Just when you thought things couldn’t move any faster…

Thursday, 7 December 2017
Melbourne, Australia
By Bernd Struben

  • Alarms ringing since 2013…time to hit snooze?
  • Koreans scoff at bubble talk
  • What good is a car without a road?

Did you ride the retail euphoria on Tuesday?

Investors, thrilled that Amazon’s much-publicised Australia launch appeared to fizzle, piled into Aussie retail stocks.

On Wednesday The Age even ran the headline, ‘Amazon launch a “non-event”’.

Initial prices offered by the online retailing giant were not as cheap as expected. And the stock selection was also not as massive as local retailers had feared.

JB Hi-Fi Limited [ASX:JBH] shares gained 6.76% on Tuesday. While Harvey Norman Holdings Limited [ASX:HVN] closed the day up 6.25%.

These were the top two performers in the sector. But most other retailers gained as well.

Day traders rejoice!

Long-term investors…you might want to take a look at the bigger picture.

With all the hype preceding Amazon’s launch Down Under, a bit of pushback ‘fizzle hype’ was to be expected.

But remember, Tuesday was only day one.

Yes, there may have been a somewhat limited stock supply. And some initial prices were higher than predicted. Yet Amazon still said its first day orders in Australia represented its biggest international opening to date.

Yesterday already saw investors take some of Tuesday’s profits off the table. While still up for the week, JB Hi-Fi fell 1.48%, while shares in Harvey Norman lost 2.12% on Wednesday. And at time of writing, JB Hi-Fi is down 0.59% in intraday trading today, while Harvey Norman is down 1.68%.

Now, both of these are quality companies. And at a price-to-earnings (PE) ratio of 10.32 times, Harvey Norman stock looks pretty cheap. (Woolworths Limited [ASX:WOW], by comparison, is trading at a PE of 24.41 times.)

But the writing on the wall — or my interpretation of that writing, in either case — spells more troubles ahead.

Whether or not Amazon’s launch was a ‘non-event’, the US company is here for the long haul. You can expect their prices to go down and the product range to balloon over the coming months.

And the company doesn’t even plan to roll out its Amazon Prime service until the middle of next year. That service offers paid subscribers lower — and sometimes free — deliveries.

If you need any more reason to tread cautiously with your retail investments, the latest quarterly economic figures came in yesterday.

GDP was up a modest 0.6% for the September quarter. That brings annual growth to 2.8%.

Household consumption, on the other hand, only grew by 0.1%. That’s the lowest growth rate since 2008.

You remember 2008, right?

And now, a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average closed down 39.73 points, or 0.16%.

The S&P 500 fell 0.30 points, or 0.01%.

In Europe, the Euro Stoxx 50 index finished down 9.00 points, or 0.25%. Meanwhile, the FTSE 100 gained 0.28%, and Germany’s DAX lost 49.69 points, or 0.38%.

In Asian markets, Japan’s Nikkei 225 index is up 278.61 points, or 1.26%. And China’s CSI 300 is down 1.06%.

In Australia, the S&P/ASX 200 is up 36.10 points, or 0.61%.

On the commodities markets, West Texas Intermediate crude oil is US$55.97 per barrel. Brent crude is US$61.26 per barrel.

Gold is trading for US$1,263.40 (AU$1,670.06) per troy ounce. Silver is US$15.96 (AU$21.10) per troy ounce.

One bitcoin is worth US$14,022.88.

The Aussie dollar is worth 75.65 US cents.

Alarms ringing since 2013…time to hit snooze?

In yesterday’s Port Phillip Insider, we had a look at hyperdeflation. And we came to the conclusion that with fiat currencies — government-issued money — this is a rare if not non-existent event.

The highest level of deflation I could find was around 18% annually. That was during the US Great Depression in the early 1930s. (If you know of cases of true hyperdeflation, I’d love to hear about it. Drop us an email at letters@portphillipinsider.com.au.)

Bitcoin’s appreciation, as you know, dwarfs 18%. When I wrote to you yesterday, one bitcoin was worth US$12,383.90. That represents a deflation of 1,140% in 2017. (Note, I wrongly quoted that gain as 1,240% yesterday. Apologies!)

In a sign the digital token is truly on a hyperdeflationary path, one bitcoin today is trading for US$14,022.88. That’s up 13.3% in just one day. And from a record high no less.

That brings bitcoin’s price gain to 1,305% since 1 January.

However, concerns about hyperdeflation and a bubble in bitcoin are hardly new.

This morning I stumbled across this headline from Business Insider Australia: ‘The Bitcoin Economy Is Going Through a Massive Bout of Hyperdeflation That Could Be Devastating’.

Any guesses when that was penned?

2 April 2013.

The article notes:

The price of a bitcoin — the uber-buzzy digital currency — is surging.

