The more their grip tightens…

  • Here we go again
  • More than cryptos
  • Broke
  • Free clothes!
  • Mark your diary

According to Coindesk.com:

India’s government is reportedly moving closer to developing regulations around cryptocurrencies.

Local news outlet MoneyControl reports that officials with the country’s central bank, as well as its top finance regulators, are finalizing a report which lays out possible approaches for overseeing the tech.

Agencies involved in the development reportedly include the Reserve Bank of India as well as the Ministry of Revenue, Department of Financial Services and the Department of Economic Affairs.

Make no mistake, governments see Bitcoin and other cryptocurrencies as a threat. The question is, can they do anything about it?

We don’t know. But to paraphrase Princess Leia from Star Wars, ‘The more governments tighten their grip, the more control slips through their fingers.’

Governments have spent the last five years trying to control cryptocurrencies. Their value keeps rising. Do we have a correlation? Maybe. If so, you may want to check out this while you can.

Markets

Overnight, the Dow Jones Industrial Average fell 61.85 points, or 0.29%.

The S&P 500 dropped 16.43 points, or 0.67%.

In Europe, the Euro Stoxx 50 index closed the day down 18.92 points, or 0.53%. Meanwhile, the FTSE 100 fell 0.68%, and Germany’s DAX index fell by 0.58%.

In Asian markets, Japan’s Nikkei 225 index is down 91.25 points, or 0.45%. China’s CSI 300 is up 0.30%.

In Australia, the S&P/ASX 200 is down 85.40 points, or 1.48%.

On the commodities markets, West Texas Intermediate crude oil is US$43.46 per barrel. Brent crude is US$45.92 per barrel.

Gold is trading for US$1,245.66 (AU$1,647.76x) per troy ounce. Silver is US$16.50 (AU$21.83) per troy ounce.

The Aussie dollar is worth 75.58 US cents.

Here we go again

While money is cheap, why wouldn’t you take advantage of it?

The Argentinians know all about that. As the Financial Times (FT) reports:

Argentina has launched a landmark sale of US dollar-denominated bonds maturing in 100 year, a dramatic market rehabilitation for a nation that spent more than a decade fighting investors over the fallout from its default on $100bn of debt in 2001.

We note two things.

First, because the issuance is in US dollars, it’s much, much harder for Argentina to print its way out of trouble. Last we checked, Argentina hasn’t yet been granted a licence to print US dollars.

Second, it means Argentina is at the mercy of the US Federal Reserve. Even more so than may otherwise be the case. If the Fed raises interest rates, all else being equal, it should result in a stronger US dollar against the Argentine peso.

In which case, Argentina will have to sell more of its pesos in order to buy US dollars, to meet any interest obligations.

To avoid that, Argentina could ‘mirror’ the Fed’s interest rate policy. As the Fed raises rates, the Argentine central bank could follow suit. That’s fine for outstanding fixed interest debt. But it’s not so good for Argentina when it wants to issue new debt, as it will still face higher interest costs on that debt.

Third, and perhaps most significant, the ultimate definition of ‘optimism’ must be the investor who buys Argentine debt, intending to hold it to maturity — especially for 100 years. Because, as the FT also reports:

The country has defaulted on sovereign debt on eight occasions since independence in 1816, and its 2001 default was at the time the world’s largest.

If we do a quick top-of-the-head calculation, we find that Argentina has defaulted on its debt, on average, every 25.1 years. The last default was in 2001. The next default (on average) would be due in 2026.

As the FT notes:

‘At an 8 per cent yield, an investor would recoup their investment in the bond in about 12 years, while improvements in Argentina’s prospects might push up prices for the debt.’

We’re sure there’s a big emphasis on ‘might’.

Anyway, for all we know, an investment in Argentina’s 100-year bond could be a terrific bet. A yield of just under 8% for 100 years, means that at the end of the 100 years, the buy-and-hold investor will have made eight-times their initial investment.

That’s great. Although, when you flip it around and consider it from the taxpayer perspective, it means that whatever the government does with the proceeds of the debt, it will ultimately cost them eight-times as much.

Of course, that doesn’t factor in inflation. Even so, you have to ask: is a government (or any borrower for that fact) that needs 100 years to repay its debts, really a government you want to do business with?

More than cryptos

Again, your editor doesn’t profess to know about or understand Bitcoin and cryptocurrencies. That’s why, knowing our limitations, we hire folks who do understand these things.

Colleague, Sam Volkering, is a case in point.

We haven’t yet asked Sam for his take on the latest report from Barron’s, but we’ll be sure to do so. According to the report:

Pacific Crest’s Michael McConnell, fresh from a trip to Asia-Pacific last week, to talk with distributors, this morning revised his ratings on shares of Nvidia (NVDA) and Marvell Technology Group (MRVL), raising Nvidia to Sector Weight and Marvell to Overweight, after finding areas of strength, including data center sales for Marvell and “crypto-currency” tasks for Nvidia.

