Month: Mar 2016
As I study the markets this morning of March 22nd – Brussels was under attack from persons unknown, though what we’ve heard so far, it suggests, it is Islamic Fundamentalists, with an axe to grind.
Don’t they realise, that they can’t expect Allah, to provide them with anything… Killing themselves and others in the process helps no-one – except maybe: politicians, security experts, the police, the military, coffin makers and funeral directors – every situation, no matter how gruesome, has its winners and losers. These Islamists have to get off their butts, and produce for the wider community, and in that process get justly rewarded in this life, rather than the next. But, societies keeping over half the population unproductive, by restricting what women can do doesn’t help either.
Unfortunately, as time goes by though, it gets harder. Most of the basic human needs have already been taken care of… Water, Food, Homes, Clothing, have been produced for humanity ever since our ancestors got busy making the agrarian society a viable proposition. The Industrial Society, took care of our transport needs, and the first dark satanic mills, spun us our yarn, and weaved our fabrics making mass produced clothing possible and cost effective.
Increased power coming from oil, allowed us to produce ever more stuff. And the improvements in logistics operations: ships, trains, cars, aeroplanes, allowed us to distribute that stuff all around the world. That’s why so many of our newly emerged adults are finding that their skills to make a coffee, or toast a spicy tea-cake are more in demand, as more things are automated, causing the number and type of job changes to escalate.
Now China has become the manufacturing powerhouse of the planet, and those I-phones, I-Pads, and other high-tech gadgets are clocking up more air-miles as fast as the world’s aircraft can carry them. But even there, the Peoples Republic of China is struggling to keep its 1.4 billion people fully occupied and quiescent.
We are fast moving to a post-industrial society, with the emergence of 3-D printers, Bio-Tech developments, and Artificial Intelligence (A.I.) being built into more and more technology, and QE to infinity won’t change that.
The demand side of the world economy, depends on sufficient income, but if people only get their income from jobs, then it is not looking good. The producers are in the ascendancy, those with more and more technology, will win out, forcing those who are less efficient and their uneconomic competitors out of business. Capital, wins out over Labour in the final analysis. And we live in a capitalist world – at least according to what I’ve read.
But, those who see the changes coming and prepare themselves accordingly, can at least make a fast buck if they take the time to study the markets as I have been doing for the past 30+ years.
Late last year we passed a major inflexion point. Several events converged to make the not too distant future uncertain. Mystic Meg, would have a field day, but we don’t have to rely on mysticism, or astrologists to see the future. All we need to do is observe society.
All western societies are getting older (meaning more of them are in, or saving for, their retirements, and therefore are, or will become net consumers.)
The people retiring, are those with the highest skill levels as a lifetime of skills are removed from the workforce. Skills that were honed and polished over almost 50 years.
Those people born in the 40s, 50s and early 60s, went to school, and trade school, did apprenticeships, engineers were trained because of several industry training bodies, and governments who made training pay – for the individual and the company. Pocket calculators didn’t exist, meaning these people learned to do and practice mental arithmetic, and even more complex maths in their heads. Grammar was drummed into them at an early age, spelling was pulled up at every opportunity as all teachers had to have excellent capabilities, and were rewarded with excellent salaries. The cream of the crop were sent to Grammar schools, and educated for Governmental Departments, Banking and Finance, the Law, Accountancy and other professions. The rest of us did Woodwork, Metalwork, Technical Drawing and learned what it was felt we might need, for the industrial manufacturing world we would enter.
But all that began to change in the 70s, as a new social agenda came through. No longer were we to be segregated into professions and trades people. No longer were we educated to be the best. Now we were being educated to be mass consumers – unthinking, and servile – dumbed down. The population by 1970, had already become 4 billion inhabitants on the planet. By 1985 this was 5 billion. It took just another 15 years to bring that to 6 billion people, and a further 12 years to make that 7 billion. Demand for Food, Water and Clothing will grow with the population, but the ability to produce, is about to make major steps forward. Driverless cars, even trucks will reduce needs for workers, and lower costs as people perhaps opt not to buy a car, but to call one up as and when they need one. How will this affect the motor-industry when one in every 5 cars is a Google car, or a Tesla fitted with similar technology?
