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Yes, Smart People Still Believe Bitcoin Is Worthless

I know a lot of smart people that have invested in Bitcoin (CCC:BTC-USD).
Source: Vladimir Kazakov / Shutterstock.com
At this point, those smart people…

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This article was originally published by Investor Place

I know a lot of smart people that have invested in Bitcoin (CCC:BTC-USD).

Source: Vladimir Kazakov / Shutterstock.com

At this point, those smart people look like geniuses given Bitcoin is up 8,500% in the past five years.

However, I also know a lot of smart people who have not invested in Bitcoin. Bitcoin bulls might say those people have missed the boat, but some very smart people still don’t believe in Bitcoin.

That opinion has opened them up to public criticism and ridicule, but many of them are sticking to their guns.

Sure, the price of Bitcoin has skyrocketed. But nothing has changed about the Bitcoin bear thesis. Bitcoin is still an extremely risky investment with no inherent value.

Paulson’s Bitcoin Take

It takes a brave person to stand up and publicly criticize a popular investment that has skyrocketed in price. Yet billionaire hedge fund manager John Paulson recently did just that when he ripped Bitcoin and other cryptocurrencies.

Paulson is famous for spotting the bubble in the housing market back in 2007. Paulson shorted that bubble prior to the subprime mortgage crisis and made a killing when the bubble burst.

In a recent interview, Paulson didn’t mince words when explaining his position on Bitcoin.

“There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount,” Paulson said.

He said overenthusiastic investors are scrambling to buy up cryptocurrencies because they see that there is a limited supply. But Paulson said scarcity in itself does not create value.

“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero.”

Paulson Isn’t Alone

I’m sure the first instinct of any Bitcoin bull is to dismiss Paulson. “OK boomer,” is one response. But Paulson is just one person in a long list of decorated Wall Street experts that have serious doubts about cryptocurrency.

The “Oracle of Omaha” Warren Buffett has said Bitcoin is a “delusion” and “rat poison squared.”

JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon has called Bitcoin a “fraud.”  Nobel Prize-winning Yale economist Robert Shiller said Bitcoin’s value comes from “narratives rather than reality.”

Like Paulson, hedge fund manager Michael Burry (of The Big Short fame) took a lot of heat predicting the collapse of the mortgage market bubble.

Now he says Bitcoin is facing a “dramatic and painful” crash. Bill Harris, founding CEO of PayPal (NASDAQ:PYPL) has called Bitcoin a “scam” and a “colossal pump-and-dump scheme.”

One of the biggest criticisms I receive when I question Bitcoin is that I just don’t understand it. That critique has always been a pet peeve of mine because it’s the lowest-hanging fruit in any debate.

I believe I understand Bitcoin, but that’s exactly what someone who doesn’t understand would say.

Instead of defending my understanding, I bring up Buffett. Or Shiller. Or Harris. Maybe I actually don’t understand Bitcoin.

But if a Nobel Prize-winning economist, the founding CEO of the largest digital payments app and the CEO of the biggest U.S. bank don’t understand it, that’s a red flag in itself.

A Better Inflation Hedge

I get why people are concerned with the trillions of dollars in U.S. government stimulus since the beginning of the pandemic.

There has already been inflationary fallout from that spending, and the value of the U.S. dollar will almost certainly continue to trend lower indefinitely.

I understand that a piece of paper with George Washington’s photo on it has no more intrinsic utility than a square of toilet paper. But the U.S. dollar always has and always will be backed by the U.S. government.

I don’t trust the government for a second, with one exception. I trust politicians will always do what’s best for themselves.

The collapse of the U.S. dollar is bad news for the U.S. government, so I expect politicians will always do whatever they can to maintain U.S. dollar stability.

In the meantime, rather than speculate on a digital currency that generates no cash flow, has no intrinsic value and pays no interest, I’d recommend investors buy a low-cost S&P 500 index fund like the Vanguard 500 Index Fund ETF (NYSE:VOO) as an inflation hedge.

The Federal Reserve is projecting 3.4% inflation in 2021. The VOO fund’s total return in the past year is 34.3%, about 10 times that projected inflation rate.

On the date of publication, Wayne Duggan held a long position in VOO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.

