the dot-com
bubble. For years, Internet bulls defended the stock prices of
companies like Pets.com by arguing
that, due to the rising digitization of the economy and the global
nature of the Internet, user growth was a more significant proof of
value than old-fangled metrics like profit or revenue. Eventually, a
combination of factors—the failure of some large Internet
companies, changes to the tax code, rising interest rates, and
venture capital exhaustion—contributed to the big pop.
----In their great 1982
paper "Bubbles, Rational Expectations, and Financial
Markets," the economists Olivier Blanchard and Mark Watson
explain why gold is susceptible to bubbles. It’s an explanation
that sheds light on the bitcoin frenzy, too. Gold, like bitcoin, is
not a company. There are no financial reports, and its investors will
never receive dividends. Instead, there are at least two big reasons
to invest in gold. First, goldbugs want a hedge against an economic
catastrophe or inflation. Second, some people invest in gold simply
because they see the price of gold going up. Such an investor “bases
his choice of whether or not to hold the asset on the basis of past
actual returns rather than on the basis of market fundamentals,”
Blanchard and Watson write. In other words, the investor’s story
is: The price will go up, because … well, it just went up!
----There is another important
feature of the bitcoin market that could both explain its high
valuation and suggest an imminent correction. The crypto market is
insanely concentrated. Approximately 1,000 people own 40 percent of
all bitcoin in circulation, according to Bloomberg.
Just 100 accounts control 17 percent of the market. Many of these
accounts have held bitcoin for years because they believe fervently
in its value. But if a handful of them sell even a small portion of
their shares, it could dramatically move bitcoin’s price,
potentially triggering a massive correction, as retail investors (who
only bought in because the price was going up) try to sell en masse
to avoid losing all of their money. There is an upside to this
concentration, however, which is minimal contagion
effects. If the bitcoin bubble crashes, it likely won’t spill
out into the general economy, like the subprime mortgage crisis did
one decade ago.
More
Crooks and Scoundrels Corner
The
bent, the seriously bent, and the totally doubled over.
Do
not be alarmed by simplification, complexity is often a device for
claiming sophistication, or for evading simple truths.
J.
K. Galbraith.
Bitcoin Billionaire Winklevoss Sees Surge of as Much as 20 Fold
By Olga Kharif
9 December
2017, 16:17 GMT
Cameron
Winklevoss, thought to be one of the largest holders of bitcoin,
thinks the cryptocurrency’s blazing
gains this year are just the start. He predicts it will rise as much
as 20-fold as investors come to view it as an upgrade to gold.
Wall Street’s plan to launch
futures
contracts on Sunday, making it easier to bet against the digital
currency’s rally in recent months, is making some enthusiasts
nervous -- but not Winklevoss. He’s one of the famed 36-year-old
twins who played an early role in Facebook
Inc.’s formation, then dedicated part of their fortune to the
cryptocurrency and have since tried to win approval for a bitcoin
trading vehicle.
Winklevoss bases his price projection
on the market value of gold, which he pegged at about $6 trillion and
others calculate at closer to $7.5 trillion. Investors are beginning
to embrace the idea that bitcoin, “mined” by computers performing
complex calculations, is more portable and divisible than the
precious metal, he said.
“We think that bitcoin is a gold
disruptor,” Winklevoss said in a telephone interview on Friday,
predicting it may yet appreciate by 10 to 20 times its current value.
“We think it’s just the beginning. We are definitely holders.”
Winklevoss can point to a strong
track record as a bitcoin investor. He and his brother Tyler said in
2013 that they owned almost $11 million worth of bitcoins. If they
retained that stake it would be valued at more than $1.7 billion
today, according to the Bloomberg Billionaires Index. The ranking
calculates they each have a $1 billion fortune as of Friday after
taking into account other assets.
Cameron Winklevoss declined to
comment on his current bitcoin holdings or his net worth.
