Weekly Comment - December 18, 2017

Dec 18, 2017 | Nick Foglietta


There is a massive “tide” of disbelief and confusion flowing across society at present. I get to talk to a large number of people during any given week and hear what they are thinking about…let me assure you, you are not alone!

Sticking to YOUR Plan

Please take a few moments and consider what I am about to write to you. It is OK to feel like the whole world has gone nuts and is not making sense anymore. You don’t have to understand everything.

There is a massive “tide” of disbelief and confusion flowing across society at present. I get to talk to a large number of people during any given week and hear what they are thinking about…let me assure you, you are not alone!

If on the other hand, you are confident and feel great about the way everything is going then please feel free to skip to the next section of this editorial. We are all happy for you, but this section is for those who are worried about the future they see approaching.

One of the main concerns I hear is the idea that “everything is moving too fast and because of the speed of life today, decisions get made without proper discussion and concern for the longer term good of everyone.” This is probably a legitimate concern and one of the things that is not likely to get a whole lot better in coming days.

Another concern is how “technology and artificial intelligence is taking over the jobs for real humans so what is everybody going to do if they can’t find meaningful work?

Depending upon your age, your response to this issue will be different. If you are younger you need to try and find work that is resistant to technological assault. If you are older, you might want to consider subtle re-education solutions to keep yourself tooled to make it to a reasonable retirement date a few years out.

Yet another concern is how “social media makes people feel inadequate and lacking excitement in their lives.” Social media has taken over for the glossy magazines of yester-year where everybody looked perfect on every page.

On social media it appears everybody is having a great life, so what’s wrong with me? The more I think about social media I can’t help but think we were never supposed to know every detail of every one of our “friends” lives! No question, social media has propagated the fear of missing out for a great many people and caused many to feel inadequate and alienated.

There are many more things we could talk about here: Politics, professional sports, education, religion, etc., but let’s look at what you can do about these issues rather than discuss what is not right any further.

The previous article on our blog entitled “Pecking Order” by Ben Hunt, definitely takes a different angle at looking at the discomfort of the 90% of the population not wealthy beyond belief. He also offers an interesting solution to some of the issues of our present day dysfunction. In simple terms: focus on what is near you and try to help those close by where you can see results.

The most important thing for a person to do today is to be comfortable in their own skin and happy with who they are! Let me put this another way: Be content with you situation and try not to measure your life against those around you.

The reason I write these words is because the concept applies to your investment decisions too.

Over the past month, with the insane move in Bitcoin and Cryptocurrencies, we have seen more and more people feel pressure to try and expose themselves to riskier investments. Canadian pot stocks are all the rage and driving a similar decision making process.

There is nothing wrong with taking a risk with a sum of money you can afford to lose and buying these types of investments. There is, however a lot wrong with “betting with money you cannot afford to lose to buy these types of investments.”

Even taking a step back, we see people buying more and more stocks and real estate because they are the only game in town that is making real money.

Portfolios that once had 40% exposure to stocks, now have 80%. People with a house and a mortgage now have a house with mortgage and HELOC, with a fully financed investment condo, and a boat and BMW to round out the picture. Just sayin’…

In the 30 years of helping people manage their wealth, I have been through two bubbles; the tech bubble of 1999/2000, which was very similar to the present but was nowhere near as massive or broad in participation, and the 2008 bubble, which never ran anywhere near the “fear of missing out” pitch of 2017.

The solution: Stick to YOUR plan and be satisfied with YOUR plan. You will do just fine going forward!


Cryptocurrencies (Bitcoin) are a Bubble!

To be completely unambiguous and clear on my position pertaining to cryptocurrencies:

The cryptocurrencies themselves are a massive bubble but the technology that the cryptocurrencies runs on (blockchain) is changing the world.

Now, just because I make that statement does not make it correct, nor does it mean that the bubble is complete. In reality, it likely has more to go! That is the conclusion I come to doing my own research. The key to the statement is that it gives me an investment narrative to manage money from.

The chart below shows the bitcoin ETF that trades in the US.

