Another week, a little less intrigue for the market
Why have precious metals taken it on the chin? It likely has more to do with positive sentiment due to tax reform than anything else. Does it have anything to do with money rotating into Bitcoin? It might and the question most people are asking is whether it is a bubble or something new. I’ve thought long and hard about it. You know I haven’t said anything about it to this point. But it has been going through the roof, behavior like that is bubble-like. That’s a mania. Last week even Alex Jones regretted not getting involved. Jones is a very smart guy, but he concentrates on his area of specialty, not financial markets. Those of us who intimately follow financial markets know that when people who are not experts throw their opinion in the ring, that’s not a good thing.
I am going to keep this very simple since I am not an expert. We know central banks have manipulated rates and currencies through the years and this is a hedge against disaster. We also know the Internet was a new technology and had its own bubble phase. It was the same thing with the railroads in the 1840s and appliances in the 1920s. Each of these innovations in business led to crashes but eventually, all recovered. It took 40 years for the rails to recover, the Dow didn’t get back to 1929 highs until the early 50s while its only been the past couple of years did the NASDAQ fully recover. Is Bitcoin only the latest tulip mania? Probably not. Is it something that is going to have growing pains as it matures from teenager to adulthood? That’s very likely.
Looking back on history just about any new technological advancement went through a serious bear correction before it caught on for good. Look at Amazon, one of the survivors. It peaked at 361before bottoming at 5.51 in the month after 9/11. As we know most Internet stocks from 1999 went away and never came back. In this decade, we’ve seen the emergence of online shopping. Over the weekend, I was looking for certain specialty supplements one purchases in the health food store. Here out west, these kinds of specialty stores have been disappearing and one local chain which has been around for 25 years is closing all their stores and we were able to get vitamins/supplements at 60% off. The next generation has decided they prefer to do the majority of their shopping online. Twenty years ago, we were dealing with a completely new online technology. The crowd decided to bid up companies with no earnings and little chance of earnings which wasn’t likely to sustain. But here we are 20 years later with a new technology that is reaching a level of staying power and maturity. Brick and mortar are disappearing.
So, if you take the long view, cryptocurrencies are likely here to stay but the industry will likely consolidate which will be painful.
Getting back to the markets for a minute, the closer we get to Christmas, the higher probability the market stays up. But we could still take smaller hits along the way.