While enthusiasts have long
argued bitcoin’s merits as a payment system, public sentiment has
warmed this year, eventually turning into a frenzy. As people around
the world snapped up coins, prices surged, briefly surpassing $16,000
this week before settling above $15,600 on Friday. More than 100
hedge funds have popped up to bet on its swings. The new futures
contracts may facilitate those wagers, while also pushing the
crytpocurrency further into the realm of mainstream finance.
The Winklevosses’ Gemini exchange
is preparing to support the launch
of Cboe Global
Markets Inc.’s bitcoin futures on Sunday. Their platform has
its own data center running its own hardware and infrastructure,
Cameron Winklevoss said.
“We think we are in a good spot and
ready for game time,” he said.
December
8, 2017 / 8:49 PM
France to allow blockchain for trading unlisted securities
PARIS
(Reuters) - The French government opened the way on Friday for
trading unlisted securities using blockchain digital ledgers with the
adoption of new rules aimed at improving Paris’ image as a center
for financial innovation.
The
new rules mean that banks and fintech companies can set up blockchain
platforms where unlisted securities can trade instantly, cutting out
middlemen like brokers and custodian banks.
Securities listed on financial
exchanges will still be required to pass through custodians and
clearing houses.
“The use of this new technology
will allow fintech firms and other financial actors to develop new
ways of trading securities that are faster, cheaper, more transparent
and safer,” Finance Minister Bruno Le Maire said in a statement.
Le Maire added that the new rules
would be “another asset for Paris’ attractiveness as a financial
center” as the sector seeks to put itself on the fintech map, where
London currently looms large.
Eager to attract business from London
after Brexit, the French government has already introduced measures
to make Paris a more attractive financial center ranging from payroll
tax cuts to a labor reform and promises to set up more international
schools.
More
Technology Update.
With
events happening fast in the development of solar power and graphene,
I’ve added this section. Updates as they get reported. Is
converting sunlight to usable cheap AC or DC energy mankind’s
future from the 21st
century onwards? DC? A quantum computer next?
This Chevron Economist Isn’t Worried About Electric Cars
By Kevin Crowley
8 December
2017, 23:14 GMT Updated on 9 December 2017, 05:00 GMT
Chevron
Corp.’s Senior Economist Adam Karson may have put down a deposit on
a Tesla 3 but he doesn’t see electric cars upending his employer’s
business any time
soon.
Given the average life of an vehicle
is between 10 and 15 years, every vehicle sold today would have to be
electric for the world’s automotive industry to be free of fossil
fuels by 2035, Karson said at a conference in Houston on Friday.
Currently only about 1 percent of
vehicle sales are electric, he said.
European countries including the U.K.
and France have pledged to ban the sale of diesel and gasoline-fueled
cars by 2040 as part of plans to radically reduce emissions.
Bloomberg New Energy Finance expects
530 million electric vehicles on the road and 54 percent of new car
sales by 2040, displacing 8 million barrels of daily oil demand.
But oil companies are not fazed, at
least in public. Exxon Mobil Corp. expects just 6 percent of the
global vehicle fleet to be electric by 2040, the U.S. oil giant said
in October.
“The problem is it just takes a
really long time to turn over the global vehicle fleet,” Karson
said, noting his admiration for the technology involved in electric
cars. “I say that not as an EV basher at all,” he said.
“I may or may not be on the waiting
list for Tesla 3.”
Once
again another year draws to a close. If you are one of the regular
reader of this six days a week update that helps support my efforts
with the occasional donation via the Paypal button, once again I
sincerely thank you. If you are a regular reader who finds the LIR
informative, interesting, occasionally amusing or entertaining,
please consider making a small donation via the Paypal button on the
LIR website. For obvious reasons in our new age of almost rampant
fake news, I want to keep the LIR advertising free. But in any event
thank you for reading and sending in helpful suggestions.
21st
century adage: Is that true or did you hear it on the BBC?
The monthly Coppock Indicators finished November
DJIA:
24,272
+243
Up.
NASDAQ:
6,874
+289
Up.
SP500:
2,648
+189
Up.
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