I have applied a Fibonacci Retracement regression to the chart. The regression begins at last high registered in September just over $1,000 and charts the top of the present move at $2,570.

My goal is not to make you a technical analyst. All I want you to note on the chart is how each parabolic move higher is followed by a “consolidation” move lower where the price bottoms and goes on to make a new high.

A normal correction would take the bitcoin price down by about 50% of the total price from where the previous price peak ($1,150) to where it finishes ($2,570 for now). If we assume the $2,570 peak is the high for this move, then we would assume a price around $1,800 as a “trough” level for the bitcoin ETF.

I have no idea if the bitcoin move has another big up-leg left in it or not but what I want you to see is how “bubbles” trade with a rhythm and cadence. In a bubble, the price is less important than the structure of the price movement higher…that is what identifies it as a bubble!

Here are a few more reasons I believe bitcoin is a “bubble.”

General number of people trying to trade bitcoin is growing exponentially and they are chasing price momentum not value.

There is an incredible feeling of “fear of missing out” that has taken over social media.

The 1,300 other cryptocurrencies that exist are all going up in price. The vast majority of these cryptocurrencies are nothing but a computer algorithm. The speculation has spread to the valueless.

Already there are superior crypto-technologies that are superior to bitcoin and how it was created. Why would the world pick bitcoin to be “the world currency?”

So to repeat my thesis, I expect 95% of these cryptocurrencies to eventually find their way to a price of zero. I also expect bitcoin prices to fall dramatically at some point in the future.

Again, this does not make me believe the price won’t go higher…maybe much higher…I just don’t believe bitcoin is the future world currency and that it will hold these valuations.

On the other hand, “blockchain,” which is the technology that bitcoin and cryptocurrencies are built upon, is changing the world before our eyes. As I have invited you previously, if you are interested in investing some risk capital in blockchain related stocks, I do have a specific recommendation for you to look at. I cannot say the name in this publication for compliance reasons, but please email or call to talk to me about the idea.

Finally, let me end with a brilliant quote from a longish editorial that sums up a balanced view of what is the MOST important change that cryptocurrencies will likely leave the world with.

By Alex Stanczyk, Founder/Managing Director of Physical Gold Fund:

Unlike the Tulip Mania, the South Seas bubble, or many of history’s other manias, this one is uniquely different in one important way.

Cryptocurrency, as a bubble, is serving an incredibly rare and important purpose. For the first time in over a hundred years, there is now a discussion going on with average people about what money really is, and what we want it to be. It is causing people to examine our financial system in ways that people normally never would. The typical person carries on each day with nary a thought to how our monetary system is constructed. If you were to ask 1000 random people if they knew when the Federal Reserve System was created, who owns it, and what it really does I would be surprised if one in a thousand could tell you.

For people to cross this threshold of once again examining what we use as the basis for all economic activity, it could be the single most important influence of the entire cryptocurrency phenomenon.

Do I think Bitcoin is in a bubble? Yes, absolutely. I think there is a high likelihood we are not done seeing huge corrections in the BTC/USD price. But I also think it does not end there.

It seems likely to me that Bitcoin and the entire cryptocurrency eco system has a ways to go before it is all grown up. The next major scare will likely send much of the grandma capital fleeing the space, with attendant repercussions from regulators.

But what will come after, may not be just another burst bubble. What will come after, I hope, is an awareness that we need to examine what our money is. That we will begin to consciously consider whether printing endless amounts of fiat currency that flows into the hands of the financial elite, widening the wealth gap and sowing the fields for future crisis is a good thing or not.

It seems we are on the cusp of a once in a millennia chance to discuss and think about what free and honest money is. A chance, that peoples labor could once again, just maybe, be their own.

Crypto’s ascendancy will hopefully serve as a wakeup call. Perhaps, there is room in the future for a global decentralized system that is owned by the people, where transactions transit the globe at the speed of light, unshackled from the entrenched financial edifice, where gold too plays a role as an indestructible hedge for storing wealth. This may be the opportunity to bring awareness and discourse to what our money is, and what it is to become.

Lot’s to think about!