How will the logistics industry adapt when Amazon gets the go ahead to deliver its parcels by drone the last few hundred yards from the local service centre to the home? Who will employ all those unemployed truckers, delivery staff, and vehicle producers as demand is lowered?
Unfortunately, such changes cause major dislocations in employment demand, and those who spot the trends early can invest in the right companies.
So that brings me to the next major market change. Where will the stock markets go – the DOW, and FTSE, the CAC Index, and DAX index, the Hang Seng, or any of the so far minor indices on the bourses of India, Greece, Italy, South Africa, Brasilia or wherever in the world they are? My guess is that we are heading for a 70% fall on most of the major indices.
The blue lines show the major channel over the last 20 years. The thinner red lines show the minor trends, which give us a clue as to the steps I expect will happen over the next few years as the DOW reverses the trend of the last 7 years. Will it go as low as 6,000 or below?
Well, if we look back to the 1970 recessions and look at the charts there. The DOW fell to 850, and significantly, Gold rose to match it… a 1:1 relationship existed between Gold and the DOW. But here’s where QE does have a major impact. The money supply of the U.S, has quadrupled since 2008, so…
I wouldn’t be surprised that this time when the DOW collapses, to get a potential 2:1 relationship between Gold and the DOW…Gold 12,000: DOW 6,000? Or DOW $5,000 and Gold $10,000? Though, I long ago suggested we might see $8,500 Gold. Given the amount of QE that has been introduced since 2008, we may see all that currency run to ground.
As Bill Bonner might put it: “Sell Stocks: Buy Gold.”
Of course precious metals of all colours – Silver, Palladium, and Platinum will also receive some of the fleeing capital and even Bitcoins, as my last missive suggested, but when the new economy emerges phoenix like from the ashes, where then to put your capital – if you have any left?
So, when the SHTF moment arrives… will you make money on the way down, and then on the way up?
Anyone who gets to grips with Spread-betting, Options, or reverse ETFs that make money on the way down, or who have deep pockets and even longer arms, to borrow stocks, to sell, and then buy back at the bottom (which is how many other fund managers make their funds money) will do well.
The rest? The Buy and Holders…Those whose main investment money is in their retirement fund – out of their control – they’ll be like lambs to the slaughter. Pension firms with their client’s money invested for the long term, will lose Billions.
BUT… when the tide turns, as it will, it will be the biggest buying opportunity since the 1932 bottom in the stock market, when the DOW had fallen, from its highs in 1929, peaking at 381.17 on September 3, 1929, to July 8, 1932 when it closed at 41.22 almost a 90% fall (89.19%).
Over the coming weeks, I’ll be searching for situations where those who want, can make some serious money and giving you the heads up.
Ever since I first heard of Bitcoin, my moods have oscillated with emotional highs and lows between optimism, and pessimism. I got involved about eighteen months ago, mostly out of mere curiosity. However, I first learned of Bitcoin, about 4½ years ago, and perhaps because back then, there was a lot of hype, I was highly suspicious of it. I asked myself… What was this new technology? What are its implications? What are its strengths or weaknesses? Will it succeed?
Like you I had so many questions. But I didn’t know enough to commit to it.
However, I had some experience of cryptographics when, as a former software developer, early in my studies, I wrote cryptography software using a simple alphabetic replacement system. For those not familiar with this, it was the simplest form, which involves letter substitution.
Let’s take the Alphabet.
As you can see from the above, you can shift each letter a number of times. In the above example from A to G, from B to H, etc. etc., to encrypt or decrypt the text.
As long as you know the shift count, you can simply unscramble the text. This however would be laughed at by any modern cryptographer, worth their salt. We know which letters in the English language are used most frequently, so having a few guesses at the piece of text would quickly, reveal the key (the number of letters shifted – 6 in the above example)
During the second world war, the Germans of course used two characters to denote a character in their encrypted messages, with random coded substitution, and it wasn’t until the British managed to get hold of an Enigma machine from a captured U-boat, to send to Bletchley Park where they worked on the decryption that they were finally able to decrypt the messages, and listen in on German U-boat communications, so helping bring the war to a speedier close. And cryptography is at the heart of global communication, and Bitcoins and other Alt-Coins. It is also at the heart of Apple’s attempts to restrict U.S. authorities from gaining information from devices, that are encrypted, by fighting a court decision forcing it to build software for the authorities to allow access – Apple of course designed its software because of increasing concern at the intrusive political and authoritarian institutions of all Governments, some of whom appear to have carte-blanche access to whatever communication traverses the globe – at least according to Edward Snowden.
