Exciting things are happening!
Bitcoin traded over $700 on Monday. The Dow shot over $16,000. And China decided to go even further down the capitalist road.
Don’t know about bitcoin?
“The Department of Justice recognises that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce”, a Justice Department official told the Senate.
Bitcoin may “hold long-term promise”, said Ben Bernanke. “If properly regulated”, added an unnamed official.
Publicly, the feds are playing it cool towards bitcoin. Privately, they must be sweating. As we told our group of Family Office investors, the new virtual money has the potential to destroy the dollar, the Fed, the banks, and the whole world’s monetary system.
It could also make gold obsolete. This new money is easier to use and costs nothing to store.
Regulate it? That may not be possible.
Bitcoin is the most disruptive technology yet invented. It could be the biggest financial story since gold. Nothing like it has happened in 6,000 years – an entirely new kind of money, and better! In fact, it could help bring in a whole new phase of economic development.
Watch this space for more details.
Meanwhile, the Dow rose over the 16,000 mark on Monday, but it didn’t stay there. Then, yesterday, again the Dow failed to close above 16,000.
While US stocks could go much higher – in the third stage of a bubble – there is much more risk on the downside than there is reward on the upside.
Corporate profits are largely a mirage – a reflection of the Fed red hot quantitative easing (QE) policy on the barren sand of real revenue growth. The economy is still not recovering. And the Fed’s low rates keep debt growing, which increases the risk to the whole system.
Out of stocks and into bitcoin? Not so fast. Stay tuned.
Bill Bonner on markets, economics & the madness of crowds
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Chinese officials have said they would like to ‘de-Americanise’ the world’s monetary system. Bitcoin may be their bet.
Last week, China’s rulers met. They decided to lighten up on the ‘one child’ policy. We’re not sure of the details, but the important thing is that the leadership seems to be turning the whole economy from capital formation to consumption, and from exports to domestic markets, and from the dollar to alternatives.
We do not approve of central planning. It always makes things worse. But how much worse? It depends. If the central planners fight the markets, things will get very bad. But if they go along with what the markets want to do anyway, they will do less damage.
That’s what Paul Volcker did in the early ’80s. Back then, inflation rates were heading up over 10%. Bond yields, too, were over 15%.
The markets were correcting inflation – with bond yields vaulting ahead of the consumer price index (CPI). The markets were tightening credit in order to squeeze the CPI.
Volcker had a choice. Fight the markets with more cheap credit in order to maintain full employment? Or join the markets with tighter credit of his own?
Volcker declared himself on the side of the markets. He drove up yields even higher – over 18%. Inflation rates quickly corrected down to 5%, and continued to sink for the next 30 years. America enjoyed its longest period of growth in history.
But things were very different after the crisis of 2008-2009. After almost 30 years of falling yields, the markets were ready for a correction. Too much debt had built up in the private sector. A ‘day of reckoning’ was at hand. First, Bear Stearns, then Lehman Brothers, General Motors, Fannie Mae, Freddie Mac. Like dominoes, big institutions fell into default and bankruptcy.
But the feds stepped in. They fought the debt liquidation, and they succeeded in halting the process of de-leveraging.
Bravo? Good work?
Ben Bernanke got his mug on Time magazine. They called him a hero. Not only did he fight the market, he won – at least for a while. We have more debt now than we had then. And the day of reckoning is still ahead.
Meanwhile, the Chinese are loosening up. They are allowing people to have more children. Already, retailers are bracing for more children, getting in position to sell nappies and pushchairs when the babies show up, roughly nine months from now.
This will add demand for bigger houses, too. And bigger cars. And more debt! In fact, commentators are talking about a new baby boom, which could, like America’s baby boom of the ’46 – ’62 period, transform the whole economy from an export powerhouse into a consumer colossus.
Yes, the ‘third plenum’ of the communist party leadership seems to want to rock the cradle and rule the world. Dong Tao, at Credit Suisse, was quoted in the Financial Times, saying that he thought it was “the most comprehensive and ambitious reform plan in the history of the Peoples’ Republic.”
Chinese stocks trade at 15 times earnings. Not super cheap. But if the growth rate of 7% per year continues, they could look like great bargains a few years from now.
Chinese stocks? Bitcoin? US stocks? What to do with your money now?
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