Market Update

Posted on by Finster Posted in Commodities, Finance, Markets

Bitcoin Breakout

The latest hot stock isn’t a stock … it’s bitcoin, which has been on a tear since Election Day. Not entirely coincidental, as the president elect has styled himself as “the bitcoin president”. Not only has he advocated for more accommodating regulation of the digital asset space, but even floated the idea of creating a national “strategic bitcoin reserve”. A more laissez-faire approach would be consistent with the generally beneficial deregulatory bent of the incoming administration, but when it comes to active promotion, be careful what you wish for. The politicization of the Strategic Petroleum Reserve should serve as fair warning.

Bitcoin has surged from under $70,000 to nearly $100,000 in barely two weeks. I’ve written skeptically of bitcoin … (viz A Bitcoin Toss & Digital Antigold) … it has no intrinsic value and the gains of early bitcoin buyers appear to all come from later bitcoin buyers. There’s a word for that type of scheme.

Not to mention the prodigious resources consumed in producing it, marketing it, and trading it. It’s hard not to wonder what might come if all the energy, brains and time devoted to it were put to use more productively, say on more affordable housing, a cure for cancer, or … suffice to say it’s not as if greater human needs have all been fulfilled. The Austrian School has a word for that too.

Malinvestment.

That doesn’t mean there is no place for it in an investment portfolio. I have a “bit” via an ETF myself. The basis is simple … the lowest possible risk due to asset allocation is the global market portfolio. Being as bitcoin now forms a more than negligible part of the global asset market (total crypo market cap is now $3.25T, of which 59.8% is BTC), in the right context a small allocation to this extraordinarily risky asset can paradoxically reduce overall portfolio risk.

In other news, gold has recovered nicely from its peri-election sell-off. There are periodically signs of broadening out in the otherwise tech-obsessed equity market. Today for example the Dow 30 and Russell 2000 smartly outperformed the Nasdaq and S&P. This is hardly the first time though, and prior such instances have not been notably persistent.

Treasuries are down (yields up), and have been since the Fed loudly embarked on a rate cutting campaign. As the Fed has cut, the market has hiked. One of them is wrong, and it’s not the market.

The Fed has been grudgingly acknowledging its folly more recently, suggesting its rate cuts might come at a slower pace than previously advertised. Never mind that rationale for any cuts at all is MIA. Its notion that money is tight is belied by bubbles in everything from stocks and digital bits of nothing to a six million dollar banana.

The broader commodities space hasn’t been invited to the gold party. Copper and crude for example have been left out in the cold the past few months. This is colorably due to a still sputtering China. Yet there have been rumors of “green shoots” emerging in that beset economy. The deflationary impact of proposed tariffs remains to be seen, though there could also be offsetting inflationary impacts of war and rumors of war.

36 thoughts on “Market Update”

  1. Reply
    Mega says:

    Bitcoin…….i asked Max Keiser to explain it to me, he couldn’t so i didnt buy it. Everyone who i know to have any have had them stolen or lost……..

    Gold NOT now getting killed, but we might if Biden keeps on pushing Russia.
    Silver?……very disappointed but Solid state battery will be in full swing production b Jan 2025 (Honda) ….400 wh/kg & they say 500-600 in the next few years…….silver might be a major part of said battery….

    Mike

    1. Reply
      Finster says:

      My full bitcoin summary is linked in the post. It’s bits of digital nothing whose entire investment case is built on a wild performance history and hyped media predictions of more. Worse yet, proponents promote it as “digital gold”, an attempt to trade on gold’s solidity and multi-thousand-year record and posture it as a modern version for the tech set. The basis of this is a built in supply limit, but that overlooks the fact that clones can be created without limit.

      Whatever else it is, it is not gold and not a substitute for gold. It’s a man made form of money with no backing, like dollars or pounds or euros or yen.

      Gold in contrast is real money. Among commodities it is uniquely uncorrelated to stocks and therefore the most effective for diversifying a stock portfolio. It’s the ultimate safe haven asset.

      Let’s hope the prospect of saner leadership is enough to forestall irreversible war escalation. January 20 cannot come too soon.

  2. Reply
    Mega says:

    Meantime back in Blighty
    https://www.zerohedge.com/markets/pronoun-wielding-jaguar-boss-goes-damage-control-after-cringeworthy-woke-ad

    Make no mistake, Mega is NOT a Jag fan.
    They lost their way in the 1970s when the E type (the best looking car ever according to Mr ferrari) gave way to the XJS a car ugly not even its own mother could love it. Throw insanity bad workmanship……
    As for this latest act of self harm, its not the 1st!
    https://www.youtube.com/watch?v=AK4Wm1KzEU4&t=454s
    Yes they built a self destructing engine!

    Also Designed the XJ6 engine bay to be only able to house a straight 6 engine rather than a V8 because they didn’t want to fit the Rover 3.5 V8 engine used in the Range Rover (Superb engine)….no they designed a 6 pot lump that was so bad it just about bankrupted them!