Lately however, I have been doing further research into Crypto-Currencies, and both the theory and the practice.
What fired my enthusiasm for this research was listening to an interview, between a sceptic, and an enthusiast.
As a result, I began looking at a number of Web-sites, and following up on this conversation. To see what’s happening in the Bitcoin and crypto-currency space. After much thought, and research, I realised that there are at least 7 Network Effects which might lead to wider acceptance:
1. Speculation –
People buying to make a fast buck. This drove early adoption, taking the price to almost $1200 at one point.
2. Merchants –
Companies accepting it for goods, simply because people hold them, and they are convertible into fiat-currency or money at known rates. In the world there are over 100,000 merchants already accepting the coins, including major providers such as Microsoft, and Target in the U.S..
3. Consumers –
These are using it because merchants are accepting it, and they are now doing so in ways that allow consumers to gain discounts of upto 35%, even on web-sites such as Amazon.
4. Miners –
There are a number of crypto-currency miners, with computing power approaching 1 Exahash, which is about the equivalent of 10,000 of the top 5 supercomputers in the world
5. Developers –
These will use the above processing power to build out the infrastructure, to produce software that is more secure than all the others and to build functionality in the hope of receiving Bitcoins or Fiat.
6. Financialisation –
The Banks and CFTC have already discussed using the Bitcoin Network and blockchain technology for transfer of financial instruments denoted in Bitcoin. And one of Max Keiser’s former regulars, decided to invest heavily in building out the technology for this process almost eliminating Brokers and brokerage fees.
7. World Reserve Currency –
IF, or rather, WHEN the US. Dollar crashes, then people will hold their reserves in an alternative or alternatives. Gold and Silver are obvious candidates, but also increasingly Bitcoin crypto-currency, is a candidate rather than some other Fiat currency, because of the current currency wars, which could turn into trade wars, and then hot wars..
This is still to happen but, the instability in the Middle-East and around Africa, is a sign of things to come.
If the price of Bitcoin, begins to rise towards, four, five, then six figures, more and more people will hold their reserves in Bitcoin, and other fiat currencies will recede in value – including other currencies such as: British Pounds, Euros, Japanese Yen et-al..
This will accelerate the acceptance and expand the wider use of crypto-currencies in general, and Bitcoin in particular. The rise of Bitcoin, and the fall of the U.S. Dollar therefore, will be as much an opinion of the dollar, as it is of Bitcoin
So, as more and more of these people and organisations, developers, merchants, financial organisations, miners and finally those who hold their nation’s reserves increase their use of Bitcoin, then the value will explode exponentially, and the price speculated in the header will be a distinct possibility.
But, the alternatives to Bitcoin – Alt-coins – and of course Gold and Silver may take up some of that slack. Gold appears to be in increasing demand, at least amongst 4 particular countries. India, China, Russia, and Turkey alone out of the world’s 200+ nations, currently (according to Mike Maloney quoting a Zerohedge article on 3/3/2016) are already consuming the entire planetary output of gold – and then some. The excess demand is currently being met by Western Central Banks reserves.
Canada which has suffered in recent months as the oil price has tanked, perhaps made pledges to its people, that were based – at least in part – on an expected almost permanent high oil price, so the current $38/bbl is causing problems for those states with Tar-sand production, which is a high cost energy item, and thus costs may already be exceeding revenue from such operations. Those modest Canadian Gold reserves were apparently sold off in one month or less. The reserves stood at a mere 1.7 tonnes according to February reports, but by Feb 29th, the remainder was just 77 ounces, which is a pitiful amount. This is down from 1,000 tonnes the Canadian Central Bank reported in 1965, but since the end of the Bretton Woods agreement (15/8/1971) these have been replaced by U.S. Dollars in the main. It took Canada, 20 years from 1965 to reduce those reserves by 50%, and the last 30years to rid themselves of the rest of this Keynesian Barbarous relic. Which begs the question… What will the Canadian Government use for currency/money, when the dollar collapse occurs?