A few weeks ago it was at $40.

This morning the price of a Bitcoin hit $100. It’s now over $104…

But there’s a downside to this. The Bitcoin economy is now in a terrible state of hyperdeflation.’

The article goes on to state that this could lead people to hold onto bitcoin rather than spend it. Indeed, not a bad call if you were buying in for $100.

Toeing the mainstream line promoted by governments around the world, the article concludes with this unfortunate assumption:

‘…ultimately there’s a reason that over time, government prefer to see their currency slowly depreciate. A surging currency leads to hoarding which kills real transactions.’

Keep this in mind.

Whenever government trots out the spectre of deflation, it’s immediately linked to the concept of hyperdeflation. Never to modest deflation of 1–2%, which would certainly not kill off real transactions.

Hyperdeflation in fiat money lives only in fantasy land.

Inflation, on the other hand, is a great tool to eat away at governments’ mountainous debt piles.

Koreans scoff at bubble talk

A crypto bubble looks to be far down the list of concerns in South Korea.

Just have a look at the chart below:



chart image

Source: Bloomberg/CryptoCompare
Click to enlarge


The demand for bitcoin in South Korea is so high that bitcoin is actually trading at prices more than 20% above what you’d pay here in Australia. (Adding to its hyperdeflation!)

From Bloomberg:

So many Koreans have embraced bitcoin that the prime minister recently warned that cryptocurrencies might corrupt the nation’s youth. The craze has spread so far that, in Korea, bitcoin is trading at a premium of about 23 percent over prevailing international rates.

While neighboring Japan hosts more transactions by some measures, Korea punches far above its weight: In the 24-hour period through Wednesday evening in Seoul, about 21 percent of the world’s bitcoin trades on fee-charging venues involved the Korean won, according to Coinmarketcap.com. The country accounts for about 1.9 percent of the global economy.’

The Korean government, like governments across the world, is nervously eyeing the activity. And salivating over the potential tax revenue.

Regulating cryptos won’t be easy…and won’t happen overnight…but South Korea has set up a cryptocurrency task force. And the government is considering taxing cryptocurrency trading gains, according to Yonhap News.

Australia has also introduced some early legislation regarding bitcoin and taxes.

At the moment, as of 3 November, the ATO stipulates that you don’t need to pay capital gains when you use bitcoin to purchase goods or services for personal use or consumption. Provided that the transaction is for $10,000 or less.

Things move fast in the world of cryptocurrencies. Faster than any other financial asset in history.

That’s why Sam Volkering and Ryan Dinse, our in-house crypto kings, monitor the crypto markets 24/7. And with Sam in the UK and Ryan in Melbourne, that’s no exaggeration.

Over at Secret Crypto Network they keep their readers atop all the essentials in this revolutionary market. Little wonder this is Port Phillip Publishing’s most popular newsletter.

If you’re not a subscriber yet, you can find out what you’re missing out on here.

What good is a car without a road?

If you had the latest Ferrari — say the 488GTB pumping out 661 horsepower — you’d be happy right?

If you answered no, I can take it off your hands.

But assuming you’re happy with your new Italian beast, imagine dropping it down in the middle of the Outback…far from any roads.

OK. It still looks good. But not much use now, is it?

When it comes to the new digital economy, you can think of cryptos as that Ferrari. And blockchain technology — the distributed ledger system — as the roads which enable them to function.

Governments and companies across the globe are actively looking into how to make the most of this technology. Not just for cryptocurrencies, but to enable everything from secure voting to securing health data.

This from CoinDesk:

A lawmaker in New York has introduced four bills in an effort to spur research into possible uses for blockchain by the state’s government.

The proposed laws from Assemblyman Clyde Vanel (D-33) would establish legal language for the technology (similar to an effort undertaken in Arizona) under state law while also creating studies around its application for local and state elections, including the verification of voter tallies.’

Also from CoinDesk:

Finnish communications giant Nokia has announced a new blockchain pilot aimed at developing new ways to store healthcare data…

The companies are using a blockchain due to the security features it offers, according to Nokia’s website. The software allows the company to control access to the data being collected, ensuring that only verified parties can access it.

Big data is a multi-billion-dollar industry. And its value is growing almost as quickly as bitcoin’s price.

Large companies such as Nokia, and the likes of the Government of New York, stand to benefit from the secure, private data transfers enabled by blockchain technology.

But it’s the small companies, those providing unmet demand in this brand new niche market, that could really see their share prices rocket.

Those are the companies Ryan Dinse keeps on his watchlist over at his small-cap advisory service, Exponential Stock Investor. Companies whose share price could triple or more in short order from what he labels ‘the blockchain collision’.

You can find out all the details from Ryan himself right here.

Cheers,
Bernd