Poor old Bitcoin has been coming in for a bit of flak - sour grapes for the most part - from the old dinosaur investor class, the 1970s gold bugs and the anti-tech forty and fifty-somethings, who probably got their fingers burned in the dotcom crash. The irony of a generation who have grown up embracing technology, furiously tweeting away about how crypto has no future isn’t lost. Spare us the trouble. Any complaints should be paged to us, zeroxed or sent with a stamped-addressed envelope...
The cryptocurrency has purportedly been in bubble-territory for about four to nine years, depending on who's talking. Tell that to the ‘Hodlers’ (for those of you unfamiliar with bitcoin jive-talk that’s ‘Hold On for Dear Life) who’ll ride this one out yet again, while the weak hands get burned. Yet, every time someone uses the hackneyed comparison to tulipmania, bitcoin seems to magically jump $200.
But wait a minute, where else are we going to find a bit of ‘yield’ or interest on the fruits of our hard-earned labour? The equity market is the biggest sucker’s game in town. You might have reaped the benefits of the dollar-denominated world of stateside stocks recently, but a decade after the 2008 crisis, other world indices haven’t even come close to recapturing their ATHs. Spain’s IBEX recently pushed through the key 10,000 level, way off 2007’s 16,000.
At which point can we begin to talk about tulips for the DJIA or S&P 500? It has recently been claimed that 83% of US stocks are owned by 1% of the population. We can’t vouch for the figures, but that’s exactly the point; do you know who you’re up against? As the old poker adage goes ‘If you don’t know who the sucker is, the sucker is you!’
If stocks really do have such a limited ownership, it might be an idea to find out what this 1% actually owns. Low and behold, take out the FAANG stocks and their lopsided P/E ratios. (Facebook, Amazon, Apple, Netflix, Google, and we’ll include Microsoft. Use the acronym ‘FAG MAN’ if you like,) and you find that there’s a long, stagnant sideways trajectory that stinks of the Great Depression 2.0.
Take out of the equation entities such as the Swiss National Bank - so heavily weighted in US dollars and Euros as a result of a constant ten-year buying splurge in an attempt to lower the value of the CHF. The SNB have now started to load up on huge amounts of US stock, with the acquisition of $17B worth in the first half of 2017 alone.
Which segues nicely into the next and greatest region of bubble territory - the bond market. (Cue the music: How Low Can You Go?) Borrowing costs in Britain have been milling around historical lows for quite some time now. Last time I checked the yield on 10-year gilts was 1.92, the lowest since records started in 1703. (Compare to the 16.09% in 1981).
So let’s get this straight: bitcoin is a bubble comparable to the 1634-1637 Dutch tulip price spike, but you prefer to invest in bonds that are at their lowest point in over 300 years?
Or you your preference is for a bank? Well, there's NIRP, where you pay the bank to hold your savings, while running the risk of a Cypress-style bail-in. Baby, let me tell you, the sucker is you!
How could you fare investing in another asset classes?
Property market: Lawd help us. The scars have barely healed. The Daily Mail recently had a pull-out Property Special with an article entitled ‘Buy your own castle - a snip at £3 million!’ Suckered again!
Commodities: Expect a spike if Trump leads us into WWIII, or, if you believe the WSJ, that happy days are here again and the next boom is around the corner. If, on the other hand, you take the view that we are on the cusp of another crash or that we never actually recovered from the last one, then logically, commodities look like a lousy option.
Precious Metals: What about the most respectable, historical, indestructible, geological wonder in history? Barbarous relic Warren Buffet, famously quipped that "Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn't produce anything.”
Of course it doesn’t produce anything. Neither do the dollar bills in your pocket or the bitcoins in your wallet. They are not supposed to. They are money. And in deflationary times where every central bank is seeking inflation by massively debasing their own currencies and artificially propping up fixed income and equity markets, money (the undebaseable type) is clearly the place for the non-suckers to be.