Welcome to the 11-29-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike talks about one of the hottest topics in the financial world: bitcoin.
It appears to be a week like many other weeks as stock markets continue to rally and other assets are bouncing around all over the place while not really going anywhere.
One big story is about Bitcoin. This is an “asset” that has many people enamored because it has risen relentlessly recently. Just today, (11/28/2017) a bitcoin hit $10,000.00. To me, this is not really an asset but a means of exchange. It is supposed to be anonymous- which would be why many might want to use it. Since there is supposedly a limited supply it doesn’t take a lot of buying to drive up the price.
This appears to me to be similar to what we saw in 1995-1999 when anything with a .com in its name increased in value relentlessly even though many of the “companies” that were selling for $100.00 per share had never earned a penny of profits.
It’s not only Bitcoin but many other cryptocurrencies that are rising relentlessly also – like Ethereum and many other newcomers. It appears that there is no limit on the amount of new cryptocurrencies that can be started.
I believe when people look back at this time in history they will get a huge laugh at how gullible most of us are at this time. Those that bought Tulip Bulbs back in the 1700s will likely look like geniuses compared to this.
I always see Bitcoin portrayed as resembling a gold coin with a bitcoin logo. Of course, Bitcoin is not really a coin- it’s not ANYTHING. It is a computer code. What is the intrinsic value of that?
Don’t get me wrong- many people are expecting Bitcoin to rise to $100,000.00. Could it? It probably could. Not because of any reason other than many chasing the price higher. It appears to me that we are in the “I can’t afford to miss out” phase.
Remember back in 1998 and 1999 when people were selling solid companies and riding the Nasdaq wave higher and higher? This feels awful similar to me.
If Bitcoin is truly anonymous why are people sitting in jail for buying or selling Bitcoin in unregulated exchanges- how would the authorities know if it is anonymous- just google jail time bitcoin.
While the blockchain technology may make transactions somewhat opaque it doesn’t stop others from accessing your account and stealing your bitcoins. In an article in Fortune.com (8-22-2017) Hacking Coinbase: The Great Bitcoin Bank Robbery by Jen Wieczner she goes through a story where a person sold many of his stocks and bought Bitcoin and Ethereum and made a lot of profit because of the rising prices. One evening, however, his account was wiped out by a hacker who took over his Gmail account and emptied his Coinbase wallet out. There are a few similar stories in that article also. This is a little more widespread than many may anticipate.
It appears that all of these stories are either ignored or just not seen by many who are sure that this is the next get rich quick scheme.
So let me get this straight. We have an “asset” that is private but people are being prosecuted for buying and selling. It is secure but hackers can steal it by hacking other accounts and emptying out your
“wealth” in seconds. And, of course, heaven forbid the power grid goes down- you have NOTHING.
For anyone chasing these cryptos higher- good luck! My only advice would be to get something tangible along the way. I’ll never forget a client of mine on Long Island who worked for AT&T for years and held a spin-off stock in the late 90s that was trading for about $100.00 per share. At one point he cashed in a decent amount and bought a motor home. The stock price collapsed from $100.00 to less than $1.00 and he lamented that “Thank God I bought the motor home- it’s all I have left of all that value!”. Could it be a wise idea to buy some gold, real estate or art with some profits?
Many times I have said to people that if I just sat here 5 years ago and told you what just happened in the past 5 years you would have thought I was insane. Negative interest rates, trillions “printed” up, hundreds of trillions of new debts and derivatives, etc. In a good example of recent events-
In a letter by author and credit strategist Michael Lewitt he wrote:
“Anyone questioning whether financial markets are in a bubble should consider what we witnessed in 2017:
- A painting (which may be fake) sold for $450 million.
- Bitcoin (which may be worthless) sored nearly 700% from $952.00 to $8000.00
- The Bank Of Japan and European Central Bank bought $2 trillion of assets
- Global debt rose above $225 trillion to more than 324% of global GDP
- US corporations sold a record $1.75 trillion in bonds
- European High yield bonds traded at a yield under 2%
- Argentina, a serial defaulter, sold 100 year bonds in an oversubscribed offer
- Illinois, hopelessly insolvent, sold 3.75% bonds to bondholders fighting for allocations
- Global stock market capitalization skyrocketed by $15 trillion to over $85 trillion and a record 113% of global GDP
- The market cap of FANGS increased by more than $1 trillion.
- S&P volatility dropped to 50 year lows and Treasury volatility to 30 year lows
- Money-losing Tesla sold 5% bonds with no covenants as it burned $4+ billion in cash and produced very few cars.
Icons will be blasted into dust as the tides of cheap money, cronyism, complicity, and stupidity recede. Beware entities with too much debt, too much secrecy and too much hype. Beware false idols. Every bubble destroys its idols, and so shall this one”
Many will say “It’s different this time!” It always seems to be doesn’t it. It’s just human nature as people convince themselves that it REALLY is different this time. Too bad we can all remember 1929, 2000,2008, and now- they were all “different this time”. In each case it was easy cheap money that increased asset prices to absurd levels and each time people convinced themselves that it was a time for perpetual prosperity. NEVER forget that anyone who breathes in always has to exhale- if not – if all you do is inhale- eventually you will explode. The central banks have been inhaling for a decade and have only threatened to exhale.
It takes quite a while for a balloon to be blown up but when it pops- it happens in an instant. To me, this is no different. Anyone planning on “getting out just in time” please be far too early than a second late- that might just be TOO late. I would also consider booking some of those “profits” and getting some tangible assets- just in case the pin is a little closer than many are imagining at this time.
Mike Savage, ChFC Financial Advisor
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