Why this good news is bad for stocks

Tuesday, 6 February 2018
Melbourne, Australia
By Bernd Struben

  • Just another wild period for cryptos
  • High risk…high reward
  • Did they or didn’t they?
  • In the mailbag
  • In today’s Australian Tribune…

You’re probably aware that as we slept in Australia, US and European markets saw another sharp sell-off.

As at writing, Aussie and Asian markets are gamely following in their footsteps.

The Dow Jones Industrial Average closed 4.60% lower yesterday. It was down over 6% in intraday trading before some bargain hunting kicked in.

Some blame ‘the rise of the machines’ for the rapid late afternoon decline. They may be right.

You can see the steep dip and subsequent bounce below:



chart image

Source: Bloomberg
Click to enlarge


As The Australian Financial Review notes:

‘The Dow collapsed below 25,000 points and erased as much as 1597 points at the height of the meltdown, to record the largest intraday point decline in history.’

That’s not the kind of record most investors will cheer. Except short sellers, of course.

Yesterday I mentioned a few simple ways to short major indices. Like taking a leveraged bet against the Dow Jones with ProShares UltraPro Short Dow30 ETF [NYSEARCA:SDOW].

This ETF offers three times the inverse of the Dow’s daily returns (minus fees).

As a reminder, leverage is a double-edged sword. While it can see your gains magnified, it can do the same to your losses. Up until 26 January betting against the Dow, even without leverage, was a fairly sure way to lose money.

Not so in Monday’s trading. ProShares UltraPro Short Dow30 ETF ended the day up 13.38%.

According to Bloomberg, Monday was the worst day for US equities in six and a half years.

How bad?

Over US$1.25 trillion (AU$1.59 trillion) went up in smoke. And that’s just US equities.

To put that into some kind of perspective, that’s enough to pay off Australia’s combined state and federal debt of $770 billion more than twice over.

And it’s why any gains you’ve made in the stock market are called paper profits until you cash out.

Let’s have a look at those markets now. Brace for impact!

Markets

Overnight, the Dow Jones Industrial Average closed down 1,175.21 points, or 4.60%.

The S&P 500 lost 113.19 points, or 4.10%.

In Europe, the Euro Stoxx 50 index finished down 44.51 points, or 1.26%. Meanwhile, the FTSE 100 fell 1.46%, and Germany’s DAX lost 97.67 points, or 0.76%.

In Asian markets, Japan’s Nikkei 225 is down 1,495.09 points, or 6.59%. China’s CSI 300 is down 2.22%.

In Australia, the S&P/ASX 200 is down 223.83 points, or 3.71%.

On the commodities markets, West Texas Intermediate crude oil is US$63.63 per barrel. Brent crude is US$67.62 per barrel.

Gold is trading for US$1,338.72 (AU$1,697.59) per troy ounce. Silver is US$16.77 (AU$21.27) per troy ounce.

One bitcoin is worth US$6,541.94.

The Aussie dollar is worth 78.86 US cents.

Just another wild period for cryptos

It’s not only global stock markets taking a beating.

Bitcoin is continuing its downward spiral too. As are most other cryptocurrencies.

At its current price of US$6,541, bitcoin is down over 67% from its 17 December highs.

Investor confidence in bitcoin has been hit with increasing government regulations, with more almost certain to follow.

Last week’s announcement by Facebook to ban all advertising relating to cryptocurrencies was another blow. And the latest negative news comes from credit card companies.

From Bloomberg:

Lloyds Banking Group Plc joined a growing number of big credit-card issuers have said they’re halting purchases of cryptocurrencies on their cards, including JPMorgan Chase & Co. and Bank of America Corp. Several cited risk aversion and a desire to protect their customers.

Whether the credit card companies are really acting with a desire to protect their customers or their own self-interests is debatable. As is the amount of government arm twisting that may have gone on behind the scenes to get Facebook and the big credit card companies to toe the line.

But conspiracy theories aside, there’s no whitewashing bitcoin’s recent performance. A 67% fall is massive.

So what does our in-house crypto expert, Sam Volkering have to say about the recent rout?

Here’s what he wrote this morning.

The overall crypto market is now in the midst of what we would call a crash. All crypto across the board are seeing almost daily double digit falls in fiat-converted value. Long term we don’t see this as an issue. Just another wild period in this crazy crypto world.

This is an education that was bound to come at some point. It’s hard. It can be scarring. You may panic. But stay calm. Don’t get sucked into the fear, uncertainty and doubt (FUD).

This is part of the crypto world. While the current situation is pretty horrible, we expect that it will continue to provide massive upside to smart investors in the long term.’

Sam’s always been clear about the crypto world being wild and crazy. And while the 67% fall since December is huge, it’s not the biggest retracement bitcoin has seen to date.



chart image

Source: Bloomberg
Click to enlarge


As you can see, bitcoin tumbled a whopping 93% back at the end of 2010 into early 2011. Only to climb back up again.

It’s also worth recalling that bitcoin was trading for US$5,857 on 12 November. That’s less than three months ago. While the one month chart looks devastating, the one year chart below helps put things in perspective.



chart image

Source: CoinDesk
Click to enlarge


One year ago, bitcoin was worth US$1,052. And Sam Volkering was the only analyst I knew actively recommending it to his subscribers. (At the time, that was in Revolutionary Tech Investor.)

That won’t necessarily ease the sting if you bought in after 12 November. Particularly if you bought near the highs of mid-December.

But as Sam says, ‘While the current situation is pretty horrible, we expect that it will continue to provide massive upside to smart investors in the long term.’

You can stay atop all of the latest crypto advice from Sam Volkering and Ryan Dinse right here.

High risk…high reward

That about covers the current downside.