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Economics

Where Do Monetarists Think the PCE Price Level Is Going To?

From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…

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From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):

I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)

The conclusion is based on the following reasoning:

In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,

• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.

Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)

What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.

Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.

The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.

Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.

Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.

In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).

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Economics

US stocks march on, lifted by business optimism

Benchmark US indices closed higher for the second consecutive day on Thursday September 23 lifted by positive sentiments from Fed s economic outlook…

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Benchmark US indices closed higher for the second consecutive day on Thursday, September 23, lifted by positive sentiments from Fed’s economic outlook.

The S&P 500 was up 1.21% to 4,448.98. The Dow Jones rose 1.48% to 34,764.82. The NASDAQ Composite rose 1.04% to 15,052.24, and the small-cap Russell 2000 was up 1.82% to 2,259.04.

Traders ignored the weak unemployment data released by the Labor Department on Thursday, which showed new jobless benefits claims rose by 16,000 to 351,000 in the week ended Sep 18.

Economists consider the rise in benefits claims to be because of Hurricane Ida and forest fires and not due to flawed policy action. On Wednesday, the Fed said that it might start withdrawing stimulus support from November. The statement raised confidence in the economic recovery.

Financial stocks were among the top movers on S&P 500 Thursday, while energy and real estate stocks declined. Stocks of BlackBerry Limited (BB) rose 12.08% a day after reporting quarterly results. Its revenue rose to US$175 million in Q2, FY21, from US$174 million in the year-ago quarter.

Accenture plc (ACN) stock jumped 2.63% after reporting its fourth-quarter results. Its net income was up US$1.43 billion from US$1.30 billion in the same quarter of the previous year.

Salesforce.com, Inc. (CRM) stock rallied 7.38% after it raised the full-year revenue guidance. It expects its FY 2022 revenue to be US$26.35 billion, up from its earlier forecast of US$26.3 billion.

In the energy sector, Exxon Mobil Corporation (XOM) rose 3.58%, Chevron Corporation (CVX) gained 2.51%, and ConocoPhillips (COP) gained 2.45%. Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) advanced 2.51% and 2.76%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) increased by 1.26%, Starbucks Corporation (SBUX) gained 1.25%, and General Motors Company (GM) rose 2.24%. Ross Stores, Inc. (ROST) and Hilton Worldwide Holdings Inc. (HLT) ticked up 1.62% and 4.30%, respectively.

In financial stocks, Berkshire Hathaway Inc. (BRK-B) rose 1.65%, JPMorgan Chase & Co. (JPM) jumped 3.35%, and Bank of America Corporation (BAC) rose 3.79%. Wells Fargo & Company (WFC) and Morgan Stanley (MS) jumped 1.58% and 2.86%, respectively.

Also Read: Top five communication stocks that rode the Q2 rebound

Also Read: ONTX stock dives 16%, DVAX stock in green after clinical data

US stock indices closed higher on Sep 23 on positive economic outlook.

Also Read: Crypto exchanges Binance vs Kraken: Where would you like to trade?

Futures & Commodities

Gold futures were down 2.05% to US$1,742.40 per ounce. Silver decreased by 1.71% to US$22.515 per ounce, while copper fell 0.48% to US$4.2317.

Brent oil futures increased by 1.38% to US$77.24 per barrel and WTI crude was up 1.37% to US$73.22.

Bond Market

The 30-year Treasury bond yields was up 5.04% to 1.941, while the 10-year bond yields rose 7.71% to 1.434.

US Dollar Futures Index decreased by 0.39% to US$93.100.

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Economics

Culture As An Asset

#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…

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#CKStrong

Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls?

This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.

In general, there are two types of assets,

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or Baseball cards or
  2. They can generate cash flows over time  – GaveKal

Creating An Illusion Of Scarcity

Scarcity relative to the money stock is what its all about now, folks. 

It probably won’t be long before the Fed has to bailout the baseball card market, no?

Full disclosure,  I do own a Mike Trout rookie card

Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to rationalize and drive speculation. 

Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain, and super charge the price ramp by snapping a pictures of each sample and converting them to NFTs?

Then again, maybe all this is signaling the start of a big, big inflation cycle?  

Can you believe it, folks? 

 

 

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