Approaching zero…or infinity?

Tuesday, 5 December 2017
Melbourne, Australia
By Bernd Struben

  • Property down…bitcoin up
  • Think twice about ‘the next big short’
  • It all begins with this
  • Did you sign up for the ‘Crypto Flip Trade Portfolio’?

In a move that surprised absolutely no one, the Reserve Bank of Australia (RBA) left interest rates on hold today.

The RBA last moved rates on August 2016. That’s when the bank dropped the cash rate to its current record low of 1.5%. Below the current 1.9% inflation rate.

The reason for holding at record lows will sound familiar to you. Household spending remains stagnant. And in a consumer driven economy like Australia’s, you don’t want consumers shutting their wallets. Especially not this close to Christmas!

Borrowers rejoice. But don’t be greedy.

It’s unlikely the RBA will cut again unless the economy goes seriously pear shaped. If that happens before the central bank has the chance — or courage — to increase rates, they won’t have a lot of firepower left to stimulate growth.

Savers…well, you’ve gotten the short end of the stick for so long you should be used to it by now.

The graph below shows you the cash rate since 1990. In maths that looks a lot like the curve of 1/X (one divided by X). The cash rate approaches zero, but never quite reaches it.



chart image

Source: RBA
Click to enlarge


If you’ve been following along with the bitcoin story, the above graph may look oddly familiar.

If not, bring yourself up to speed here.

More after the markets.

Markets

Overnight, the Dow Jones Industrial Average closed up 58.46 points, or 0.24%.

The S&P 500 fell 2.78points, or 0.11%.

In Europe, the Euro Stoxx 50 index finished up48.67 points, or 1.38%. Meanwhile, the FTSE 100 rose0.53%, and Germany’s DAX climbed 197.06 points, or 1.53%.

In Asian markets, Japan’s Nikkei 225 index is down 69.14 points, or 0.30%. And China’s CSI 300 is up 0.53%.

In Australia, the S&P/ASX 200 is down 12.09points, or 0.20%.

On the commodities markets, West Texas Intermediate crude oil is US$57.45 per barrel. Brent crude is US$62.45 per barrel.

Gold is trading for US$1,276.28 (AU$1,678.43) per troy ounce. Silver is US$16.35 (AU$21.50) per troy ounce.

One bitcoin is worth US$11,618.10.

The Aussie dollar is worth 76.04 US cents.

Property down…bitcoin up

Aussie interest rates are widely expected to remain in the basement for the foreseeable future. Yet house price growth is slowing…or negative. And auction clearance rates are tumbling.

According to the latest data from CoreLogic, clearance rates last week stood at 63.5%. That’s down from 72.3% this time last year.

Sydney’s dwelling prices also fell again over the last week, down 0.2%. That puts Sydney’s homes down 0.7% over the past month.

Perth managed to nudge up 0.1% week-on-week. But the city’s home prices are still down 2.5% over the year.

Melbourne continues to buck the trend, up 0.1% for the week and 10% year-on-year. Adding 100,000 people annually to your city does have some advantages. Although a pleasant commute is not one of them.

I bring flatlining house prices up for a reason. They go hand in hand with frothy stock market valuations and investment grade bonds paying a pittance.

Global governments have pumped trillions of dollars into the system. And traditional investment assets are beginning to look saturated.

That leaves a lot of money out there seeking direction. And day by day, ever more of that money is finding its way into cryptos.

Bitcoin remains the dominant player. At time of writing it’s trading at US$11,618.10. On 1 January that same digital token was worth US$997.69. That’s a gain of 1,164%…in under a year.

Below you can see how bitcoin has tracked in 2017:



chart image

Source: CoinDesk
Click to enlarge


Now have a look at the RBA’s cash rate graph again.

Do you see how bitcoin, over a much shorter time period, looks a lot like the mirror image of the cash rate? Except rather than approaching zero, it’s growing exponentially…to infinity.

Coincidence?

You tell me. Just write in to letters@portphillipinsider.com.au and type ‘bitcoin and the cash rate’ in the subject line.

Think twice about ‘the next big short’

Obviously, this kind of exponential growth can’t continue forever. If 2018 were a repeat of 2017, bitcoin would soar past US$130,000. In 2019 it would top US$1.4 million…and so on.

Few are predicting that kind of sustained price rise. Although Sam Volkering and Ryan Dinse expect bitcoin could easily hit US$50,000 by then. With some serious backslides along the way. (Details here.)

But bitcoin’s rapid growth has some pundits looking to capitalise on the downside. Already this is being referred to as ‘the next big short’.

‘Hedge funds are now ready to bet against bitcoin in the next big short’, reads the headline in The Australian Financial Review.

The planned introduction of bitcoin futures contracts at CME Group, Cboe Global Markets and Nasdaq will make it much easier to bet on a decline. Hedge funds, which have largely stayed on the sidelines, are waiting for the Chicago Mercantile Exchange’s futures market to open for a fresh opportunity to bet against the cryptocurrency, according to more than a half dozen people trading the assets…

Some see the bitcoin market as “one of the greatest shorting opportunities ever”, said Lou Kerner, a partner at Flight VC who invests in the cryptocurrency. “You have a lot of zealotry, and a lot of people, including me, who think it’s the greatest thing to ever happen in the history of mankind. You have a lot of people who think it’s a bubble and a Ponzi scheme. It turns out both of them can’t be right.”…

Cboe said on Monday that it will start trading bitcoin futures on December 10 and CME’s contracts are set to debut on December 18.

