Is it just us or did the first quarter seem to fly by?
Wow what a ride in Bitcoin, Ethereum etc in the last day. This really shouldn’t be a surprise considering the amount of new wallets created on Thanksgiving. As we figured the Thanksgiving discussions convinced more than a few people to dive into the Hot Crypto Waters! Bitcoin reached new heights trading up to nearly $11,300. Then it proceeded to drop to nearly $9000 before settling in near $10k again. If you think about it, pretty fundamental the move based upon the lack of supply and all the new accounts created in the last week as Coinbase has more users than Schwab now! Here is the chart:
We hope that you had a wonderful Thanksgiving and that the conversations were as off the cuff as ours. We decidedly opted to listen more than opine as we ingested not only too much turkey but certainly a fair amount of economics and far too much Trump speak, especially from our millennials in attendance. What we didn’t find surprising was the questions about bitcoin and crypto currencies. We didn’t even hear the word bubble, but rather more inquires and questions about the technology in general. The common thesis seemed to be, which one is still a buy the SP500 or Bitcoin? Well our readers certainly know where we stand and we were reluctant to withhold such a formidable position from our willing audience. Our initial explanation stuck right with the technological advancement and its possibilities, not merely estimating future valuation, but rather predicting an exciting arms race in the industry. Maybe that’s the wrong euphemism considering NK is up to their old nuke launch tests. Speaking of, we haven’t quite figured out their motive, but we are certain there is more than meets the eye. Something just doesn’t smell right, for what does NK have to gain in relation to what they have to lose? Ok, sorry off track a bit but anyway as of this writing Bitcoin is pushing the $10k mark and the SP500 is well over 2600 so our best analysis is to just stick with the prevailing winds and say, we see no bubbles here, just simply more of the same fiat debasement going on.
We did handpick, or shall we say cherry pick a few charts courtesy of Zerohedge this week, which does show that the SP500 is exhibiting some true extremes, some things we haven’t seen in a very long time.The first chart we have is SP500 Price to Sales, which hasn’t seen such an apex since 1999 and we all know what transpired after:
Before we begin our discussion, we feel it imperative to define a few concepts. The first concept we would like to define is, "a medium of exchange." A medium of exchange can be ANYTHING that is WIDELY ACCEPTED in exchange for a good or service. The second concept is "currency." Currency is any form of money that is in public circulation, this can be hard money, like gold and silver or paper money or fiat, like the US dollar. What many know today as currency also comes with an "official" designation or decree, by some government agency, or in the US Dollar's case a private institution called the Federal Reserve. The US dollar is a fiat currency because it isn't back by anything other than by decree, which is where the term fiat comes from. Prior to 1971 the US Dollar was backed by gold and could be converted upon request.
Last Friday saw the release of the US CPI report. It rose a paltry 0.1% mom, with yoy growth dropping to a meager 1.7%. The bond market saw this as a go ahead to rally as yields fell across the board with the US 5yr Treasury falling 8 basis points on the week. Rationale is that the FED is now going to have to consider the fact that inflation is not gaining traction and that further hawkish balance sheet talk and rate hikes, may have to move to the back burner. As our readers know, the FED really can't raise rates or reduce much of anything, thus their tactics of hawkish rhetoric, which is nothing more than wasted air is there only weapon. Adding to this already slippery slope for the FED is the fact that in the 4th quarter the US Treasury is going to issue around $500 billion worth of debt, which is basically the total amount of debt issued in the previous prior three quarters combined! So would it make sense to raise rates with benign inflation and the massive influx of debt coming down the pipe line? We think not, but once again, we know that raising rates is a bank subsidy, but even so, the conditions on a fundamental economic basis certainly do not warrant a hawkish campaign.