    Ford did what they could, poured in cash (God knows why) & sold it off cheap to India.

    The Cat has had its 9 lives ……time to die.
    Mike

    1. Reply
      Finster says:

      How unfortunate. I bought an S Type 4.0 when they first came out with them in 2000. Instant classic. After 25 years it still has barely 50k on it. Ford had fixed the electrical issues that had dogged Jaguar before its acquisition. It’s the nicest riding-handling car I’ve ever driven. Authentic Jaguar engine and suspension; but alas they also put in a Ford Mush-O-Matic transmission. I’d have preferred the stick shift but it wasn’t marketed in the US.

      Don’t know about Jaguar’s future, but it will depend on continuing to make beautiful, great handling cars, but with more attention to quality. Keeping the marketing classy couldn’t hurt.

  3. Reply
    Finster says:

    S&P Dow Jones announced last night it is adding Texas Pacific Land (TPL) to the S&P 500. Up nearly 15% on the news, TPL has trounced both BTC and NVDA over the past six months, tripled in a year, and is up 596 times in the past 21½ years. Yet in that span of time, I have yet to see it mentioned in the mainstream financial media. Do we need any more evidence that said media are all about sales and marketing of financial products that are lucrative to parties other than its despised “retail investor”?

    Disclosure: I have a position in this stock.
    This is not a recommendation.

  4. Reply
    jk says:

    1. no crypto for me. the limited supply, for me, puts it in the category of collectibles. e.g. mickey mantle rookie baseball cards. otoh, cb’s – along with individuals in asia and in costco stores- keep buying gold.

    2. how are you defining “risk”?

    1. Reply
      Finster says:

      In this context risk is underperformance due to asset selection. The global market portfolio is what the world’s investors collectively own. This is discussed in more detail in Perfecting Diversification. As the post elaborates, the GMP is not a real portfolio to be emulated, but a guide to clarify what bets a real portfolio is making.

    1. Reply
      Finster says:

      Say it ain’t so!
      Money invested with asset managers like BlackRock isn’t the asset managers’ money; it belongs to its investors. It’s a pass-thru thing. In a mutual fund or ETF, if investors owned the shares directly, they would get a vote on corporate issues. When all that money is aggregated together in a fund, it just becomes too complex to try and get votes from all the individual investors on all the shares owned. So the asset manager votes on their behalf.

      IIRC Vanguard is trying to address this by asking its fund investors for broad guidance on how to vote their shares. Not perfect, but it at least acknowledges that it’s their decision to make.

  6. Reply
    Mega says:

    Just before i left work to look after mum i hit a bit of trouble in Work.
    I worked in the Home Office, from a “secure” site doing stuff i cant talk about. I say the youngest person there was in their 30’s.

    In the building where a number of meeting rooms, named after famous explorers. For example our meeting room was called “Shackleton”. There was another called Columbus, yep you guessed it a complaint was made REF all the “Woke” stuff going on at the time.

    What surprised me was whom had complained ………..a white, fat 45-50 old female. Her husband had departed some years early & the only time any man had recently shown any interest in her pussy was when she taken her cat to the vet. So this was a great chance to virtual signal on how cool & down with it she was………

    The management fell over itself to panda to this nonsense, henceforth ALL meeting rooms were no longer to be named or numbered………they were still deciding what to do when i left.
    Naturally i was not going to bend a knee to this crap…………so the next time i was duty officer i sent out an email saying :-

    ” Tac 2 team will meeting in the meeting room formally known Shackleton”.

    My Manger came back from her holiday finding a message from “High Command” to made Michael “Atone” for his crime……..they were even more pissed with me than when i had attended a meeting by one of our visiting intel types from a 3 letter agency wearing my “Che” berrie with Red Star.

    I can understand “Kids” falling for this crap, but grown people, people whom must have read “Animal farm” or “1984”. They must have known history of what the Nazis did as well as Stalin & Mao?

    Getting back to blighty
    Trump & team America are about to change direction in that America has ALL it needs for its future. They also have Canada & Mexico + Cuba very soon (Its collapsing). Thus there is very little for the US in Ukraine except major trouble.

    The British (City of London) & Euro-scum are in deep trouble. Both have INSANE over leveraged economy with fast becoming unservable debt. Lacking little in natural resources they need to take Ukraine & break Russia. They got their agents in the DNC to help them thus far.
    When they missed Trump their last chance was blown…..

    What i just discussed is being talked about by EVERYONE, the girl in the shop, the man who cuts my hair…everyone. The Powers to be want to crack down, but X is owned by Elon & he is in America.
    You can almost smell the fear from these bastards, they are even willing to go to war with Russia as some sort of “Hail marry” pass that will win the game in the 4th quarter…….when its already lost.

