The biggest surprise in 2018 may be that extrapolation of the market uptrend doesn’t work after many years of working, and that we will witness the emergence of multiple non-consensus developments, including a dramatic drop in the price of bitcoin (to under $2,000) and a devastating decline in many bitcoin collateral plays, a much higher oil price, a slowing (not expanding) rate of economic domestic growth as the tax bill “trickles up,” not down, disappointing 2018 S&P earnings relative to consensus, a mean reversion higher in volatility and the bursting of the global short volatility bubble, which serves up a 20% drop in equities (aided by both weaker earnings results and lower valuations).
Complete strangers standing in a line at a battery store striking up conversations about bitcoin and FANG stocks out of the blue? That is definitely a signal of sorts. It is of course a good bet that whatever speculation caught their fancy, has probably already made them more money within just the past few days than the yields investors in government bonds can hope to earn over the entire next century (+/-).
The reason for the steady increase in the value of bitcoin is pretty simple: a shrinking float. With a limited number of bitcoins available to trade and a growing crowd of speculators entering the deliberately inefficient market, the only direction the “value” of bitcoin can go is up—at least until it doesn’t……Stripped down to its basic elements, bitcoin is a classical fraud, a form of high-tech gaming that has captured the imagination of millions of greedy and gullible people around the globe.
As I discussed with Danielle DiMartino-Booth this morning. Not only is the current rally reminiscent of 1999, but to 2007 as well. In fact, the current bubble, as she states, is a combination of both.
One topic is still taboo: the holiday’s perverse incentives to over-consume and over-spend, lest our economy implode. This topic is taboo because it strikes at the very heart of our socio-economic system, which is fundamentally based on permanent growth, the faster the better, as if unlimited expansion on a finite planet is not just possible, but desirable.
This current bubble, from 2011 to present day is an anomaly. This Fed and global central bank bubble has been totally artificially driven by unprecedented QE and zero interest rate policies for 8.7 years now. It has now outstripped the tech bubble in time, total point gains, and percentage gains. Make no mistake about it: This is the greatest stock market bubble in modern history. But it’s not THE greatest bubble anymore. That dubious honor goes to Bitcoin!
Well, my millennial readers, I will let you in on a little secret. You guys are in the midst of blowing your very own bubble. Don’t bother sending me emails or tweets about how I don’t know what I am talking about. How I am an out-of-touch-old-school-finance guy who doesn’t understand the new revolutionary technology that is about to take over the world. I understand all too well how committed your generation is to this blockchain technology. I get it. It’s game changing. It’s still cheap when you compare it to other assets. It will forever change the world of finance. In fact, it will change almost everything. Distributed networks have the ability to cure world hunger, find all the socks that disappear in the dryer and let you eat whatever you want without getting fat. It’s just all-around fan-freaking-tastic.
But all that does is create a bias the other way, an embedded TBTF ideal that seeps into everything and anything. One relatedly tangled corporate web that keeps coming up lately is HNA. The conglomerate was at one time a dinky airline operator. Then it went nuts, borrowing and buying as many foreign assets as it could possible get its hands on. It became, in essence, China’s Poster Boy for byzantine corporate structures whose ultimate object isn’t truly known; but what sure seems like a scheme to cash in on RMB shadows for funding capital flow to the rest of the world.
When the bankers of Christo Wiese, the former chairman and largest shareholder of Steinhoff International Holdings – a global retail empire that includes the Mattress Firm and Sleepy’s in the US – went to work on December 6 in the epic nothing-can-go-wrong calm of the rising stock markets, they suddenly discovered that much of their collateral for a €1.6-billion margin loan they’d made to Wiese had just evaporated.
Unfortunately, Trump’s offering is of a piece with his prior displays of economic illiteracy and foreign policy jingoism. It’s a dog’s breakfast of policy pronouncements that couldn’t be more opposed to real “national security” if that had been the author’s intention.