But, I hear you asking, what are some of the best opportunities in 2018?

If you’re looking for the kind of explosive growth bitcoin offered last year — and you’re able to stomach crypto-like risks — then look no further than the resurgent cannabis industry.

The US continues to move ahead with legalising recreational and medicinal marijuana on a state by state level. And recreational marijuana across Canada is on track to be legalised in July this year.

The list of other nations that have legalised medicinal marijuana — or are actively considering it — continues to grow apace.

Legal marijuana is expected to create US$8.4 billion of new wealth in 2018 alone. And Bank of America Merrill Lynch forecasts that to hit US$35 billion by 2020.

And Australia looks to be joining the party at a very opportune moment.

On 4 January, Health Minister Greg Hunt announced plans to greenlight Australian marijuana exports. This plan will pave the way for Aussie marijuana companies to share in the booming global medicinal cannabis market.

Atop his tech pursuits, Sam Volkering has been all over the ‘pot stock’ story since the end of 2016.

He recommended his first ASX listed pot stock in Australian Small-Cap Investigator in February 2017. As of market open yesterday, the share price was up 507.7% since the day of his recommendation.

And Sam sees the developments with Australia’s plan to export medicinal marijuana driving the next big share price explosion in a few select stocks. He writes:

Before this decision Aussie marijuana exports were blacklisted. Meaning, cannabis farmers and manufacturers were forced to produce and sell marijuana inside Australian borders.

But no more.

The marijuana floodgates are open and Australia is officially a contender in the global, multi-billion dollar cannabis export market

The Federal government is putting the final touches on new marijuana export laws as I type. I expect the bill will pass in the coming weeks.

Sam has narrowed his focus down to three ASX listed stocks he believes are set to benefit the most if…or when the export law passes. Stocks he expects can deliver gains of 1,233%.

I know that may sound sensational. But Sam’s well-known for delivering 10-bagger gains to his subscribers. So when he mentions a figure like that, it pays to at least hear what he has to say.

You can find out exactly what that is…right here.

Did they or didn’t they?

In case you were wondering, the Reserve Bank of Australia kept the official interest rate at its record low 1.5%.

No surprises there. But a rate rise later in the year still looks likely.

In the mailbag

The Port Phillip Insider inbox this week reads more like a theology forum than a financial one.

The blame is mine. I opened up this can of worms by referring to God as an ‘imagined super being’ in last Thursday’s edition.

Yesterday I published three emails from readers who had taken offence. In the interest of fairness, today I’ll publish two more emails. These from readers who were offended that other readers had…well…taken offence.

First, this one from reader Russell:

Holy s**t Bernd,

You touched a nerve there with the looney crackpot fairy believing nutters There is a saying “even nutters are scared of religious nutters!”

Wow, here is a new business opportunity for you guys The “Messiah Fund”!

Get them to invest all their cash into this fund and then make it disappear saying God told you it will return bringing massive profits when the second coming of Jesus occurs.

Then run off to the Bahamas.’

If anyone from ASIC is reading this, I’m sure Russell is joking. At least about the running off to the Bahamas with investor money bit.

The second email is from reader Michael:

I was sitting here in my home office after logging on and seeing the large fall in the markets. My head started talking out loud. I thought I would put some words down and share.

I want to congratulate everyone at PPP for your professionalism and advice. I only can envisage the work and effort that all of you put into endeavouring to help subscribers. I ask that Ryan, Sam, Selva, Phil and all other analysts and editors at PPP, please be easy on yourself. If all went South tomorrow I would never point the finger of blame. Your rules have been BLACK and WHITE. Only invest what you can afford to lose. I am tired of the complaints from some subscribers. All over the news is the fall on the financial markets. The losses on Wall Street and the sharp decline of the ASX. As a subscriber to PPP, I’ll be holding on to faith with the Professionals at PPP. If their is a faith.

After reading the pathetic mail from some subscribers and their complaints, I feel somewhat disappointed with these people.

It is quite simple. If a subscriber does not agree with the point of view that, “GOD IS AN IMAGINARY FRIEND”, then I suggest they pray and stay quiet. I am an Australian retired soldier who served in parts of Africa and other places. Let me tell you that most tribal people in Africa and many other places in the world don’t even know who Jesus Christ was. They are more familiar with the name Elvis Presley. I’m with you mate. These particular Christians have the right to practice their ideology but it is disturbing and quite frankly disgusting that they insult us or an editor from PPP. I get the point. “Flag, National Anthem, and an imaginary Person called God”. These people refer to what they believe as fact. For example the afterlife.

History and the facts state that the majority of the world practiced paganism up until the 5th century, 500 years after Christs death. Anyway I thought I would put my 2 cents worth in. I would love to go on but lets make some money for our families and have some faith in PPP.

Conclusion: If you don’t like the advice PPP gives, LEAVE. Do not ever place your unfounded ways on us or the hard working people at PPP. By putting more faith into advice given here at PPP you will make money. But that not a fact either although I am doing pretty well. Lets pray about that. Nothing is Certain.’

Thanks for putting the spotlight back on money, Michael. Something atheists, Christians, and people of all other stripes have almost certainly prayed for at least once in their lives.

We’ll leave it there for today. And hopefully for good!

Please email your comments and ideas to letters@portphillipinsider.com.au. If we publish your letter we’ll only use your first name.

And finally…

In today’s Australian Tribune: ‘Greens Lift Veil on Full Socialist Agenda

In poker it’s called a tell.

It’s a subtle sign that astute opponents can pick up, and it gives away your hand.

In the world of Aussie politics, the Greens just delivered a whopping tell. One that lifts the veil on their true socialist agenda.

Rather than let free market forces determine executive salaries, the Greens would like to see government step in and set salary caps.’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd