12/3/2013 Portland, Oregon – Pop in your mints…
As the most recent arctic air blast rushes across the Northwest, the economies of the world appear to be at a crossroads. The coming three months are critical in determining humanity’s path forward. Will we cower with fear or step bolding forward with faith and courage into the unknown?
The past five years have taken a toll on the psyche of the financial markets and those who participate in them. On one hand, the cards have been stacked for raging inflation to take hold and decimate the debt based currencies the world has come to rely on, on the other, this obvious outcome has been stayed because 1) it is obvious, meaning bets are disproportionately placed on the side of inflation and 2) in a debt based currency system, new currency creation by definition means new debt creation, as debt obligations have rolled over into lower interest obligations over the past five years, a heavy undercurrent of deflation has been running against the inflationary pressures.
It is becoming clear that the ACA is having a more dramatic impact on the US landscape than anticipated. The good news is that after a few months, most consumers fates will have been sealed, for better or worse, and many will be able to carry on. By extension, many companies will be ready to deploy the capital that they have accumulated over the past several years through cost cutting and debt restructuring (for lack of a better term). Again, the table is set for inflation, will the scenario play out?
Hugh Hendry seems to think so, ceding the obvious case that inflation in asset prices is to be a part of the investment landscape for the foreseeable future. In his December 2013 Eclectica investment letter, which can be read over at Zero Hedge via the link below, he appears to be throwing in the towel on the bear case. In doing so, he makes a revealing statement on the current state of equity markets:
“…I have had to put aside qualitative analysis and be in this trending market.” as “…Playing it safe may be the greatest risk of all.”
Read the entire letter here via Zero Hedge: Hugh Hendry Throws In The Bearish Towel: His Full Must-Read Letter
Ultimately, the case for inflation or deflation rests with the consumers of the world. Will they cower in fear or step out boldly in faith and courage? We believe the next three months will yield the answer to that question, and that they will step out boldly.
What’s with the Bitcoin Roller Coaster?
Bitcoins, which continue to garner attention on numerous planes, as a novelty, a speculative vehicle, and the answer to creating a worldwide currency and payment system, has seen its price swing from $550 to $1,200 and land around $760 at this writing.
The price swings are normal for such a small, relatively illiquid market. Any large scale adoption event, which in the final analysis, is the driver of Bitcoins’ price at this stage, triggers a sell-off by those who have learned to speculate in the crypto currency.
The latest large scale adoption event in question this past week has been the increased interest in the currency by the Chinese.
In a recent interview, Bobby Lee outlined the reasons he believes that Bitcoin has garnered considerable interest in China over the last several weeks. Lee has a front row seat to this phenomena from his post at BTC China and cites two main reasons that the Chinese have taken a keen interest in the crypto currency.
First, the Chinese are, on whole, extremely gifted in math and sciences, which makes the concept of a digital currency fit into the cultural nomenclature more readily. As simply understanding what Bitcoin is may be the biggest hurdle to adopting and using it, the Chinese have a cultural leg up on many other cultures.
Second, and perhaps more importantly, is that the Chinese are net savers. As such, they are constantly seeking out investments and places to park their savings for a rainy day. Bitcoins appear to offer a strange form of asset protection, despite the breathtaking volatility in their price, as they are limited in the number that will be created by an algorithm.
Finally, one must remember that China does still impose capital controls on its citizens. Bitcoin, while not its chief aim, gives the Chinese investor a handy tool by which to move his or her capital out of the country with their mobile phone or PC. Something that simply cannot be accomplished with a bank account.
The Chinese, like the Cypriots and Argentines, are finding their culturally specific use for the world’s most popular crypto currency, and the price action, which has ranged from $1,200 USD to $700 during the past 72 hours, reflects just how volatile a freely traded, finite global currency can be.
Bitcoins are a rough equivalent to gold in the digital realm, and, as Lee notes, volatility is not going away any time soon. Yet if one can see past the price movements to understand the value in what is essentially the world’s largest collective math problem, one will see that Bitcoins at any price serve a very important purpose: They capture the monetary premium in action.
Stay tuned and Trust Jesus!
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Key Indicators for December 7, 2013
Copper Price per Lb: $3.21
Oil Price per Barrel: $97.65
Corn Price per Bushel: $4.24
10 Yr US Treasury Bond: 2.88%
Mt Gox Bitcoin price in US: $765.00
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,231
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.0%
Inflation Rate (CPI): -0.1%
Dow Jones Industrial Average: 16,020
M1 Monetary Base: $2,618,600,000,000
M2 Monetary Base: $10,934,500,000,000