If you’re in the camp that’s convinced bitcoin is nothing but a Ponzi scheme, this may be something to look into. That is if you’ve got the stomach for it — and some money you’re prepared to lose.

But before you do, have another look at the graph above. Now ask yourself if you would have been ready to short bitcoin in July, when it was at US$2,000. If you said yes, then ask yourself, what’s changed?

Sure, bitcoin has gained more than 450% since then. But what’s to keep it from repeating that performance?

Remember, when you go short — whether that’s betting against a stock’s share price or a cryptocurrency — there is no limit to your losses.

Whether you decide to bet on bitcoin’s future or against it — or you just want to get a better understanding of ‘this whole crypto thing’ — be sure to check out Sam Volkering’s Secret Crypto Network.

It all begins with this

Bitcoin, and all cryptos, depend on blockchain — the distributed ledger technology — for their very existence.

But blockchain technology goes well beyond cryptos. Its secure, private means of tracking and exchanging data is already impacting almost every industry on Earth.

Recently it’s attracted the interest of De Beers, the world’s largest diamond miner.

From CoinDesk:

One of the world’s most well-known diamond companies is getting into blockchain by investing in an asset tracking platform.

De Beers, its chief executive announced today, is planning to use the tech in a bid to boost transparency across the diamond supply chain.

The firm, the world’s largest miner of diamonds, says it wants to use the tracking platform in order to rebuild trust in the diamond distribution process – as well as alleviate concerns over money laundering and the broader trafficking of conflict diamonds.

CEO Bruce Cleaver unveiled the initiative in a blog post published earlier today, writing:

“This diamond traceability platform is underpinned by blockchain technology, which allows for a highly secure digital register that creates a tamper-proof and permanent record of interactions – in this instance, a diamond’s path through the value chain.”

Cleaver outlined a number of characteristics that the platform will possess, including privacy controls for participants and wide access to potential users.

I’m sure you’re familiar with De Beers.

But how about Natural Resources Holdings Ltd.?

The Israeli mining company has historically mined for metals. As you would expect. But over the weekend it announced a significant switch in its operations, which will see it operating in the virtual world.

From Bloomberg:

Shares of the company [Natural Resources Holdings Ltd.], which invests in metals mines located mostly in North America, rallied 159 percent to 2,540 shekels ($727. 63) in Tel Aviv after disclosing to regulators Sunday it is about to acquire a 75 percent stake in Canadian cryptocurrency mining operation Backbone Hosting Solutions Inc., also known as Bitfarms.

A 159% share price surge, simply for engaging with blockchain technology.

And Natural Resources Holdings isn’t alone, as you can see in the table below.



chart image

Source: Bloomberg
Click to enlarge


What Bloomberg labels ‘the crypto touch’ Ryan Dinse calls the ‘blockchain collision’. And he’s constantly on the hunt for the next small-cap stocks set to skyrocket from this collision.

At Exponential Stock Investor, Ryan identifies small-cap Aussie companies in the earliest stages of embracing blockchain technology. Companies that can revolutionise their business models — and supercharge their returns — if they get it right.

One of the stocks he recommended to his readers gained 146% in just one month. Of course, not every stock he recommends will shoot the lights out. Small-caps stocks are inherently risky. But Ryan is convinced there are more — many more — huge opportunities in this brand-new niche market.

Today he releases his latest recommendation.It’s part of the blockchain big data revolution playing out right now

As Ryan says, ‘The tentacles of the blockchain opportunity are spreading. And the opportunities are multiplying.’

You can find out all the details by clicking here.

Did you sign up for the ‘Crypto Flip Trade Portfolio’?

If you signed up to receive Ryan Dinse’s ‘Crypto Flip Trade Portfolio’, you should have received the full dossier in your inbox earlier today.

There’s a lot to take in. So set aside some quiet time to give it a full read.

As you’ll see, Ryan’s far ahead of the curve on this one. While other ‘leading’ experts are still getting stuck into the theory of actively trading cryptos, Ryan has made it a reality.

This headline comes from Bloomberg today: ‘Even Robots Are Joining the Bitcoin Craze as Quants Seek an Edge’.

The article goes on to note:

‘[A]handful of theorists and traders are looking at what investment factors like momentum and value can tell you about — yep — the price of bitcoin. Factors, the wiring behind smart beta exchange-traded funds, already revolutionized equities, proving that groups of stocks with traits like cheapness and low volatility return more than the market as a whole…

In the theory camp is Stefan Hubrich, the director of asset allocation research at T. Rowe Price Group Inc., who set out to publish the first academic paper linking factor anomalies to blockchain assets. After building models and analyzing data, Hubrich says he can show that factor investing beats a simple buy-and-hold strategy in digital tokens.’

Kudos to Stefan Hubrich for building his models.

Ryan Dinse, in the meantime, has moved on, to the real world.

Cheers,
Bernd