But what might trigger this Tsunami? Anyone who is not a Keynesian, has to study – observe – what happens in the real world. Economics is one of those dry dusty subjects given to study by essentially – Nerds – I count myself amongst them. The original economists: Adam Smith, John Gresham, Ricardo, and the other early economists, studied markets and what happened in them. They then formulated ideas based on those observations.
But since the dawn of the Federal Reserve, and the end of WWI, economists have been looking for ways to manipulate the economy to serve politicians, who as the old saying goes – “Don’t want it to happen on my watch.” IT, being a recession or a depression.
But what causes depressions? Think about it for a second. A new idea comes along. Lots of people begin to provide that service or product. Lots of small businesses are built. Over time, these small businesses get swallowed up by competition, over decades ultimately half a dozen huge corporations provide that product or service, freeing up people to do other things – (unemployment) and concentrating the industry into a few corporate hands.
When this happens, the unemployed inventive ones with access to capital invent new products or services, to replace, or make better what went before. Perhaps even to the point where what went before, gets replaced almost completely – such as cars replacing trains, which replaced horses and canals. But for the additional products, you need additional consumers, not hundreds of millions, retiring, or on the verge of retirement, looking to save, rather than spend.
Since the end of WWII, the computer has gone through several metamorphoses – from Mainframe, to mini-computer, to PC, to Laptop, to smartphone and tablet computer. They each in their turn improved on previous designs, made them smaller, more productive, cheaper and widely available due to cost reductions.
But for industry to grow (so they can grow the share price) they need new products, new markets, or lower costs, and it is this last item, that means doing either more with the same, or the same with less that is causing the problem… As that means fewer workers. We are at one of those inflexion points. Apple, and Samsung, Sony and just a few others in China and the Far-East, now dominate the smartphone and tablet industry. HP, IBM and other American behemoths have shrunk or got out of the computer business altogether. Britain’s Computer industry has gone from a handful to one, producing designs for chips in smartphones, and tablets (but also increasingly servers for server farms).
The capital sitting in corporate bank accounts should be going into research, but research can take years to produce anything, and corporate execs need to deliver share price rises today, tomorrow, next week, next month, and at the end of the financial year. Not maybe, in three years time if the research proves fruitful. Much easier to buy up a new corporation that has already proved up the technology, and can be tacked on to existing business.
And so to force companies and large holders of capital to invest, we have the prospect and reality of NIRP – Negative Interest Rates Policy – already in place in 3 countries in Europe: Switzerland, Sweden, and Denmark. The ECB and Japan too is trying them, but none of them appear to be working to the extent they would like. In Switzerland, the Tax collecting service even told its taxpayers not to pay up-front, so that the money held on deposit at the banks wouldn’t be “charged”. This is monetary madness. Anyone with 6, 7 or 8 figures in a bank account should be worried. And those living from week to week, or month to month, will need to grow their income rapidly as the dollar declines.
JP Morgan (according to Satyajit Das, finance expert and author of “A Banquet of Consequences”) has speculated – sorry modelled – that -3% might be necessary for the dollar. But with Bank notes, people can just take that cash out of the bank and keep it under the mattress so to speak. So Central Banks want to get rid of banknotes, and that is why they are starting with large denomination notes – the €500 note, the $100 bill et-al. They use ephemisms, and downright lies to attempt to achieve this, but the moment that the U.S. does that, all those dollar bills will return to U.S. shores, and the trickle of deals away from the dollar – the 30 countries that now have bilateral trade deals with China, Russia, India, and the middle-east, for oil, and commodities outside of the dollar, will become a flood – fleeing from the dollar. To what? We can but speculate, but to my mind, Bitcoin will be one of them, and of course Gold and Silver. Of course, we may yet see governments attempt to outlaw the ownership of Bitcoin, Gold or Silver, just as was tried once before in 1933. THAT moment may arrive far sooner than many think.
Bitcoin – are there any drawbacks? What are the Risks? What if…?
The total number of Bitcoins is limited to 21,000,000, so I hear, which sounds a lot, until you realise how many transactions there are in the world, and how much economic value people have added to the planet over the centuries. Money therefore is used to value those objects – Buildings, Corporations, and the time value of Labour, to all the products and services we take for granted in our modern world. So a modern money must be the measure we use to assign our value to these. IF therefore, Central Banks can just conjure up currency out of their printing presses, or computers, they are esentially stealing value to be created out of human labour. Whether that is a corporation that took 50 years to build, or it is someone’s work, the value of the currency itself therefore, should also reflect its time value to produce. THAT is why both Gold and Silver served our purposes so well over the millennia.
