Is bitcoin a bubble?

  • Today’s ‘magic number’
  • The fading Trump bump
  • Goldilocks economy
  • One last thing…

Have you ever heard of Manilva in Southern Spain? Most likely not. It is a tiny municipality, located around 30km from Marbella.

In 2006, Marbella — much like the rest of Spain — was going through a real estate boom. To give you an idea, the small fishermen town of Marbella grew from a population of just 12,000 in 1960 to 138,000 in 2010. A 1,150% increase in just 50 years.

Marbella became increasingly popular during that time, especially among the European ‘elite’. Dubbed the ‘Monte Carlo of Spain’, the town attracted many royalty and Hollywood stars.

But, back to Manilva.

Property around Marbella became so expensive that many small villages around Marbella started growing too, as they offered better priced properties.

Manilva is relatively far from Marbella, in Spanish terms. Remember, the country is only 1079km in length, 100km less than the distance between Melbourne and Sydney.

Manilva saw its population triple during the property bubble. How did they do it? You see, there was a rumor going around about Manilva — probably started by a real estate agent.

As the rumour had it, magic was coming into town. What I mean is, Disney was thinking about setting up a theme park in the area.

Whether it was true or not, Disney never confirmed — or denied. Obviously, we cannot put a number on how many hopefuls bought property in the area after hearing the rumor. But believe me, there were many.

Even now, 10 years on, people still talk about it. No doubt hoping they will make back the money for the overpriced property they bought during that time.

The Disney dream never came true…

And it looks like the dream of a Trump effect on the US economy is starting to fade, too.

As The New York Times reports:

‘The promise of faster economic growth has become a study in the triumph of hope over experience.

While the June jobs report, coming on Friday, is expected to show that hiring continued at a healthy pace last month, other recent indicators in areas like consumer spending, construction and auto sales have been decidedly less robust.

As a result, Wall Street forecasters have been busy lowering their growth estimates for the second quarter, which ended last Friday, much as they were forced to do over the first three months of the year. Economic expansion for the full year now appears unlikely to be much greater than 2 percent — about the average for the current recovery, which celebrates its eighth year this month.

So much for a Trump bump. In fact, seems like the Trump bump is looking more like a flat line. As the NYT continues:

Far from living up to expectations of a lift after Mr. Trump’s election, the growth rate in the first quarter turned out to be an anemic 1.4 percent.

The indicators that Mr. Trump highlighted in recent messages on Twitter are indeed pointing in the right direction — strong job creation, a record high for the Dow Jones industrial average and low gasoline prices. But so far, the economy’s basic trajectory remains the same as it did under President Barack Obama.

More on this after the markets.

Markets

Over the weekend, the Dow Jones Industrial Average gained 94.30 points, or 0.44%.

The S&P 500 is up 15.43 points, for a 0.64% gain.

In Europe, the Euro Stoxx 50 is up 1.78 points, or 0.05%. Meanwhile, the FTSE 100 gained 0.19%, and Germany’s DAX index advanced 0.06%.

In Asian markets, Japan’s Nikkei 225 is up 115.05 points, or 0.58%. China’s CSI 300 is down 0.11%.

In Australia, the S&P/ASX 200 is up 28.23 points, or 0.50%.

On the commodities markets, West Texas Intermediate crude oil is US$44.60 per barrel. Brent crude is US$47.07per barrel.

Gold is trading for US$1,213.07 (AU$1,595.18) per troy ounce. Silver is US$15.60 (AU$23.93) per troy ounce.

The Aussie dollar is worth 76.04 US cents.

Today’s ‘magic number’

Speaking of magic, Kris Sayce just sent me an email. There wasn’t much in it. Just this:

Selva,

Today’s ‘magic number’ is 2.47. Please include it in today’s Port Phillip Insider.

I’ll explain more later in the week.

Sorry to be so coy! But it is important.

Cheers,
Kris

If you’re wondering, I don’t know what Kris is on about either. I guess we’ll find out soon.

The fading Trump bump

The White House is still hanging on to the dream of a Trump bounce.

As they recently said, they remain ‘absolutely committed’ to getting tax cuts through to congress by the end of the year.

Yet they may be having a hard time.