Tasks such as “mining” Ethereum, one of the crypto-currencies that competes with Bitcoin, has been previously discussed as a big factor in sales for Nvidia, and for its competitor, Advanced Micro Devices (AMD).

McConnell remains Sector Weight on AMD shares despite the fact he sees an even bigger push to use their cards for such crypto-currency mining.

As an aside, we don’t think much of the Barron’s report’s writing style. But nevertheless, what the article reveals is important.

The cryptocurrency industry isn’t just an isolated and abstract thing, disconnected from the rest of the world. It’s real. It impacts and interacts with what you may want to call the ‘real’ economy.

It’s no wonder the share price of NVIDIA Corporation [NASDAQ:NVDA] is up 1,185% over the past five years.



chart image

Source: Google Finance
Click to enlarge


And it’s up around 900% since Sam tipped the stock in his Revolutionary Tech Investor service in March last year.

Who cares about crypto gains when you can get stock gains like that?! In all honesty though, it’s a fair point. Cryptocurrencies are rightly getting all the attention, as the price of various cryptos goes through the roof.

But it’s a mistake to think that directly investing in cryptos is the only opportunity. If Sam is right about where the whole crypto thing is going, it could have an epochal and game-changing impact on the entire world’s economy.

Big claim? Sure it is. But Sam’s confident that’s exactly what’s at hand right now. For more details on the crypto story, go here.

Broke

Elsewhere, the Wall Street Journal headlines, ‘Treasury’s Mnuchin Says U.S. Has Enough Cash to Meet Obligations “Through September”’.

The report continues:

Treasury Secretary Steven Mnuchin said Tuesday he isn’t concerned about U.S. tax receipts coming in lower than expected in recent months.

If the trend continues, it could shorten the amount of time the government has before it runs out of cash to pay its bills unless Congress raises the federal borrowing limit. The government hit that limit in mid-March and has been using extraordinary measures since then to meet its obligations, including payments on government debt as well as other programs such as Social Security and veterans benefits.

Mr. Mnuchin told CNBC in an interview Tuesday that the government has enough cash to pay its bills “through the beginning of September.” A short time later, in an interview on Bloomberg TV, he said Treasury could meet its obligations “through September” if Congress doesn’t raise the debt limit before leaving for a five-week summer recess.

It’s no wonder folks are dumping traditional ‘analogue’ currencies, and heading into the cryptocurrency market.

We wonder just how the Fed’s interest rate increases will play into this. As interest rates rise, it means the US government will have to allocate more of its tax intake to paying interest. And if interest rates rise, what will that do for the government’s tax intake?

Will businesses and consumers cut back on spending due to higher interest costs? What will that mean for wages (and therefore income taxes) if businesses stop hiring? What will it mean for company profits (and corporate taxes) if profits are lower because consumers aren’t buying as much stuff?

If you listen to the mainstream, they’ll tell you the US economy is in terrific shape. Yet the government is set to run out of money by October.

Interesting. That’s all we have to say, interesting.

Free clothes!

On the subject of interest rates, and what’s possible while interest rates are low, we again marvel at the latest initiative of Amazon.com Inc [NASDAQ:AMZN].

The New York Times explains:

For many people, buying clothing online is not worth the hassle of getting a pair of pants or a shirt that does not fit. Many retailers have sought to eliminate that risk by offering free returns on clothing, but now Amazon is going even further.

On Tuesday morning, the company revealed a new program called Prime Wardrobe that allows people to order clothing — from three to 15 items at a time — without actually buying it. Amazon will charge them only for the items they keep. Customers can return the items they don’t want in a resealable box with the preprinted shipping label that the order came in.

The service will be an option only for members of Amazon Prime, the company’s membership service, which, for $99 a year, gives customers fast shipping at no extra charge, a streaming video service and other benefits. The company did not say when Prime Wardrobe would be available.

Last week Amazon.com decided to buy a grocery retailer for US$18 billion. This week it’s launching a try-before-you-buy mail-order clothing service.

Maybe Amazon.com chairman, Jeff Bezos, truly is a genius. And maybe Amazon.com truly is the world’s most versatile online retailer.

Even so, we still can’t help think that the wider the company spreads itself, and the more costs it incurs from providing these new services, the greater the chance there is of a new, more agile, and disruptive smaller company bursting onto the scene and creating real competition for Amazon.

We’ll see.

Mark your diary

It’s still a month away, but remember to mark your diary for 20 July. We’ve a big event planned. Possibly the most important investor event in the history of Port Phillip Publishing.

We’ll fill you in on all the details shortly. Just make sure you’re available on 20 July. We’ll be in touch.

Cheers,
Kris