VALUE?
Is it possible to move to any sensible discussion on any matter of previously “normal” economics” without first making note of, “ticking off on”, acknowledging the elephant in the room, that is Crypto? Or more to the point Bitcoin, BTC?
For those who just arrived back from self-driven Antarctic sojourn over the last month with now satphone, this is what happened, in USD.
$6000- $7000: 13 days
$7000- $8000: 14 days
$8000- $9000: 9 days
$9000-$10000: 2 days
$10000-$11000: 1 day
$11000-$12000: 6 days
$12000-$13000: 17 hours
$13000-$14000: 4 hours
$14000-$15000: 10 hours
$15000-$16000: 5 hours
$16000-$17000: 2 hours
$17000-$18000: 10 minutes
$18000-$19000: 3 minutes
Is it a bubble? Without question! Have we seen the peak? Doesn’t yet look like it. Not everyone is “all in”, yet.
If you’ve followed the whipsawing of the gold price using the oversized paper manufacturing market facility called Wall Street Derivatives (FUTURES) feel free to say to your Bitcoin owning friends this morning: “welcome to the party”.
Boring as it sounds, we’ve been looking non-crypto markets ahead to 2018. Just going over some notes on markets we’d like to avoid because of oversized risks and markets we’d like more of for a better risk/reward opportunity.
To begin with, surprise surprise!! Last week, the Reserve bank of Australia left interest rates on hold, again, at their lowest ever levels.
Many who’ve followed mainstream media’s reporting of the global economy’s recovery since 2009 may well be surprised at continued “emergency” low-interest rates across the globe.
Here in Australia, the RBA is yet to do real heavy printing lifting as private real estate “investors” have done it for them.
To the point where Australia’s banks are the most exposed to housing debt in the world and Australian lenders the most exposed to housing debt.
And it’s still going…
With Prices already rolling over and more “stock” coming on stream one must have to take extra care with one’s bank exposure for 2018.
It very important to understand where a share sits in the capital structure of a bank because there is an ill wind blowing and it now includes a management distracting Royal Commission.
For those in traditional Balanced funds or Industry super funds, this position is almost impossible to manage.
As banks make up around 30% of the ASX you can expect the exposure through these vehicles to be close to this.
The RBA is going to need plenty of dry powder!!!
In our view, a continuing saving grace for the rest of the Australian economy will be continued steady growth in China but not before a near-term shake-up.
A very calculated unwind of the riskier parts of the Chinese economy is underway, post the 19th Chinese Communist party conference, as strongly inferred by Chinese leadership.
This means now. It was fascinating to hear Maleeha Bengali from MB Commodity Corner take us through her analysis on Real Vision’s think tank last week. It certainly confirmed short-term rebalancing in China.
The confirmation of softening commodity prices in the near term due to this deleveraging (carnage for base metal producers last week) before a levelling out after the first quarter next year was the key takeaway.
In her view, once deleveraging of the riskier parts of the Chinese economy, Wealth Management Products in particular, works its way through, the economy will continue to expand.
We happen to agree with this and look forward to topping up our International/Asian funds along the way through 2018.
In another piece earlier in the month, Marc Faber suggested avoiding the big FAANG related stocks! What a call this has proven to be! He goes on to suggest that in this late stage bull market a change in leadership usually brings about discomfort in the entire stock market (a bear market), as was in the case of 2000, 2008. There you go, another call for 2018!
In larger international capital market’s, it’s been very interesting to note investors of the ilk of John Hampton (Bronte Capital, Australian Success story, fascinating to listen to), Alan Fournier of Pennant Capital and even the legendary Jim Grant, all remain amazed and astounded at the risk pension funds and investors continue to take for a little more yield!!
In separate pieces, they all commented on how “Vol”, Volatility used to be a measure by markets and is now a complete asset class in itself, with global banks creating “Vol” products as fast as they can, to meet demand. WOW!!! Sound familiar?
This will not end well, take this as another place to be very wary of in 2018.
Marc Faber also contends in his December thesis that, “if cryptocurrencies have not made an important top, sometime over the next 12 months a blow-off high should lead to a painful bear market. Caution advised”.
12 MONTHS?!?!?Epic! Can you imagine what price BTC may get to if there is 12 months to go?? We love this crypto action anyway, as it’s a huge embarrassment for central bankers.
One thing is for sure though, whilst central banks may accept a $20000 Bitcoin, there is absolutely no chance of allowing a $1300 gold price right now.
In fact, let’s take a quick peek at some other interesting “ok” price action.
· 5000 year low-interest rates.
· $450 million dollars (maybe fake) Da Vinci’s
· $1.9m Aston Martins
· $100,000 Air Jordans
· $250 million private homes
· Billion dollar private boats
Taking the cake in the last week was this:
“Veolia (French Industrial Conglomerate) has issued a 500 million 3-year EUR bond (maturity November 2020) with a negative yield of -0.026 %, which is a first for a BBB issuer.
The transaction was very positively welcomed by the investors, which led to an oversubscription ratio over 4. Thanks to this strong demand, Veolia managed to issue the bond with a spread against swap rate of 5 basis points, which is the tightest spread ever achieved for a 3-year fixed-rate EUR Corporate bond
The proceeds of this issuance will be used for General Corporate Purposes.” Veolia, Press Release, November 16, 2017”
Cripes, beam me up Scotty, it’s a world we no longer understand!
The list goes on and on. Boats, land, jewels, art, cars, you name it. But not a 1300 gold price, at any cost.
There cannot be an open, honest market for gold, yet.
There will be, as it was through the 60’s/early 70’s, the current “management” is just not sustainable.
A rapidly rising gold price sends the wrong signals to market participants.
The signals of particular concern are inflation markers.
However, as we’ll see in 2018, once the inflation genie is out of the bottle, it has been proven over history to be very hard to put back in.
Masking over rising inflation through artificially low-interest rates and “other policies” is a deeply flawed strategy. Nature will eventually take its course.
The current Crypto phenomenon, an international sensation, has stunned market makers everywhere, creating an unusual awareness of the possibility that people all over the world have a deep, abiding, instinctive desire to own “honest” money, despite the impossible task of valuing a bitcoin!!!