Think of the worldwide number of large corporations, sky-scrapers, huge mines, roads, motorways, bridges and tunnels built since the dawn of the Industrial age, together with their cost in materials, time, energy, and lives lost. That value runs into the hundreds or even thousands of trillions of U.S. dollars.
$200,000,000,000,000 – is reputedly, the total currency debt of the world – divided by 21,000,000 Bitcoins is 9,523,809.5238095 per Bitcoin, and that is in dollars alone.
This assumes that all other currencies go to zero, and we only use Bitcoin for our financial transactions.
Which means theoretically, it could go higher, when you add in Pounds, Yen, Euros, Rubles, Yuan, Dinar, Riyahls etc. etc.
Of course this is perhaps unrealistic, but not outside the bounds of possibility.
We also need to consider what are the pitfalls.
As Bitcoin is more widely adopted, over time there will be inevitable losses – people storing their coins on a smart-phone or flash-drive and losing it, or not backing it up, or finding out that electronic storage and strong magnets are not a good mix, or someone dying with their coins held in a smartphone, that no-one else knows about, which gets wiped and re-sold on, or given to a partner, relative or someone, who has no real interest in such electronic coins. There will be other ways that currency could be lost, so shrinking the pool of available coins, which might also lead people to not adopting them, out of fear of loss. There are those who speculate the earth could receive an Electro-Magnetic Pulse (EMP) which could lead to a major fault in the global telecomms infrastructure, killing digital coins – but with the Banks and Governments so keen to rid the world of ALL paper currencies, there is little choice except for those stand-bys of the last 5 millennia – Gold, Silver and Bronze.
Could Bitcoin go higher? Will it?
Could Bitcoin really go higher than the $1,000,000 speculated on? These are unknowns. The theoretical maximum of 21 million coins assumes that all the coins are mined, but which according to Trace Mayer, Bitcoin Expert, would take upto 140 years, as the mining rate halves every 4 years. The first such halving was in 2013 – Did this cause a price spike? (Basic law of Supply and Demand?) We don’t know for sure, but possibly; the next such halving is next year in 2017. It is possible that this time, people will front run it this time, to try to maximise their positions ahead of the reduction causing another price spike.
As I have said several times, there are about 80 different crypto-currencies. I hold over 10, and receive daily interest into my crypto-currency accounts – as can you (See below). I also have an app on my smartphone, in which I have deposited some of these coins to spend, with a QR Scan Code to make using them easier, just like I might with ApplePay(®) or the PayPal App and it is possible that I will be able to do this with all the others shortly.
There are already ways to exchange these different crypto-currencies, on exchange sites (listed below)
So, now do you think it is time to maybe check out this new currency system?
Where do I get Bitcoin, or these crypto-currencies?
Bitcoin, is available in so many places now it is almost impossible to recommend one or two sites over others, but the one site I do recommend, mostly because they set-up a number of crypto-currency [Alt-coin] accounts, simultaneously, for the price of an e-mail address, and you receive FREE daily deposits into them – albeit very small sums to begin with, but with loyalty bonuses, increasing with time and other ways to improve deposits. For those keen to promote or evangelise the site, additional bonuses are given in increasing amounts for more referrals.
You can earn upto 10 crypto-currencies, including Bitcoin, and Litecoin FREE at… Qoinpro.com, for the price of an e-mail address. Backing both horses in a two horse race may seem like wasting money or effort, but it depends on your view of risk…and the potential rewards. And in investing circles, NOT losing money is the first rule to financial security.
You can buy Gold and Silver with your crypto-currencies at: https://www.vaultoro.com or with Fiat at https://www.bitgold.com or https://www.libertysilver.ee. At Liberty Silver, because it is based in Estonia, which does not charge V.A.T. on silver coins, as long as you purchase and arrange collection from their site (done via a courier) you can still legally buy your coins VAT free.
And you can trade between different crypto-currencies here at: https://shapeshift.io or at https://btc-e.com or even learn how to trade from your fiat to BTC here http://www.coindesk.com/information/how-can-i-buy-bitcoins/