    Russian TV “Helpfully” posted a map showing their new missile can hit EVERY European city with in 20 mins. I note that said missile can NOT strike America.
    Make no mistake we are living in the most dangerous time in our lives.
    May God protect us.
    Mike

  12. Reply
    Finster says:

    Well gold is getting killed again. First it was shot. Then they dragged up the corpse, propped it against the wall, and shot it again.

    Media attribute the most recent shooting to the nomination of Scott Bessent for Treasury Secretary, ostensibly one that would work to reduce the deficit. That would be a constructive development for the dollar, which should contribute to lower gold prices, but that rationale is undermined by the fact that at the same time the dollar is down against foreign fiat. Treasury prices are up too (a rip-snorting rally), typically more consistent with higher than lower gold prices.

    So the short term is murky as ever. While it’s true that the bull case for gold (in dollars) rests largely on US fiscal incontinence, presumably putting pressure on the Fed to further inflate, actual deficit progress won’t come easily, and there’s no assurance the Fed is about to change its inflating ways. It’s not just Washington, but Wall Street as well, that agitates for inflation.

    What is new though is that for the first time in years, even if follow through is limited, there is at least serious talk about getting the deficit under control. On more than one occasion I’ve expressed doubt that Trump would lead in the direction of fiscal health. This is one area in which I would be happy to be shown wrong.

  13. Reply
    Mega says:

    I would be worried, but JPM is not.
    They now have added another 2 tons bring them up to 807 tons or 91% London GLD…….not far to go.

    Mike

  14. Reply
    Mega says:

    We see………….$3000 would be a win, i never went for this “Gold “10,000” stuff…….a collapsed £ would be nice…..

    1. Reply
      Finster says:

      Name any price … it’s only a matter of time. Gold itself doesn’t even have to go up … all that’s necessary is for the dollar to go down. From over 1/30 an ounce to barely 1/3000; the secular vector is clear, as long as the Fed has anything to do with it. As the dollar loses value, it takes more of them to buy the same stuff. Same thing as keeps stock prices levitating, houses, gas, groceries … will keep gold prices levitating too.

      Aside from its immediate effect on gold prices, Bessent’s nomination looks like a positive. Besides being a voice for fiscal sanity (been a long time since we had that in top government officials), he may be a moderating influence on tariffs. FWIW I think tariffs are needed, but of the speed-bump or playing-field-leveling type, not as a hammer to bully trading partners or shut down the flow of goods.

      At bare minimum, Bessent will be a welcome breath of fresh air and economic common sense after four years of nutty “Go Big” Yellen.

    1. Reply
      Finster says:

      Bessent should be an improvement not only over Yellen, but Trump’s previous TSec as well. Mnuchin seemed good at first, but when it came time to issue ultra long paper at ultralow rates, he asked Wall Street for its opinion instead of putting the public first. That cost Treasury big time.

      I’d like to have seen Treasury issue 50 and 100 year paper. K.I.S.S. 1, 2, 5, 10, 20, 50, 100. It’s not too late to get some benefit, but not as much as if Mnuchin and Yellen hadn’t whiffed.

      It wouldn’t be the worst thing in the world if Treasury picked up on Shelton’s idea to issue gold backed paper, but I’m not a big fan. History is littered with paper backed by gold, only to have that backing withdrawn just when it was needed most. When it starts to put limits on government excess. The closing of the gold window in August 1971 is Exhibit A. And as long as the Fed keeps up its inflating ways, paying bond holders in gold is not gonna be cheap.

      Let paper be paper and gold be gold. I am not in the “gold standard” club. I’d much rather see the taxes removed on gold. Many states have done this with sales taxes. The main impediment left is federal cap gains taxes, which tax illusory gains due to inflation. This would permit gold to be freely used as a store of value. The dollar could still be used as a unit of account and medium of exchange … a sort of dual monetary system that leaves people free to use whatever form of money best suits the situation.

      Forget gold-backed fiat. There’s no substitute for gold itself … it’s the real thing.

  19. Reply
    Mega says:

    The trouble is do you expect US to “Paid” (give up the Gold) in 50 years time?
    No chance!

    1. Reply
      Finster says:

      Oh gosh no! The 50 and 100 year Treasuries would just be longer versions of the same kind of dollar-denominated Treasuries it issues now.

    1. Reply
      Finster says:

      Yikes. But I’m optimistic the pendulum will eventually swing the other way. This is a culture with an 800+ year history of successfully dealing with oppression!

  22. Reply
    Finster says:

    US Treasuries have a bullish bias for the next few months. This is based on the Fed walking back its rate cut rhetoric and the two year GOVT chart.

    The Fed part may sound counterintuitive … Higher Fed rates mean lower market yields? … but the more the Fed worries about inflation the less the market has to. The Fed has been on the wrong side of history since it started cutting in September – market rates have been going the other way – so now that it’s glomming on to economic reality, the bond market can breathe easier.

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