Republicans are divided, and government spending is increasing.

The Congressional Budget Office (CBO) projects Federal spending will top US$4 trillion for the first time in fiscal 2017.

That is US$4,008,000,000,000.

Yet it is not just the Federal government but increasingly more US cities and states that are struggling with the weight of their debt.

The US territory of Puerto Rico recently declared bankruptcy…

So did Detroit…San Bernardino…Stockton….

The state of Illinois has been in a halt for the last three years, as the government cannot reach a decision on the budget. And they have a pension problem in their hands…

The city of Hartford in Connecticut is also considering filing for bankruptcy, as their deficit is getting close to US$50 million….

The population is also starting to lose faith in a Trump bump. In fact, they have started to save again…for a rainy day. Savings fell after the November election. Now it’s back up to 5.5%.

Yet, as the New York Times reports:

To be sure, most mainstream economists do not foresee an imminent recession.

Hmmm…

The mainstream may not be expecting a big crisis, but we are.

And when the crisis comes, only those investors that were ready before the crash will manage not only to keep their wealth, but to increase it.

That’s why at 7pm on 20 July, Port Phillip will be hosting a special live event with Kris Sayce, Vern Gowdie and Ryan Dinse. They will be discussing the risks in the markets, and practical investment opportunities to protect yourself in case of a crash.

Don’t miss out on this unique opportunity. Watch your inbox later this week for more.

Goldilocks economy

Low interest rates, low inflation, booming stocks.

The Australian economy seems to be going through a goldilocks moment. That is, where the porridge economy is not too hot with inflation, not too cold with a recession, but just right.

However, the fact that investors are quite happy with their porridge doesn’t mean that things will stay the same.

The bears are looming…and they are coming back to a home in disarray.

Singapore global investment firm is warning that investors are becoming too complacent about market risks. As they told The Australian Financial Review (emphasis mine):

The warning from GIC adds to those of investors worried that low readings in market measures known as fear gauges could foreshadow a giant disturbance down the road. In the US, one of those gauges, the VIX, recently hit the lowest level since 1993, busting through the lows seen in 2007 that were followed by the subprime crisis, the collapse of Lehman Brothers and the global credit crunch.

The Reserve Bank is in no real rush to increase interest rates anytime soon. In fact, they are hoping that increasing interest rates around the world will decrease the value of the Australian dollar.

Cheap debt is still fueling the property market. As Bloomberg reports, the average home value has increased 34% since 2012, with prices in Sydney rising 59% and in Melbourne by 38%.

Total debt as a ratio of income has reached 190.4% in the first quarter, the most since 1977. The majority of debt is held in variable mortgage home loans. An interest rate increase could mean disaster for these households.

Especially since wages are not growing.

One last thing…

Can Bitcoin reach $4,000? Goldman Sachs thinks so.

Our editor Sam Volkering thinks it could go even higher, to US$50,000.

Bitcoin is currently trading at US$2,533.23, lower than last June’s high, when it was trading just over US$3,000.

The truth is that the cryptocurrency market is running hot.

The Initial Coin Offering market has just crossed the US$1 billion mark.

As Coin Telegraph reports:

Sources including the Wall Street Journal have revealed that the ICO market has surpassed the $1 bln mark, with some of the recent ICO campaigns including EOS, Bancor and Tezos successfully raising hundreds of millions of dollars.

Tezos, Bancor and EOS alone have raised more than $559 mln over the past few months, offering unique infrastructures and platforms built on top of the Ethereum protocol.’

But it is not all rosy, because, as Coin Telegraph continues, many of these tokens don’t have intrinsic value yet.

The primary purpose of the native token of an ICO is to act as a store of value or native currency for that platform. But, if the platform does not exist and it is not being actively utilized by decentralized applications, then quite evidently, investors will purchase tokens simply as a means of speculative investment.

At the moment, it is very difficult to justify the market value of the entire ICO market and its projects. Their value is completely speculative and can’t be evaluated with real market data because no viable products or software have been deployed yet.

The value of these cryptocurrencies is the underlying technology. Picking out the ones that succeed will be hard. But there are a lot of opportunities in the sector.

If you want to find out more, click here.

Regards,
Selva Freigedo